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STATE OF MICHIGAN

IN THE COURT OF APPEALS

SAULT STE. MARIE TRIBE OF CHIPPEWA INDIANS,

Plaintiff-Appellant, v.

BLUE CROSS BLUE SHIELD OF MICHIGAN, a Michigan non-profit health care corporation,

Defendant-Appel lee.

WILLIAM H. HORTON (P31567) ELIZABETH A FAVARO (P69610) Attorneys for Plaintiff GIARMARCO, MULLINS & HORTON, P.C. Tenth Floor Columbia Center 101 West Big Beaver Road Troy, Michigan 48084-5280 (248) 457-7000

C.A. Case No. 323136 L. C. Case No. 12-016946-CB

J. ADAM BEHRENDT (P58607) MICHAEL R. COLASANTI (P7 6533) Attorneys for Defendant BODMAN PLC 201 West Big Beaver Road, Suite 500 Troy, Michigan 48084 (248) 7 43-6068

PLAINTIFF I APPELLANT'S BRIEF ON APPEAL

ORAL ARGUMENT REQUESTED

PROOF OF SERVICE

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TABLE OF CONTENTS

E 0 u i Index of Authorities ........................................................................................................ ii

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Index of Exhibits ............................................................................................................. iv

Statement of Questions Involved ..................................................................................... vi 0 0

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Statement of Jurisdiction and Standard of Review ............................................................. vii

Summary of the Case ................................................................................................... viii

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Did The Trial Court's Misunderstanding of the Undisputed Facts Cause Its Legal Error? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

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Did The Issues Raised By Defendant Warrant Summary Disposition?........ l 7

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Page No. u 3

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~ .. Ayar v Foodland Distributors

Michigan Court of Appeals Case No. 214293 (Nov. 21, 2000) ................................... 19 Beals v Walker -0

0 416 Mich 469, 481 (1982) ....................................................................................... 16 "-,...:._

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Bergen v Baker 264 Mich App 37 6 (2004) ........................................................................................ 19

Burke v Grand Mobile Homes Sales, Inc 6 Mich App 386, 392-393 (1967) ............................................................................. 25

Carolin Mfg Corp v George S May, Inc 312 Mich 487 (1945) ............................................................................................... 24

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Chimko v Shermeta Michigan Court of Appeals Case No. 264845 (July 25, 2006) ..................................... 14

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Custom Data Solution, Inc v Preferred Capital, Inc 274 Mich App 239, 244 (2006) ................................................................................ 17

De Blouw v Ramm & Co 284 Mich 589, 595-596 (1938) ................................................................................ 25

Dodge v Tullock 110 Mich 480 (1896) ............................................................................................... 24

Grabendike v Adix 335 Mich 128 (1952) ............................................................................................... 24

Hayes Construction Co v Silverthorn 343 Mich 421 (1955) ............................................................................................... 13

Maiden v Rozwood 461 Michl 09, 118 (1999) ............................................................................. vii 11, 17

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299 Mich 527, 534 (1941) ....................................................................................... 23 Novak v Nationwide Mut Ins Co

235 Mich App 675, 689-691 (1999) ......................................................................... 18 Payne v Farm Bureau Ins

263 Mich App 521 (2004) ........................................................................................ 16 2 c Plate v Detroit Fidelity & Surety Co <I>

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State Bank of Standish v Curry 442 Mich 76, 85 (1993) ........................................................................................... 16

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Van Tassel v McDonald Corp 159 Mich App 745 (1987) ........................................................................................ 13

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c Waun v Universal Coin Laundry ~ Michigan Court of Appeals Case No. 267954 (Sept. 26, 2006) ................................... 24

II

GM GIARMARCO, MULLINS & HORTON, P.C. ATTORNEYS AND COUNSELORS AT LAW

Tenth Floor Columbia Center' 101 West Big Beaver Road' Troy, Michigan 48084-5280' P: (248) 457-7000 ' F: (248) 457-7001 ' www.gmhlaw.com

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E A Deposition Transcript- Holly Hoopla 0 u 3

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to Plaintiff iii -:;:;

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u 0 R Transcript of Defendant's Motion for Summary Disposition Hearing April 12, 2013 .:.0 E ::>

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u Ayar v Foodland, Michigan Court of Appeals Case No. 214293 (Nov. 21, 2000)

iv

{ -,MllGIARMARCO, MULLINS & HORTON, P.C. u ATTORNEYS AND COUNSELORS AT LAW

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STATEMENT OF QUESTION INVOLVED

I.

DID THE TRIAL COURT'S MISUNDERSTANDING OF THE UNDISPUTED FACTS CAUSE ITS LEGAL ERROR?

Plaintiff/ Appellant says: "Yes."

Defendant/Appellee says "No."

The Trial Court states "No."

11.

DID THE ISSUES RAISED BY DEFENDANT WARRANT SUMMARY DISPOSITION?

Plaintiff/Appellant says: "No."

Defendant/Appellee says "Yes."

The Trial Court states "Yes."

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STATEMENT OF JURISDICTION AND STANDARD OF REVIEW

This Court has jurisdiction because Appellant filed a timely claim of appeal from the

final order of the trial court. MCR 7 .203(A)(l ).

The standard of review from an order of summary disposition is de novo. Maiden v

Rozwood, 461 Mich l 09, 118 (1999).

VII

SUMMARY OF THE CASE

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$1,981,400 the following year and $12,27 4,300 over the next five years.

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In reliance on these representations, Plaintiff terminated the contract with its current

administrator and entered into a contract with Defendant. In the next two years, Defendant

missed its representations by more than $2.5 million each year. Plaintiff terminated the

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contract with Defendant and filed this lawsuit. It is now undisputed Defendant's

representations were false.

In a brief oral opinion, the trial court granted Defendant's motion for summary

disposition after the close of discovery. The court stated it was granting the motion because

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due diligence." It stated that the "savings involved here were projected estimates based on

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what [information] plaintiff provided to the defendant ... " and Plaintiff "intentionally withheld

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cost information from Defendant. It is likely the trial court misunderstood the facts because ....<:: c ~ Plaintiff had pointed out that Defendant withheld its cost information from Plaintiff.

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representations. Whether that reliance was reasonable is a question of fact for the jury.

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FACTS

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This dispute involves the administration of Plaintiff's self-insured employee health care u ~

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employees. Plaintiff provides health care benefits for about 1,000 employees and their

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families at a cost of about $1 0 million per year.

Plaintiff had been a customer of Defendant until 1999, then Plaintiff switched to a

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company called NGS. Defendant attempted to win back Plaintiff's business in 2006, but was

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unsuccessful because Defendant could not show any savings to Plaintiff would be large

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enough to justify a change. As Plaintiff's insurance manager, Holly Haapala, stated: "[T]here

just wasn't enough of a savings or a favorable result there to make that change in 2006."

Exhibit A, Deposition of Holly Haapala at 36 .

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In mid-2008, Defendant approached Plaintiff again. Although Plaintiff was satisfied

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costs. Plaintiff's primary source of income is its five Kewadin Casinos and the economic

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A. To save money.

Q. While we all like to save money was there a reason why August 2008 was the idea of saving money as opposed to another time frame?

A. We were in financial -- bad financial times at that point . We were laying off staff.

Exhibit B, Deposition of Kristin Green at 22-23 (emphasis added). Plaintiff's former Executive

Director stated:

We needed money. The year before we had to lay off over l 00 people so we were looking for savings. We did not want to lay off people or cut services or programs.

Exhibit C, Deposition of Kristi Harwood-Causley at 34 (emphasis added).

l. The Repricing.

Defendant proposed that it would perform a "repricing" of Plaintiff's claims. A

repricing is a common sales technique among competitors in the health claims industry. It

involves taking historical claims data from the current administrator and running it through

the new company's claims system to determine the price it would have provided for the same

services. Exhibit A, Haapala Deposition at 46; Exhibit B, Green Deposition at 28. If the

repricing shows the new company would be much cheaper, it becomes a powerful sales tool

- after all, it's ostensibly based on data and not a sales pitch!

Defendant further capitalized on this sales tool by utilizing a third-party, Milliman, Inc.,

an actuarial company in Atlanta, to perform the repricing. Defendant's sales team touted

Milliman as an "independent" organization, which BCBSM Sales Manager Lori Shannon

testified bolsters the credibility of the repricing:

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A It provides the client with an independent evaluation of the discounts that are available to them.

Q. When you say "independent", what do you mean by that?

A Milliman is not affiliated with the existing carrier or Blue Cross Blue Shield .

Q. Do you find that the fact that Milliman is independent sort of enables business prospects to trust what the report says?

A Yes.

Q. Okay. Is there value to Blue Cross Blue Shield to have a claims repricing performed by Milliman when you're trying to obtain new business?

A Yes .

Q. Why do you say that; what's the value to Blue Cross?

A Again, it's just a -- it's another source to validate what the discounts would have been had our networks been in place at the time of service, and so it typically accompanies our funding proposal .

Exhibit D, Deposition of Lori Shannon at 24 (emphasis added). 1

In order to perform the repricing, Defendant requested Plaintiff's claims data for

December 2007 to November 2008. Among other things, it requested the amount Plaintiff

was charged by the doctor or hospital (the "Charge"), as well as what it actually paid on each

claim. The amount actually paid on each claim is referred to as the "Allowed Amount."

Plaintiff was willing to provide the Charge but was initially unwilling to provide the Allowed

Amount to Defendant because Defendant might use it to manipulate the results.

1But Milliman is not independent. It is essentially a division of the Blues. 75% of its work involves Blues plans around the country. Exhibit E, Deposition of Liz Meyers at 70-71.

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Defendant insisted it needed the Allowed Amount from NGS and proposed a solution:

Plaintiff could provide its claims data - including the Allowed Amounts - directly to Milliman

and Milliman would compare the NGS Allowed Amounts with Defendant's Allowed Amounts.

On October 16, 2008, Defendant wrote to Plaintiff:

We understand your desire to keep your existing carrier information "confidential," with Millman performing the analysis; it is truly a "third" party who are bound to a confidentiality agreement both on BCBSM's information along with the presenting carrier. If you would like to work directly with Milliman we are more than welcome to put you in contact with the appropriate people. In fact, you can send the data directly to them at the below address ....

Exhibit F (emphasis added) .

Plaintiff agreed and provided its claims data - including the Allowed Amounts - to

Milliman. Milliman testified it received the allowed amounts:

Q Was there anything unusual about the data that was received by Milliman?

A We received three data sets. So the first two were lacking information. But the third one was a good data set for use .

Q What kind of information was lacking from the first two data sets?

A The necessary dollar fields.

Q What do you mean by that? What necessary dollar fields were missing?

A The billed and allowed that you see in the report were missing on the first set of data. And the allowed was missing on the second set of data.

Q And then in the third set you got both, it sounds like?

A Correct.

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Exhibit E, Deposition of Liz Meyers (of Milliman) at 14-15 (emphasis added).

The results of the repricing were reported on January 16, 2009, when Defendant's

lead salesperson, Loren Summers, announced to Plaintiff she had "great" news that

Defendant could beat NGS by more than $2.3 million:

Happy New Year! I just received the results back from the repricing report and wanted to share with you immediately. As suspected, the results are great! ....

Had the BCBS network been in place, Sault Ste. Marie Tribe of Chippewa Indians would have achieved a 45.2% combined discount for both in and out-of-network. This represents $2,353,375 in savings over the current carrier.

Exhibit G, Email dated January 16, 2009 (emphasis added) .

About two weeks later, on January 29, 2009, Defendant met with Plaintiff to present

the repricing information in a formal report - it stated that Defendant would have saved

Plaintiff $2,353,375 if it had administered Plaintiff's program. Exhibit H (the presentation

focused on Exhibit l A to that report, a copy of which is placed as the first page of Exhibit H

for the Court's convenience) .

Even though Plaintiff provided the NGS Allowed Amounts, Defendant refused to

provide Plaintiff with Defendant's Allowed Amounts so Plaintiff could determine whether the

results of the repricing were accurate. Defendant agrees that it would not and did not

provide to Plaintiff its (Defendant's) Allowed Amounts. As Lori Shannon, Defendant's sales

representative, testified:

[Ms. Haapala] testified that one of her biggest issues with switching to Blue Cross Blue Shield is that she never could get to the bottom of how the numbers were being derived; do you remember that?

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Let me give you an example. This might help. She wanted to see specific reimbursement rates per CPT code; do you remember that?

A Yes.

Q. And Blue Cross doesn't give out that kind of information to clients, right?

A That's correct.

Exhibit D, Shannon Deposition at 119 (emphasis added). See also Defendant's Reply Brief at

7 (Defendant refused "to provide this information during contract negotiation .... ").

2. Defendant's Representations of Future Savings.

After obtaining more data from Plaintiff, on April 30, 2009, Defendant presented its

financial proposal which provides an analysis of what it cost Plaintiff under NGS and what it

would cost Plaintiff under Defendant. This financial proposal was derived from the data

provided in the repricing and data subsequently provided. It called this presentation its "Total

Value Proposition." Exhibit I. Defendant stated it would save Plaintiff "$ l, 981,400 in claims

dollars over your current carrier [NGS] and project a $12,271,300 savings over a 5-year

forecast." 19. at 3. Defendant stated that the "current carrier" (NGS) was charging

$9,956,600, but Defendant would only charge $7,975,200, "a claims dollar savings" of

$1,981,400. 19. at 7. Page 8 lays out the details - the "BCBSM Advantage" is $1,981,400.

On page 9, the current savings are $1,981,400, but the 5-year savings are $12,274,300.

Page 15 shows that when other items are included, the BCBSM savings is $2,477,000.

On May 19, 2009, Defendant presented a detailed "Financial Review" of Plaintiff's

existing program with NGS and how its costs would be lower. Exhibit J. Defendant again

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represented that Defendant would save Plaintiff $1, 981,400 a year. Over five years, it would

save Plaintiff $12,271,300. lQ at pages 7 and 15.

These alleged cost savings of about $2 million per year were very attractive to Plaintiff,

given the tough economic situation it faced. But Plaintiff had to accept Defendant's

representations as true because Defendant would not provide its Allowed Amounts. As

Plaintiff's Ms. Haapala testified:

The information that they presented was enticing, the savings absolutely enticing. However, I had asked for some information that wasn't provided and nor were they ever going to provide, which was their reimbursements to providers. Withstanding that and not knowing what those were I had to take what they were telling me at face value .

Exhibit A, Haapala Deposition at 119 (emphasis added).

Defendant made its "Finalist Presentation" to the Tribal Board of Directors - Plaintiff's

governing body - on June 30, 2009. Exhibit K. Defendant again represented that the

"BCBSM Advantage" over the "Current Competition" was $1,981,400 a year. lQ at 14. The

minutes of that meeting show that Ms. Summers told the Board that the savings of

$1, 981,400 a year on "Page 11 ... is a real number." Exhibit Lat 7.

Board Chairman Joe McCoy testified that the Board voted to switch to Defendant

because of the specific numbers presented by Defendant, the large dollar savings and

Defendant's confidence in those numbers:

[D]o you recall discussions that Blue Cross Blue Shield of Michigan thinks that we could save money with it if we switched over?

A. No, they told us we would save money. They didn't think, they told us we would.

* * *

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Do you remember what specifically it was that ultimately convinced the board to make the switch?

A The savings.

Exhibit M, Deposition of Darwin McCoy at 15-16, 30 (emphasis added).

Defendant boasted about these savings again in July 2009, Exhibit N, E-mail dated

July 31, 2009 ("In this area, BCBSM is bringing an overall discount savings of $1. 9 million in

cost over NGS/Cofinity."). The discussions continued until August 25, 2009, when the

Plaintiff's Board of Directors voted to switch from NGS to Defendant.

3. Plaintiff's Claims Costs Soar .

After the switch from NGS to Defendant, Plaintiff's claims cost did not decrease, but

instead increased. The first year, 2010, Plaintiff's costs did not go down $2 million as

Defendant said they would, but instead went up - even though Plaintiff had l 00 fewer

participants. By 2011, Plaintiff's costs had gone up by more than $3 million .

Plaintiff could no longer continue to pay the huge increases and was not getting

believable answers from Defendant as to why it was occurring. It terminated the contract with

Defendant and went back to NGS. Its claims costs immediately went down. This lawsuit

followed.

4. Discovery.

During discovery, Plaintiff obtained Defendant's charges and the "allowed amounts"

and tested it against the repricing. This analysis showed that the repricing was false. Instead

of saving Plaintiff more than $2.3 million, it showed Defendant was about $167,000 more

expensive. Exhibit 0 at 5. Defendant does not dispute this analysis.

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5. The Trial Court's Ruling.

Defendant filed a motion for summary disposition after the close of discovery.

Defendant never stated in any paper or at the hearing that Plaintiff withheld the NGS allowed

amount from it. In addition, Plaintiff presented undisputed evidence that Defendant withheld

its allowed amounts from Plaintiff. See pages 13-15 of Plaintiff's Brief in Opposition to

Defendant's Motion for Summary Disposition.

The trial court's entire opinion was as follows:

THE COURT: Since the last ruling of the court, considerable discovery has taken place and what jumps out at the court and it can't be overstated is that the parties are sophisticated corporate entities .

The contract was the result of months of due diligence by both parties. The savings involved here were projected estimates based on what plaintiff provided to the defendant in this negotiation; due diligence phase.

Further, plaintiff according to Ms. Hapala, if I am pronouncing it correctly, intentionally withheld cost information [the Allowed Amounts] from the third-party Milliman and the defendant.

This affected the estimates and projections of savings. She said as much in her deposition testimony.

We are granting the motion and we will adopt the defendant's arguments and law in support of the motion. It was very aptly prepared and I can't add anything to it.

Motion granted.

Exhibit P, Transcript of July 18, 2014-Motion for Summary Disposition at 22 (emphasis

added).

Since the trial court indicated it was basing its decision on the fact that "the parties are

sophisticated corporate entities" and on the mistaken assumption that Plaintiff had

9

"intentionally withheld cost information" which "affected the estimates and projections,"

E Plaintiff filed a motion for reconsideration. Plaintiff pointed out that the court made a 0 u

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misrepresentations was reasonable. The Court denied the motion and this appeal followed.

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ARGUMENT

I.

THE TRIAL COURT'S MISUNDERSTANDING OF THE FACTS CAUSED ITS LEGAL ERROR.

A. STANDARD OF REVIEW

The standard of review is de novo. Maiden v Rozwood, 461 Mich l 09, 118 (1999).

B. ARGUMENT

The trial court was incorrect in its belief that Plaintiff withheld its Allowed Amounts

(which it referred to as "cost information") from Defendant. This misunderstanding caused

the trial court's error. The trial court's logic was clear: if Plaintiff withheld its Allowed

Amounts from Defendant, then Defendant's representations were just estimates and estimates

cannot form the basis of a fraud claim .

Correction of the factual error illustrates why reversal is required: if Plaintiff did not

withhold its Allowed Amounts but instead provided them, then Defendant's specific, data-

based statement was not an unenforceable estimate. Rather, it was a material representation.

In addition, because it was Defendant that withheld its Allowed Amounts from Plaintiff and

knowledge of Defendant's Allowed Amounts was necessary for Plaintiff to test Defendant's

representations, no amount of due diligence would uncover the fraud.

Application of the true facts to the definition of a "material representation" shows

Defendant's representations were material and proven. The Michigan Civil Jury Instructions

on fraud define a material representation as follows:

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A material fact cannot be an opinion, belief, speculation or prediction. It must relate to something past or present that can be proved or disproved. A material fact must be of enough importance in the matter that a reasonable person would be likely to rely on it .

M Civ JI 128. l 0.

The trial court's misunderstanding of the facts led it to erroneously conclude that

Defendant's representations were estimates and, therefore, not material. Correction of that

factual error shows Defendant's representations were material .

First, it is undisputed Defendant had all the data it requested, including the NGS

Allowed Amounts. Defendant never argued that Plaintiff withheld any data. The testimony of

Milliman confirms it received the NGS claims data from Plaintiff which included the Allowed

Amounts. Exhibit E at 14- 15.

Second, it is undisputed Defendant's representation in the repricing was about a past

or historical event - Plaintiff's claims from December 2007 to November 2008. The

repricing was performed in January, 2009. See Exhibit G.

Third, the representation is something that can be proved and was proved. Plaintiff

obtained Defendant's Allowed Amounts during discovery and tested them against the NGS

Allowed Amounts. It is undisputed that Defendant represented it would have charged

$2,353,375 less than NGS for the same services. Plaintiff's analysis - undisputed by

Defendant - was that Defendant was $167,000 more expensive, Exhibit 0, a $2.5 million

difference.

Fourth, this savings was not simply one of a number of reasons to do business with

Defendant - it was THE reason. All of Plaintiff's executives testified that Plaintiff was in

financial distress and switched to save money. See Exhibit M, Deposition of Darwin McCoy at

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30 ("Do you remember what specifically it was that ultimately convinced the board to make

the switch? A The savings.").

Fifth, Plaintiff's reliance on the representations was reasonable. This was not a

salesperson's puffing of generalities, as in Van Tassel v McDonald Corp, 159 Mich App 7 45

(1987) ("[y]ou won't regret becoming a Baskin-Robbins owner," if you work hard, "there was

a lot of money to be made," "[i]t won't be long before you'll be driving a big car and living in

a big house") or in Hayes Construction Co v Silverthorn, 343 Mich 421 (1955) (the furnace

would "do the job" and its "maintenance was nil.").

Instead, Defendant's representation was specific and based on actual NGS Allowed

Amounts. It knew exactly what Plaintiff had paid through NGS for each service rendered by

each doctor and hospital for each one of Plaintiff's employees and family

members. Defendant refused to provide Plaintiff with the data that would allow Plaintiff to test

Defendant's representation.

This case is more like the seminal case of Hayes Construction, supra. In Hayes, the

defendant made multiple representations regarding the furnaces it was selling to the plaintiff.

Its salesman stated the "furnace would do the job for him" and its "maintenance was nil." He

also represented the defendant would provide the Model 90 furnace. Id at 424-25. The

plaintiff actually received the Model 90-A furnace and it did not function properly.

The Supreme Court held the statements that the furnaces would do the job and were

low maintenance were puffing and not actionable:

[W]e are here in the realm of what the common law has for years termed "puffing," a salesman's praise of his own property, involving matters of estimate or judgment upon which reasonable men may differ. Ordinarily these are not regarded as actionable, even though the vendee's joys of realization fall

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short of those of his anticipation.

Id at 426.

On the other hand, statements of fact are different and are actionable:

lQ at 428.

The matter of the allegedly misrepresented model number stands on a different footing, assuming ... that engineering and design differences in the 2 models would account for a satisfactory performance by the one and no performance by the other. Here is a statement of positive fact, not opinion. We are out of the realm of the trader's talk.

In addition, where one party has special knowledge, the other party is entitled to rely

on the representations:

The relationship of the parties may, however, impose more stringent requirements. One party may have special knowledge and the other none and without the means of getting it. In this case the latter cannot fairly and reasonably exercise his own judgment. The parties, therefore, do not stand on equal terms and the buyer has a right to rely upon the representations of excellence made by the seller.

lQ at 426-27. Accord: Chimko v Shermeta, Michigan Court of Appeals Case No .

264845 at 4 (July 25, 2006) (Exhibit Q) (In reversing the trial court, this Court stated:

"Plaintiffs claim that Shermeta, as part of his scheme to defraud Chimko, withheld

information regarding the firm's finances and instructed others to do the same.").

Application of the Model Civil Jury Instruction and Hayes to this case shows the trial

court's misunderstanding of the facts caused its error. If Plaintiff withheld the NGS Allowed

Amounts from Defendant and Milliman, Defendant's repricing would necessarily be a rough

estimate of how Defendant compared with NGS. Perhaps Defendant's representations could

be excused. But that is not what happened. Defendant obtained the actual NGS Allowed

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Amounts. It knew exactly what Plaintiff had paid through NGS for each service rendered by

each doctor and hospital for each one of Plaintiff's employees and family members. The

repricing was not a projection or estimate of the future. It was a review and comparison of

the past. Defendant had accurate, historical information and represented in writing on a

number of occasions that it would have charged Plaintiff $2,353,375 less for the same

services. This is what induced Plaintiff to switch .

Plaintiff did not have the "special knowledge" or "the means of getting it" to determine

if Defendant's representations were true. As Plaintiff's Holly Haapala testified:

The information that they presented was enticing, the savings absolutely enticing. However, I had asked for some information that wasn't provided and nor were they ever going to provide, which was their reimbursements to providers. Withstanding that and not knowing what those were I had to take what they were telling me at face value.

Exhibit A, Haapala Deposition at 119 (emphasis added).

Defendant exploited its "special knowledge." Plaintiff's Ms. Haapala testified that

neither she nor any members of her department had been involved in a repricing before.

Exhibit A, Haapala Deposition at 46-4 7. Plaintiff's in-house lawyer explained that Defendant

took advantage of that fact:

They pointed out that Holly's idea of taking exact claims and saying exactly what Blue Cross would have paid for the exact same service was an inaccurate method of determining what our costs would be. That the actuaries were more accurate than repricing and that their system was more accurate and more exact than any of our ideas and at one point one of them insulted Holly's education because she wasn't an actuary.

* * *

With her [Ms. Haapala] in the room they said -- it has been said that there's more accurate methods and this is the most

15

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accurate. Our actuaries are more accurate and you've got to believe because they are well educated and well paid.

Exhibit V, Kachur Deposition at 70-71 (emphasis added).

The trial court based its ruling on Plaintiff's "sophistication" and "months of due

diligence." But without Defendant's Allowed Amounts, Plaintiff's level of sophistication and

the period of due diligence were irrelevant because it was impossible for Plaintiff to compare

NGS with Defendant. Plaintiff had "a right to rely upon the representations" because

Defendant made the choice to withhold its Allowed Amounts and cannot now be heard to

complain that Plaintiff did so. 2

2 The reasonableness of Plaintiff's reliance is a question of fact. .l.fh, State Bank of Standish v Curry, 442 Mich 7 6, 85 n6 (1993); Payne v Farm Bureau Ins, 263 Mich App 521 (2004) ("Reasonableness is generally a question of fact to be determined by the trier of fact."); Beals v Walker, 416 Mich 469, 481 (1982) (reasonableness "is a matter for the jury, not the Court of Appeals").

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ARGUMENT

11.

THE ISSUES RAISED BY DEFENDANT DID NOT WARRANT SUMMARY DISPOSITION.

A. STANDARD OF REVIEW

The standard of review is de novo. Maiden v Rozwood, 461Mich109, 118 (1999).

B. ARGUMENT

While the trial court focused on Plaintiff's sophistication and the mistaken belief that

Plaintiff withheld information, it also said it would "adopt the defendant's arguments and law

in support of the motion." In an abundance of caution, Plaintiff will also address the other

issues raised in Defendant's motion in the trial court.

l. The Complaint Was Properly Pleaded.

Defendant argued, in part, that Plaintiff failed to state a claim. In essence, Defendant

argued that the integration clause in its contract prevented Plaintiff's fraud claim. The trial

court had earlier denied such a motion at the beginning of the case. Exhibit R, Transcript at

12- 15; Exhibit S, Order.

The reason that the integration clause does not prevent Plaintiff's claim is because

fraud invalidates the entire contract. Plate v Detroit Fidelity & Surety Co, 229 Mich 482,

486-87 (1924) ("It is elementary that fraudulent representations inducing a contract will void

it."); Custom Data Solution, Inc v Preferred Capital, Inc, 27 4 Mich App 239, 244 (2006)

("fraus omnia corrumpit: fraud vitiates everything its touches.").

17

In addition, the Complaint properly pleaded all of the elements of its claims.

E Compare the Complaint with Model Civil Jury Instructions 128.01, 128.03 and 128.04.

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therefore, Novak is readily distinguishable .

In Novak, the plaintiff alleged he was told the at-will provision in his employment

contract did not apply to him. When he was terminated without cause, he sued for fraud.

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This Court affirmed summary disposition for the defendant and held the plaintiff's reliance on

the oral representation was unreasonable because it was "expressly contradicted" by the

written contract. 19. at 689. ... <( c

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contradicted by the contact. First, Defendant represented multiple times that, based on the

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co December 2007 through November 2008, it would have saved $2,353,375. There is

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u compared to NGS and that, over five years, it would save Plaintiff $12,27 4 ,300. This 0

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14, 18. But the contract addresses the percentage amount of discounts from the Charges of

18

hospitals and doctors. In contrast, the representation by Defendant was a comparison with

E the Allowed Amounts of NGS, not the retail Charges by doctors or hospitals. Neither 0 u ~

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Defendant nor NGS pay Charges. Instead, they negotiate volume discounts. The E CJ)

r representations in Defendant's presentations used to induce Plaintiff to switch to Defendant

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compared Defendant's Allowed Amounts to the Charge. See Exhibit T, Schedule B to

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contract ("Discounts from Hospital and Physician Charges"). The contract simply does not

address the same thing as Defendant's misrepresentations.

This is a distinction with a real difference, similar to the distinction made by this Court

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in Bergen v Baker, 264 Mich App 37 6 (2004). In that case, a home buyer received a

disclosure statement from the seller and an inspection report, both of which stated that the

roof had leaked previously, but that those leaks had been repaired. When the roof leaked

after the sale, the buyer sued the seller for fraud. The trial court granted summary disposition

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in favor of the defendants, holding that plaintiffs' reliance on the defendants' representations

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was not reasonable in light of the disclosure.

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21, 2000) (holding that oral representations regarding the nature of a default under a

19

sublease did not directly contradict writings that did not specify whether the default was

E incurable: "Like the narrative, [the sublease] does not reveal the nature of the default under 0 u ?i

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the prime lease or whether the default could be cured.") (Exhibit U at 17). E 0)

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Defendant misrepresented that it would save money compared to NGS' Allowed Amounts.

3. Plaintiff's Employees' Skepticism Is Irrelevant.

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manager, Holly Haapala, doubted Defendant's representations is one for the jury. First, Ms.

Haapala was not against switching to Defendant. She simply wanted more and better

information. 1-g,_, Exhibit A, Haapala Deposition at 139 ("I was cautioning the board that

while they are clear that they'll save you l. 9 million they haven't provided us the backup to

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prove that, i.e., the provider reimbursements."); Exhibit M, McCoy Deposition at 19 {"I don't

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know if [Ms. Haapala] was totally against it. I just -- I think she was going to want to see

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This is confirmed in Defendant's internal e-mail: "Holly [Haapala] is not the decision

maker and the Counsel [Council, i.e., the Board of Directors] will make the final decision."

Exhibit X (emphasis added).

In that regard, Defendant would discredit Ms. Haapala in front of the Board:

They pointed out that Holly's idea of taking exact claims and saying exactly what Blue Cross would have paid for the exact same service was an inaccurate method of determining what our costs would be. That the actuaries were more accurate than repricing and that their system was more accurate and more exact than any of our ideas and at one point one of them insulted Holly's education because she wasn't an actuary.

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With her in the room they said -- it has been said that there's more accurate methods and this is the most accurate. Our actuaries are more accurate and you've got to believe because they are well educated and well paid.

Exhibit V, Kachur Deposition at 70-71 (emphasis added). Whether Plaintiff reasonably relied

on Defendant's representations in the face of one of its employee's skepticism was not a

question for the trial court to decide .

4. The Use of the Words "Estimate" and "Projections" are Unavailing.

Defendant argued that its use of the words "estimate" and "projections" provides it

with a get-out-of-jail-free card. But this is not so under the circumstances of this case. This

case involves a self-insured health care program for about 1,000 employees and their

families - about 4,000 people. This means that Plaintiff pays its own claims. As a result, the

amount of money Plaintiff spends on health care each year varies - no one knows exactly

who will need health care and how much will be needed. Because of the nature of the

21

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program, any discussion regarding the cost of the program necessarily is an estimate or

projection:

Projected can't be an absolute because you have no way of knowing. However, you base that on -- my understanding was it was based upon the fact that you ran -- they did the repricing and that they ran the data for the past two years and that's where they came up with we would have saved $2 million.

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When the Blue Cross reps made their presentations estimate was

not a word that was emphasized. What was emphasized is that we would have saved you this amount.

Exhibit C, Harwood-Causley Deposition at 48, 43 (emphasis added).

Plaintiff was spending about $10 million a year on its health care claims. If Defendant

had missed its representations by a few hundred thousand dollars, Plaintiff would not be

complaining. It is the magnitude of the miss that is categorically different. Defendant

represented it would have saved Plaintiff $2,353,375 compared to NGS. The truth is that

Defendant would have been $167,000 more expensive - a difference of $2,520,375. (See

Exhibit 0 at 5). It represented it would save Plaintiff $1,981,400 the following year. But

instead, Defendant was approximately $1 .2 million more expensive - a difference of about

$3.2 million. Id. The second year, the difference between what Defendant promised and

what Plaintiff actually paid was $2.7 million. kl at 6.

These amounts were huge and beyond any common sense understanding of the terms

"estimate" and "projection" in the context of this case. As one of Plaintiff's in-house attorneys

stated:

That was always an issue of, you know, there's going to be utilization changes. That's why the contract says, you know -­that no guarantees clause we had talked about. That's the idea

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of it. You know, we can't predict the future, no one can. We're going to miss this by $500,000 here or $1,000,000 there and that's not a reason to terminate the contract. That wasn't the case. They blew it by four million.

Exhibit V, Kachur Deposition at 120 (emphasis added).

Nor would Plaintiff be complaining if the representations were not based on claims

data. But Defendant used Plaintiff's actual claims experience to generate the numbers not

only for the Milliman report, but also for the projected savings. Under such circumstances,

where representations regarding projections are predicated on past or existing facts, such

representations are actionable and for the jury to resolve. Mesh v Citrin, 299 Mich 527, 534

(1941 ). Mesh involved the purchase of a gas station, in which the defendant told the plaintiff

he would make $50 a week operating it. This representation was based on calculations

performed by the defendant based on the number of gallons of fuel the station had previously

sold on a monthly basis. The case was tried to a jury, which found in the plaintiff's favor.

The Supreme Court affirmed, rejecting the defendant's argument that his representations were

prospective in nature. The court reasoned that while the defendant's statement, standing

alone, would constitute an opinion, the defendant's representation was based on an analysis

of existing facts:

Plaintiff also testified that in his presence Biber figured out on paper how much profit would be made on sales of 29,000 gallons a month. Plaintiff's mother-in-law testified that Biber told her the station "sold 29,000 gallons a month and that Mr. Mesh [plaintiff] would make $50 or $60 a week.

* * *

From the record it appears that such statement formed a part of, and was connected with, the alleged representation as to the volume of gasoline sales.

23

1Q at 533, 534. Accord: Waun v Universal Coin Laundry, Michigan Court of Appeals Case

E No. 267954 (Sept. 26, 2006) ("[l]f there were misrepresentations and deceit relative to past 0 u ~

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and existing financial income information regarding the coin-operated laundry industry, in the E 0)

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income would be actionable and recovery allowed."). (Exhibit Wat 7).

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Whether Plaintiff's reliance on Defendant's specific, data-based, numerical

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5. Damages Is An Appropriate Remedy.

It is not true that a fraud damages cannot be obtained on a terminated contract.

None of the cases cited by Defendant stand for this proposition. In Grabendike v Adix, 335

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rescission because the plaintiff waited too long: "one who desires to rescind a contract must

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act within a reasonable time .... " 1Q at 140. Carolin Mfg Corp v George S May, Inc, 312

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co Mich 487 (1945) involved a fully performed contract where the sole consideration was

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~ personal services which could not be returned. The court said nothing about the inability to

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In this case, the contract was performed and Plaintiff received the benefit of the ....c c ~ $57,000 payment under the discount guarantee. If the jury agrees that Plaintiff has been

defrauded, the trial court simply sets off that amount from the verdict. This is exactly what this

24

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Court approved in Burke v Grand Mobile Homes Sales, Inc, 6 Mich App 386, 392-393

(1967). The court held that the plaintiff, a victim of the defendant's fraud, did not have to

return her house trailer to defendant to pursue rescission, since the court may take other steps

to restore the nonrescinding party. lQ at 393. In such circumstances, "equity can rescind a

contract" and "tender of restitution is not a condition precedent to a suit for rescission in

equity, since the decree can be conditioned on the making of restitution." De Blouw v Ramm

& Co, 284 Mich 589, 595-596 (1938) .

In this case, Defendant processed health care claims for Plaintiff. Plaintiff paid

Defendant for that service, not the other way around. Plaintiff does not seek to recover the

amount of the fees it paid Defendant for that service, but rather the damage caused by the

fraud.

RELIEF REQUESTED

Plaintiff requests the Court to reverse the trial court and remand this case for trial.

Date: December 30, 2014

GIARMARCO, MULLINS & HORTON, P.C.

By~/J.~ WILLIAM H. HORTON (P3 l 56 7) Attorney for Plaintiff/Appellant l 0 l West Big Beaver Road, Tenth Floor Troy, Michigan 48084-5280 (248) 457-7000

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