Mason County v. Department of Community Health

820 N.W.2d 192, 293 Mich. App. 462
CourtMichigan Court of Appeals
DecidedAugust 2, 2011
DocketDocket No. 295365
StatusPublished
Cited by16 cases

This text of 820 N.W.2d 192 (Mason County v. Department of Community Health) is published on Counsel Stack Legal Research, covering Michigan Court of Appeals primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Mason County v. Department of Community Health, 820 N.W.2d 192, 293 Mich. App. 462 (Mich. Ct. App. 2011).

Opinion

PER CURIAM.

The state defendants1 appeal as of right the trial court’s order granting summary disposition and declaratory relief to plaintiffs Mason County and Oceana County (hereinafter county plaintiffs). The appeal requires us to consider the statutory relationship between a community mental health (CMH) authority, a county, and the state Department of Community Health (DCH). The trial court concluded that defendant West Michigan Community Mental Health System (WMCMHS), a CMH authority, and county plaintiffs were engaged in an arms-length transaction because under statute county plaintiffs did not have the ability to control or significantly influence WMCMHS. As a [465]*465result, the trial court awarded county plaintiffs declaratory relief and concluded that they were owed rent under their contract with WMCMHS. We agree and affirm.

I. BASIC FACTS AND PROCEDURAL BACKGROUND

This case concerns whether WMCMHS can breach contracts to pay rent to plaintiffs as a result of its contract with defendant DCH. WMCMHS is a CMH authority created in 1997 by Mason, Oceana, and Lake Counties under the procedures outlined in the Mental Health Code, MCL 330.1001 et seq. Defendant DCH is the state agency that oversees and funds health-related services in the state of Michigan. In particular, it is the state agency that receives federal Medicaid money and disburses that money to healthcare providers throughout the state, including WMCMHS. WMCMHS and defendants are parties to a services contract that requires WMCMHS to “maintain all pertinent financial and accounting records,” using the Office of Management and Budget (OMB) Circular A-87 to determine all costs.

WMCMHS is housed in two buildings owned by county plaintiffs: Mason County’s Madden Building and Oceana County’s Lincoln Street Building. The Madden Building was built in 1987 and was paid for through bonds retired by using federal and state funds. The original rental contract was a sublease agreement between Mason County and its department of mental health board in effect from 1987 to 2003. Oceana County’s Lincoln Street Building was purchased in 1987 by Oceana County for mental health services at that time administered by its department of community mental health services. Oceana County and its department entered into a 10-year lease.

[466]*466When it was created in 1997, WMCMHS assumed the lease agreements with both Oceana and Mason counties for the Madden Building and the Lincoln Street Building. In 2003, WMCMHS and Mason County renegotiated the Madden Building lease for a 10-year period, requiring annual rent of $100,000, payable in semiannual installments. In 2005, Oceana County and WMCMHS agreed to a one-year extension of the Lincoln Street Building lease, which provided for monthly payments of $3,125.

In November 2006, defendant DCH issued guidelines in which it stated that mental health authorities’ expenditures must comply with the provisions in OMB Circular A-87 concerning less-than-arm’s-length transactions. OMB Circular A-87 states:

Rental costs under “less-than-arms-length” leases are allowable only up to the amount (as explained in Attachment B, section 37.b) that would be allowed had title to the property vested in the governmental unit. For this purpose, a less-than-arms-length lease is one under which one party to the lease agreement is able to control or substantially influence the actions of the other. Such leases include, but are not limited to those between (i) divisions of a governmental unit; (ii) governmental units under common control through common officers, directors, or members; and (iii) a governmental unit and a director, trustee, officer, or key employee of the governmental unit or his immediate family, either directly or through corporations, trusts, or similar arrangements in which they hold a controlling interest. For example, a governmental unit may establish a separate corporation for the sole purpose of owning property and leasing it back to the governmental unit. [OMB Circular A-87, Attachment B, § 37(c) (emphasis added).]

As a result, defendant DCH indicated that it would only use Medicaid monies to reimburse actual costs for health authorities engaged in less-than-arm’s-length transactions with local governments. In 2006, aware of [467]*467defendants’ position on the rental of county-owned buildings and believing that it had engaged in less-than-arm’s-length transactions with plaintiffs, WMCMHS decided to withhold rent payments from county plaintiffs.

Plaintiffs brought this declaratory action in the Mason Circuit Court in July 2008, seeking a judgment declaring that neither Mason County nor Oceana County was able to control or substantially influence WMCMHS and, therefore, the leases they held were arm’s-length transactions for which WMCMHS had a legal obligation to make rental payments. They further sought a declaration that WMCMHS had the legal right to use state funds and local matching funds for the leases.

Defendants moved for summary disposition, arguing that they had sovereign immunity, that plaintiffs had failed to state a cause of action against them and therefore the trial court lacked jurisdiction, and that plaintiffs lacked standing to challenge any contractual disputes arising between defendants and WMCMHS because they were not parties to the contract. WMCMHS responded in opposition, arguing that the true nature of the action was the interrelationship of its lease contracts with plaintiffs and its service contract with defendants. Plaintiffs concurred in these conclusions, asserting the lease amounts were not in dispute and were at or below fair market value. The real question concerned the legal relationship between plaintiffs, defendants, and WMCMHS.

The trial court denied defendants’ motion, finding it had jurisdiction because Lake and Mason Counties were within its geographical jurisdiction and the rights and responsibilities regarding buildings owned by plaintiffs were in dispute. Although most of the funding at issue [468]*468came from federal sources, the court concluded that that did not deprive the state court of jurisdiction. The trial court also found that plaintiffs had standing because they had an interest in the contract WMCMHS had with the state. Complying with defendants’ guidelines concerning OMB Circular A-87 made it impossible for WMCMHS to fulfill its contract with plaintiffs.

In August 2009, defendants filed a second motion for summary disposition and plaintiffs filed their own motion for summary disposition. Defendants argued for the first time that jurisdiction was only proper in the Court of Claims because plaintiffs sought an interpretation of a state contract and indirectly brought a claim for money damages against the state. Defendants also reargued that plaintiffs lacked standing; that plaintiffs illegally failed to transfer the county-owned buildings to WMCMHS upon its creation, as required by MCL 330.1205(3)(a); that the leases were not arm’s-length transactions; that Oceana County was estopped from receiving rent payments because of representations it made to the state in order to receive state financing for renovations of the Lincoln Building; and that Mason County should not receive rental income from WMCMHS because such income amounted to unjust enrichment given the state money used to finance the Madden Building.

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Cite This Page — Counsel Stack

Bluebook (online)
820 N.W.2d 192, 293 Mich. App. 462, Counsel Stack Legal Research, https://law.counselstack.com/opinion/mason-county-v-department-of-community-health-michctapp-2011.