Sunday, February 25, 2007

Bid Protests: Federal Court Dismisses Protest by "Disappointed Bidder"

The U.S. District Court for the Eastern District of Michigan recently dismissed a challenge by the low bidder on a Detroit Water and Sewerage Department (DWSD) contract and affirmed long- standing Michigan law concerning "disappointed bidders."

The Court dismissed a challenge by the low bidder for a contract that was awarded to the third bidder finding that the disappointed (low) bidder lacked the necessary legal standing. EBI-Detroit, Inc v City of Detroit, 476 F. Supp. 2d 651; 2007 U.S. Dist. LEXIS 12102 (E.D. Mich 2007).

In granting summary disposition for the City of Detroit, Judge John Feikens noted:
"The Michigan Supreme Court has long found a lack of standing to bring claims by disappointed bidders. In 1896, that court took up the question of "whether the lowest bidder, under a contract proposed to be let by a municipal corporation, whose bid has been rejected, has a right of action at law to recover profits which he might have made had his bid been accepted," and said bidders generally did not have such a right under law. Talbot Pav. Co. v. Detroit, 109 Mich. 657, 660, 67 N.W. 979 (Mich. 1896), cited for this proposition by Detroit v. Wayne Circuit Judges, 128 Mich. 438, 87 N.W. 376 (Mich. 1901). Federal courts have noted that a property interest in a publicly bid contract is demonstrated in one of two ways: either the bidder can show it was actually awarded the contract and then deprived of it, or the bidder can show that the governmental body limit the discretion to reject low bidders. E.g. Leo J. Brielmaier Co. v. Newport Hous. Auth., Case No. 98-5245, 1999 U.S. App. LEXIS 7496, 15-16 (6th Cir., 1999). The court in Brielmaier specifically noted that if a body has discretion to reject bidders by finding them non-responsible, then a finding that the bidder is not responsible will generally not be sufficient to show standing. Id. The court in Brielmaier also addressed disappointed bidder standing for defamation claims when declared not responsible, and noted a disappointed bidder had no legally-cognizable interest absent a resulting prohibition in bidding for future government contracts. Id."

"Since Plaintiff cannot establish either an award of the contract, a lack of discretion to determine responsible bidders, or even a prohibition on future contract possibilities, it fails to show standing. Thus, its claim must be dismissed in its entirety."

Note: Under federal law, bid protests against the award of public contracts is governed by statute and the Federal Acquisition Regulations.

Monday, February 05, 2007

Michigan Builder's Trust Fund: Update Regarding Personal Liability

The February 2007 Newsletter of the Debtor/Creditor Rights Committee of the Business Law Section of the State Bar of Michigan contains an interesting article concerning personal liability under the Michigan Builder's Trust Fund Act. Thomas R. Morris reports on a preliminary ruling in a case pending before Judge Shefferly in the U.S. Bankruptcy Court in Detroit:

The Building Contract Fund Act and 523(a)(4): An Issue Long Glossed Over
By: Thomas R. Morris of Silverman Morris, PLLC

"Bankruptcy Judge Thomas Tucker, in Franzone v. Ernst, (In re Ernst), 06‑4803‑TJT (Bankr. E.D. Mich., September 25, 2006) (unreported bench opinion), held that a violation by a corporate contractor of the Michigan Building Contract Fund Act, M.C.L. 570.151 et seq (the "Act") (also known as the "Builders' Trust Fund Act"), does not give rise to a debt on the part of an officer or employee of the contractor that is non‑dischargeable under 11 U.S.C. § 523(a)(4). Judge Shefferly, in Conquest Construction, Inc. v. Cicero, 06-4852-PJS (Bankr. E.D. Mich., November 30, 2006)(opinion denying motion for reconsideration), disagreed.

"Applying the Sixth Circuit's holding in In re Blaszak, 397 F.3d 386, 391‑392 (6th Cir. 2005) and the Supreme Court’s holding in Davis v Aetna Acceptance Co., 293 U.S. 328 (1934), Judge Tucker found that in order to find a "defalcation while acting in a fiduciary capacity" on the part of the debtor, there must be an express trust in existence prior to the alleged defalcation. The elements of an express trust were found by the court of appeals in Blaszak to include: intent to create a trust; a trustee; a trust and a definite beneficiary. Although the Sixth Circuit in In re Johnson, 691 F.2d 249, 252‑253 (6th Cir. 1982), found the Act to fulfill the express‑trust requirements of the Bankruptcy-Act predecessor to § 523(a)(4), in Johnson, the debtor was a sole proprietor, not an officer or other agent of a corporation or other limited-liability business organization."

For the full text of this article, see:

For More Information

Since the facts of each case are unique, this update cannot be taken as legal advice. For more information about the Michigan Builder's Trust Fund Act and how it might affect you or your business, please contact Peter Cavanaugh or visit