Friday, October 07, 2011

SB 77 Signed into Law by Governor Snyder

On October 4, 2011, Governor Rick Snyder signed SB 77 into law (now PA 162  of 2011).  As we noted here, the new law solves the problems created by the Michigan Supreme Court's 2006 Ostroth ruling. The new law restores the applicable limitation periods to their previous durations, and restores the long-established rules that govern them.

(R/L: Benedetto Tiseo, Frederick Butters, Gov. Rick Snyder, Sen. Tonya Schuitmaker, and Gary Quesada)

Friday, September 23, 2011

Statute of Limitations: Ostroth Overturned by SB 77, New Law Takes Effect January 1, 2012

By: Gary D. Quesada, Esq
Cavanaugh & Quesada, PLC

One of the most effective defenses to a lawsuit is the statute of limitations. Limitations periods created by statute are grounded in public policy considerations which include encouraging the prompt recovery of damages, penalizing plaintiffs who have not been industrious in pursuing their claims, affording defendants security against stale demands and prolonged fear of litigation, and prevention of fraudulent claims. After a claim accrues (or is alleged to have accrued), if a plaintiff delays too long before bringing suit, the statute of limitations will serve to bar the claim, despite any other considerations.

Before February 2006, Michigan’s design and construction industry was subject to the same statute of limitations system as other businesses. However, in February 2006, the Michigan Supreme Court issued its ruling in Ostroth v Warren Regency, 474 Mich 36; 709 NW2d 589 (2006). Ostroth overruled existing case law and long-established practice, segregated the industry from general limitations law and lengthened all limitations periods specific to the design and construction industry in Michigan. 

The impact of Ostroth was significant.  For instance, according to a survey published by the American Council of Engineering Companies in 2008, Michigan’s statute of limitations for design professionals became the longest in the country. Ostroth also eliminated the rule that the limitation period begins to run when a claim accrues. In practical application, that effect served to double, triple or even quadruple the limitations period for many typical claims. Ostroth also eliminated any identifiable limitations period for incomplete projects. Clearly, the Ostroth decision negatively affected individual design and construction businesses, and the industry as a whole.

As early as the Winter of 2006, Michigan’s design and construction industry organizations began working together to reverse Ostroth by legislation. 

After 5 ½ years of political activity in connection with this effort, SB 77 was finally passed by the Michigan House of Representatives on Tuesday, September 20, 2011.  The vote was 87-21, with broad bi-partisan support. The Senate concurred the next day, and SB 77 is now expected to be signed into law by Governor Rick Snyder.  The new law will take effect January 1, 2012.

SB 77 solves the problems created by Ostroth, restores the applicable limitation periods to their previous durations, and restores the long-established rules that govern them. The period of time that facility owners have to discover latent defects is not affected by SB 77. 

As with any political campaign, teamwork and perseverance were required for success. SB 77 bill sponsor Senator Tonya Schuitmaker (R-Lawton) provided her leadership throughout the process, from introduction through final passage. Industry organizations that supported this successful legislative effort represent all sections of the design and construction industry, including the following:
  • American Institute of Architects of Michigan
  • American Council of Engineering Companies
  • Michigan Society of Professional Engineers 
  • American Society of Civil Engineers - Michigan Section
  • Michigan Society of Professional Surveyors, 
  • AGC of Michigan 
  • Michigan Infrastructure and Transportation Association (MITA)
  • Construction Association of Michigan (CAM), and 
  • Michigan Association of Homebuilders

Gary D. Quesada is a partner with the construction law firm of Cavanaugh & Quesada, PLC.  Mr. Quesada served as the point person for legal issues throughout the campaign to overturn Ostroth, and testified in favor of the bill on numerous occasions before Judiciary Committees in both the Michigan House and Senate. 

For more information see, or e-mail

Monday, August 22, 2011

Federal Lawsuit Challenges Legality of Michigan's New PLA Legislation (PA 98)

Not unexpectedly, a federal lawsuit was filed on August 11, 2011 challenging the legality of the “Fair and Open Competition in Governmental Construction Act” (PA 98 of 2011). As we reported last month (here), PA 98 prohibits most project labor agreements.

The Michigan Building and Construction Trades Council (AFL-CIO) and Genesee, Lapeer, Shiawassee Building and Construction Trades Council (AFL-CIO) filed suit in U.S. District Court against Michigan Governor Rick Snyder. 

Plaintiffs seek a declaratory judgment that PA 98 (a) is preempted under the Supremacy Clause; (b) violates the National Labor Relations Act; and (c) violates the Contracts Clause of the U.S. Constitution. 

The case is pending in U.S. District Court, Eastern District of Michigan, Case No. 11-cv-13520 before the Honorable Victoria A. Roberts

Monday, August 01, 2011

Michigan Supreme Court Decision Expands Liability Exposure for Contractors

By: Gary D. Quesada, Hon. Aff. AIA, J.D.
Cavanaugh & Quesada, PLC

On July 11, 2011, the Michigan Supreme Court decided the case of Miller-Davis v. Ahrens, __ Mich __ (2011), which held that Michigan’s special statute of repose, MCL 600.5839, does not apply to contract-based construction claims.  This decision means that contractors are at greater risk for lawsuits.

In 1967, Michigan enacted MCL 600.5839, the special statute of repose for claims arising from improvements to real property.  Section 5839 barred all claims for “injuries to persons or property” against architects, engineers and contractors that arose more than six years after “use, occupancy or acceptance” of the improve- ment. 

Originally, the statute was understood to apply only to third-party claims, and Michigan courts so held.  In 1988, Michigan enacted an amendment that was held by several courts to have expanded the statute of repose to include contractual claims as well as third-party claims.  However, the Supreme Court never addressed this issue.

Miller-Davis involved a claim by a general contractor against a subcontractor for breach of contract.  The issue was the construction of a natatorium roof, which the general contractor alleged was improperly constructed by the subcontractor.  The subcontractor argued the claim was brought later than six years after first use, occupancy or acceptance of the improvement, and was therefore “reposed.”  The Michigan Court of Appeals agreed and held the claim was barred.  Plaintiff then sought review by the Michigan Supreme Court.

In the Supreme Court, the plaintiff argued the statute of repose did not apply to its claim, which was based on breach of contract and not an “injury to person or property.” The Supreme Court reversed the lower court and held that the statute of repose “does not apply to a breach of contract claim for a defect in a building improvement.” In making its ruling, the court cited with approval the federal case of Garden City Osteopathic Hosp v HBE Corp, 55 F3d 1126 (CA 6, 1995).

The Miller-Davis decision significantly extends the duration contractors can be sued for building defects. The impact of the case is likely to be that warranty claims by building owners for defective work will be brought long after the building has been occupied. Owners have contracts with their prime contractor, and often have direct contracts with specialty contractors. There is no longer any repose period for claims based on these contracts. By statute, warranty claims may be brought up to 6 years after a breach is discovered.  Therefore, owners may bring suit up to 6 years after discovery of a latent defect, no matter when that discovery occurs.

The Garden City case cited by the Supreme Court is as example of the potential application of Miller-DavisGarden City involved an owner’s claim brought against a contractor approximately 21 years after construction.  Contractors should now be more careful to review their contracts and when possible, seek to limit their contractual obligations, including indemnification and warranty provisions, to reasonable durations.

For more information about the Miller-Davis decision and the Michigan statute of repose, you may contact Gary Quesada at Cavanaugh & Quesada, PLC, 1027 S. Washington Ave, Ste A, Royal Oak, MI 48067, Tel: (248) 543-8320. 

Friday, July 22, 2011

New Michigan Law Prohibits (Most) Project Labor Agreements

On July 19, 2011, Michigan Governor Rick Snyder signed SB 165 into law as the “Fair and Open Competition in Governmental Construction Act” (PA 98 of 2011).

The Act prohibits a city, village, township or other governmental unit from awarding a public construction project, grant, tax abatement or tax credit based on whether or not a bidder, contractor or developer employs union or non-union labor.

The Act generally prohibits a governmental unit from:
  • Entering into or spending funds under a construction contract if the contract terms: (1) require or prohibit a bidder or contractor from entering into an agreement with a collective bargaining organization relating to the underlying construction project or related projects; or (2) discriminate against a bidder or contractor based on their willingness or refusal to enter into an agreement with a collective bargaining organization relating to the construction project or a related project.
  • Conditioning a grant, tax abatement or tax credit on a requirement that the recipient include one of the terms listed above in a contract document.
  •  A governmental manager or construction manager from placing the above terms in bid specifications, project agreements, or other construction documents.
The statute has one significant exception: The Act does not prohibit employers or other parties from entering into agreements or engaging in any other activity protected by the federal National Labor Relations Act.   

The law is effective immediately.

Click here for additional analysis of this new law.

Update: Not unexpectedly, a federal lawsuit was filed on August 11, 2011 challenging the legality of PA 98. The Michigan Building and Construction Trades Council (AFL-CIO) and Genesee, Lapeer, Shiawassee Building and Construction Trades Council (AFL-CIO)filed suit in U.S. District Court seeking a declaratory judgment that PA 98 (a) is preempted under the Supremacy Clause; (b) violates the National Labor Relations Act; and (c) violates the Contracts Clause of the U.S. Constitution. (Hat-tip: Courthouse News Service). 

Friday, July 01, 2011

Davis Bacon Wage Determinations (Past and Present)

The U.S. Government Printing Office (GPO), in conjunction with the Department of Labor (DOL) and the NTIS, have collaborated to provide permanent public access to Davis Bacon Wage Determinations. 

The new site is called "Wage Determinations" (, and contains both current and archived wage determinations.  Users can search or browse for a wage determination by state and county. Archived determinations are available from 2000 forward.

(hat-tip: Sabrina Pacifici of

Friday, May 27, 2011

New Legislation Bans Resale, Capital Recovery Fees for Residential, Commercial Real Estate in Michigan

Following the collapse of the real estate market a few years ago, a growing number of developers and home builders have been adding "resale fee" provisions to their sales agreements that allow the developer to collect 1 percent of the sales price from the seller every time the property changes hands — for the next 99 years. This practice was outlined by the New York Time in a September 10, 2010 article

Michigan recently enacted legislation that prohibits the imposition of such fees, also called capital recovery fees, on either residential or commercial real properties. PA 34 and PA 35 of 2011 were signed into law on May 24, 2011 by Governor Snyder. The new legislation takes effect immediately.

Under the new legislation, a transfer fee covenant that was executed on or after the bill's effective date, whether or not it was recorded, could not run with the title to the real property and would not be binding on or enforceable against any subsequent owner, purchaser, or mortgagee of any interest in the real property as an equitable servitude or otherwise. Any lien purporting to secure the payment of a transfer fee under a transfer fee covenant that was executed on or after the bill's effective date would be void. 

"Transfer fee" is defined in the legislation as a fee or charge payable upon the subsequent sale, gift, conveyance, assignment, inheritance, or other transfer of an ownership interest in real property located in Michigan, or payable for the right to make or accept a transfer, regardless of whether the fee or charge is a fixed amount or is determined as a percentage of the value of the property, the purchase price, or other consideration given for the transfer. The legislation includes a number if exclusions.

Wednesday, March 02, 2011

AGC Legal Brief Highlights Cedroni Decision, Other Recent Michigan Cases

The February, 2011 issue of the AGC Legal Brief highlights a number of recent court decisions affecting design professionals, contractors, subcontractors and lien claimants in Michigan.

This issue of the Legal Brief was written by Aileen M. Leipprandt, a construction  attorney with the Hilger Hammond firm in Grand Rapids, and includes the following articles:
  • What's New in the New AIA A-312 Payment and Performance Bonds? 
The AGC Legal Brief is published quarterly by the AGC of Michigan and its Legal Advisory Committee. The full text of the February, 2011 issue can be found here at the AGC's website.

Friday, January 14, 2011

Court of Appeals finds Contract, Airport Authority Bound by Accepted Bid

Matthew C. Norris, PLC

Occasionally, a contractor will successfully submit a low bid to a government entity and have the low bid accepted, only to have the public body refuse to formally enter into the contract.

The Michigan Court of Appeals recently decided a case in favor of a general contractor.  The Court ruled that accepting the contractor’s bid constituted formation of a contract.  The later refusal by the public body, to sign the contract, did not change the fact a contract had been entered into.  The case is The Garrison Company  v  Bishop International Airport Authority, Mich Ct App No. 293415 (Nov 18, 2010).

In the case, the contractor submitted the low bid, its bid was accepted by the Airport Board, and the public body communicated this to the contractor.  The contractor began to exchange emails with the architect for the airport.

A month later, the Airport Director refused to sign the contract, and the Airport Board rescinded its acceptance of the bid.  The contractor sued for lost profits.

The Court of Appeals ruled that there was a binding contract, even before the construction contracts themselves were signed.  The reasoning for the Court’s decision is that the Airport accepted the contractor’s offer to perform the contract at a fixed price, and the contract was enforceable.  The act of formally signing the construction contracts “was not a step that had to be completed before a valid contractual relationship arose.”
The Court of Appeals reasoned that, if the contractor attempted to walk away from its bid, the contractor could not “walk away from the project without liability.”  Since the bid and acceptance were binding on the contractor, the public body was also bound.

The Court was also not convinced by the Airport’s argument that the Airport needed to conduct “due diligence” after accepting a bid.  The Court reasoned that, if a public body were allowed to conduct due diligence after accepting a bid, the public body could accept a bid with impunity, and later interpose an indefinite due diligence time period before rescinding.  Due diligence should be done before acceptance of a bid.

The Court of Appeals cited a 100-year history of Michigan case law that a bid, once accepted, becomes a contract.

A low bid contractor is often disappointed if its contract is ultimately rescinded by a public body.  While cases against public bodies remain difficult, this Court of Appeals decision should make it more likely a contractor in this situation might prevail.

Matthew Norris graduated from Michigan State University (B.A., 1981); and Wayne State University Law School (1984) and has concentrated his practice on construction law. He was admitted to the Michigan and U.S. District Court, Eastern District of Michigan, in 1984; to the  U.S. District Court, Western District of Michigan and U.S. Court of Appeals, Sixth Circuit. 

Mr. Norris is a also member of the Oakland County Bar Association and State Bar of Michigan (Sections of: Business Law; Probate and Estate Planning; Real Estate Law; Construction Law Committee). He was Chair of the State Bar Construction Law Committee from 1997 through 2000. Chair, State Bar of Michigan Real Property Section Summer Conference, July, 2001; State Bar of Michigan Real Property Law Section, 2002 presenter: "Commercial Projections: What you Need to Know about Construction Contracts and Liens"; and Co-authored an article summarizing Construction Lien Act decisions and another dealing with pay-when-paid contract clauses, both published in the Michigan Real Property Review.

For more information about the Garrison case, you may contact Matt Norris  by e-mail or telephone at (248) 994-7320.