Federal Court Strikes Down Michigan Law Barring Project Labor Agreements, Finds that National Labor Relations Act Preempts State Law (UPDATED)

On February 29, 2012, U.S. District Judge Victoria Roberts issued an Order striking down the "Michigan Fair and Open Competition in Government Construction Act" (PA 98 of 2011) finding that its limits on project labor agreements (PLA) violated the National Labor Relations Act. Judge Roberts also entered a judgment that permanently enjoins enforcement of the Act.
 

As we reported last August (here), shortly after PA 98 was signed into law by Governor Rick Snyder, 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 challenging the legality of the Act. The plaintiffs alleged that PA 98 was preempted by the National Labor Relations Act (NLRA) (29 USC 151, et seq). The Court ultimately agreed. 

In its ruling, the Court found that Section 7 of the NLRA, which allows employees to engage in concerted activity, protected employees' rights to negotiate project labor agreements.  The Court also found that Sections 8(e) and (f) of the NLRA allows for project labor agreements in the construction industry.  The court held that PA 98 effectively prohibited governmental units, construction managers, private contractors and subcontractors from entering into project labor agreements on state construction projects.

The court found that PA 98 was an impermissible obstacle to the employees' right under Section 7 of the NLRA to negotiate a project labor agreement.  The court also found that PA 98, by prohibiting activity allowed by sections 8(e) and 8(f) of the NLRA, regulated an area of labor law that Congress intended to be left "unregulated and to be controlled by the free play of economic forces" which violated the preemption principle announced by the U.S. Supreme Court in 1976 case. See, Lodge 76 International Association of Machinists and Aerospace Workers v Wisconsin Employment Relations Commission, 427 US 132 (1976).

The Court rejected the Governor's argument that Section 13 of the Act, which states that the Act should not be construed so as to interfere with agreements or other activity protected by the NLRA. The Court held that Governor's reading of the Act would render the entire Act a nullity.

The Court's decision in Michigan Building and Construction Trade Council, AFL-CIO v Synder permits local units of government and school districts to resume the practice of using project labor agreements on public projects.

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Update (3/7): Crain's Detroit Business reported today that Michigan Attorney General Bill Schuette plans to appeal Judge Roberts' decision to the 6th Circuit Court of Appeals. 

Update (3/9): Michigan Attorney General Bill Schuette filed a Notice of Appeal earlier today confirming earlier reports that Judge Roberts' decision would be challenged. See, Case No. 11-cv-13520, Doc #39. 

Update (9/15/13): On September 6, 2013, the 6th Circuit Court of Appeals voted 2-1 to uphold PA 98 of 2011. The Court noted in a 13-page published opinion that "The act furthers Michigan’s proprietary goal of improving efficiency in public construction projects, and the act is no broader than is necessary to meet those goals."   

Citation: Michigan Bldg. & Const. Trades Council v. Snyder, 729 F.3d 572 (6th Cir. 2013).

Test Wells Count as "Actual Physical Improvement" for Lien Priority, Michigan Court of Appeals Rules

Test wells installed by a potential buyer prior to closing constituted a physical improvement, allowing a construction lien to attach prior to buyer’s closing and giving the lien priority over a mortgage granted at closing. The Michigan Court of Appeals reached this conclusion in a recent unpublished case. See, E.T. MacKenzie Company v Sutton Place-Raisin Twp, LLC (Mich. App. No. 297864, Nov 22, 2011) (slip opinion). 

Under Section 119(4) of  the Michigan Construction Lien Act (MCL 570.1119(4)), a construction lien has priority over a mortgage recorded after the “first actual physical improvement.” MCL 570.1103(1) states that an “actual physical improvement” does not include preparation for a change or alteration, such as surveying, soil boring and testing. 

In E.T. MacKenzie, the  buyer’s contractor drilled eight test wells prior to closing and left PVC pipes extending five feet above ground. In 2006, the buyer closed and granted United Bank a mortgage. Eight months later, the buyer contracted with E.T. MacKenzie Company for demolition and grading. The Court of Appeals opinion does not discuss the relationship of the well contractor and MacKenzie. In January 2008, MacKenzie recorded a claim of lien for unpaid services and asserted priority over the mortgage.

The trial court found that the wells were not the first “actual physical improvement,” and that the first improvement occurred after the mortgage was recorded. The Court of Appeals disagreed and reversed. 

Relying on Michigan Pipe & Valve-Lansing, Inc v Hebeler Enterprises, Inc, 292 Mich App 479, lv app denied, 490 Mich 874; 803 NW2d 688 (2011), the Court of Appeals held that the wells were the “first actual physical improvements” and the construction lien attached prior to recording the mortgage:

As defined in MCL 570.1103(1), an “actual physical improvement” does not “include that labor which is provided in preparation for that change or alteration, such as surveying, soil boring and testing, architectural or engineering planning, or the preparation of other plans or drawings of any kind or nature.”We do not dispute that these acts may suggest that the definition in effect recognizes a “due diligence process” that involves the specific procedures stated in the definition of “actual physical improvement.” Nor does the plain language of the statute, which states “such as,” suggest that the list is exhaustive. However, none of the procedures stated in the definition equates to the digging of a well, or any other act, which makes a “readily visible” “physical change” to the property. To the contrary, the acts identified in the statute are all of a nature that none of them will leave a permanent presence on the property. Consequently, we find [the defendant’s] assertion that the exception encompasses all acts done in the “due diligence process” is not supported by the plain and unambiguous language of MCL 570.1103(1). [Michigan Pipe at 486.]