Sixth Circuit Upholds Michigan Law Limiting Project Labor Agreements

On September 6, 2013, the Sixth Circuit Court of Appeals voted 2-1 to uphold the "Michigan Fair and Open Competition in Government 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 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." 

The Sixth Circuit's decision overturns a 2012 decision we reported here by U.S. District Judge Victoria Roberts, who had ruled that PA 98 violated the National Labor Relations Act.

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

For more about Michigan Construction Law Update, click here.

Additional reading:

• "Sixth Circuit upholds Michigan's open competition law," Legal Newsline Legal Journal, Sept 9, 2013 (click here) 
• "New Michigan Law Prohibits (Most) Project Labor Agreements," Michigan Construction Law Update, July 22, 2011 (click here) 
• "U.S. Circuit Court Upholds Michigan Ban on Project Labor Agreements", National Legal and Policy Center, Sept 16, 2013 (click here) 

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-Davis.  Garden 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. 

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:

• Contractor Gets a Shot at Proving Architect Improperly Interfered with Bid Award [reporting on the November 2010 Michigan Court of Appeals deicsion in Cedroni Associates, Inc v Tomblinson, Harburn Associates, Mich Ct App No.  287024  (Nov 16, 2010]

• Contractor Holds Airport Authority's Feet to the Fire Despite Absence of Signed Contract [which discusses The Garrison Company v Bishop Int'l Airport decision]

•  Construction Lien Has Priority over Mortgage Regardless of Change in General Contractor and Project Ownership [which details decision in First Community Bank v Mountainaire, LLC, et al., Mich Ct App No. 293005 (Oct 21, 2010)] 

• You Snooze, You Lose - Subcontractor's Lien Invalid Where Warranty Work Did Not Extend Time to Record Lien [reporting on Stock Building Supply, LLC v Parsley Homes of Mazuchet Harbor, LLC, et al., Mich Ct App No. 294098  (Jan 25, 2011)]

• 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.

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

By: Matthew C. Norris, Esq

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.

Personal Liability under the Michigan Builder’s Trust Fund Act, Michigan Court of Appeals Affirms

Proof that a corporate officer personally misappropriated contract proceeds “is not necessary to find an officer liable” for a violation of the Michigan Builder’s Trust Fund Act (MCL 570.151, et seq).  

“[A] reasonable inference of appropriation arises from the payment of  construction funds to a contractor and the subsequent failure of the contractor to pay laborers, subcontractors, materialmen, or other entitled to payment.”  

So declared the Michigan Court of Appeals recently in BC Tile & Marble Co v Multi-Bldg Co., 2010 Mich App LEXIS ____ (Mich Ct App, April 13, 2010) (slip opinion), another decision affirming the principal (and risk) of personal liability for the owners of construction companies under the Michigan Builder’s Trust Fund Act (MBTFA).

In BC Tile, the defendant general contractor built and sold a condominium to a homeowner.  Although the contractor received funds at the closing for Unit 5 to pay his tile and marble subcontractor, the contractor failed to pay the subcontractor citing defective workmanship and delayed performance.  The subcontractor, who had recorded and served a construction lien four days prior to the closing, then filed suit to foreclose his lien, and included a claim against the contractor’s president, in his individual capacity, for violation of the MBTFA. As indicated in an earlier posting to this blog, this fact pattern is fairly typical. 

The MBTFA provides that upon receipt of payment from the owner, a trust is created for the benefit of contractors, laborers, subcontractors and suppliers, and makes the contractor or subcontractor who receives the payment a trustee of the funds.  The MBTFA is a criminal statute, but the courts have also recognized a civil cause of action under common law. To make out a civil cause of action under the MBTFA, a plaintiff must establish the following elements:  

• The defendant is a contractor or subcontractor engaged in the building construction industry, 
• The defendant was paid for labor or materials provided on a construction project, 
• The defendant retained or used those funds, or any part of those funds, 
• The funds were retained for any purpose other than to first pay laborers, subcontractors, and materialmen, and  
• The laborers, subcontractors and materialmen who were engaged by the defendant to perform labor or furnish material for the specific construction project.

See, Livonia Bldg Materials Co v Harrison Construction Co, 276 Mich App 514, 519 (2007). See also, DiPonio Construction Co v Rosati Masonry Co, 246 Mich App 43, 49; 631 NW2d 59 (2001), lv app denied, 465 Mich 896 (2001).

In BC Tile, plaintiff asserted that the president of Muti-Bldg Co. was personally liable because he had signed the closing documents that allowed payment to other contractors, but not BC Tile & Marble Co. The president denied that he had had any day-to-day involvement with or exercised any decision-making for the particular construction project. He further denied that he had personally received any of the funds at closing.

While the Court of Appeals agreed that “there is no evidence here that [the president] personally used the funds owed to BC Tile,” it found that this was not dispositive of the MBTFA claim.

First, the Court reiterated its decision in the appeal of a criminal prosecution under MBTFA:  “there is no requirement that contract payments be made directly to the officer of the corporate contractor in order to hold the officer individually responsible under the MBTFA.”  People v Brown, 239 Mich App 735, 743-744 (2000).

Second, relying on a 2007 decision involving civil claims, the Court of Appeals noted:

“In Livonia Bldg, the defendant contractor received funds for a project but did not pay the plaintiff in full. The corporate officers gave testimony regarding their decision to put the funds received in various accounts and subsequently, their actions in writing checks to entities other than the plaintiff. This Court found that the individual corporate officers ‘acted in direct contravention of the MBTFA.’ According to this Court, there was sufficient evidence to create a presumption of misappropriation and to find the corporate officers individually liable.”

The Court of Appeals concluded that the president of the construction contractor should not have been granted summary disposition, and reversed the trial court’s ruling. The corporate officer thus faces a trial and possibly a personal judgment.

Not addressed in the Court’s decision, but another significant issue for individual defendants, is the impact a trust fund claim may have on a personal bankruptcy. Since the statute is predicated on the existence of a trust, a violation of the MBTFA is also breach of the (contractor) trustee’s fiduciary duties. Under Section 523(a)(4) bankruptcy code, fraudulent conduct while acting in a fiduciary capacity (defalcation) is one of the specified grounds for excluding a claim from discharge. Said another way, a Builder's Trust Fund Act claim is a debt that can survive a bankruptcy when most other claims are discharged.
 

Comment: To avoid personal liability issues, contractors must take care in these turbulent economic times to address shortfalls in payment with subcontractors and suppliers by securing waivers and releases that include officers and shareholders, especially when making compromise payment agreements, and documenting the reasons for non-payment to subcontractors and suppliers where facts and circumstances warrant the withholding of payment. 

  
For More Information

Since the facts of each case are unique, this case summary should not be taken as legal advice. For more information about the Michigan Builder's Trust Fund Act, and how it might affect you personally or your business, please contact Peter Cavanaugh or visit our website at www.MichiganConstructionLaw.com. 

Update: The Michigan Court of Appeals decided June 8, 2010 to publish this decision.  A full citation will follow. 

Court Appeals Rejects Narrow Constrution of "Common Work Area" for Crane Accident

The Michigan Court of Appeals recently reversed the grant of summary disposition to a Defendant finding that there were questions of fact as to whether the area where Plaintiff was injured could be construed as a common work area and whether the risk was posed to a significant number of workers.

In Alderman v J C Development Communities, LLC, 2009 Mich. App. LEXIS ____ (Mich. Ct. App. Aug. 25, 2009), Plaintiff sued Defendant, the general contractor of a subdivision project, when he was injured on the job site. He was employed by a subcontractor engaged to pour concrete basements for the project, which involved over 200 home sites, including 13 sites running along and parallel to electric power lines.

The subcontractor used a 65-foot crane to lift forms from its trucks and set them in place around each home's future basement. The forms would be set one day, concrete would be poured, and the forms would be removed by the crane the next day and replaced on the trucks. The crew would then move to the next site, and other subcontractors would continue with the next steps in the building process.

Plaintiff was part of a crew of 6 men working for the subcontract on Lot 273, one of the sites adjacent to the power lines. As the crane lowered one of the forms onto the foundation, it contacted a power line. A jolt of electric current flowed through the crane and down the chain to the form and the metal "whaler" Plaintiff was using to control the form from the ground. He was knocked unconscious and his hands and feet were severely burned.

The trial court determined the area where the accident occurred was not a common work area, as only workers from plaintiff's crew were exposed to danger from the possibility of the crane touching the overhead wires. The trial court opined, "[a]t most, six employees of one subcontractor were exposed to the risk of electrocution. This is not sufficient to establish a common work area." The Court of Appeals disagreed with this narrow interpretation:

While defendant focuses on the fact that the crane hit the power lines and endangered only plaintiff’s crew and only electrocuted plaintiff, the risk associated with the crane hitting the power line extended far beyond the specific lot where plaintiff was injured. Plaintiff’s crew may have been the only subcontractors working on lot 273 when the accident occurred, but the power lines did not merely run along the one lot. They ran along several lots under active construction, and electricity is commonly understood to be hazardous.

Reversed and remanded.

A copy of the slip opinion can be found here.

Court Upholds City Ordinance Assessing Costs against Owners of Abandoned Homes

The Michigan Court of Appeals recently upheld a challenge to a Battle Creek ordinance imposing a fee against the owners of abandoned residential property.

In Kenefick v City of Battle Creek, __ Mich App __ (2009) (approved for publication July 2, 2009), a city ordinance requiring owners of abandoned homes to pay a "monitoring fee" was challenged on grounds that it was both unconstitutionally vague and violated the Equal Protection Clause. Both arguments failed to persuade the Court of Appeals.

"When these common dictionary definitions are viewed in context of the language of the entire ordinance—the stated purpose of which is to eliminate dangerous and unsightly blight, we conclude that a person of ordinary intelligence would be placed on fair notice of what the ordinance requires or proscribes."

In addressing the Equal Protection Argument, the Court of Appeals applied the rational basis test and concluded the ordinance was constitutional.

"The ordinance’s stated purpose is to overcome the detrimental affects of neighborhood blight and reduce enforcement costs associated with the blight. This Court has held 'protecting and promoting public health, safety, and general welfare are legitimate governmental interests . . . and protecting aesthetic value is included in the concept of the general welfare.' (citation omitted) Thus, the general reduction of blight is undisputedly a legitimate governmental purpose."

A copy of the slip opinion can be found here.

Questions? Contact Peter Cavanaugh or call (248) 543-8320.

Michigan Seller Disclosure Act -- No Claim for Innocent Misrepresentation, Supreme Court Affirms Ruling

On June 17, 2009, Michigan Supreme Court entered an order affirming a 2008 Michigan Court of Appeals decision, which had held that Michigan law did not recognize claims for innocent misrepresentation under the Michigan Seller Disclosure Act (MCL 565.951, et seq).

As we reported in an earlier posting (here), Roberts v Saffell involved a claim that Defendant Sellers failed to disclose a termite infestation in the home they sold to Plaintiff Buyers. Plaintiff's claim was based on Defendant's "No" answer on their Seller Disclosure Statement in response to the question: "History of infestation, if any: (termites, carpenter ants, etc.)"

In affirming the Court of Appeals decision, the Michigan Supreme Court held:

the [Michigan Seller Disclosure Act] provides that a seller is “not liable for any error, inaccuracy, or omission in any information delivered pursuant to this act if the error, inaccuracy, or omission was not within the personal knowledge of the transferor . . . .” MCL 565.955(1). Thus, because a claim for innocent misrepresentation requires that a defendant make a false statement without knowledge of its falsity, the Court of Appeals correctly held that innocent misrepresentation does not constitute a viable cause of action under the SDA. Whether defendants did or did not possess personal knowledge of the infestation is a matter not before this Court as a result of plaintiffs’ abandonment of their fraudulent misrepresentation claim and their exclusive focus on their innocent misrepresentation claim.

Full Cite: Roberts v Saffell, 280 Mich App 397 (2008), aff'd, 483 Mich 1089 (2009).

Bottom line: Always have your own home inspection done before buying a house!

Questions? Contact Peter Cavanaugh or call (248) 543-8320.

Arbitration Award, Michigan Court of Appeals Clarifies Time to Confirm

The Michigan Court of Appeals recently clarified the deadline for confirming an arbitration award.  

In Greater Bethesda Healing Springs Ministry v Evangel Builders & Construction Managers, LLC, 282 Mich App 410 (2009), the Michigan Court of Appeals, explained that MCR 3.602(I) requires only that an arbitration award be filed with the court clerk within one year after the award was rendered, and has no bearing on the time period in which the award may be confirmed and entered as a judgment by the court. 

Prior to this case, courts had interpreted this court rule as requiring a party to confirm an arbitration award within one year from award. 

Click here for a copy of the slip opinion in this case. 

AGC Legal Brief Highlights Recent Builder's Trust Fund Decision, Other Michigan Decisions

The December, 2008 issue of the AGC Legal Brief highlights a number of recent court decisions and legislative changes affecting design professionals, contractors, subcontractors and residential builders in Michigan.

The current issue of the AGC Legal Brief was written by attorneys from Dickinson Wright and its construction practice group, and includes the following articles:

• Joseph W. DeLave, Bankruptcy Court Recognizes Preclusive Effect of State Court Default Judgment Entered Under the Michigan Builder's Trust Fund Act to Bar Subcontractor from Disputing Nondischargeability of Resulting Debt [reporting on In Re Brunett, 394 B.R. 425 (Bkrtcy. E.D. Michigan, October 8, 2008)] (slip opinion here)
  

• Michelle L. Alamo, Contractor Claims Against the Project Engineer Hang in the Balance after the Michigan Court of Appeals' Recent Decision in Keller Construction, Inc. v. U.P. Engineers & Architects, Inc.

• Jeffrey M. Wesselhoff, Licensed Builders Shed Consumer Protection Claims [reporting on the Michigan Supreme Court's decision in Liss v Lewiston-Richards]

• Leslee M. Lewis, Michigan Bolsters Residential Builder Licensing Laws including Licensing Requirements and Consumer Remedies [reporting on Public Acts 155-158 of 2007]
  

AGC Legal Brief is published quarterly by the AGC of Michigan and its Legal Advisory Committee. The full text of the December issue can be found here at the AGC's website.

Michigan Seller Disclosure Act (SDA): Innocent Misrepresentation Not a Claim under SDA Rules Michigan Court of Appeals

Holding that innocent misrepresentation is not a viable theory of liability under the Seller Disclosure Act (SDA) (MCL 565.951, et seq), the Michigan Court of Appeals recently reversed a judgment awarding Plaintiffs $86,813 in damages and costs and remanded the case for entry of a judgment in favor of the Defendant-Sellers. Roberts v Saffell, ___ Mich App ___ (2008) (Lawyers Weekly No. 07-67463 - 12 pages) (published opinion) (Markey, J., joined by Wilder, J.) (White, J., dissenting). On appeal from the Leelanau County Circuit Court; Rodgers, J.. Click here for the slip opinion.

In this case, Plaintiffs asserted that Defendants failed to disclose a termite infestation in the home they purchased from Defendants. Prior to trial, Plaintiffs successfully moved for dismissal of all claims, except one for innocent misrepresentation. This claim was based on Defendants' "No" answer on their Seller Disclosure Statement in response to the item "History of infestation, if any: (termites, carpenter ants, etc.)"

The Court of Appeals found nothing in the plain terms of the act requiring a transferor of property covered by the SDA "to exercise ordinary care to discover defects in the property being transferred." The act requires a transferor "to answer all items required by MCL 565.957 honestly, based on information actually known to the transferor at the time the SDS is completed." Apart from the SDS, the Legislature had not modified the rule of caveat emptor and its common law exceptions imposing liability for fraud.

A transferor cannot "be held liable for any errors, inaccuracies, or omissions in the SDS unless they were within his personal knowledge." Since liability for innocent misrepresentation can be imposed "without regard to whether the party making the representation knew it was false or was acting in good faith and because MCL 565.955(1) precludes imposition of liability on transferors who lack personal knowledge with respect to errors, inaccuracies, or omissions in an SDS, there is no liability for a disclosure made on an SDS under a theory of innocent misrepresentation."

Defendant Lacks Standing to Challenge Plaintiff's Corporate Status, Michigan Supreme Court rules in Miller v Allstate

On July 2, 2008, the Michigan Supreme Court issued its ruling in the Miller v Allstate case, which was discussed in an earlier post.

The Supreme Court upheld the Court of Appeals' decision denying Allstate's attempt to avoid payment, but vacated the rationale. It held that only the Attorney General has the legal standing to challenge Plaintiff's corporate status. The Court made no ruling on the question of whether the service business was in fact properly incorporated. See, 481 Mich 601; 751 NW2d 463 (2008).

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Sixth Circuit Affirms "Disappointed Bidder" Rule, Upholds Dismissal of Bid Protest

On May 22, 2008, the 6th Circuit Court of Appeals upheld the grant of summary disposition in favor of the City of Detroit, and against the low bidder on a DWSD project, and affirmed the "disappointed bidder" rule in Michigan.

"We reviewed the law surrounding standing and disappointed bidders in Club Italia Soccer & Sports Org., Inc. v. Charter Twp. of Shelby, 470 F.3d 286 (6th Cir. 2006). Club Italia held that absent a statutory exception, "a disappointed bidder does not have standing before this court." Id. at 293. Cases prior to Club Italia consistently refused to allow disappointed bidders to bring claims for violations of the bidding procedures. [citations omitted] A bidder who, in addition to seeing his bid rejected, is disqualified from bidding on future projects may have standing, [citations omitted] but EBI cannot obtain standing this way because EBI was not disqualified from bidding on future projects.

* * *

"United of Omaha [v. Solomon, 960 F.2d 31, 34 (6th Cir. 1992)] is particularly fatal to EBI's claims because it held that a disappointed bidder must show that "it was actually awarded the contract at any procedural stage or that local rules limited the discretion of state officials as to whom the contract should be awarded." United of Omaha, 960 F.2d at 34. EBI cannot meet this test because it was never awarded the contract and because [Detroit Mayor] Kilpatrick has unlimited discretion in awarding contracts in order to comply with the EPA consent decree. Like the bidder in United of Omaha, EBI was "obviously disadvantaged" by the government's actions, id. at 35, but it nevertheless "retained only a unilateral hope of being awarded the contract, not a right to it." Ibid. A "unilateral hope" does not create standing."

See, EBI-Detroit, Inc. v. City of Detroit, 2008 U.S. App. LEXIS 11043, *18-21 (6th Cir. Mich. 2008). The trial court's ruling was reported in an earlier post.

[Update: The official cite for this case is EBI-Detroit, Inc. v. City of Detroit, 279 Fed. Appx. 340 (6th Cir. 2008) ]

Circuit Court Retains Jurisdiction Over $15,000 Contract Claim, Even When Lien Claim is Dismissed

Section 118(1) of the Michigan Construction Lien Act requires that an action to foreclose a construction lien be brought in the circuit court for the county where the real property is located. For smaller liens, this provision overcomes the requirement that claims in circuit court exceed $25,000. Thus, a lien claimant can pursue a foreclosure action in circuit court even where the amount in controversy is less than $25,000.

But what happens if the claim of lien is dismissed? Does this divest the circuit court of jurisdiction over the remaining claims, and require that the case be remanded to the district court? In a recent unpublished decision, the Michigan Court of Appeals considered this issue, and held in the negative. The remaining claims can proceed to trial:

"As a rule, when a court of competent jurisdiction becomes possessed of a case, its authority continues until the matter is finally and completely disposed of, and no court of co-ordinate authority is at liberty to interfere with its action."

Maidaniuc v. Country Pond, L.L.C., 2008 Mich. App. LEXIS 861 (Mich. Ct. App. Apr. 29, 2008). A copy of the slip opinion can be found here.

Supreme Court Limits Grounds for Reviewing Arbitration Awards Under FAA

On March 25, 2008, in a 6-3 opinion, the U.S. Supreme Court ruled that Sections 10 and 11 of the Federal Arbitration Act provide the exclusive grounds for vacating or modifying an arbitration award.

Contractual arbitration agreements providing for judicial review broader than the grounds in the FAA are not unenforceable under the FAA, the Court held. Rather, when the FAA is invoked, a court "must" confirm an arbitration award unless it finds that one of the grounds set out in Sections 10 and 11 for vacating or modifying awards is applicable.

Hall Street Associates, L.L.C. v. Mattel, Inc., No. 06-989, 552 U.S. ___, 2008 WL 762537 (March 25, 2008).

Because the particular arbitration at issue was part of a U.S. District Court trial, the Supreme Court remanded the case for determination of whether the arbitration agreement, as drafted, should be enforceable not under the FAA but under the U.S. District Court's inherent authority to manage its own cases. The Supreme Court also declined to extend its holding outside the realm of the FAA, noting that its ruling did not apply to enforcement under state statutes or the common law.

Supreme Court Rules Against Michigan Company on Tucker Act Challenge

On January 8, 2008, the U.S. Supreme Court ruled 7-2 that the U.S. Court of Appeals for the Federal Circuit must always consider whether cases making claims against the federal government were filed on time, even if the federal government has waived that issue.

The Court's ruling came in the case of John R. Sand & Gravel v. U.S. (06-1164), which involved a takings claim and the six-year time period for filing such claims under the Tucker Act [28 USC 2501]. This case was noted in an earlier post.

In a lawsuit filed in 1994 with the U.S. Court of Federal Claims, John R. Sand argued that the Environmental Protection Agency's restrictive activities on land for which it held a mining lease amounted to an unconstitutional taking of its leasehold rights. The Government initially asserted that the claims were untimely under the court of claims statute of limitations, but later effectively conceded that issue and won on the merits.

Although the Government did not raise timeliness on appeal, the Federal Circuit addressed the issue sua sponte, finding the action untimely where the claim first arose in 1994 and the lawsuit had been filed more than six years later. The Federal Circuit found that the six-year filing deadline was a jurisdictional limit, and not just a claims-processing limit that could be waived by the government. The U.S. Supreme Court agreed. Writing for the Majority, Justice Breyer noted that:

"Some statutes of limitations, however, seek not so much to protect a defendant's case-specific interest in timeliness as to achieve a broader system-related goal, such as facilitating the administration of claims, (citation omitted) limiting the scope of a governmental waiver of sovereign immunity, (citation omitted) or promoting judicial efficiency, (citation omitted). The Court has often read the time limits of these statutes as more absolute, say as requiring a court to decide a timeliness question despite a waiver, or as forbidding a court to consider whether certain equitable considerations warrant extending a limitations period. (citation omitted) As convenient shorthand, the Court has sometimes referred to the time limits in such statutes as “jurisdictional.” * * * This Court has long interpreted the court of claims limitations statute [Tucker Act] as setting forth this second, more absolute, kind of limitations period."

The full text of the Supreme Court's decision can be found at the Cornell Law School's Supreme Court collection here.

"Disappointed Bidder" Rule Proves Fatal (Again) in DWSD Bid Protest

On July 10, 2007, for the second time in less than 6 months, the U.S. District Court for the Eastern District of Michigan has dismissed a bid protest of a DWSD contract on grounds that the low bidder lacked legal standing to challenge the award. As he did earlier this year, Judge John Feikens made short work of the contractor's claims:

Plaintiffs do not have standing to bring this matter before this Court. Plaintiffs argue that they are Detroit taxpayers and DWSD fee-paying customers and as such have standing to legally challenge the DWSD award in this matter, regardless of whether they have bid on the PC-755 contract or not. I previously wrote that retail water customers of DWSD or rate payers do not have standing to join in disputes involving the awarding of public contracts.

* * *

Allowing Plaintiffs to have standing in this matter would essentially permit any individual in the region to become a party to any case regarding a contract awarded by DWSD, and would have the further consequence of allowing any disappointed bidder to circumvent the disappointed bidder doctrine merely because they also are retail customers of the DWSD.

Walbridge Aldinger Co. v. City of Detroit, 495 F. Supp. 2d 642, 645 ( E.D. Mich. 2007)

Construction Liens: E. R. Zeiler Update

Since the first post on the E. Z. Zeiler decision, the surety (NAS Surety Group) has filed an Application for Leave to Appeal with the Michigan Supreme Court. The application was filed on May 30, 2006 (Docket No. 131297).

This case has also been assigned the following citation:

E. R. Zeiler Excavating, Inc. v Valenti Trobec & Chandler, Inc., 270 Mich App 639; 717 NW2d 370 (2006).

Construction Liens: Statute of Limitations

Under the Michigan Construction Lien Act, does the time period for bringing an action to enforce a claim of lien differ when the lien has been bonded off?

Until recently, the answer was thought to be No.

Under Section 117(1) of the CLA, an action to enforce a claim of lien must be brought within one year from the date it was recorded. Even when a lien was bonded off, following the procedures in Section 116, courts in Michigan have regularly treated an action against the bond as the same as one against the property. See, McAlpine & Keating, Construction Liens in Michigan, Sec 5.10 (ICLE 1996 & Supp 2003).

In E. R. Zeiler Excavating, Inc. v Valenti Trobec & Chandler, Inc., 2006 Mich. App. LEXIS 1172 (April 18, 2006) the Michigan Court of Appeals addressed this question in a case of first impression.

The Michigan Court of Appeals found that an action based upon a bond furnished under Section 116 of the CLA is subject to the 6 year statute of limitations for contract claims, not the one year period for enforcement of construction liens. 2006 Mich. App. LEXIS 1172, *8-9. The Court noted:

"Although the facts and proceedings in this case are complicated, the legal analysis is straightforward. MCL 570.1116 is silent concerning any period of limitations for an action on a bond. Although MCL 570.1117 expressly provides for a one-year period of limitations, the provision applies by its plain language to the enforcement of construction liens and foreclosure thereon. We find no basis for extending the one-year period of limitations to actions on bonds filed under [*9] MCL 570.1116 contrary to the express statutory scheme established by the Legislature. We agree with Zeiler that the six-year period of limitations for contract actions, MCL 600.5807(8), applies to its claim against [the surety]."

The slip opinion for this case can be found here.

Commentary: This decision was contrary to the expectations of most construction attorneys. Substituting a surety bond for the property was not meant to enhance a claimant's rights by extending the time period within which to file suit. The Zeiler decision will make it more expensive for contractor's to bond off construction liens, and require that such bonds be maintained for up to six years. One alternative might be to specify a one year statute of limitations on the face of the bond; Michigan law permits parties to contract for shorter statutes of limitation.