Statute of Limitations Bill Passes the Senate

On Thursday February 14, 2008, Senate Bill 865 came up for vote in the Michigan Senate. When it became apparent that a last minute effort to tie the bill to Senate Bill 445 (which would reverse recent Michigan Supreme Court decisions concerning the threshold standard for bringing suit under the Michigan no-fault insurance act) would fail, the backers of that effort withdrew and SB 865 proceeded to a vote. The bill passed with 31 votes in favor, 7 against. It now heads to the Michigan House.

Sponsored by Senator Alan Sanborn, SB 865 reverses the Michigan Supreme Court decision in Ostroth v. Warren Recengy GP Limited Partnership. The Ostroth decision upset nearly 15 years of settled jurisprudence, and had the effect of extending the statute of limitations for most claims against design professionals and construction contractors from 2 or 3 years to 6 years.

The governing statue of limitations for claims against design professionals and construction contractors is found at MCLA 600.5805. Simply put, a statute of limitations provides a time window within which a claim that has accrued must be brought, or it becomes time barred. In addition, a statute of repose is found at 600.5839(1). By contrast, pursuant to a statute of repose, if a claim has not accrued after a specified period of time, it can never accrue. Together, the two statutes create an outside limit for claims against design professionals and construction contractors.

The Court of Appeals in Witherspoon v. Guilford read those sections harmoniously such that the end result gave meaning to both statutes. The traditional statutory scheme set out in MCLA 600.5805 governed, but in no instance could the claim window run past that time specified in MCLA 600.5839(1).

That state of harmony reigned until the Ostroth decision in July of 2004. In the Ostroth case, the Court concluded that the 6 year period set out in MCLA 600.5839(1) was a period of both limitations and repose, and that controlled all claims to the exclusion of MCLA 600.5805. The net effect was a substantial increase in the statutory time limits. Since most claims accrued at completion of the construction or shortly after, the 2 or 3 year periods set out in MCLA 600.5805 usually controlled their disposition. The 6 year period of MCLA 600.5839(1) represented a marked departure from and increase in those time limits.

As yet, the effect of Ostroth has not manifested in the form of higher insurance rates. However, as we move into the extended claims period it permits, reasonable expectations suggest that will begin to occur. SB 865 would effectively reverse Ostroth and restore the statutory balance the Witherspoon court struck. As such, SB 865 is not a reduction in the statutory limitations period, but is instead simply a return to settled law pre-Ostroth.

With bi-partisan support in the Senate, SB 865 will hopefully receive favorable treatment as it moves into the House such that design professionals and construction contractors will see a return to the pre-Ostroh law, and the reasonable statutory time frames it reflects.

For more information about this issue , contact Frederick F. Butters at Keranen & Associates, P.C., 6895 Telegraph Road, Bloomfield Hills, Michigan 48301, Tel: (248) 647-9653.

Michigan Legislature Enacts "Owner Built Residence Transfer Act"

On Februray 13, 2008, the Michigan Legislature enacted SB 0577. The "Owner Built Residence Transfer Act" (PA 6 of 2008) is designed to protect homeowners who buy homes from unlicensed builders. The Act takes effect in 180 days.

Rationale

Michigan law contains various provisions requiring a residential builder to be licensed, but this requirement does not aply to someone who is building their own home. Article 24 of the Occupational Code, however, permits an unlicensed property owner to act as a residential builder when building a home for their own use and occupancy. The exception has led to abuses by unlicensed builders, who build several homes per year "for their own use" and decide the sell them as soon as the house is completed. Effectively, such persons are acting as (unlicensed) residential builders.

Provisions

The Owner Built Residence Transfer Act --

• requires that an "owner-builder" who intends, at the onset of construction, to live in a "residential structure" either to live in it or place it for sale if he or she is unable to live there;
  
• allows an owner-builder to sell only one owner-built residence per year;
  
• prohibits an owner-builder who lives in a new residential structure from selling it or transferring ownership for at least 120 days;
  
• requires an owner-builder, when offering a residential structure, to supply a notice that the structure was built by an owner-builder who was not a licensed builder;
  
• specifies that an owner-builder who fails to comply with the disclosure requirements is liable for repair costs and the buyer's temporary shelter costs;
  
• allows the buyer of an owner-builder residential structure to bring an action within 18 month for damages resulting from a violation of the disclosure requirements.

The Act includes the following definitions:

• "Owner-builder" means an individual who is not a licensed residential builder and who builds, or acts as a general contractor for the construction of a residential structure in which that person, or a member of his or her family, actually resides or intends to occupy for his or her own use upon the issuance of an occupancy permit.
• "Residential structure" means premises used or intended to be used for a residence purpose and related facilities appurtenant to the premises used or intended to be used as a adjunct of residential occupancy.

For more information about this issue, contact Peter Cavanaugh at Keranen & Associates, P.C., 6895 Telegraph Road, Bloomfield Hills, Michigan 48301, Tel: (248) 647-9653.

MDOT Implements New Claims Procedures

The Michigan Infrastructure & Transportation Association (MITA) reports in their current newsletter that the Michigan Department of Transportation (MDOT) has updated its claims procedures.

"On January 30th, after almost two years of collaboration and work by the Department and MITA, MDOT leadership signed into policy their new procedure for review of contractor claims. This new procedure, formally issued as Bureau of Highway Instructional Memorandum 2008-02, Review of Contractor Claims, replaces an outdated and organizationally archaic process defined in MDOT documents dating back to the mid 90’s."

For the rest of the story, follow this link.

For a copy of MDOT's January 30, 2008 Memorandum outlining their new claims procedures, following this link.

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.

Plaintiff Must Prevail on Lien Foreclosure Claim to Recover Attorney Fees, Michigan Supreme Court Rules

On December 20, 2007, the Michigan Supreme Court entered an order reversing the Court of Appeals in a case involving the award of attorney fees to a lien claimant who had lost its lien claim, but prevailed on its breach of contract action. The Court of Appeals had found the plaintiff to be a prevailing party, and entitled to recover its attorney fees, despite losing its lien claim. The Supreme Court disagreed.

In H.A. Smith Lumber v Decina, 480 Mich 987; 742 NW2d 120 (2007), the Michigan Supreme Court held that "To be awarded attorney fees as a 'prevailing party' under MCL 570.1118(2), the party must prevail on the lien foreclosure action. * * * The language of [the statute] does not permit recovery of attorney fees on the contract action merely because it was brought together with the lien foreclosure action."

MISS DIG Act Clarified by Michigan Court of Appeals

The Michigan Court of Appeals recently clarified several aspects of the Protection of Underground Facilities Act (MCL 460.701) (the MISS DIG Act).

In SBC v J T Crawford, Inc, ___ Mich App ___ (Mich Ct App, Nov 27, 2007), a case of first impression, the Court held --

• that pile driving is a construction activity subject to the MISS DIG Act,

• that the excavation contractor, but not the pile driving subcontractor, was required to contact MISS DIG, but

• the pile driving subcontractor could not rely upon the excavating contractor's locate request to MISS DIG, which had expired by the time the work actually began.

"[MISS DIG] requires that written or telephone notice of intent to excavate be given to the association at least three working days, but not more than 21 calendar days, 'before commencing the excavating . . . procedures.'"

And while the the Act does not define "commence," the Court of Appeals concluded that "excavation work (including pile driving) 'commences' under the statute when machinery or equipment intended for such work breaks the ground."

In this case, since Defendant Crawford (the pile driving subcontractor) did not commence pile driving until 22 days after the MISS DIG request, the ticket had expired. The Court of Appeals rejected Crawford’s argument that because (some) notice was given, it was not subject to strict liability under the Act. The statute specifically states "the" notice, not merely "notice."

"To interpret the necessary notice as Crawford would urge us to do would allow contractors to escape liability so long as they provided notice at any time prior to commencing excavation, even if it were a year. This interpretation is not consistent with [MISS DIG] . . . and would render the 21-day period in the act meaningless."

The Court of Appeals reversed and remanded the matter to the trial court for an explicit finding of whether competent evidence showed the damages were caused by Crawford’s pile driving activities, whether SBC complied with § 8, and a determination of the amount of damages, if any, for which Crawford is liable.

Link to full text of this opinion. For more information about MISS DIG, see their website.

UPDATE: On November 14, 2008, the Michigan Supreme Court denied Defendant's application for leave to appeal. SBC v JT Crawford, Inc, __ Mich __ ; __ NW2d __ (2008).

Peter J. Cavanaugh is a Shareholder with Keranen & Associates, P.C. Mr. Cavanaugh's practice is concentrated on business and construction law matters, including litigation, arbitration, and mediation of contract and property disputes, construction lien and surety bond claims, and disputes involving owners, contractors, subcontractors, and suppliers.

Mr. Cavanaugh also represents clients who specialize in water and wastewater construction.

For more information, you can contact Peter Cavanaugh at Keranen & Associates, P.C., 6895 Telegraph Road, Bloomfield Hills, Michigan 48301, Tel: (248) 647-9653.

Peter Cavanaugh to Speak at Michigan Construction Industry Professional Development Day on January 24, 2008

Attorney Peter Cavanaugh will speak about "Legal Issues in Managing the Construction Project" at the 5th Annual Michigan Construction Industry Professional Development Day program.

Professional Development Day is being held this year on January 24, 2008 at the Ann Arbor Marriott in Ypsilanti, and is sponsored by AGC of Michigan.

A registration form for Professional Development Day is available here.

Update: A copy of this presentation can be downloaded from the AGC of Michigan's website here.

U. S. Supreme Court Considers Tucker Act Challenge by Michigan Company

The Associated Press reports --

"The Bush administration, in a case involving a Michigan company, urged the Supreme Court on Tuesday [November 6, 2007] to maintain years of previous court rulings that have upheld a six-year statute of limitations in certain disputes filed against the government. The court is considering a narrowly tailored case involving the timeliness of a lawsuit filed by [John R. Sand & Gravel Co.] a Michigan gravel company - based in Lapeer County's Metamora Township - against the U.S. Environmental Protection Agency. At issue is the statute of limitations under the Tucker Act, an 1887 law which waives the government's sovereign immunity in cases involving contracts and constitutional claims against the government," reports the Associated Press.

Click here to read the full article.

For more information on the legal aspects of this case, check out the SCOTUS Blog entry on this case or the SCOTUS Wiki entry of this case here.

Morris Pumps Decision Stands, Michigan Supreme Court Denies General Contractor's Application for Review

The Michigan Supreme Court decided yesterday (October 31, 2007) to DENY the general contractor's Application for Leave to Appeal the Michigan Court of Appeals decision in Morris Pumps v Centerline Piping, et al., which had ruled in favor of Morris Pumps and two other suppliers. The matter will be returned to the trial court, which still must conduct a trial on damages.

See, Morris Pumps v Centerline Piping, Inc., et al., 273 Mich App 187; 729 NW2d 898 (2006), lv app denied, 480 Mich 928; 740 NW2d 299 (2007).

UPDATE: The AGC of Michigan's Midweek Briefing for December 12, 2007 includes a story about the Supreme Court's decision not to review the Morris Pumps case.

U.S. Supreme Court to Review 6th Circuit Case, will decide if False Claims Act covers Subcontractors

The following story was reported by FederalTimes.Com. Thanks to Jerry Walz at PubKLaw for the lead on this story.

By Elise Castelli

October 30, 2007

The [United States] Supreme Court has agreed to hear a case that will decide whether the government can collect penalties from subcontractors who commit fraud under a government contract.

General Motors, Rolls-Royce and two smaller companies want the Supreme Court to reverse a 6th U.S. Circuit Court of Appeals ruling that found they can be held financially responsible for allegedly misleading shipyards about the staff and materials used when they built parts for 50 Navy guided missile destroyers in the 1980s and 1990s.

The other two firms are General Tool Co. and Southern Ohio Fabricators, both of Cincinnati, Ohio. They were subcontractors to Allison Engine Co., a division of Rolls-Royce that GM once owned.

According to Supreme Court documents, the Navy paid for parts that were built by untrained staff using the wrong materials. Even though the firms were paid with tax dollars, the companies argue they’re not subject to the False Claims Act because they billed the shipyards, not the Navy, for the work.

The False Claims Act allows anyone to sue a company committing fraud against the government and collect damages. The government can join the case to recover damages for itself, allowing the whistleblower to keep some of what was recovered.

The two whistleblowers who brought the lawsuit 13 years ago worked for General Tool Co. The Justice Department later joined the case.

According to an attorney for one of the whistleblowers, James Helmer, the government paid more than $100 million for the faulty parts the subcontractors made. If the Supreme Court overturns the 6th Circuit decision in this case, United States ex rel. Sanders et al. v. Allison Engine Co., et al., the justices are “saying there is no remedy against subcontractors ... under the False Claims Act,” Helmer said. “That would be a terrible result because most work [on a government contract] is done by subcontractors.”

The companies’ arguments rest on a 2004 appellate court decision written by Chief Justice John Roberts before he was appointed to the Supreme Court. In the case, United States ex rel. Totten v. Bombardier Corp. known as the Totten Case, Roberts wrote that the whistleblower has to prove the subcontractor actually presented the false claim to the government.

In ruling on this false claims case, the 6th Circuit ruled Totten doesn’t apply here because the contractors were paid in government money, which the False Claims Act is meant to protect.

In a brief to the Supreme Court, the contractors argued upholding the 6th Circuit ruling would make subcontractors open to prosecution under the False Claims Act whenever they do business with a company, college or other institution that receives government funds.

The original article can be found here.

State of Michigan Updates Construction Lien Guide

The State of Michigan Department of Labor and Economic Growth (DLEG) recently updated its "Consumer's Guide to the Michigan Construction Lien Act and The Homeowner Construction Lien Recovery Fund" (Rev'd July, 2007) to reflect recent amendments to the Michigan Construction Lien Act. This publication provides an excellent overview of Michigan's lien law, and includes completed samples of all of the relevant forms. The DLEG website includes other lien resources, including sample forms and links to the full text of the Michigan Construction Lien Act.

Peter Cavanaugh to Speak on November 14, 2007 to MCA Detroit regarding "Prompt Pay" Legislation

Attorney Peter Cavanaugh will speak to the Mechanical Contractors Association (MCA) of Detroit on November 14, 2007 on the subject of Prompt Pay in Michigan: An Overview of Proposed Changes to Michigan Law.

Mr. Cavanaugh will discuss the changes to Michigan law that have been endorsed by AGC of Michigan that would affect payment practices in the construction industry. Among the proposed changes are amendments to the Michigan Retainage Act, the Michigan Builder's Trust Fund Act, the Differing Site Conditions Statute, and the Michigan Public Works Bond Statute. Mr. Cavanaugh will also address recent changes to the Michigan Construction Lien Act.

For more information, contact Cassie at MCA Detroit -- (313) 341-7661 Ext. 205 -- or visit the MCA Detroit's website.

ConsensusDOCS Released, Renewed Effort at a Fair Contract Document

On September 28, 2007, 20 leading construction associations, including AGC united to publish a consensus set of contract documents called ConsensusDOCS.

Why another set of form documents?

There are currently a variety of construction associations that produce standard form construction contracts, including AGC, COAA, EJCDC. However, standard contracts published by one association are perceived as ultimately favoring that association’s membership. This is a criticism that is frequently lodged against AIA contract forms. There is also a growing industry frustration that heavily modified standard form documents hardly resemble the original text. Sometimes “supplemental general conditions" are longer than the standard form.

Participants in ConsensusDOCS

• National Association of State Facilities Administrators (NASFA),
• Construction Users Roundtable (CURT),
• Construction Owners Association of America (COAA),
• Associated General Contractors of America (AGC),
• Construction Industry Round Table (CIRT),
• Lean Construction Institute (LCI),
• Associated Specialty Contractors, Inc. (ASC),
• American Subcontractors Association, Inc. (ASA),
• Associated Builders and Contractors (ABC),
• Finishing Contractors Association (FCA)
• Mechanical Contractors Association of America (MCAA),
• Plumbing-Heating-Cooling Contractors—National Association (PHCC),
• National Electrical Contractors Association (NECA),
  
• National Insulation Association (NIA),
• National Subcontractor Alliance (NSA),
• National Roofing Contractors Association (NRCA),
• Painting and Decorating Contractors of America (PDCA),
• Sheet Metal and Air Conditioning Contractors’ National Association (SMACNA),
• National Association of Surety Bond Producers (NASBP),
• Surety & Fidelity Association of America (SFAA), and
• Engineers Joint Contract Documents Committee (EJCDC).*

* Actively participated in the drafting process, but considering endorsement after initial publication.

The Result

ConsensusDOCS includes more than 70 contracts and forms, and address all project delivery methods. Additionally, project specific information and modifications can easily be entered through the DocuBuilder software program.

These best practice documents address cutting edge issues such as electronic communications, and building information modeling (BIM). Initial publication will also include a transformative agreement called Tri-Party Collaborative Agreement, which will encourage lean construction. In a fashion similar to the ConsensusDOCS process, the Tri-Party Agreement will have three parties sign the same contract and create a core team. This type of agreement has been used more commonly in Australia and is also known as alliancing or relational contracting. The project’s core team, which may include key specialty contractors and consultants, will make consensus decisions based upon the best interests of the project.

More Information

For more information, check out www.consensusdocs.org. In addition, AGC of America has background information on their website, including a 22 page commentary of the significant changes to be found in the ConsensusDOCs contracts.

U.S. Bureau of Engraving, Interactive Currency Site

A lawyer who doesn't have a few hobbies would be a boring one indeed. . .

As a kid, I was fascinated by coins, and had a pretty extensive "penny collection" before moving on to baseball cards. I haven't kept it up, but the last several years have seen a significant change in U.S. paper currency. Most of the bills we use every day have received significant face lifts or undergone other changes designed to thwart counterfeiters. Some changes are obvious, and others are not.

The U.S. Bureau of Engraving and Printing has a new interactive website that shows you (and your kids) what is new or special about the new U.S. currency. Check it out -- http://www.moneyfactory.gov/newmoney/

Law Library of Congress, Michigan Legal Links

The Law Library of Congress recently updated its website. The LOC includes the world's largest collection of law books and legal resources. Among its online resources is an excellent Guide to Michigan Legal Resources.

For practitioners, the State Bar of Michigan and the Institute for Continuing Legal Education (ICLE) have collaborated to produce Michigan Law Online, which is a free online primary law research service for all Michigan Bar members in good standing.

The State of Michigan's website also includes a Directory of Michigan Law Libraries, which includes links to the nearly 50 law libraries in the state.

New Bill Would Boost Set Aside for Disabled Veteran Contractors

On September 6, 2007, Sen. John Pappageorge (R. Troy) introduced S.B. 751, which would amend the Management and Budget Act to increase the goal for contract set asides for disabled veterans.

Under the current Act, it is the goal of the Department of Management and Budget (DMB) to award each year at least 3% of its total expenditures for construction, goods, and services to qualified disabled veterans. S.B. 751 would boost that that minimum goal to 5%.

The Michigan Department of Management and Budget (DMB), the largest procuring agency for construction services in Michigan next to the Michigan Department of Transportation (MDOT).

To track the progress of S.B. 751, follow this link.

New Bill Would Bar (Most) Construction Liens Against Residential Property - Why?

On July 27, 2007, a new bill was introduced by Rep. John Stakoe (R. Highland Twp), which would modify the Michigan Construction Lien Act to bar most claims of lien against Residential Structures by subcontractors, suppliers, and laborers, but not contractors.

H.B. 5051 would amend Section 107 of the Construction Lien Act by adding the following subsection:

(7) A Subcontractor, Supplier, or Laborer is not entitled to a Construction Lien on a Residential Structure.

H.B. 5051 also amends other sections in the Construction Lien Act to conform the statute with this basic prohibition.

H.B. 5051, if passed, would represent a significant, negative deviation from the protections afforded subcontractors, suppliers, and laborers by the Construction Lien Act. It is unclear what prompted Rep. Stakoe to introduce this legislation, or why he thinks it would be a good idea.

H.B. 5051 can be read here.

Update (8/28/07): Based upon discussions with Rep. Stakoe's office earlier today, I now understand that this bill was prompted by an elderly constituent who had a claim of lien recorded against his house by a roofing contractor's subcontractor. Rep. Stakoe's constituent was unable to pay the subcontractor's lien. If the homeowner had already paid the contractor, however, he shouldn't have to pay twice. The remedy to this problem lies with the Homeowner Lien Recovery Fund, not a new piece of legislation.

The Michigan Homeowner Construction Lien Recovery Fund (Fund) was created under Section 2 of the Construction Lien Act (PA 497 of 1980), to provide protection when the homeowner, has in good faith, paid their licensed contractor for materials and labor and the contractor failed to compensate materialmen, subcontractors, and/or laborers.

The Michigan Department of Labor & Economic Growth publishes an excellent "Citizen's Guide" to the Construction Lien Act and the Homeowner Lien Recovery Fund that can be found on their website here. The "Citizen's Guide" is updated through PA 28 of 2007, which became effective July 10, 2007 and which was discussed in an earlier post.

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 Construction Lien Act or how H.B. 5051 might affect you or your business, please feel free to contact Peter Cavanaugh.

When Does Professional Services Corporation Act Apply? – Michigan Court of Appeals Casts Doubt On Traditional Thinking

By: Frederick F. Butters, FAIA, JD, Shareholder,
Keranen & Associates, P.C.

On May 31, 2007, the Michigan Court of Appeals issued its final opinion in Miller v Allstate Ins Co, 2007 Mich App LEXIS 1441. In sum, the Court ruled that where a professional services business can be incorporated under the Michigan Professional Services Corporation Act, it must be incorporated under that act. Contrary to the prevailing view, the Michigan Business Corporation Act does not apply to professional service businesses.

Professional Services Corporation and Business Corporation Differences

The principal difference between a corporation organized under the Michigan Business Corporation Act (the “MBCA”) and the Michigan Professional Services Corporation Act (the “MPSCA”) is the licensing of stockholders. Where a business is incorporated under the MBCA, stockholders are not required to be licensed to practice the profession in which the corporation engages. By contrast, where a business is incorporated under the MPSCA, every stockholder must hold a valid Michigan license to practice the profession in which the corporation engages.

The Traditional Thinking

Historically, only those corporations formed by medical professionals to practice endeavors regulated by the Health Code and those regulated by the Supreme Court (Attorneys), were believed to be subject to the MPSCA. Soon after the formation of the MPSCA, the Michigan Attorney General reaffirmed the belief that Architects, Engineers and Land Surveyors were not required to comply with it. In an advisory opinion, he summarized: Stockholders in corporations which perform architectural, engineering or land surveying services do not have to be registered or licensed in such professions under section 1 of architects, engineers and surveyors registration act, provided the corporation is not organized under professional service corporation act. Op Atty Gen, June 26, 1968, No. 4627.

Therefore, according to the Attorney General, though an Architect, Engineer or Land Surveyor could elect to incorporate under the MPSCA, they were not required to do so. Since the MPSCA created a more restrictive structure in terms of stock ownership, most Design Professionals opted to incorporate under the MBCA. The traditional thinking was born.

The Miller v Allstate Decision

In Miller, the underlying Plaintiff was injured in an automobile accident and sought physical therapy treatment under the Michigan No-fault Act. The Defendant insurance company argued that the corporation which actually provided treatment was not incorporated under the MSPCA. Therefore, the Insurance Company argued that it was not required to pay for the treatment due to the provider’s improper corporate status, since the treatment was not “lawfully rendered” such that it qualified for payment under the Michigan No-fault Act.

In its opinion, the Court examined the language of the MBCA which provides: “A corporation may be formed under this act for any lawful purpose, except to engage in a business for which a corporation may be formed under any other statute of this state unless that statute permits formation under this act.” It is apparent that a physical therapist could incorporate under the MPSCA. Since there is no provision in the MPSCA that permits incorporation under the MBCA, the Court concluded that the therapist must incorporate under the auspices of the MPSCA. The physical therapist was therefore improperly incorporated under the MBCA.

Application to the Design Professional

The MSPCA sets out those professions to which it applies, in its definition section. That section provides; “Professional service means a type of personal service to the public that requires as a condition precedent to the rendering of the service the obtaining of a license or other legal authorization. Professional service includes, but is not limited to, services rendered by . . . architects, professional engineers, land surveyors . . .” There can be no doubt that the MPSCA applies to the design professional.

As there is no language permitting the design professional to incorporate under the MBCA, the Miller approach requires the design professional to incorporate under the MPSCA, and only the MPSCA. Under Miller, incorporating under the MBCA would be improper. Although the June 26, 1968 Attorney General’s opinion would suggest otherwise, AG opinions are advisory only and have no binding effect. As that opinion is now at odds with the express ruling in Miller, it has no further meaning or effect.

Effect of the Miller v Allstate Decision

Since Miller is an interpretation of law, it would be given full retroactive effect unless the Court included language in the opinion that provides otherwise. The Miller decision contains no language limiting its effect. Full retroactive effect must therefore be presumed.

It is apparent that, from this point forward, all new design professional businesses must incorporate under the MPSCA. In addition, given retroactive effect, the Miller decision means that all design professional businesses that were incorporated any time after the MPSCA took effect on March 28, 1963, which were not incorporated under the MPSCA, may see their structure called into question. Since all of the stock of a business incorporated under the MPSCA must be held by persons licensed to practice the profession in which the corporation engages, that would also mean that all design professional firms incorporated on or after March 28, 1963 should review not only their corporate structure but the manner in which their stock is held to ensure compliance with the law.

For More Information

Since the facts of each case are unique, this update cannot be taken as legal advice. For more information on how the Miller decision might affect your business, please feel free to call one of our attorneys: Thomas M. Keranen, PE, Frederick F. Butters, FAIA, Gary D. Quesada, Hon. Aff. AIA., Raymond J. O’Dea, Jeffery M. Gallant, Peter J. Cavanaugh, or Michael S. Burink.

MDOT Resolves Low Bid Tie With Coin Toss

The Michigan Infrastructure & Transportation Association (MITA) reported this story in its July 27th Weekly Review Newsletter:

For what is believed to be only the second time in its history, [the Michigan Department of Transportation] MDOT experienced a low bid tie on a project bid in the July 6th letting. Exercising its authority and discretion under the applicable state statutes, administrative rules, and federal regulations, MDOT, with concurrence from the participating federal agency, resolved the low bid tie with a “flip of a coin”.

Soon after the coin toss the note “low bid won by coin toss” was added to the project bid summary in the “As Checked” letting results report on the MDOT website.

"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)