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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AGC of Michigan Sponsors ConsensusDOCS Seminars

AGC of Michigan is sponsoring two upcoming seminars designed to acquaint contractors with the new ConsensusDOCS contract forms, which we discussed in an earlier post last September.

• June 18, 2008 Ramada Inn, Marquette, MI
• June 20, 2008 EMU Livonia, Livonia, MI
  

For more information, follow this link.

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) ]

New Law Passed to Boost Set Asides for Disabled Veteran Contractors

On May 21, 2008, Michigan's Governor Granholm signed S.B. 751 into law as PA 133 of 2008. The new law takes effect immediately. As noted in an earlier post, the new law amends the Management and Budget Act to increase the goal for contract set asides for disabled veterans from 3% to 5%.

Material Deductions Bill Voted Out of House Tax Policy Committee

AGC of Michigan reports in its May 14, 2008 Midweek Briefing that H.B. 6031, the House version of S.B. 1217, was voted out of committee following testimony by AGC Member, Patrick Cebelak, Controller for Granger Construction.

As noted in an earlier post, S.B. 1217 is designed to correct problems with the Michigan Business Tax as it affects construction contractors.

H.B. 6031 would amend the Michigan Business Tax (MBT) Act to amend the definition of "purchases from other firms" as it applies to general building contractors, heavy construction contractors, and construction special trade contractors that do not qualify for a small business credit under Section 417. For those companies, the definition would apply to "any construction materials or supplies directly purchased by the firm for a construction project." These purchases would, then, not be counted in the gross receipts tax base.

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.

How to Verify that a Payment or Performance Bond Complies with Michigan's Public Bond Statute

Note: An updated version of this article was posted August 16, 2019 on our firm's website blog here. 

Michigan's public works bond statute (MCL 129.201, et seq) requires that a principal contractor furnish a payment and performance bond executed by a surety authorized to do business in Michigan. Many contracts also require that the general contractor furnish payment and performance bonds, which are executed by a surety listed on Treasury Circular 570.

If you receive a contractor's payment and performance bond, how do you know whether it complies with these requirements? How do you check on a bonding company whose name doesn't sound familiar? How you verify the financial strength of a surety?

There are 3 easy ways to verify basic information about a surety --

Michigan

The State of Michigan, Office of Financial and Insurance Regulation (OFIR) maintains an online database of insurance companies that are registered to conduct business in the State of Michigan. The search interface is somewhat confusing, but if you search using the last field on the form, you should be able to find the surety you are looking for. If you don't find the surety, it means they are not registered to conduct business in Michigan. Take this finding as a red flag.

For insurance companies that are registered to conduct business in Michigan, you get the usual information about state of incorporation, and registered agent. Here's a sample report for Hartford Fire Insurance Company, a surety that is active in Michigan.

Treasury Circular 570

Treasury Circular 570 is a list of acceptable sureties on federal bonds maintained by the U.S. Department of Treasury. A surety that isn't on this list is probably very small, or one that should not be accepted or relied upon. It raises a red flag in my mind when I don't find a surety on this list.

Michigan law generally provides little recourse to potential bond claimants in the event that a contractor fails to furnish a bond, or furnishes one that fails to comply with the statute. Failure to furnish a bond that comports with the statute, however, would probably be grounds for an owner to terminate a general contract.

A.M. Best Company

A.M. Best issues financial-strength ratings measuring insurance companies’ ability to pay claims. If the contract requires that a surety bond be furnished by a surety with a particular rating (ie., AA or B+), you can verify this rating online through A.M. Best.


Update: My colleague Angie Greenslade referred me to the A. M. Best website. It provides information on the current financial strength of insurance companies, including sureties. Thanks Angie!

DWSD Receives $316 Million Low Bid for Upper Rouge CSO Tunnel (South) Project

Earlier today, the City of Detroit Water and Sewerage Department (DWSD) received bids from two contracting teams for the Upper Rouge CSO (South) Tunnel, Contract PC-764.

A low bid of $316,170,200 was submitted by Kenny Construction/Obayashi, JV. The second bidder was Traylor Brothers/Jay Dee, JV at $352,416,600.

The North Tunnel will be bid later this year.

Read Here for more information about the Upper Rouge CSO Tunnel project.

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.

Elevated Lake Level Damages -- Time for Bringing Claim is 3 Years, Michigan Court of Appeals Rules

A lawsuit brought by plaintiffs claiming that defendants flooded their property and caused trees to die by wrongfully raising the level of a lake, and seeking money damages under theories of negligence, negligence per se, nuisance, trespass, and civil conspiracy, should have dismissed under a three-year statute of limitations ruled the Michigan Court of Appeals in a recent published decision.

In Terlecki v Silver Lake Property Ass'n of Indian River, ___ Mich App ___ (2008); plaintiffs complained that defendants caused Silver Lake in Cheboygan County to rise, flooding plaintiffs’ low-lying forested property. The defendants' actions, however, occurred more than three years before the plaintiffs filed their lawsuit. The Court of Appeals concluded that "the plain text of MCL 600.5805(10) and MCL 600.5827 bar plaintiffs’ claim for money damages under any of plaintiffs’ liability theories."

Click here for the full text of the opinion.

Bill to Amend Michigan Business Tax Approved by Senate

On April 22, 2008, the Senate approved S.B. 1217 on a roll call vote of 250-38. The bill now goes to the House Committee on Tax Policy.

As noted in an earlier post, S.B. 1217 is designed to correct problems with the Michigan Business Tax as it affects construction contractors.

22 Billion Gallons!

The Atlanta Journal-Constitution reported on Sunday, April 20, 2008 that a mistake in calibrating a gauge that measures lake water resulted in the release of 22 billion gallons from Atlanta's principle source of drinking water in 2006.

"More than a year before Georgia's historic drought demanded the Atlanta area's attention, the U.S. Army Corps of Engineers accidentally released about 22 billion gallons of water downstream from Lake Lanier in 2006, while trying to save taxpayers $138."

Neighbors apparently noticed the water level dropping in Lake Lanier, but the U.S. Army Corps of Engineers didn't realize the problem due to staffing changes.

For the rest of this incredible story, Read Article.

Michigan Construction Law, Contractor's Guide Available from AGC of Michigan

In 2005, the AGC Legal Advisory Committee published an updated "Contractor's Guide to Michigan Construction Law," which is now available on the AGC of Michigan's website in the Legal Resources section.

The Guide was written by members of the AGC Legal Advisory Committee, and is is divided into 17 Chapters --

1. The Contract for Construction: Standard Forms and Common Risk Transferring Provisions
   
2. Bids, Bidders, and Bid Protests (by Thomas Keranen and Peter Cavanaugh)
   
3. Defective Plans/Specifications
4. Contract Changes/Differing Site Conditions (by Peter Cavanaugh)
   
5. Delay in Contract Performance
6. Remedies for Payment Disputes
7. Dispute Resolution Mechanisms
8. Overview of State and Federal Prevailing Wage Law
9. Michigan Occupational Safety and Health Act (MIOSHA)
10. Hiring and Terminating Employees in Michigan
11. Environmental Law: A Brief Overview for the Construction Contractor
12. Bankruptcy in a Construction Setting
13. Dealing With the Media and Press in Corporate Crisis Situations
14. Bonding and Insurance
15. Subcontractors, Rights and Remedies
16. Michigan Construction Defect and Mold Litigation
17. Information Technology and Construction Law

Bill to Amend Michigan Business Tax for Construction Firms Inches Forward

On April 17, 2008, a bill to fix the Michigan Business Tax for construction contractors moved closer to passing the Michigan Senate. S. B. 1217 was placed on order of third reading with substitute S-1.

S.B. 1217 would amend Section 113(6)(e) of the Michigan Business Tax (MBT) Act (MCL 208.1113) to include in the definition of "purchases from other firms", for certain builders and contractors, direct material costs for a construction project under a contract specific to that project.

The MBT currently imposes a modified gross receipts tax on every contractor with nexus in the State. The tax is imposed on the modified gross receipts tax base, after allocation or apportionment to the State at a rate of 0.8%. The tax base is a taxpayer's gross receipts less purchases from other firms before apportionment.
The definition of "purchases from other firms" includes payments to subcontractors for a construction project under a contract specific to that project. Under the bill, "purchases from other firms" would also include direct material costs for a construction project under a contract specific to that project. "Direct material costs" would mean the amounts paid for materials that are deductible on the taxpayer's Federal income tax return as purchases under the cost of goods sold.

To track the progress of S.B. 1217, you can follow the bill on the Michigan Legislature's website here, or contact Bart Carrigan or Damian Hill with AGC of Michigan, who are following S.B. 1217 closely on behalf of the construction community.

Mediation of Construction Disputes, AAA Updates Mediation Services

The American Arbitration Association recently updated its Mediation Services and now devotes a separate website to its mediation offerings. The new website is appropriately named www.aaamediation.com

Among the changes are the following --

New Pricing Structure

• AAA has eliminated the up-front filing fee
• The "mediation" rate designated on the Mediator's resume is a combined rate for the AAA and the Mediator
  

Revised Mediator Resumes

The AAA now provides the following new information about the Mediators on its Panel:

• Years of Practice as a Mediator
• Total Number of Cases Mediated
• Settlement Rates
• Statement of Philosophy
• Multi-Party Experience
• All Mediator Resumes are Posted On-Line
  

Choice of Administration

• Parties have the choice of filing their Mediation Cases locally (through the AAA Offices in Southfield), or at one of the Case Management Centers.
  
• Parties can also file their Mediation Cases through the AAA Mediation Website.
• Note: From my experience, the AAA's Southfield Office is much better at handling AAA matters than the Case Management Center in Rhode Island, which is the office otherwise assigned to handle mediation and arbitration cases from Michigan. Janice Holdinski and her Staff do a great job and I highly recommend that you file your Mediation Case through the Southfield Office. For more information, contact Janice Holdinski at (248) 352-5509. (pjc)
  

Contract Documents Seminar, Tom Keranen and Fred Butters to Speak on April 29, 2008

On April 29, 2008, Attorneys Thomas M. Keranen, PE, and Frederick F. Butters, FAIA, will speak about the ConsensusDOCs contract documents and the AIA 2007 Contract Documents at a seminar sponsored by AIA of Michigan.

Mr. Butters will address the substantial changes made to the AIA documents, and compare the 2007 and 1997 versions. Mr. Keranen will discuss the new ConsensusDOCS contract documents. This seminar will be held at Laurel Manor in Livonia.

For more information, contact Tom Keranen or Fred Butters at (248) 647-9653, or AIA of Michigan at (313) 965-4100 or on their website to sign up for this seminar .

Note: The introduction of the ConsensusDOCS contract documents was discussed in an earlier post.

PDF for Legal Professionals

Adobe Acrobat (PDF) has become the de facto standard in the legal profession for filing documents electronically with federal courts using the PACER system, and increasingly state courts.

Adobe sponsors an excellent blog -- Acrobat for Legal Professionals -- that is geared for lawyers who use PDF documents in their practice, whether it be for filing documents or using PDF to manage large document collections.

One of the most useful aspects of Adobe Acrobat, which is only found in the Professional version, is the OCR function, which can turn a large scanned document into a full-text searchable one. This is particularly useful for finding specific provisions in large contract documents.

Adobe Acrobat is also a very easy way to present exhibits during trial. For my last several trials, I converted all of my exhibits, both documents and photographs, to PDF and was able to present the information with little problem. The annotation and full-screen display features of Adobe Acrobat also help to highlight and make sense of text documents.

During a recent arbitration, I used a laptop computer hooked to a 20" flat screen display to display my exhibits using PDF. I was able to keep my client's photographs in front of the arbitrator through most of the proceeding. Opposing Counsel had nothing similar to present his evidence, and conceded afterwards that the photographs had tipped the outcome of the case in favor of my client.

Department of Treasury Introduces New Lincoln

Off topic a bit, but the U.S. Department of Treasury is rolling out a new $5 bill today. The Treasury Department has a pretty cool, interactive website that shows off the new Lincoln, along with the other bills that have undergone face lifts and security enhancements in the past several years.

AIA, NSPE and ACEC conduct Annual Design Professional Liability Insurance Survey

Overview



Professional liability insurance is increaingly critical to the successful design professional. Today’s Architect and Engineer has more choices in coverages and insurance options then ever before. Better still, those choices come at competitive prices. To assist their members in negotiating the complex and ever changing professional liability insurance market, the AIA Risk Management Committee, in collaboration with the American Council of Engineering Companies (ACEC), the National Society of Professional Engineers (NSPE), and the AIA Trust conduct an annual survey of those companies providing liability insurance coverages for the practicing design professional. Written surveys were completed by each company where standard questions are answered. The process culminated with a joint meeting in Chicago in October of 2007, where representatives from each company were interviewed to determine not only the unique and specific aspects of their particular coverages, but also to identify emerging market trends. Those findings are discussed hereafter. An overall summary of the survey results can be found on the AIA national website at AIA.org.


The Market in General


Market Health All of the carriers interviewed indicated that the overall market is generally healthy. The influx of capital seen in prior years has continued, which has engendered competition. Premiums are generally declining, and most carriers concentrate on retaining their current insureds. As most carriers also indicated a desire to expand their business, the expectation is that overall premiums will continue to trend downward, although no substantial drop in rates is expected. Since the design professionals have many options today, carriers are placing more emphasis on the accuracy of their underwriting and reserves.


Claims Trends Most carriers reported that the incidence of claims continues to remain relatively flat. However, the severity of claims continues to rise, albeit at a relatively small rate. When the severity of claims is adjusted for inflation, the actual rise is very small. Some areas of the market (housing and public buildings in particular) have seen a rise in both the incidence and the severity of claims. Most carriers reported an increase in claims arising out of geo-technical issues.


Carrier Health AM Best financial ratings (a leading indicator of the financial health of an insurance carrier) held steady over the past year. Those carriers who shared information concerning their profit models generally adhered to the proposition that they must generate a profit on their underwriting. In years past, some carriers had relied on investment income for profits while operating their underwriting at a loss. As certain types of risks derivative of specific types of work mature, some carriers are open about their intention to manage those risks by reducing the number of firms which perform that type of work in their book of business. Since overall market health depends on maintaining a number of healthy carriers, this business focus likely bodes well for the long term.


Developing Trends


Building Information Modeling (BIM) While building information modeling is a concern, claims exclusively derivative of the BIM project delivery system have not yet emerged. Most carriers admit that the insurance industry generally plans for the worst. In its infancy, CADD presented some of the same concerns inherent in BIM. Not only did the worst CADD fears never develop, CADD has actually made the industry much more efficient and better. The normal approach - stay at arm’s length and blame someone else - likely will not work with BIM since the A/E involvement by definition must be much more immediate. Generally, most carriers believe that the traditional issues (standard of care, scope creep, contract language, etc.) will eventually present again as the technology develops, albeit from a BIM perspective. Most carriers are already addressing the easier questions (damage from viruses, hardware and software compatibility, electronic transfer of documents, etc.) in their current policies.


Sustainability / Green Design As with BIM, claims that are exclusively derivative of sustainable design principles have not as yet materialized. However, with owners investing
heavily in sustainable features on the strength of promises that the investments will pay dividends, carriers are concerned that the claims will eventually develop if performance projections do not materialize.


Housing With the market squeeze on the hosing sectors, most carriers report an up-tick in residential claims. While the exact causes are unclear, the belief is that builders and owners are seeking to recoup losses the see from the general tightening of the residential market. Residential issues have become the principal source of claims for some carriers. As the housing market difficulties continue, claims in this sector are expected to do increase.


Cost Re-Allocation The drive to quantify the standard of care by contract is increasing. Public owners in particular are now insisting on contract clauses that allocate fault to the design professional where cost overruns exceed a specified level. Worse, the levels at which owners are seeking cost recovery has dropped to almost zero. For some carriers, the onset of this cost recovery mentality has elevated public work above condominiums (a traditional claim hotbed) as a claims generator.


Aging Infrastructure As the infrastructure ages and deteriorates it commands an increasing level of attention. The need for inspection and evaluation of those aging buildings and systems has created a new market for some firms. However, conducting an inspection may carry with it liability for conditions that were the subject of the inspection, but which were not detected.

The purpose of the survey is to provide the design professional with basic information necessary to make an informed choice from the myriad of carriers and insurance products available in today’s market. The design professional should ask;


Does my insurance broker have access to a range of carriers and products so that I can take best advantage of the choices the competitive market provides?


Am I receiving competitive premium quotes that reflect the level of competition inherent in today’s market?


Does my carrier have a loss prevention / risk management program, and, if so, does it provide me with appropriate value in exchange for the investment?


The A/E liability insurance market is more varied and dynamic than ever before. While that circumstance creates opportunity, it also demands careful attention to, and evaluation of the numerous options available such that the opportunity is fully realized.

Frederick F. Butters, FAIA, Esq. co-chairs the AIA National Risk Management committe and serves as Board of Directors liaison to the AIA Trust. For more information about this issue, contact him at Keranen & Associates, P.C., 6895 Telegraph Road, Bloomfield Hills, Michigan 48301, Tel: (248) 647-9653.

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)

Construction Lien Act Modified, S.B. 487 Enacted

On June 28, 2007, Michigan's Governor approved S.B. 487, which amends Sections 110 and 115 of the Michigan Construction Lien Act. The new statute, PA 28 of 2007, is effective July 10, 2007

Background

Currently, parties involved in a construction project must provide various notices, statements, and claims of liens. Procedures can vary depending on whether the project is for commercial property or residential. PA 28 of 2007 amends the Construction Lien Act to restrict the applicability of certain provisions to residential properties; specifically, provisions regarding a sworn statement provided by a contractor or subcontractor about an improvement to a structure and to a waiver of lien.

PA 28 of 2007 will do the following:

• In a warning to an owner or lessee required to be included in a sworn statement, specify that the owner or lessee of the property shall not – rather than may not – rely on the sworn statement to avoid the claim of a subcontractor, supplier, or laborer who had provided a notice of furnishing to the designee or to the owner or lessee if the designee was not named or had died. (A sworn statement is a notarized document that lists every subcontractor, supplier, and laborer who provided labor and materials for the project. A subcontractor or supplier must provide a notice of furnishing after furnishing the first labor or material; a laborer must provide one when wages are due but not paid. The document must be given to the owner, lessee, or designee, and the contractor.)

• Restrict – to a construction project involving an improvement to a residential structure – the requirement that an owner or lessee provide notice of receipt of a sworn statement to each subcontractor, supplier, and laborer providing a notice of furnishing or named in the sworn statement. Upon request, the owner, lessee, or designee would have to give a copy of the sworn statement to each subcontractor, supplier, or laborer who was entitled to notice under these provisions.

• Restrict – to an improvement provided to a residential structure – the requirement that an owner, lessee, or designee not rely on a full or partial unconditional or conditional waiver of lien provided by a person other than the lien claimant named in the waiver if the lien claimant had filed, or was excused from filing, a notice of furnishing unless the owner, lessee, or designee had first verified the authenticity of the lien waiver with the lien claimant. The language contained in the form for the various waivers (partial and full unconditional waivers, as well as partial and full conditional waivers) would be modified to reflect this change.

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 PA 28 of 2007 might affect you or your business, please feel free to contact Peter Cavanaugh.

Residential Builders Exempt from Michigan Consumer Protection Act, Michigan Supreme Court Rules

A residential home builder is exempt from the Michigan Consumer Protection Act under MCL 445.904(1)(a) because the general transaction of residential home building, including contracting to perform such a transaction, is "specifically authorized" by the Michigan Occupational Code, MCL 339.101 et seq. This was the recent ruling of the Michigan Supreme Court in Liss v Lewiston-Richards, Inc, 478 Mich 203; 732 NW2d 514 (Mich Sup Ct, June 6, 2007).

In reaching its decision, the Supreme Court overruled two earlier decisions of the Michigan Court of Appeals -- Forton v Laszar, 239 Mich App 711, 609 NW2d 850 (2000), and Hartman & Eichhorn Bldg Co, Inc v Dailey, 266 Mich App 545, 701 NW2d 749 (2005) -- which had permitted homeowners to sue home builders under the Michigan Consumer Protection Act.

The full text of Liss v Lewiston-Richards, Inc can be found here.

Comment: The Michigan Consumer Protection Act was used to pursue claims against residential builders because it provided a statutory basis to recovery attorney fees. As a practical matter, the Liss decision will make it more difficult for homeowners to pursue claims against their builders. At common law, under the "American Rule," every party pays their own attorney fees. Unless the parties agree by contract that the prevailing party can recover their attorney fees (rare in contracts for residential construction), the only other way to recover attorney fees is by statute.

For More Information

Since the facts of each case are unique, this update cannot be taken as legal advice. For more information about the Liss decision or how it might affect you or your business, please contact Peter Cavanaugh.

Peter Cavanaugh to Speak June 12, 2007 at MACPA Litigation and Business Valuation Conference

Peter J. Cavanaugh will be a Speaker at the MACPA's June 12, 2007 "Litigation and Business Valuation Conference" at the VisTaTech Center at Schoolcraft College in Livonia, Michigan. Mr. Cavanaugh and Jim Schmid, CPA, CFE, ABV (Grant Thornton, LLP) will speak about "Unraveling the Research Potential of the Web."

Mr. Cavanaugh's portion of the presentation will focus on using the U.S. Court's PACER database to research federal court filings, and using Justia.com, and iGoogle to track new case filings.

Gary Quesada to Speak at MSPE / ACECM 2007 Annual Conference

Gary D. Quesada, Hon. Aff. AIA, J.D., will be speaking as a Member of the PCIA Risk Management Panel Discussion at the MSPE/ACECM 2007 Annual Conference on June 9, 2007 at Boyne Mountain Grand Lodge. The focus of this Conference is "Re-Engineering Michigan's Economy."


Mr. Quesada is a Shareholder with Thomas M. Keranen & Associates, P.C. His practice is concentrated on business and construction law matters, including litigation and arbitration of contract, construction defect and property disputes, construction lien and surety bond claims, construction-related copyright, and disputes involving architects, engineers and environmental professionals.

Implied Obligations in Michigan Construction Contracts

The May, 2007 Michigan Bar Journal includes an article by William F. Frey entitled "Obligations Implied in Michigan Construction Contracts." Mr. Frey provides a brief overview of Michigan law in the following areas:

• Owner's Implied Warranty of Plans and Specifications (Spearin Doctrine)
• Owner's Duty to Share all Material Information
• Owner's Duty to Provide Access / Duty to Coordinate / Duty Not to Interfere
• Contractor's Implied Warranty of Fitness for a Particular Purpose of "Habitability"
• Contractor's Implied Warranty of Workmanship

Wm. Frey, Obligations Implied in Michigan Construction Contracts, 86 Mich BJ 36 (2007). A PDF version of this article can be found here. 

New Bill Would Create Michigan False Claims Act (H.B. 4773)

On May 16, 2007, a new bill was introduced in the Michigan House (H.B. 4773), which would create the Michigan False Claims Act. On first read, it appears that the drafters of H.B. 4773 borrowed heavily from the Federal False Claims Act (31 USC 3729, et seq).

H.B. 4773 was likely introduced in response to passage of the Deficit Reduction Act of 2005, which President Bush signed into law on February 8, 2006. The DRA includes an incentive for states to enact mini-False Claims Act statutes. Under the incentive, states with a false claims statute may receive an additional 10% of any funds recovered under the statute.

H.B. 4773 can be read here.

For more information about the Deficit Reduction Act, and the incentive for states to enact False Claims Acts, read here.

Update: H.B. 4733 was referred to second reading on February 12, 2008. Legislative Analysis of the Bill can found found here.

New Bill Would Modify Recently Amended Construction Lien Act (S.B. 487)

On May 9, 2007, Senators Garcia and Basham introduced a new bill in the Michigan Senate (S.B. 487), which would limit to residential construction the changes made to Sections 110 (lien waivers) and 115 (sworn statements) of the Construction Lien Act by the passage of PA 572 of 2006.

S.B. 487 can be read here.

Background -- Rationale for Change

PA 572 of 2006, and a companion statute passed at the same time, PA 497 of 2006, were aimed at shoring up the Michigan Homeowner Lien Recovery Fund, and preventing fraud in the residential construction market. PA 572 adds several requirements that on their face appear to add a significant administrative burden on contractors who operate outside of the residential construction market.

First, PA 572 amends Section 110 of the Act to require that sworn statements include the address and telephone number for any listed subcontractor, supplier or laborer listed. Not a significant change. However, PA 572 further requires that the owner, lessee or designee notify persons listed on a sworn statement (advising them that they are so listed) and provide them with copies of the sworn statement, within 10 business days, if so requested.

“(6) On receipt of a sworn statement, the owner, lessee, or designee shall give notice of its receipt, either in writing, by telephone, or personally, to each subcontractor, supplier, and laborer who has provided a notice of furnishing under section 109 or, if a notice of furnishing is excused under section 108 or 108a, to each subcontractor, supplier, and laborer named in the sworn statement. If a subcontractor, supplier, or laborer who has provided a notice of furnishing or who is named in the sworn statement makes a request, the owner, lessee or designee shall provide the requester a copy of the sworn statement within 10 business days after receiving the request.” [MCL 570.1110(6)]

In addition, PA 572 adds a requirement to Section 115 that lien waivers be authenticated:

“(7) Subject to subsection (8), an owner, lessee, or designee shall not rely on a full or partial unconditional or conditional waiver of lien provided by a person other than the lien claimant named in the waiver if the lien claimant has either filed a notice of furnishing under section 109 or is excused from filing a notice of furnishing under section 108 or 108a unless the owner, lessee, or designee has first verified the authenticity of lien waiver with the lien claimant either in writing, by telephone, or personally.” [MCL 570.1115(7)]

S.B 487 would clarify the changes made by PA 572, and limit its application to residential construction, as it was originally intended.

Michigan Public Works Bond Statute -- Strict Compliance with Notice Requirements Upheld

Michigan's Public Works Bond Statute (MCL 129.201, et seq) requires strict compliance with the first (30 day) and last (90 day) notice requirements.

In contrast to the substantial compliance standard applied to notice under Michigan's lien statute, a claimant who does not have a contract with the principal contractor must closely follow the statutory notice requirements of the Michigan Public Works Bond Statute, which require serving a written notice of furnishing within 30 days of first work on the principal contractor, and a second written notice within 90 days of last work on the principal contractor and the "governmental unit" (ie., public agency contracting for the improvement). See, MCL 129.207.

On April 17, 2007, the Michigan Court of Appeals reiterated the rule of strict construction for public bond claims, and appears to have applied it even in the case of a non-statutory bond.

In National Waterworks, Inc v International Fidelity & Surety, Ltd., 275 Mich App 256; 739 NW2d 121 (2007) [slip opinion], the Court of Appeals upheld summary disposition of the Plaintiff's payment bond claim where it failed to satisfy the notice requirements set forth in the bond. The bond in question did not require a first notice of furnishing, but did require written notice within 90 days of last work.

The Plaintiff in the case served written notice of furnishing on October 8, 2004, 6 weeks before completing its last work on November 18, 2004. The bond also required a second notice within 30 days of serving the first notice. The Plaintiff served a second notice on February 11, 2005.

Although Plaintiff appears to have complied with the second notice requirement, the Court of Appeals rejected the argument that the first notice, served before completion of the work, substantially complied with the terms of the payment. The Court of Appeals relied upon its 1982 decision in Square D Environmental Corp v Aero Mechanical, Inc, 119 Mich App 740; 326 NW2d 629 (1982), which had presented a similar set of facts and a similar rejection of substantial compliance.

Commentary: This case underscores the importance of paying close attention to the notice requirements of the Public Works Bond Statute, and the particular notice requirements which might be included in a non-statutory bond.

For more information about National Waterworks, or any other payment bond or notice issues you might have, please contact Peter Cavanaugh. Each case is different.