Michigan Construction Law Update

SB 77 Signed into Law by Governor Snyder

2011-10-07T10:44:00.007-04:00

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

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

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

2011-09-23T12:33:00.001-04:00

By: Gary D. Quesada, Esq

Cavanaugh & Quesada, PLC

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

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

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

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

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

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

As with any political campaign, teamwork and perseverance were required for success. SB 77 bill sponsor Senator Tonya Schuitmaker (R-Lawton) provided her leadership throughout the process, from introduction through final passage. Industry organizations that supported this successful legislative effort represent all sections of the design and construction industry, including the following:

American Institute of Architects of Michigan
American Council of Engineering Companies
Michigan Society of Professional Engineers
American Society of Civil Engineers - Michigan Section
Michigan Society of Professional Surveyors,
AGC of Michigan
Michigan Infrastructure and Transportation Association (MITA)
Construction Association of Michigan (CAM), and
Michigan Association of Homebuilders

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

For more information see www.MichiganConstructionLaw.com, or e-mail gquesada@cqlawfirm.com.

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

2011-08-22T11:03:00.004-04:00

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

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

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

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

(Hat-tip: Courthouse News Service).

Michigan Supreme Court Decision Expands Liability Exposure for Contractors

2011-08-01T17:22:00.019-04:00

By: Gary D. Quesada, Hon. Aff. AIA, J.D.

Cavanaugh & Quesada, PLC

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

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

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

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

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

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

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

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

New Michigan Law Prohibits (Most) Project Labor Agreements

2011-07-22T18:16:00.003-04:00

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

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

The Act generally prohibits a governmental unit from:

Entering into or spending funds under a construction contract if the contract terms: (1) require or prohibit a bidder or contractor from entering into an agreement with a collective bargaining organization relating to the underlying construction project or related projects; or (2) discriminate against a bidder or contractor based on their willingness or refusal to enter into an agreement with a collective bargaining organization relating to the construction project or a related project.
Conditioning a grant, tax abatement or tax credit on a requirement that the recipient include one of the terms listed above in a contract document.
A governmental manager or construction manager from placing the above terms in bid specifications, project agreements, or other construction documents.

The statute has one significant exception: The Act does not prohibit employers or other parties from entering into agreements or engaging in any other activity protected by the federal National Labor Relations Act.

The law is effective immediately.

Click here for additional analysis of this new law.

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

Davis Bacon Wage Determinations (Past and Present)

2011-07-01T11:48:00.000-04:00

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

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

(hat-tip: Sabrina Pacifici of beSpacific.com)

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

2011-05-27T10:33:00.000-04:00

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

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

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

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

AGC Legal Brief Highlights Cedroni Decision, Other Recent Michigan Cases

2011-03-02T16:57:00.000-05:00

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

This issue of the Legal Brief was written by Aileen M. Leipprandt, a construction attorney with the Hilger Hammond firm in Grand Rapids, and includes the following articles:

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

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

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

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

What's New in the New AIA A-312 Payment and Performance Bonds?

The AGC Legal Brief is published quarterly by the AGC of Michigan and its Legal Advisory Committee. The full text of the February, 2011 issue can be found here at the AGC's website.

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

2011-01-14T17:16:00.000-05:00

By: Matthew C. Norris, Esq

Matthew C. Norris, PLC

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

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

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

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

The Court of Appeals ruled that there was a binding contract, even before the construction contracts themselves were signed. The reasoning for the Court’s decision is that the Airport accepted the contractor’s offer to perform the contract at a fixed price, and the contract was enforceable. The act of formally signing the construction contracts “was not a step that had to be completed before a valid contractual relationship arose.”

The Court of Appeals reasoned that, if the contractor attempted to walk away from its bid, the contractor could not “walk away from the project without liability.” Since the bid and acceptance were binding on the contractor, the public body was also bound.

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

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

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

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

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

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

Municipal Codes Online

2010-09-13T12:59:00.001-04:00

Municipal codes are not the sexiest part of the law, but occasionally there are issues that require you track down a local ordinance. I recently had to track down the procurement ordinance for Wayne County (Michigan). I got nowhere calling the Purchasing Department, but found what I was looking in short order through Municode.com.

Incidentally, the Wayne County Procurement Code is Chapter 120, ("Unified Procurement System") and can be found here.

Public-Private Partnership Legislation May Be Limited to DRIC Bridge Project

2010-09-08T15:37:00.002-04:00

Legislation to authorize public-private partnerships (P3) in Michigan (first reported here) may be limited to the Detroit River International Crossing (DRIC) project, according to a report in Crain’s Detroit Business.

Negligent Building Design, Expert Testimony Required to Establish

2010-07-31T17:40:00.055-04:00

The Michigan Court of Appeals recently affirmed the rule that expert testimony is required to establish negligent building design. This rule was outlined in Lawrenchuk v Riverside Arena, Inc, 214 Mich App 431; 542 NW2d 612 (1995):

“In the absence of expert testimony providing standards for evaluating the relevant risks and advantages of [a particular] design, a jury would be denied an objective framework by which to evaluate [the] plaintiff’s claim, thus precluding any genuine determination whether the design was unreasonable.” Id. at 434. Therefore, a plaintiff’s negligent building design claim must be dismissed if not supported by expert testimony. Id. at 436.

See, Tappen v. Carlton 54th L.L.C., (Mich. Ct. App. July 30, 2010). A copy of the slip opinion can be found here.

In Tappen, the Court of Appeals found that the trial court had erred when it failed to grant summary disposition to the Defendant where the Plaintiff failed to present expert testimony in support of its claim of negligent design.

"It is well settled that a jury must not be permitted to speculate or guess whether a defendant has been negligent; nor may a jury be permitted to speculate concerning the causation of a plaintiff’s injuries. (citations omitted) Because plaintiff failed to present expert testimony to support his claim that defendant’s hotel was negligently designed, the circuit court erred by declining to grant summary disposition in favor of defendant with respect to this claim."

Bill to Abolish Michigan Homeowner Construction Lien Recovery Fund Passes House

2010-06-19T10:33:00.002-04:00

On June 16, 2010, H.B. 5830, and a series of companion bills that would abolish the Homeowner Construction Lien Recovery Fund, was passed by the Michigan House of Representatives by a 94-9 vote. The bill has been referred to the Senate Appropriations Committee.

As we noted in earlier posts (here and here), the Lien Fund is out of money, overwhelmed by claims, and without a legal mechanism to replenish itself. PA 497 of 2006 repealed Section 201(2) of the Construction Lien Act and eliminated the ability of the Fund to make a $50 special assessment when the Fund fell below $1 million. Instead, the Fund can only assess members a $10 annual renewal fee.

Update: H.B. 5830 was voted out of committee by the Senate Appropriations Committee on July 21, 2010. A vote by the full Senate is expected shortly.

Legislation Creating Public Private Partnerships, to Enable the DRIC Advances

2010-06-02T18:10:00.002-04:00

Legislation to enable the Detroit River International Crossing (DRIC) project, through the creation of Public Private Partnerships (P3) has been moving forward under two other bills, H.B. 4961 and H.B. 6128. H.B. 4961 was approved by the Michigan House on May 26, 2010.

Update: On September 8, 2010, Crain's Detroit Business reported (here) this legislation may be limited to the DRIC project as part of a legislative compromise.

LEED Legislation Profiled

2010-05-24T12:36:00.000-04:00

The Hilger Hammond firm has posted an article (here) profiling S.B. 1111-1114 (2010), which were introduced in the Michigan Senate earlier this year. This legislation would amend the Commercial Redevelopment Act (PA 255 of 1978), and would provide financial incentives for construction and renovation projects achieving LEED certification.

Legislation Introduced to Prohibit Pay-When-Paid Clauses on Michigan Public Projects

2010-05-10T05:50:00.001-04:00

On May 6, 2010, Senators Michael Switalski (D. Roseville) and Dennis Olshove (D. Warren) introduced S.B. 1319, which would prohibit a surety’s reliance on a “pay-when-paid” clause in defense of payment bond claim.

Specifically, S.B. 1319 would amend Section 3 of the Public works bond statute (MCL 129.201, et seq) by adding the following prohibition:

(2) A payment bond for a contract executed on or after the effective date of the amendatory act that added this subsection shall not contain any provision that conditions the payment of the subcontractor upon the receipt by the contractor of its money from the governmental unit.

S.B. 1319 would also add a fee-shifting, and interest provision in Section 7 for the prevailing party:

(6) In any action brought under this section, the prevailing party is entitled to recover from the nonprevailing party the reasonable costs and attorney fees incurred in the action. If, in such an action, the finder of fact determines that there was no good faith basis for the nonpayment of the amount sought by the claimant, the claimant is entitled to recover interest at the rate of 12% per annum on the amount found to be due by the finder of fact from the date that payment was due until fully paid.

Note: Michigan is among a small minority of states that uphold the use of "pay-when-paid" or so-called "pay-if-paid" clauses. The controlling case is Berkel & Co v Christman Co, 210 Mich App 416 (1995).

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

2010-05-03T17:38:00.003-04:00

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

For More Information

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

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

ARRA Money Creates Pitfall for Contractors Bidding on Detroit Public Schools Construction Program

2010-04-23T05:39:00.125-04:00

Following voter approval last November of Proposal S, the Detroit Public Schools (DPS) is currently embarking on an ambitious program to construct 8 new high schools and renovate another 10 schools over the next three years.

Approximately half of the money raised by the Detroit Public Schools for its new $500 million school construction and renovation program is coming through the federal Qualified School Construction Bond (QSCB) Program. This is a new tax credit program created by the American Recovery and Reinvestment Act (ARRA).

Projects funded with bonds under the QSCB program, however, must comply with all ARRA provisions. Pursuant to the ARRA, Division B, Section 1601, Davis-Bacon labor standards must be applied to projects financed with the proceeds of Qualified School Construction Bonds.

Warning! The inclusion of federal labor standards in the DPS School Construction program creates a trap for the unwary contractor who wants to hire "Pre-Apprentices" or "Student Pre-Apprentices" or "Assistants."

Here’s why --

Section 11-3 of the Project Labor Agreement (PLA) for the DPS School Construction program requires that contractors commit to a goal that apprentices will perform 25% of total craft hours on a craft-by-craft basis. In addition, 75% of the apprentice and pre-apprentice hours must be performed by Bona-Fide City Residents. Up to 15% of the 75% apprentice hours can be performed by "Pre-Apprentices."

The PLA also requires in Section 11-9 that Contractors participate in the City’s BEST Program, which is designed to create employment opportunities for students 16 to 25 years in age. These students are considered “Assistant” or “Pre-Apprentice” and must work under the direction of a skilled construction mechanic or construction professional.

The Problem: Federal Davis-Bacon labor guidelines recognize ONLY journeymen and registered apprentices. There is no classification for a Pre-Apprentice or Student Pre-Apprentice or Assistant.

These classifications are not recognized as Apprentices and contractors could be forced to pay Journeyman rates for an employee working in these classifications if they are not part of an bona fide apprenticeship program, one that is recognized by the U.S. Department of Labor Wage and Hour Division. Quoting from the applicable federal regulations --

(4) Apprentices and trainees--(i) Apprentices. Apprentices will be permitted to work at less than the predetermined rate for the work they performed when they are employed pursuant to and individually registered in a bona fide apprenticeship program registered with the U.S. Department of Labor, Employment and Training Administration, Office of Apprenticeship Training, Employer and Labor Services, or with a State Apprenticeship Agency recognized by the Office, or if a person is employed in his or her first 90 days of probationary employment as an apprentice in such an apprenticeship program, who is not individually registered in the program, but who has been certified by the Office of Apprenticeship Training, Employer and Labor Services or a State Apprenticeship Agency (where appropriate) to be eligible for probationary employment as an apprentice. The allowable ratio of apprentices to journeymen on the job site in any craft classification shall not be greater than the ratio permitted to the contractor as to the entire work force under the registered program. Any worker listed on a payroll at an apprentice wage rate, who is not registered or otherwise employed as stated above, shall be paid not less than the applicable wage rate on the wage determination for the classification of work actually performed.

Cite: 29 CFR 5.5(a)(4)

Several trade contractors who worked on the Book Cadillac Hotel project last year got caught in this trap and were forced to pay journeymen wages to employees they thought were “apprentices” but who turned out not to be part of a bona fide registered apprenticeship program. I recently learned of another contractor working a HUD project that encountered the same problem.

The Solution(?): Sorry, but there is no easy solution to this problem. The Detroit Public Schools is aggressively promoting inclusion of Detroit businesses and employment of Detroit residents in its school construction program. The DPS also wants to extend employment opportunities to students and other young people who are not part of a registered apprenticeship program. This is a laudable goal, but it may come at a significant cost.

Contractors who plan on bidding under the DPS School Construction Program would appear to have two choices: (1) add money to their bids and plan on paying journeyman wages to students (pre-apprentices, assistants), which will inflate the cost of construction, or (2) risk paying back wages and other penalties when the matter is flagged during an audit of their certified payroll records. There is little doubt that DPS will be watching this element of the program. During a presentation to the AGC of Michigan on April 22, 2010, Kevin White (DPS Director of Procurement for Capital Improvements) outlined at least three layers of scrutiny that contractors will face.

If you have questions, or would like a copy of the PLA, please contact Peter Cavanaugh at pcavanaugh@cqlawfirm.com or call him at (248) 543-8320.

Update: The U.S. Department of Labor Wage and Hour Division has a web page (here) devoted to the application of federal labor standards to ARRA funded projects.

Further Update: On or about April 30, 2010, the DPS issued Addendum No. 6 to the Martin Luther King Senior High School bid package, which will be the first project bid on May 12, 2010. Addendum No. 6 finally provided bidders with the form of agreement and terms and conditions that DPS will be using for all of its design-build contracts under the $500.5 million bond program. DPS terms and conditions recite, almost verbatim, the Davis-Bacon language quoted above (29 CFR 5.5(a)(4)). DPS also requires that the design-build (prime) contractor incorporate these labor standards into all their subcontracts.

New Bills Would Abolish Michigan Homeowner Construction Lien Recovery Fund

2010-02-19T13:29:00.069-05:00

Just a few months ago, we reported that the Michigan Homeowner Construction Lien Recovery Fund was almost out of money and had no means to replenish its depleted coffers without action by the Michigan Legislature. I expected something to happen, but not this.

On February 17, 2010, Rep. Richard Hammel (D. Mt. Morris Twp) and Rep. Fred Durhal (D. Detroit) introduced a series of connected (tie-barred) bills -- H.B 5830, H.B. 5831, H.B. 5832, H.B. 5833, H.B. 5834, and H.B. 5835 -- that would abolish the Lien Fund and delete references to the Fund from a variety of related states, but not fix the broken funding mechanism.

H.B. 5830 would repeal Sections 201 to 207, 303, and 304 of the Construction Lien Act (MCL 570.1201 to 1207, 1303, and 1304), which established the Homeowner Construction Lien Recovery Fund, and related administration and funding.
H.B. 5831 would strike references to the Lien Fund from the Electrical Administrative Act (MCL 338.883b, et seq), which governs licensing of electrical contractors.
H.B. 5832 would strike references to the Lien Fund from the Forbes Mechanical Contractors Act (MCL 338.976, et seq), which governs licensing of mechanical contractors.
H.B. 5833 would remove references to the Lien Fund from the State Plumbing Act (MCL 338.3531, et seq), which governs licensing of plumbing contractors.
H.B. 5834 would amend the Michigan Occupational Code (MCL 339.2404, et seq), to remove references to the Lien Fund, including removal of enforcement provisions for residential builders who fail to pay a lien claim that resulted in payment from the Lien Fund. While the Bill does not significantly affect the remaining enforcement provisions , but removing the Lien Fund significantly weakens enforcement of complaints against residential builders who don't pay their subcontractors and suppliers resulting in residential liens. The complaint procedure against residential builders is a notoriously slow and ultimately unsatisfactory process.
H.B. 5835 would amend the Michigan penal code (MCL 777.15b) to reflect repeal of the Michigan Homeowner Construction Lien Recovery Fund.

I'll update this posting as soon as I can determine the rationale for these bills, but I think that homeowners are the ultimate losers if this bill becomes law.

Update: The Detroit Legal News picked up on this story in its March 15, 2010 issue (here). Apparently, the Michigan Association of Home Builders and the State of Michigan DELEG are behind this legislation. And a lack of political will to confront the problem (money) is the driving factor:

“The problem with the fund is that it is supported by fees that builders pay but those fees are at the same level they were 30 years ago,” said [Rep. Richard] Hammel [D-Mt. Morris Twp]. “No one wants the fees raised and if we keep them at the level they are, we can’t possibly pay for the fund with inflation.”

AGC of Michigan Contruction Law, Upcoming Seminars

2010-01-27T13:28:00.002-05:00

In addition to its upcoming Construction Law Webinar Series, AGC of Michigan is presenting its annual Professional Development Day on March 5, 2010 at the VisTaTech Center in Livonia. There will be 7 sessions divided into two tracks. For more information or to sign-up and attend contact the AGC of Michigan at (517) 371-1550, or click here:

Track 1: Becoming Incident and Injury Free

> Session I: Transform Your Safety Culture

> Session II: Safe Start

> Building a Winning Team

Track 2: Sell Yourself-Sell Your Company

> Session I: Successful Projects through Effective Project Controls (*)

> Session II: Failure or Success/How Do You Define Success?

> Session III: It's Not What I Say - It's What I Do

> Session IV: Social Networking - the Newest Tool in Your Toolbox

(*) Peter Cavanaugh, Cavanaugh & Quesada, PLC will be speaking on the legal aspects of project management topic, together with Joe Vanden Bossche, Navigant Consulting.

Michigan Homeowner Construction Lien Recovery Fund Runs out of Money

2009-12-29T11:48:00.009-05:00

In a sign of the times, the Michigan Homeowner Construction Lien Recovery Fund is broke, and there is currently no way to replenish its coffers.

The Michigan Homeowner Construction Lien Recovery Fund (Fund) was created under Part 2 of the Michigan Construction Lien Act (MCL 570.1101, et seq) 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 funding problem for the Fund stems from PA 497 of 2006, an amendment to the Michigan Construction Lien Act, which repealed Section 201(2) of the Act effective January 3, 2007. This amendment, reportedly the product of a legislative compromise, eliminated the ability of the Fund to make a $50 special assessment when the Fund fell below $1 million. Instead, the Fund can only assess members a $10 annual renewal fee.

Beginning in 2006 and continuing through July, 2009, the Fund experienced an unprecedented increase in claims. This increase closely mirrored the collapse of the housing market. The Fund is currently involved in over 250 pending lawsuits involving more than 350 claims against it that total more than $18 million. In 2009, Judgments against the Fund have averaged $123,800 per month. By mid-October, there was only $524,000 remaining in Fund coffers.

On October 21, 2009, the Fund sought to consolidate all 250 of the pending lawsuits into one proceeding in Macomb County and proposed a pro rata distribution of the remaining money among all the lien claimants. The result would be pennies on the dollar. The Fund’s (interpleader) motion was heard by Judge James Biernat, Sr. on November 2, 2009, but denied several weeks later in a written opinion.

As things stand now, and absent legislative intervention, the Fund has advised that it will run dry within a few months. This will leave unpaid subcontractors and suppliers to fight things out with Homeowners, who will find themselves stuck in the middle of dispute with their builder and at significant risk of paying twice for improvements to their home.

For more information, contact Peter Cavanaugh or Gary Quesada, or visit their website -- http://www.michiganconstructionlaw.com/

Update: Michigan Lawyer's Weekly recently ran a piece about this issue in its February 1, 2010 edition. The cite, for any lawyers reading this, is 24 Mich. L.W. 265.

Cavanaugh & Quesada, PLC -- New Offices in Royal Oak

2009-12-23T18:02:00.001-05:00

Attorneys Peter Cavanaugh and Gary Quesada have moved their law practice to new and larger offices in Downtown Royal Oak at 1027 S. Washington Ave. Cavanaugh & Quesada, PLC serves the unique legal needs of the design and construction communities.

Peter's practice is concentrated on business and construction law matters, including litigation, arbitration, and mediation of contract, construction lien and payment bond claims, and disputes involving owners, contractors, subcontractors, and suppliers. Peter also represents clients who specialize in water and wastewater construction projects, especially those projects involving the Detroit Water and Sewerage Department (DWSD).

Gary's practice is concentrated on representing architects, engineers, owners and contractors in business and construction law matters, including litigation and arbitration of commercial, municipal and residential construction claims, copyright and risk management consultation. Gary also represents clients in the fields of photographic, sculptural, literary and film arts.

To find out how we can help you, please contact either Peter Cavanaugh or Gary Quesada at Cavanaugh & Quesada, PLC, 1027 S. Washington Ave., Suite A, Royal Oak, MI 48067, Tel: (248) 543-8320, Fax: (248) 543-8330 or for more information visit our website -- www.MichiganConstructionLaw.com

AGC of Michigan Announces Construction Law Webinar Series

2009-12-21T17:34:00.002-05:00

As a follow-up to its October 30, 2009 seminar, AGC of Michigan has announced a series of lunchtime webinars featuring some of the authors of the recently-updated publication "Contractor's Guide to Michigan Construction Law" (Rev'd 2009).

Webinar 1 - January 20, 2010 - 11:30 to 1:00 p.m.

Bids, Bidders and Bid Protests
The Contract for Construction: Standard Forms and Common Risk Transferring Provisions;
Overview of State and Federal Prevailing Wage Law

Webinar 2 - February 10, 2010 - 11:30 to 1:00 p.m.

Contract Changes / Differing Site Conditions
Defective Plans and Specs
Delays in Contract Performance
Concepts in Business Valuation, Potential Financial Statement Impacts and More Accounting, Tax and Financial Issues

Webinar 3 - March 17, 2010 - 11:30 to 1:00 p.m.

Estate and Business Succession Planning for the Contractor
Bankruptcy and the Construction Industry
Dealing with the Media and Press in Corporate Crisis Situations

Click here for more information and to register for one or all of these webinars.

Michigan Bill Would Allow Private Investments in Public Projects

2009-12-21T14:21:00.008-05:00

Crain's Detroit Business reports today that legislation has been introduced in the Michigan legislature that would encourage private investors to fund public transportation infrastructure.

House Bill 5461 would create the Private Investment Infrastructure Funding Act, under which municipalities could enter into collaborative relationships with other public entities to develop public facilities and could, among other things, solicit private sector investment for the financing of public facilities through a bid process. Generally speaking, "public facilities" means transportation-related projects, including public transportation-related infrastructure, as well as other similar public infrastructure improvements. The term "municipality" would apply to cities, villages, and townships.

The concept, called private investment infrastructure funding, or PIIF, was first proposed by the Oakland County Business Roundtable and is being discussed as lawmakers, local officials and business look at ways to help with Michigan's transportation-funding straits.

Update: A December 23, 2009 Editorial in the the Detroit Free Press (here) endorses the idea of private funding for public infrastructure projects. On January 27, 2010, it was reported (here, and here) that the Michigan Department of Transportation (MDOT) is seeking design, build, finance and operate proposals for the Detroit River International Crossing (DRIC) project in southwest Detroit. Click here for a copy of the RFP.

Further Update (June 2, 2010): H.B. 5461 has gone nowhere since it was introduced, however, legislation to enable the DRIC project, through the creation of Public Private Partnerships (P3) has been moving forward under two other bills, H.B. 4961 and H.B. 6128. H.B. 4961 was approved by the Michigan House on May 26, 2010.

AGC of Michigan Sponsor's Construction Law Seminar

2009-10-26T05:57:00.001-04:00

On October 30, 2009, AGC of Michigan is hosting a seminar to address a number of pressing legal issues facing contractors today including payment, dispute resolution mechanisms, hiring and firing of employees, and bankruptcy.

This seminar will also launch the 3rd Edition of "A Contractor's Guide to Michigan Construction Law," which has been in the works now for almost a year. Participants will receive a copy of this important legal update.

Click here for more information about this seminar or to register.

E-Verify Regulations Upheld, New Verification Requirements to Begin September 8

2009-09-01T10:25:00.004-04:00

A federal lawsuit filed last December, seeking to block implementation of federal regulations requiring verification of employee immigration status (reported here), has ended with a ruling in favor of the Department of Homeland Security.

As reported by FederalTimes.com,

"Judge Alexander Williams of the U.S. District Court for Maryland said in an Aug. 25 ruling that DHS didn’t break the law when it mandated that contractors use the system to check the employment status of their workers.

"The plaintiffs in the case, which include the U.S. Chamber of Commerce, argued that the law authorizing E-Verify prohibited DHS from requiring any group to use E-Verify, a Web-based system employers can use to check personal information such as Social Security numbers to confirm their employees are legally able to work in the U.S.

"The court ruling paves the way for the implementation of the rule, which had been delayed since January because of the case. The rule fulfills a Bush administration executive order mandating that contractors use the system to verify employment status to prevent illegal immigrants from performing government work.

"Starting Sept. 8, new federal contracts worth more than $100,000 will include a clause requiring contractors to use E-Verify to certify the employment eligibility of any current employees who will work under the contract. The rule also requires contractors to use E-Verify to certify the eligibility of all new hires regardless of whether they’ll work on behalf of the government. Existing contracts lasting more than six months can be modified to add the requirement, but only if the contractor agrees"

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

2009-08-31T17:06:00.004-04:00

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

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

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

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

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

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

Reversed and remanded.

A copy of the slip opinion can be found here.

Court Upholds City Ordinance Assessing Costs against Owners of Abandoned Homes

2009-07-14T06:47:00.006-04:00

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

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

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

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

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

A copy of the slip opinion can be found here.

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

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

2009-06-19T12:49:00.010-04:00

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

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

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

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

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

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

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

Assignment of Contractual Rights without the Consent of the Engineer

2009-05-03T15:17:00.008-04:00

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

When entering a contract, an Engineer cannot accurately assess its risks without being assured that the other party will in fact remain its contracting partner throughout the Project. Therefore, an important risk-management tool for Engineers is to prohibit the assignment of the contract without the Engineer’s written consent.

Management of Risk through Non-Assignment Clause

Most standard form contracts governing an Engineer’s professional services contain a “non-assignment” clause, which purports to prohibit either party from assigning its rights and obligations under the contract, without the written consent of the other. When utilizing the standard forms, scrutiny of the non-assignment clause is rarely deemed necessary, because a commonly held belief is that these “non-assignment” clauses absolutely prohibit assignment without consent, such that any attempted assignment will be void and to no effect, unless the Engineer has expressly granted its consent.

Oliver/Hatcher v. Shain Park

A new Michigan Court of Appeals case has cast significant doubt on whether the non-assignment clauses in the popular standard contract forms will serve to void an assignment, despite lack of consent.

In Oliver/Hatcher Construction v. Shain Park Associates UNPUBLISHED, COA No. 275500, SC No. 136803 (Application DENIED, December 23, 2008), the parties were operating under a AIA A201 General Conditions (1997). The Owner allegedly assigned all its contractual rights without the consent of the Contractor. The Assignee sent notice to the Contractor of alleged latent defects. The Contractor brought an action for declaratory judgment, arguing that the Assignee had no rights against it, because the assignment was without consent and therefore void.

The Trial Court agreed with the Contractor, but the Court of Appeals reversed. The Court of Appeals held that the language of the AIA A201 was consistent with the common law rule that if a party breaches a promise not to assign a contract, the breach gives rise to a cause of action for damages but does not render the assignment itself ineffective.

Heightened Attention to Contract Language for Non-Assignment Clauses

Given the result in Oliver/Hatcher, an Engineer that wishes to secure the identity of its contracting partner throughout the Project should be certain to include language expressly stating that “any attempted assignment by the Owner [or Architect] of its contractual rights or obligations without the written consent of the Engineer is void and of no effect.” Consideration should be given to whether certain rights may be exempted from this prohibition, such as the right to assign to a lender under certain circumstances, or the assignment of contractual proceeds.

The Engineer should expect the inclusion of language “voiding” an attempted assignment will likely be answered with a demand by a contracting partner that the prohibition be reciprocal. Therefore, the pros and cons of the language should be weighed depending on the circumstances.

Survey of Standard Contract Non-Assignment Clauses in Light of Oliver/Hatcher

If the reasoning of Oliver/Hatcher is applied by Michigan Courts in the future, it is doubtful that any of the recent or current versions of the most popular standard contract forms will serve to “void” an assignment made without consent.

1) AIA A201 (Both 1997 and 2007 versions)

General Conditions of the Contract for Construction

The contract in Oliver/Hatcher was the 1997 AIA A201. The language in the non-assignment clause has remained unchanged in the 2007 edition:

Section 13.2 Successors and Assigns

13.2.1 The Owner and Contractor respectively bind themselves, their partners, successors, assigns and legal representatives to covenants, agreements, and obligations contained in the Contract Documents. Except as provided in Subparagraph 13.2.2, neither party to the Contract shall assign the Contract as a whole without written consent of the other. If either party attempts to make such an assignment without such consent, that party shall nevertheless remain legally responsible for all obligations under the contract.

(13.2.2 permits the Owner to assign the contract to an institutional lender providing construction financing for the Project without the Contractor’s consent.)

Comment: The AIA A201 provides for an exception, and also provides for a remedy in the case of assignment without consent. Specifically, if such an assignment is attempted, the original contracting party remains responsible for all obligations under the contract. The Oliver/Hatcher Court interpreted this language not as precluding an assignment but in fact contemplating one, as well as providing for the consequences of assignment.

2) AIA C401-2007

Standard Form of Agreement Between Architect and Consultant

An Engineer may be provided an AIA C401 when performing consulting services to an Architect. The language in AIA C401 does not include the exception, or the remedy contained in the AIA A201:

Section 10.3

The Architect and Consultant, Respectively, bind themselves, their agents, successors, assigns and legal representatives to this Agreement. Neither Architect nor Consultant shall assign this Agreement without the written consent of the other.

Comment: Under the foregoing language, the Engineer’s remedy may be limited to a cause of action for damages arising from the assignment. If the contract does not otherwise provide for it, the Engineer may wish to incorporate the terms from the AIA A201 section 13.2.1, which provides the Architect will remain bound even if an assignment is made (see above).

3) EJCDC 1910-1 (1996) and E-500 (2002)

Standard Form of Agreement Between Owner and

Engineer for Professional Services

The non-assignment language remained the same from the EJCDC 1910-1, 1996 edition to the EJCDC E-500 2002 edition:

Section 6.07 (Section 6.08 in the 1996 edition)

A. OWNER and ENGINEER each is hereby bound and the partners, successors, executors, administrators and legal representatives of OWNER and ENGINEER (and to the extent permitted by paragraph 6.07.B the assigns of OWNER and ENGINEER) are hereby bound to the other party to this Agreement and to the partners, successors, executors, administrators and legal representatives (and said assigns) of such other party, in respect of all covenants, agreements and obligations of this Agreement.

B. Neither OWNER nor ENGINEER may assign, sublet, or transfer any rights under or interest (including, but without limitation, moneys that are due or may become due) in this Agreement without the written consent of the other, except to the extent that any assignment, subletting, or transfer is mandated or restricted by law. Unless specifically stated to the contrary in any written consent to an assignment, no assignment will release or discharge the assignor from any duty or responsibility under this Agreement.

Comment: Similar to the AIA language, the standard EJCDC language appears to contemplate an assignment and provide a remedy, being the continued obligation of the assignor to its contractual duties. Therefore, although the EJCDC forms were not at issue in Oliver/Hatcher, prudence would dictate assuming a court will interpret the EJCDC language similarly to the AIA language.

4) ConsensusDocs 240

Standard Form of Agreement Between Owner and Architect/Engineer

While the ConsensusDocs do not have the history of either the AIA or EJCDC standard forms, a number of owners appear to be embracing these documents. The ConsensusDocs’ non-assignment language is more limited than either the AIA or EJCDC forms:

Section 10.3

ASSIGNMENT. Neither the Owner nor the Architect/Engineer shall assign their interest in this Agreement without the written consent of the other except to the assignment of proceeds

Comment: Applying the reasoning of Oliver/Hatcher to the ConsensusDocs language, it appears ConsensusDocs 240 provides nothing more than a promise not to assign without consent. A court may find that if a party breaches the promise under this clause, the breaching party is only exposed to a claim of damages arising from the assignment. Such damages may be difficult to identify and/or prove. Therefore, the Engineer will want to consider the issues raised in this article. Additional language may be advisable, which either voids any assignment or provides for the continued obligation of the assignor to the Engineer.

OMB Publishes Updated Guidance for Implementing ARRA

2009-04-07T07:01:00.002-04:00

On April 3, 2009, the Office of Management and Budget (OMB) published (here) Implementing Guidance for the American Recovery and Reinvestment Act of 2009 ("Recovery Act").

This is the second installment of detailed government-wide guidance for carrying out programs and activities enacted in the Recovery Act. This updated guidance supplements, amends and clarifies the initial guidance issued by OMB on February 18, 2009 (Initial Implementing Guidance for the American Recovery and Reinvestment Act of 2009, M-09-10). Updates to the guidance are based on ongoing input received from the public, Congress, state and local government officials, grant and contract recipients and federal personnel.

Largest Construction Projects in Michigan, 2009 List

2009-03-19T14:51:00.002-04:00

Crain's Detroit Business is out with the annual list of the Largest Construction Projects in Michigan for 2009 (here). Most of the projects in the Top 20 began several years ago, and are scheduled to complete in 2009 or early 2010. As in past years, school and hospital projects dominate the Top 20. The few commercial developments listed appear to be on hold.

New Ethics, Disclosure Rules for Federal Contractors

2009-02-25T19:35:00.006-05:00

On December 12, 2008, new federal rules on mandatory disclosure and ethics and compliance went into effect. Among other things, the rule requires government contractors to disclose evidence of violations of certain criminal laws by their employees or subcontractors and to implement certain internal controls within their companies.

The new rule requires, for contracts and solicitations after the December 12, 2008 effective date, the insertion of the clause at FAR 52.203-13, Contractor Code of Business Ethics and Conduct, in all contracts in which the value of the contract is expected to exceed $5 million and the performance period is 120 days or more (a "covered contract").

For more information, click here.

The Federal Construction Contracting Blog has a number of posts here on these new regulations, tracking back to when they were first proposed.

Arbitration Award, Michigan Court of Appeals Clarifies Time to Confirm

2009-02-15T13:41:00.001-05:00

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

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

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

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

New Bill Would Allow Construction Liens on Public Property

2009-01-30T17:29:00.004-05:00

On January 29, 2009, Sen. Dennis Olshove (D. Warren) introduced S.B. 140, which would allow construction liens to be recorded against government (public) property.

Specifically, S.B. 140 would amend Section 107 of the Construction Lien Act (MCL 570.1107) by adding a new Subsection (7):

(7) Real property owned or leased by a government entity or as to which a government entity contracts for an improvement is subject to a construction lien under this Act to the same extent as other real property.

That a constructions lien may not attach to public property is a well established principal under Michigan law. S.B 140 would be a significant departure from long-established precedent. See e.g., Kammer Asphalt v East China Twp, 443 Mich 176, 181, n. 10 (1993). ("materialmen and contractors may not obtain a mechanics' lien on a public building") (citing Knapp v Swaney, 56 Mich 345, 347; 23 NW 162 (1885) ("Public property cannot be the subject of a [Builders'] lien unless the statute shall expressly so provide; it is by implication excepted from lien statutes, as much as from general tax laws, and for the same reasons.") and Ford v State Bd of Ed, 166 Mich 658, 660; 132 NW 467 (1911) ("These creditors have no lien upon this public building.").

To track the progress of S.B. 140, click here.

Implementation of E-Verify Rule Delayed

2009-01-14T05:38:00.003-05:00

Federal Computer Week reported on January 12, 2009 that -

"Enforcement of a new rule that requires federal contractors to use the Homeland Security Department’s E-Verify system to check employees' work eligibility has been postponed until Feb. 20, the U.S. Chamber of Commerce announced.

"DHS is delaying implementation from the original Jan. 15 starting date to Feb. 20 as a result of negotiations associated with a lawsuit filed by the chamber and other business groups, the chamber said in a Jan. 9 news release.

"Under President George W. Bush’s executive order, use of E-Verify was to be made mandatory for approximately 168,000 federal contractors beginning Jan. 15. The E-Verify regulation pertains to federal contracts of more than $100,000 and subcontracts of more than $3,000. A coalition of business groups led by the chamber is suing to keep E-Verify from being imposed on contractors."

Click here for the rest of the story. The lawsuit filed by the U.S. Chamber of Commerce was reported in an earlier post.

Contractor Groups File Suit, Seek to Block New Immigration Checks

2008-12-31T12:31:00.006-05:00

The Federal Times reported on December 30, 2008:

"Five trade groups are suing the Homeland Security Department to block a new requirement that federal contractors check the immigration status of their employees using the department’s E-Verify system.

"In documents filed in the U.S. District Court for Maryland on Dec. 23, the groups ask the court to halt the Jan. 15 implementation of the rule and to declare the rule invalid.

"The groups say the requirement, in a June executive order, is contrary to the statute authorizing E-Verify. That law states that Homeland Security “may not require any person or other entity to participate” in the program, according to court documents.

"The case was filed by the U.S. Chamber of Commerce, Associated Builders and Contractors, the Society for Human Resource Management, the American Council on International Personnel and the HR Policy Association."

Click here for the rest of this article.

NOTE: The lawsuit cited in this article is styled as Chamber of Commerce of the United States of America et al v. Chertoff et al, Case No. 08-cv-03444-AW (U.S. District Court, District of Maryland). A copy of the Complaint is below:

Publish at Scribd

This case is also discussed here in a recent post at the Federal Construction Contracting Blog, which includes additional background information.

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

2008-12-11T05:44:00.004-05:00

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

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

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

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

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

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

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

Legally Blawged: Connecting Michigan's (Online) Legal Community

2008-11-21T17:33:00.007-05:00

Earlier this year, I met two other Michigan attorneys who write legal blogs (blawgs). We began to meet for dinner and to share our experiences with blawgs as a way to develop and expand our practices. We call ourselves "Legally Blawged" and recently incorporated as a Michigan non-profit corporation (Legally- Blawged.com, Inc.) With the assistance of Justia.com, one of the best legal blog development companies out there, we recently launched our website -- LegallyBlawged.com.

The three attorneys who "blawg" and form the core of this group are:

Gary Nitzkin -- Michigan Collection Law
Mike Hamblin -- Michigan Business Lawyer
Peter Cavanaugh -- Michigan Construction Law Update

We are expanding the membership of Legally Blawged and are looking for other lawyers, paralegals and anyone else with an interest in law firm marketing to join our group. We plan to meet once a month for dinner to discuss marketing ideas that have worked and those that have not. We also plan to invite guest speakers to discuss marketing and technology ideas to help each of us improve our marketing efforts. We also intend to use these monthly meetings as a way to network. Please join us.

Statute of Limitations Bill Passed by House Judiciary Committee

2008-11-14T06:02:00.001-05:00

On November 12, 2008, Senate Bill 865, which would revise the statute of limitations for bringing an action against an architect, professional engineer, land surveyor or construction contractor, was unanimously approved by the House Judiciary Committee. Gary Quesada testified before the Committee on behalf of AIA of Michigan, and was joined by ACEC/Michigan Executive Director Ron Brenke, and Ken Lawless, Vice President of Clark Construction and AGC of Michigan Board member, who also testified before the committee in support of the measure.

S.B. 865 was passed out of the Senate in February. This bill was discussed in an earlier post.

For more information about this issue, contact Gary Quesada at Cavanaugh & Quesada, PLC, 306 South Washington, Suite 216, Royal Oak, MI 48067, Tel: (248) 543-8320.

Cavanaugh & Quesada, PLC -- Announcing New Firm

2008-11-04T05:54:00.004-05:00

Peter Cavanaugh and Gary Quesada are pleased to announce the formation of Cavanaugh & Quesada, PLC. The new firm is located in Downtown Royal Oak (MI), and will focus on serving the unique legal needs of the design and construction communities.

Mr. Cavanaugh's practice is concentrated on business and construction law matters, including litigation, arbitration, and mediation of contract, construction lien and payment bond claims, and disputes involving owners, contractors, subcontractors, and suppliers. Mr. Cavanaugh also represents clients who specialize in water and wastewater construction projects, especially those projects involving the Detroit Water and Sewerage Department (DWSD).

Mr. Quesada's practice is concentrated on representing architects, engineers, owners and contractors in business and construction law matters, including litigation and arbitration of commercial, municipal and residential construction claims, copyright and risk management consultation. Mr. Quesada also represents clients in the fields of photographic, sculptural, literary and film arts.

For more information, you may contact Peter Cavanaugh or Gary Quesada at Cavanaugh & Quesada, PLC, 1027 S. Washington Ave., Suite A, Royal Oak, MI 48067, Tel: (248) 543-8320, Fax: (248) 543-8330 or visit our website -- www.MichiganConstructionLaw.com

New Bill Would Create "Commercial Real Estate Broker's Lien Act"

2008-10-04T14:36:00.011-04:00

On May 14, 2008, Sen. Randy Richardville (R. Monroe) introduced S.B. 1313, which would create the "Commercial Real Estate Broker's Lien Act". The bill was reported out of committee on October 2, 2008.

The bill would do all of the following:

Specify circumstances under which a commercial real estate broker's lien would attach to commercial real estate.

Require a claim of lien to be recorded before conveyance unless the broker's commission was due in installments and at least one was due after conveyance.

Provide for the recording and attachment of a lien in the case of a lease agreement, a broker's acting as a buyer's agent, or a commission owed on a purchase option.

Specify information that would have to be included in a claim of lien.

Provide that a prior-recorded lien or mortgage would have priority over a commercial real estate broker's lien.

Require the establishment of an escrow account if a lien recorded under the proposed Act would prevent a closing transaction.

Authorize a person claiming a commercial real estate broker's lien to bring an action to enforce it in circuit court.

Allow an owner of commercial real estate to serve on a lien holder a demand to enforce the lien or answer a claim; and provide that the lien would be extinguished if the lien holder did not respond within 30 days.

Specify that a lien under the Act would be available only to a licensed real estate broker.

A commercial real estate broker's lien would attach to commercial real estate in favor of a real estate broker if all of the following circumstances existed:

The real estate broker had a written commission agreement.

The broker was entitled to a commission under that agreement.

The broker recorded a claim of lien before the actual conveyance of the commercial real estate.

To track the progress of S.B. 1313, click here.

Update: S.B. 1313 died, but a similar bill was introduced on May 27, 2009, S.B. 610, that would also create a lien statute for commercial real estate brokers.

On October 5, 2010, S.B. 610 was signed into law by Governor Granholm as PA 201 of 2010. The new law is effective immediately.

Detroit City Council Approves Upper Rouge CSO Tunnel, DWSD Contract PC-764

2008-09-25T17:52:00.008-04:00

The Detroit Free Press reports -- "The Detroit City Council approved today on a 6-0 vote a $314 million portion of a $1 billion tunnel system to store sewage and storm runoff during heavy rain with the city up against a Sept. 28 deadline to act or face the loss of low-interest loans [as outlined in a September 24 letter from the MDEQ] that could have cost ratepayers an extra $100 million in interest on construction bonds and put the city in violation of its water pollution permit."

Click here for the rest of the story. Read Here for more information about the Upper Rouge CSO Tunnel project. Click here for a copy of the City's NPDES pollution permit.

SBA Suspends Applications for Small Disadvantage Business (SDB) Program

2008-09-24T06:13:00.002-04:00

The Small Business Administration (SBA) announced yesterday that it is suspending the receipt of applications for the Government-wide small disadvantaged business (SDB) program effective September 22, 2008. The announcement was made through the Federal Register. The SBA will continue to process all applications received before that date to completion, unless an applicant withdraws its application.

AGC Legal Brief Highlights False Claims Act

2008-09-22T22:33:00.003-04:00

The September 2008 issue of the AGC Legal Brief highlights the use of the False Claims Act (FCA) against contractors and subcontractors. The article, written by Attorney Patrick Facca, presents an overview of the FCA and outlines some of the risks associated with the statute. Mr. Facca notes that use of the FCA has been increasing on federal projects and federally funded project. Mr. Facca also includes information about proposed legislation (HB-4773), which would create a Michigan False Claims Act.

AGC Legal Brief is published by the AGC of Michigan's Legal Advisory Committee. Click here for the full text of Mr. Facca's article.

Panel to Consider Arbitration Post-Hall Street Associates

2008-09-16T05:42:00.005-04:00

On October 6, 2008, the ABA's Section on Public Contracts is sponsoring a Panel Discussion concerning the Supreme Court's ruling in Hall Street Associates v Mattel, ___ U.S. ___ (2008) and its impact on arbitration in federal procurement cases. We first reported on the Hall Street decision here.

The panel includes:

Donald P. Armadas, a former Judge at the ASBCA who now serves as an arbitrator and mediator;
Judge Paul Williams, Chairman, Armed Services Board of Contract Appeals: and,
Frederick J. Lees, Professor Emeritus, George Washington University School of Law.

The panel will discuss the limitations on judicial review of arbitration awards, and the ways in which arbitration can be made more time and cost efficient.

To participate in this event, or to obtain materials from the Public Contract Section website afterwards, click here.

New Article Outlines Laws and Programs Designed to Assist Service-Disabled Veteran-Owned Small Business in the Federal Marketplace

2008-09-09T05:36:00.006-04:00

Korsak, "The Service-Disabled Veteran-Owned Small Business in the Federal Marketplace," The Army Lawyer, July 2008, pp. 45-58.

Written by Lieutenant Commander Theron R. Korsak, this article is meant to introduce agency heads, contracting officers, Judge Advocates, and veterans to the laws and programs designed to assist service-disabled veteran-owned small businesses (SDVOSB) in federal contracting.

The first section of the article summarizes the laws intended to assist service-disabled veteran-owned small businesses. Section two focuses on socio-economic programs and eligibility requirements. Section three is a review of common procedural issues affecting service-disabled veteran-owned businesses. Section four explores policy conflicts that may impact contract awards to a service-disabled veteran-owned small business. Section five summarizes the role that federal agencies, quasi-government organizations, and industries play to meet the 3% goal. The article concludes with recommendations to increase contract awards to service-disabled veteran-owned small businesses.

Click here for a full text copy of this article.
--
Note: Thanks to Jerry Walz at PubKLaw.com for the heads-up on this article. Jerry's PubKLaw-Digest is an excellent resource for those involved with federal procurement. This article is among many that Jerry includes in his "Papers of Interest" collection. Highly recommended!

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

2008-08-26T06:18:00.003-04:00

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

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

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

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

VA Proposes New Rules to Increase Opportunities for Service-Disabled Veteran-Owned Small Business (SDVOSB)

2008-08-21T07:34:00.005-04:00

Veterans Administration (VA), Federal Acquisition Regulations: Supporting Veteran-Owned and Service- Disabled Veteran-Owned Small Businesses, Proposed Rules, 73 Fed. Reg. 49141, August 20, 2008.

This proposed rule would implement portions of the Veterans Benefits, Health Care, and Information Technology Act of 2006 and Executive Order 13360, Providing Opportunities for Service-Disabled Veteran Businesses to Increase Their Federal Contracting and Subcontracting. The Public Law and Executive Order authorize the Department of Veterans Affairs (VA) to establish special methods for contracting with service-disabled veteran-owned small businesses (SDVOSBs) and veteran-owned small businesses (VOSBs).

Under this proposed rule, a VA contracting officer could restrict competition in contracting for SDVOSBs or VOSBs under certain conditions. Likewise, sole source contracts with SDVOSBs or VOSBs would be permitted under certain conditions. The proposed rule would implement these special acquisition methods as a change to the VA Acquisition Regulation (VAAR).

Dates: Comments on the proposed rule should be submitted on or before October 20, 2008 to be considered in the formulation of the final rule.

Note: Thanks to Jerry Walz at PubKLaw.com for the heads-up on this announcement. For those of you who are involved in public contracting, especially federal procurement, Jerry's PubKLaw-Digest is an excellent resource. For a modest annual cost, you receive a daily newsletter updating all aspects of procurement law, and recent decisions from the various boards of contract appeals, and federal district and circuit courts. Highly recommended!

Avoiding Home Foreclosure in Michigan

2008-08-14T16:02:00.004-04:00

Gary Nitzkin, who blogs at Michigan Collection Law Blog, recently posted an important article outlining a number of ways that homeowners can avoid losing their homes to foreclosure.

Gary's suggestions include (a) asking your lender about a Home Retention Program, (b) talking directly with the lender's Loss Mitigation Department, (c) considering a Forbearance Agreement, a Loan Modification, deed in lieu of foreclosure or (d) negotiating a pre-foreclosure short sale. Gary notes that there may be significant tax consequences to any agreement with the lender that involves forgiveness of debt.

To read Gary Nitzkin's post in its entirety, follow this link.

AGC of Michigan Sponsors ConsensusDOCS Seminar

2008-08-13T17:19:00.006-04:00

On Thursday, September 25, 2008, at 8:30 a.m., the AGC of Michigan will present ConsensusDOCS: A New United Voice for Construction Contracts at its office in Lansing. The session will run 8:30 a.m. - 11:30 a.m. and includes a continental breakfast and seminar materials. Thomas M. Keranen, Kerenan & Associates, P.C. will be the featured speaker.

A registration form for this seminar can be found here.

New Article Discusses Interplay Between Section 523(a)(4) of Bankruptcy Code and Michigan Builder's Trust Fund Act

2008-07-13T06:43:00.004-04:00

As discussed in an earlier post, the Michigan Builder's Trust Fund Act (MCL 570.151, et seq) may impose personal liability upon corporate officers, or members of a limited liability company, who misappropriate construction proceeds in violation of the statute. Pending legislation, such as H.B. 6176, would codify the imposition of personal liability, which is now a function of case law.

The Builder's Trust Fund Act also plays a role in bankruptcy, in which certain debts that arise when the debtor is acting in a "fiduciary capacity" may not be dischargeable. I am not a bankruptcy attorney, but Thomas R. Morris, who is an experienced bankruptcy attorney, has written an excellent article on this important topic, which appears in the latest issue of the Michigan Business Law Journal:

Pursuant to 11 USC 523(a)(4), a debt owing by an individual "for fraud or defalcation while acting in a fiduciary capacity" is not dischargeable in bankruptcy. Two United States Supreme Court cases, one from 1844 and one from 1934, establishes a definition of "fiduciary" for purposes of section 523(a)(4). However, the enactment by Congress and the state legislatures of "statutory trust" laws has created a new type of fiduciary duty not specifically addressed by the Supreme Court cases. The lower courts are not in agreement as to whether a statutory trust creates a "fiduciary capacity" for purposes of section 523(a)(4). As a result, there are a number of unanswered questions which arise under section 523(a)(4). Of particular interest to Michigan attorneys are questions relating to the dischargeability of liability under the Michigan Building Contract Fund Act (MBCFA) or "Builders Trust Fund."

Thomas R. Morris, "Trust Fund Statutes and the Discharge of 'Trustee' Debts Under Bankruptcy Code Section 523(a)(4)," 28 MI Bus LJ 11 (Spring, 2008). For the full text of this article, click here. We also reported on a previous article Mr. Morris wrote on this subject in a February, 2007 post.

Mr. Morris is a member of the West Bloomfield firm of Silverman & Morris, PLLC. Mr. Morris is a 1986 graduate of the University of Michigan Law School. Mr. Morris and his firm concentrate their practice in the areas of bankruptcy, commercial law, workouts, bankruptcy litigation and similar matters, and represents both creditors and debtors. For more information on any of these issues, contact Thomas R. Morris directly.

Materials Deduction Bill Signed by Governor Granholm, Public Act 177 of 2008

2008-07-11T15:58:00.003-04:00

On July 9, 2008, Governor Granholm signed into law S.B. 1217 [Public Act 177 of 2008]. As discussed in an earlier post, this new law provides that construction companies can deduct materials purchased for specific construction projects from calculation of their gross receipts taxes. The deduction is retroactive to January 1, 2008.

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

2008-07-03T17:21:00.009-04:00

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).

Publish at Scribd or explore others: Case Law Law michigan

AGC of Michigan Sponsors ConsensusDOCS Seminars

2008-06-11T18:09:00.004-04:00

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

2008-05-25T09:48:00.007-04:00

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

2008-05-23T16:24:00.010-04:00

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

2008-05-17T06:47:00.008-04:00

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

2008-05-10T13:06:00.005-04:00

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

2008-05-01T06:26:00.019-04:00

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

2008-04-24T17:01:00.007-04:00

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

2008-04-23T06:16:00.003-04:00

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

2008-04-23T05:47:00.001-04:00

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

2008-04-23T05:33:00.004-04:00

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!

2008-04-21T15:39:00.006-04:00

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

2008-04-19T10:47:00.007-04:00

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 --

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

Bill to Amend Michigan Business Tax for Construction Firms Inches Forward

2008-04-19T10:16:00.007-04:00

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

2008-04-18T14:41:00.006-04:00

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

2008-04-16T09:42:00.010-04:00

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

2008-04-12T21:46:00.007-04:00

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

2008-03-14T07:03:00.002-04:00

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

2008-02-17T11:00:00.003-05:00

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

2008-02-17T10:17:00.006-05:00

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"

2008-02-13T06:10:00.008-05:00

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

2008-02-08T10:09:00.000-05:00

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

2008-01-15T06:48:00.001-05:00

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

2007-12-23T14:15:00.004-05:00

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, ___ Mich ___ (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

2007-11-29T10:28:00.003-05:00

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

2007-11-21T15:06:00.000-05:00

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

2007-11-07T10:06:00.000-05:00

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

2007-11-01T17:28:00.002-04:00

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

2007-10-31T17:01:00.000-04:00

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

2007-10-15T06:18:00.003-04:00

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

2007-09-30T20:54:00.000-04:00

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

2007-09-30T10:34:00.001-04:00

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

2007-09-24T07:39:00.000-04:00

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

2007-09-19T06:05:00.000-04:00

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

2007-09-11T06:46:00.006-04:00

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?

2007-08-25T16:37:00.001-04:00

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

2007-08-08T12:20:00.000-04:00

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

2007-07-31T14:47:00.000-04:00

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

2007-07-10T06:23:00.003-04:00

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

2007-06-30T18:31:00.001-04:00

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

2007-06-09T13:27:00.001-04:00

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

2007-06-02T11:11:00.000-04:00

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

2007-05-29T09:19:00.000-04:00

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

2007-05-21T16:14:00.000-04:00

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)

2007-05-18T06:43:00.001-04:00

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)

2007-05-09T17:26:00.000-04:00

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

2007-04-25T06:55:00.009-04:00

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.