DiPonio Constr. Co. v. Rosati Masonry Co.

• Decision Date: 31 July 2001
• Docket Number: Docket No. 218426.
• Citation: 246 Mich. App. 43,631 N.W.2d 59
• Parties: DIPONIO CONSTRUCTION COMPANY, INC., Plaintiff-Appellant, v. ROSATI MASONRY COMPANY, INC., and Paolo Rosati, Defendants-Appellees.
• Court: Court of Appeal of Michigan — District of US

631 N.W.2d 59

246 Mich. App. 43

DIPONIO CONSTRUCTION COMPANY, INC., Plaintiff-Appellant, v. ROSATI MASONRY COMPANY, INC., and Paolo Rosati, Defendants-Appellees.

Docket No. 218426.

Court of Appeals of Michigan.

Submitted January 10, 2001, at Detroit.

Decided May 15, 2001, at 9:15 a.m.

Released for Publication July 31, 2001.

Grylls, Facca, Richter & Pregler, P.C., (by Christen E. Zinn), Royal Oak, for the plaintiff.

Rosati Associates, P.C. (by A.D. Rosati), West Bloomfield, for the defendant.

Before ZAHRA, P.J., and SMOLENSKI and GAGE, JJ.

SMOLENSKI, J.

In this civil action brought under the Michigan builders' trust fund act, M.C.L. § 570.151 et seq., plaintiff appeals as of right from the trial court's order granting defendants' motion for summary disposition under MCR 2.116(C)(7). The trial court applied the three-year statute of limitations set forth in M.C.L. § 600.5805(9)¹ and found that plaintiff's claim was time-barred. We reverse.

I. Factual and Procedural Background

Rosati Masonry Company (Rosati Masonry) engaged plaintiff, DiPonio Construction Company, as its subcontractor on various construction projects. One of those projects involved Walbridge Aldinger as the general contractor. In October 1993, Walbridge issued a $51,000 check in payment for labor and materials, jointly payable to Rosati Masonry and plaintiff. At that time, Rosati Masonry owed plaintiff approximately $40,000 for labor and materials provided on that project. Paolo Rosati (Rosati), a shareholder, officer, and director of Rosati Masonry, asked plaintiff to endorse the joint check and promised that he would pay plaintiff the amount owed. Although plaintiff endorsed the joint check from Walbridge, defendants subsequently refused to pay plaintiff any funds from that check.²

On August 19, 1998, plaintiff filed a complaint against defendants, proceeding on four counts: breach of contract, unjust enrichment, promissory estoppel, and violation of the Michigan builders' trust fund act. Defendants filed a motion for summary disposition under MCR 2.116(C)(7), arguing that statutory limitation periods barred all four counts. The circuit court agreed, granting defendants' motion and dismissing plaintiff's complaint. Plaintiff appeals as of right, challenging the trial court's decision regarding the statute of limitations applicable to civil claims brought under the builders' trust fund act.

II. Standard of Review

We review de novo a trial court's decision on a motion for summary disposition under MCR 2.116(C)(7). Diehl v. Danuloff, 242 Mich.App. 120, 122-123, 618 N.W.2d 83 (2000). Further, whether plaintiff's claim is statutorily time-barred is a question of law for this Court to decide de novo. American Commercial Liability Ins. Co. v. Aageson Thibo Agency, 226 Mich.App. 336, 340-341, 573 N.W.2d 637 (1997). The applicable limitation period for a civil action brought under the Michigan builders' trust fund act appears to be a question of first impression in this state. Because we conclude that the six-year limitation period provided in M.C.L. § 600.5813 applies to plaintiff's cause of action, we reverse.

III. Builders' Trust Fund Act

The builders' trust fund act applies to those funds paid to contractors and subcontractors for products and services provided under construction contracts. The three-section act provides, in its entirety:

Sec. 1. In the building construction industry, the building contract fund paid by any person to a contractor, or by such person or contractor to a subcontractor, shall be considered by this act to be a trust fund, for the benefit of the person making the payment, contractors, laborers, subcontractors or materialmen, and the contractor or subcontractor shall be considered the trustee of all funds so paid to him for building construction purposes.

Sec. 2. Any contractor or subcontractor engaged in the building construction business, who, with intent to defraud, shall retain or use the proceeds or any part therefor, of any payment made to him, for any other purpose than to first pay laborers, subcontractors and materialmen, engaged by him to perform labor or furnish material for the specific improvement, shall be guilty of a felony in appropriating such funds to his own use while any amount for which he may be liable or become liable under the terms of his contract for such labor or material remains unpaid, and may be prosecuted upon the complaint of any persons so defrauded, and, upon conviction, shall be punished by a fine of not less than 100 dollars or more than 5,000 dollars and/or not less than 6 months nor more than 3 years imprisonment in a state prison at the discretion of the court.

Sec. 3. The appropriation by a contractor, or any subcontractor, of any moneys paid to him for building operations before the payment by him of all moneys due or so to become due laborers, subcontractors, materialmen or others entitled to payment, shall be evidence of intent to defraud. [MCL 570.151-570.153.]

The builders' trust fund act is a penal statute that does not expressly provide a civil cause of action. However, our Supreme Court has long recognized a civil cause of action for violation of the provisions of the act.³ In B.F. Farnell Co. v. Monahan, 377 Mich. 552, 555, 141 N.W.2d 58 (1966), the Court cited the longstanding principle that "[w]hen a statute provides a beneficial right but no civil remedy for its securance, the common law on its own hook provides a remedy, thus fulfilling law's pledge of no wrong without a remedy." The Court therefore recognized a "common-law remedy" in favor of those aggrieved by a contractor or subcontractor's violation of the act. Id. at 557, 141 N.W.2d 58. The Court has twice reaffirmed that decision. In re Certified Question, 411 Mich. 727, 732, 311 N.W.2d 731 (1981); Nat'l Bank of Detroit v. Eames & Brown, 396 Mich. 611, 620-621, 242 N.W.2d 412 (1976).⁴

The prima facie elements of a civil cause of action brought under the act include (1) the defendant is a contractor or subcontractor engaged in the building construction industry, (2) a person paid the contractor or subcontractor for labor or materials provided on a construction project, (3) the defendant retained or used those funds, or any part of those funds, (4) for any purpose other than to first pay laborers, subcontractors, and materialmen, (5) who were engaged by the defendant to perform labor or furnish material for the specific project. MCL 570.151 et seq. The builders' trust fund act "was originally passed in 1931 as a depression-era measure to afford additional protection to subcontractors and materialmen." People v. Miller, 78 Mich.App. 336, 342, 259 N.W.2d 877 (1977). During that era, builders often undertook construction projects that were larger than their ability to finance. Id. Therefore, builders often paid suppliers and materialmen on older projects with the funds received on more current operations. Id. When difficult economic times arrived, the builders became insolvent and many subcontractors and materialmen were never paid. Id. "In light of this history, it is clear that the design of the act is to prevent contractors from juggling funds between unrelated projects." Id.

The civil cause of action that exists under the act supplements those remedies provided by the mechanics' lien statute, M.C.L. § 570.185 et seq.:

The purpose of the Act is to create a trust fund for the benefit of materialmen and others under private construction contracts. This is in addition to the rights granted pursuant to the mechanics' lien statute. They are two separate protections, providing two distinct avenues of relief to the unpaid laborers and materialmen. Any other interpretation would render one of these statutes superfluous. [Nat'l Bank, supra at 622, 242 N.W.2d 412 (citations omitted).]

Because the builder's trust fund act is remedial in nature, it should be construed liberally for the advancement of the remedy. Weathervane Window, Inc. v. White Lake Constr. Co., 192 Mich.App. 316, 325, 480 N.W.2d 337 (1991); Miller, supra at 343, 259 N.W.2d 877.

IV. Applicable Limitation Period

The parties urge this Court to apply several different limitation periods to plaintiff's civil cause of action. Plaintiff advocates the six-year limitation period found in M.C.L. § 600.5813. Defendants advocate either the six-year limitation period found in M.C.L. § 600.5807(8) or the three-year limitation period found in M.C.L. § 600.5805(9). The trial court applied the three-year limitation period provided in M.C.L. § 600.5805(9). Because we conclude that plaintiff's civil cause of action is governed by the six-year limitation period found in § 5813, we reverse.

A. Fraud

Plaintiff argues that the limitation period traditionally applicable to fraud claims should apply to civil actions brought under the builders' trust fund act, citing three separate instances where the act refers to fraud. First, plaintiff notes that the object-title clause of the act states that the act is designed "to protect the people of the state from imposition and fraud in the building construction industry." Second, plaintiff notes that the statute penalizes those contractors and subcontractors who act "with intent to defraud." MCL 570.152. Third, plaintiff notes that the statute outlines those actions on the part of the contractor or subcontractor that shall be considered as "evidence of intent to defraud." MCL 570.153. Plaintiff concludes that a civil cause of action under the statute sounds in fraud and is therefore governed by the six-year limitation period found in § 5813.

Defendant argues that a civil cause of action brought under the builders' trust fund act does not sound in fraud because the prima facie elements of that cause of action do not include the traditional elements of a fraud claim. In M & D, Inc. v. McConkey, 231 Mich.App. 22, 26-27, 585 N.W.2d 33 (1998), this Court held that a plaintiff can utilize three different theories to...