Epps v. 4 Quarters Restoration LLC., Docket No. 147727.

Citation498 Mich. 518,872 N.W.2d 412
Decision Date28 September 2015
Docket NumberDocket No. 147727.
CourtSupreme Court of Michigan

Posner, Posner and Posner, Detroit, (by Gerald F. Posner ) for Danny and Joyce Epps.

Roger L. Premo, Farmington Hills, for 4 Quarters Restoration LLC, Denaglen Corp., Emergency Insurance Services, and Troy Willis.


Defendants, an unlicensed residential builder; his businesses; and Denaglen Corp., a check-cashing service, seek leave to appeal the decision of the Court of Appeals denying them relief from summary disposition. The trial court entered judgment in favor of plaintiffs, a married couple and parties to a home restoration contract with the unlicensed builder defendant and his businesses, and the Court of Appeals affirmed. We directed that oral arguments be held to address whether to grant the application for leave to appeal or take other action pursuant to MCR 7.302(H)(1). Epps v. 4 Quarters Restoration, LLC, 496 Mich. 853, 846 N.W.2d 928 (2014). After hearing arguments on March 10, 2015, defendants' application is now considered. This case raises four issues: (1) whether MCL 339.2412(1), which prohibits an unlicensed builder from "bring[ing] or maintain[ing] an action ... for the collection of compensation" prevents an unlicensed builder from defending on the merits against claims asserted against him by a homeowner; (2) whether MCL 339.2412(1) provides a homeowner with an independent cause of action for damages arising from the statute's violation; (3) whether a contract for the services of an unlicensed builder is void ab initio or whether it may have some form of continuing legal existence; and (4) whether the trial court abused its discretion in refusing to set aside the default of defendant Denaglen Corp., the check-cashing service. In lieu of granting leave to appeal, we affirm in part and reverse in part the judgment of the Court of Appeals and remand to the trial court for further proceedings consistent with this opinion.


Plaintiffs Danny and Joyce Epps own a home in Detroit. On July 26, 2006, that home was damaged in a flood. Plaintiffs' home insurance provider, Auto Owners Insurance Company, employed AM Adjusting for the purpose of referring plaintiffs to professionals capable of performing the necessary restoration work. AM Adjusting referred plaintiffs to defendant Troy Willis and his companies, 4 Quarters Restoration and Emergency Insurance Services. Willis met with plaintiffs and showed them a book depicting some of his work. The book also displayed a copy of Willis's residential builder's license, although Willis neglected to inform plaintiffs that the license had been revoked on January 31, 2006.

Plaintiffs subsequently decided to hire Willis to perform restoration services on their home and on personal property damaged in the flood, and the parties signed a misnamed "Fire Repair Agreement" to that effect on July 26, 2006.1 That agreement states that plaintiffs:

assign[ ] the proceeds of the adjusted [insurance] claim to the Emergency Insurance Services [Willis's company], as full payment for the fire repairs.
* * *The owner, the undersigned, is not liable for anything in excess of the insurance check. The owner is to approve specifications before work is started, endorsement of the [insurance checks] to Emergency Insurance Services, will be payment in full for the ... repairs.[2 ]

An addendum, titled "Work Authorization,"3 states in relevant part:

To the Insurance Companies, their agents, or to Whom it may Concern:
I/We, Danny & Joyce Epps, the undersigned, hereby irrevocably engage 4 Quarters Restoration LLC., to make all necessary restoration and or clean damage [to the] property caused by your loss occurring on the 26th day of July 2006. To the property owned by the undersigned located at ... City Detroit, State Michigan.
The undersigned to insure payment, assigns the proceeds of the adjusted claim to 4 Quarters Restoration LLC., as full payment for cleaning and or restoration.[4]

Another addendum, titled "Insurance Power of Attorney,"5 was signed by plaintiffs and contained the following language:

To: The Insurance Companies
Their Agents
All Concerned Parties
I Danny Epps & Joyce Epps, hereby give my (Contractor), Troy Willis Power of Attorney, to sign my name to all documents pertaining to settling the insurance claim and restoring the damage to my property.... [6]

Defendant Willis began work on plaintiffs' home, and also began making insurance claims through plaintiffs' homeowners' policy. Plaintiffs were aware that Willis was filing claims on their behalf, although they assert they were unaware of the amounts of these claims. Upon approving the claims, Auto Owners sent checks directly to Willis. Sometimes these checks listed both Willis and the plaintiffs as payees, and at other times only the plaintiffs were listed as payees. When Willis received the checks, he indorsed them himself, signing plaintiffs' names. In total, Willis received and indorsed checks from Auto Owners equaling $128,047. Upon receiving and endorsing the checks, he then cashed these at defendant Denaglen's check-cashing business, MBM Check Cashing.7 Denaglen charged Willis a 3% fee for providing its services. After Willis had indorsed the checks to Denaglen, the latter deposited the funds into its account at Comerica Bank. By the end of 2006, Willis had apparently discontinued work on plaintiffs' home. The parties dispute both whether the restoration had been completed and whether the work had been performed in a satisfactory manner.

On July 24, 2009, plaintiffs filed the present action in the Wayne Circuit Court against all the individuals and businesses involved in either the restoration of their home or with the flow of monies associated with the project, including Willis and his businesses, Denaglen Corporation, Comerica Bank, Auto Owners Insurance, and AM Adjusting. Comerica Bank filed an interpleader action and deposited $128,047 from Denaglen's account into escrow and the claims against Comerica were dismissed. Auto Owners Insurance assigned to plaintiffs any claims it had against the other named defendants and the claims against it were also dismissed, as were the claims against AM Adjusting.

As to Willis and his businesses, plaintiffs alleged that these parties performed restoration services on plaintiffs' home absent the requisite license and therefore were not entitled to receive compensation for their services. Plaintiffs sought to have the agreement between them and Willis declared "illegal, void and unenforceable" and thereby rescinded. Plaintiffs further alleged that Willis defrauded them, carried out their restoration in an unworkmanlike manner, and converted the proceeds of their insurance checks. Regarding the latter claim, plaintiffs sought treble damages measured by the face value of the insurance checks.

With regard to Denaglen, plaintiffs alleged that it wrongfully cashed the insurance checks, acted in bad faith and without employing reasonable commercial standards, and converted the funds paid by Auto Owners to plaintiffs. As a result, plaintiffs sought the $128,047 placed into escrow by Comerica. Denaglen failed to file a timely answer to plaintiffs' complaint and a default judgment against it was entered. Denaglen subsequently moved to have the default set aside, but the trial court denied the motion.

The parties filed competing motions for summary disposition. The trial court granted plaintiffs' motion and denied defendants' motion, ordering that the escrow funds be awarded to plaintiffs. The court explained its ruling by stating, " MCL 339.2412(1) is applicable in this case and Plaintiffs are entitled to summary disposition as a matter of law." The trial court finally held that defendants were liable as a matter of law for converting the insurance checks issued by Auto Owners.

Defendants appealed, and the Court of Appeals affirmed albeit on different grounds. The Court of Appeals disagreed with the trial court that MCL 339.2412(1) mandated judgment in plaintiffs' favor, noting that MCL 339.2412(1) states only that an unlicensed builder may not " ‘bring or maintain an action ... for the collection of compensation....’ " Epps v. 4 Quarters Restoration, LLC, unpublished opinion per curiam of the Court of Appeals, issued June 6, 2013 (Docket No. 305731), p. 4, 2013 WL 2460119. Because defendants did not "bring or maintain an action," but sought only to defend against plaintiffs' action, MCL 339.2412(1) did not impose liability on defendants. Id. The Court also held that the statute did not afford plaintiffs a private cause of action to seek damages for its violation, but rather that a homeowner aggrieved by a builder's unlicensed work was obligated to seek damages under traditional common-law contract and tort theories. Id. at 5–6.

The Court of Appeals nonetheless affirmed summary disposition in favor of plaintiffs because it believed that defendants had converted the proceeds of the insurance checks. The court noted that Willis had misrepresented himself to plaintiffs as a licensed builder and held that "Willis's fraud rendered the power of attorney entered by the [plaintiffs] void ab initio. " Id. at 6. Accordingly, it concluded that "Willis therefore had no authority to endorse and negotiate checks issued by the insurance company on the [plaintiffs'] behalves." Id. The court agreed with the trial court that the proper measure of damages for the conversion was the face value of the converted instruments and affirmed the lower court's order distributing the funds held in escrow to plaintiffs.

Defendants sought leave to appeal in this Court, contending that the Court of Appeals erred by finding defendants liable for conversion as a matter of law and also that the trial court abused its discretion when it failed to set aside Denaglen's default. Plaintiffs filed a cross-appeal, conditioned...

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