The Michigan Builders Trust Fund Act May Include More than Traditional Construction Projects

What is the MBTFA?

The Michigan Building Contract Fund Act, commonly known as the Michigan Builders Trust Fund Act (MBTFA), is well known to those in the construction industry. The provision requires that when a contractor is paid for a project, the contractor holds those funds in trust for the benefit of the project’s laborers, subcontractors and suppliers. While the MBTFA was created as a criminal statute, it also gives rise to a civil cause of action.Livonia Bldg Materials Co v. Harrison Constr Co, 276 Mich App 514; 742 NW2d 140 (2007).

Recent Development in the Application of the Act

The MBTFA applies to “building contract fund[s]” in the “building construction industry.” MCL 570.151. Few courts, though, have analyzed what constitutes a “building contract” under the MBTFA. Recently, the United States District Court for the Eastern District of Michigan addressed this question inSeither & Cherry Quad Cities Inc. v. Oakland Automation LLC et al,No. 23-11310, 2024 WL 4507355 (E.D. Mich., October 16, 2024). This case involved claims of subcontractors hired to provide millwright and electrical work for the installation of various robotics fixtures in a Toyota Motor Manufacturing’s vehicle manufacturing plant. The plaintiffs alleged, among other claims, that the defendant general contractor had been paid by Toyota but used the money for other purposes before paying the plaintiffs, in violation of the MBTFA.

Is a contract for the installation of a robot within the “building construction industry” such that the MBTFA applies? The court inSietheranswered yes. The court first examinedAllied Mech. Servs. v. DR&W Eng’g & Design, Inc.,No. 266165, 2007 LEXIS 811 (Mich. Ct. App. Mar. 22, 2007), which previously held that an “improvement” under the Michigan Construction Lien Act (MCLA) is covered by the MBTFA. Improvement is defined broadly under the MCLA and includes anything that results from labor or material provided by a contractor, subcontractor, supplier or laborer, including “installing or affixing a fixture or material” pursuant to a contract. The court also noted that the MBTFA had been applied to plumbing and electrical repair work, pipe installation, ceramic tile installation, and roofing and gutter repair. Ultimately, the court determined that the statute applied to the plaintiffs’ work, even though they were installing robots rather than bricks and shingles.

Why it Matters

The MBTFA can result in severe repercussions for those who violate it. In addition to potential criminal prosecution, Michigan courts have held that a violation of the MBTFA gives rise to a cause of action for conversion, MCL 600.2919a. Under this statute, a plaintiff may recover three times their damages along with attorney fees.

Seitherwas decided by a federal district court and is not binding on Michigan state courts. However, the decision marks a potential expansion of the scope of the MBTFA and opens the door for other courts to follow its lead and to apply the MBTFA to other types of projects outside of traditional construction projects. Contractors and subcontractors on a wide variety of projects should take care to carefully document transactions and account for payments as trust funds.