Performance Contracting Inc. v. DynaSteel Corporation , 750 F.3d 608 ( 2014 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 14a0089p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
PERFORMANCE CONTRACTING INC., ┐
Plaintiff-Appellant, │
│
│ No. 13-1364
v. │
>
│
DYNASTEEL CORPORATION; JAMES W. RUSSELL, JR.; │
RONALD W. RUSSELL, ┘
Defendants-Appellees.
Appeal from the United States District Court
for the Eastern District of Michigan at Bay City
No. 1:12-cv-10165—Thomas L. Ludington, District Judge.
Argued: December 3, 2013
Decided and Filed: April 28, 2014
Before: SILER, McKEAGUE, and WHITE, Circuit Judges.
_________________
COUNSEL
ARGUED: Matthew T. Jane, BODMAN, PLC, Ann Arbor, Michigan, for Appellant. Stuart H.
Teger, HONIGMAN, MILLER, SCHWARTZ AND COHN LLP, Detroit, Michigan, for
Appellees. ON BRIEF: Matthew T. Jane, BODMAN, PLC, Ann Arbor, Michigan, for
Appellant. Stuart H. Teger, HONIGMAN, MILLER, SCHWARTZ AND COHN LLP, Detroit,
Michigan, for Appellees.
McKEAGUE, J., delivered the opinion of the court, in which SILER, J. joined, and
WHITE, J., joined in part. WHITE, J. (pp. 14B16), delivered a separate opinion concurring in
part.
1
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_________________
OPINION
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McKEAGUE, Circuit Judge. This case arises out of a dispute between a general
contractor and a subcontractor over payment for services rendered. The case presents questions
concerning the interpretation and application of the Michigan Building Contract Fund Act,
commonly referred to as the Michigan Builder’s Trust Fund Act (“Trust Fund Act”). The district
court ruled that the facts underlying this case did not trigger application of the Trust Fund Act,
and granted summary judgment to the general contractor. For the reasons discussed below, we
affirm.
I.
This case concerns the interplay between three parties: a general contractor, the owner of
a power plant, and a subcontractor. The general contractor—and a defendant in this case—is
DynaSteel, a company that had operations in Tennessee and Mississippi. DynaSteel
manufactured ductwork for power plants for nearly forty years, but in 2012, the company
dissolved and liquidated its assets. DynaSteel’s Chief Executive Officer, James Russell, Jr., and
its Chief Financial Officer, Ronald Russell, are the other defendants to this case. Both Russells
live in Tennessee.
Consumers Energy owned a power plant in Essexville, Michigan. On September 30,
2008, Consumers Energy and DynaSteel entered into a Purchase Order contract concerning the
Michigan plant, known as the Karn Project. Under the Purchase Order, DynaSteel would—at its
facilities in Mississippi and Tennessee—furnish, fabricate, and assemble ductwork for the Karn
Project, and then complete all packaging, storage, handling, and shipping necessary to send the
ductwork to the Michigan plant for installation, which would be completed by a third party. The
Purchase Order contained a Michigan choice-of-law provision. Consumers Energy later issued a
Project Change Notice to DynaSteel, which requested additional labor on the ductwork. The
Project Change Notice contained no choice-of-law provision. Pursuant to the Purchase Order
No. 13-1364 Performance Contracting, Inc. v. DynaSteel Corp., et al. Page 3
and the Project Change Notice, Consumers Energy would pay DynaSteel $10,634,755 for the
Karn Project.
The subcontractor—and plaintiff in this case—is Performance Contracting, Inc. (“PCI”),
a company with headquarters in Kansas and an office in Tennessee. PCI and DynaSteel had a
longstanding relationship, having worked on a project in Ohio (the Sammis Project) as well as
another project in Maryland (the Brandon Shores Project) together. On February 28, 2009,
DynaSteel issued a Purchase Order Agreement requesting that PCI supply the insulation
requested by Consumers Energy for $1,842,890. This Purchase Order Agreement, which was
both issued by DynaSteel and signed by PCI in Tennessee, contained a Tennessee choice-of-law
provision.
As the Karn Project progressed, Consumers Energy paid DynaSteel over $2.9 million for
DynaSteel’s work, but DynaSteel did not reimburse PCI for PCI’s work, owing PCI $1,542,890.
DynaSteel had also not reimbursed PCI for PCI’s work done on the Sammis Project, owing PCI
$2,587,079, and the Brandon Shores Projects, owing PCI $749,675. Instead of paying PCI the
remaining money it owed or segregating the funds into a separate trust, DynaSteel placed the
funds it received from Consumers Energy into a general account in which DynaSteel allegedly
comingled it with funds from other projects.
DynaSteel and PCI tried to resolve their differences over the unpaid monies from the
Karn, Sammis, and Brandon Shores Projects during several meetings in Tennessee and in
Kansas. On November 17, 2009, the parties executed a Payment Plan Proposal that addressed all
three projects. The Payment Plan Proposal required DynaSteel to make periodic payments,
which would apply to the unpaid projects in chronological order—meaning that monies paid by
DynaSteel would first apply to the balances on the Sammis and Brandon Shores Projects, and
then after those projects were paid in full, then to the balance outstanding for the Karn Project.
The Payment Plan Proposal did not contain a choice-of-law provision. Between November 2009
and June 2010, pursuant to the Payment Plan Proposal, DynaSteel made payments to PCI
totaling over $2.1 million. The payments fulfilled DynaSteel’s financial obligations as to the
Sammis and Brandon Shores Projects, but did not fulfill its financial obligation as to the Karn
Project, with a balance of approximately two million dollars still outstanding.
No. 13-1364 Performance Contracting, Inc. v. DynaSteel Corp., et al. Page 4
The unpaid balance led to this current action. On December 14, 2011, PCI filed suit
against DynaSteel in the State of Michigan’s Bay County Circuit Court. PCI alleged, among
other claims, that DynaSteel violated the Trust Fund Act. On January 13, 2012, DynaSteel
removed the case on diversity grounds to the U.S. District Court for the Eastern District of
Michigan. Both parties moved for summary judgment on the issue of whether the Trust Fund
Act applied to their dispute.
In ruling on the two motions for summary judgment, the district court reached three
conclusions. First, the district court held that the original Purchase Order between PCI and
DynaSteel—and not the subsequent Payment Plan Proposal—was controlling, meaning that the
Tennessee choice-of-law provision in the Purchase Order remained binding on the parties.
Second, the district court held that the Tennessee choice-of-law provision applied to the breach
of contract for which PCI sued DynaSteel. Third, the district court ruled that the Trust Fund Act
did not apply extraterritorially by its own force—meaning outside of the scope of or independent
of the parties’ contract—to this case because in enacting the Trust Fund Act, the “Michigan
legislature must have intended some connection to the state” and because PCI and DynaSteel’s
“only connection to Michigan [was] the location of [Consumers Energy,] the owner that paid
DynaSteel.” Dist. Ct. Opn. at 12–13, PageID # 1581–82. The district court then granted
summary judgment to DynaSteel. This appeal followed.
II.
This court reviews a district court’s grant of summary judgment de novo. Gecewicz v.
Henry Ford Macomb Hosp. Corp., 683 F.3d 316, 321 (6th Cir. 2012). A “court shall grant
summary judgment if the movant shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). In analyzing a
motion for summary judgment, we construe all evidence in the light most favorable to the non-
moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Questions of
statutory interpretation are questions of law that are also reviewed de novo. Roberts v. Hamer,
655 F.3d 578, 582 (6th Cir. 2011). Under Michigan law, statutory interpretation requires an
examination of the plain language of the statute. See In re Certified Question, 659 N.W.2d 597(Mich. 2003) (citations and internal quotation marks omitted) (“A fundamental principle of
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statutory construction is that a clear and unambiguous statute leaves no room for judicial
construction or interpretation.”).
A threshold question to be decided is what law governs this case. The district court’s
choice-of-law determination is reviewed de novo. Mill’s Pride, Inc. v. Cont’l Ins. Co., 300 F.3d
701, 704 (6th Cir. 2002). Under the well-established Supreme Court precedent in Erie R.R. v.
Tompkins, “[e]xcept in matters governed by the Federal Constitution or by acts of Congress, the
law to be applied in any case is the law of the state.” 304 U.S. 64, 78 (1938). Accordingly,
“federal courts sitting in diversity apply state substantive law and federal procedural law.”
Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 417 (1996). When a conflict of law arises
during such an action, “the choice-of-law rules of the forum state” govern. Wallace Hardware
Co. v. Abrams, 223 F.3d 382, 391 (6th Cir. 2000). Put differently, to resolve conflicts between
state laws, a federal court sitting in diversity applies the choice-of-law rules of the state in which
the court sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 497 (1941). Accordingly, the
choice-of-law rules to be applied are those of the State of Michigan.
III.
At the heart of this case is the Trust Fund Act, which was passed by the Michigan State
Legislature in 1931 “to protect the people of the state from imposition and fraud in the building
construction industry and to provide penalties for the violation of this act.” Pmbl. to Mich.
Comp. Laws §§ 570.151–153. The Trust Fund Act consists of only three relatively brief
sections, reproduced in full below:
570.151 Building contract fund; status as trust fund
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.
570.152 Building contract fund; fraudulent retention or use by contractor or
subcontractor of payments; penalties
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
No. 13-1364 Performance Contracting, Inc. v. DynaSteel Corp., et al. Page 6
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.
570.153 Fraudulent retention or use by contractor or subcontractor of
payments; evidence
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.
Mich. Comp. Laws §§ 570.151–153.
Both the legislative history and the case law interpreting the Trust Fund Act provide little
guidance on how to interpret the act. One court described the legislative history as “obscure”
and noted that the circumstances of the Trust Fund Act’s enactment are unknown. Gen. Ins. Co.
of Am. v. Lamar Corp., 482 F.2d 856, 860 (6th Cir. 1973). Moreover, the case law interpreting
the purpose of the Trust Fund Act is sparse. The Lamar court, which has provided perhaps the
most thorough explanation of the Trust Fund Act, noted the following:
During the boom period of the 1920’s, speculative builders often
undertook to construct projects too large for their available capital to finance, and
they frequently paid suppliers and materialmen on older projects with funds
received as payment on more current operations. With the advent of the crash of
1929 and the consequent widespread insolvency of many building contractors,
these pyramided empires also collapsed and many subcontractors and suppliers
were never paid. Subcontractors and materialmen on private projects were left
only with mechanics’ liens as remedies, and these were often ineffective. On the
other hand, suppliers of labor and material on public projects were protected by
statutorily required payment and performance bonds.
Id.IV.
This case presents three issues relating to the interpretation of the Trust Fund Act. First,
the parties disagree whether the obligations imposed by the Trust Fund Act are tethered to a
contract or whether they apply by their own force, meaning independent of any contract.
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Second, assuming the Trust Fund Act applies by its own force, the parties disagree whether the
Trust Fund Act applies extraterritorially. PCI argues for a wide-ranging “any beneficiary”
interpretation. DynaSteel argues for a “sufficient contacts” interpretation, which would require a
nexus between the parties and the State of Michigan. Third, assuming that the Trust Fund Act
contemplates sufficient contacts between the parties and the State of Michigan, the parties
disagree whether the Trust Fund Act applies to the facts of this case. We address each question in
turn.
A.
The first issue concerns whether the Trust Fund Act must be tethered to a contract or
whether it may ever apply by its own force extraterritorially—with respect to out-of-state
projects, parties, or mishandled funds—and irrespective of a contract. This is important to
DynaSteel, of course, in light of the Tennessee choice-of-law provision in the Purchase Order
between DynaSteel and PCI. To support its position that the Trust Fund Act requires a contract,
DynaSteel points to the Trust Fund Act’s language concerning liability “under the terms of the
contract[.]” Mich. Comp. Laws § 570.152. DynaSteel also argues that if no monies are due
under the parties’ contract, a plaintiff has no claim under the Trust Fund Act. To support its
contention that no monies on the Karn Project are owed to PCI, DynaSteel suggests that the
monies paid by DynaSteel pursuant to the Payment Plan Proposal could have been directed to the
Karn Project rather than the Sammis or Brandon Shores projects, which would have discharged
DynaSteel’s financial obligation arising out of Michigan-based construction projects.
We agree with PCI that the Trust Fund Act may apply by its own force and irrespective
of a contract under certain circumstances. PCI correctly notes that, although the Trust Fund Act
discusses penalties in conjunction with a contract, it does not require a contract for its
application. See Mich. Comp. Laws §§ 570.151–53. Moreover, while the case law interpreting
the Trust Fund Act often discusses the existence of a contract in an effort to flesh out the facts of
a case, the case law clearly favors PCI’s interpretation that the Trust Fund Act may apply by its
own force. See, e.g., Accu-Tech Corp. v. Jackson, 352 F. Supp. 2d 831, 834 (E.D. Mich. 2005)
(“The [Trust Fund Act] could apply to the materials Accu–Tech sent Clover through two
avenues. First, the parties may have incorporated the requirements into their contract. Also, the
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[Trust Fund Act] may apply by its own force.”); DiPonio Const. Co., Inc. v. Rosati Masonry Co.,
Inc., 631 N.W.2d 59, 64 (Mich. Ct. App. 2001) (“Therefore, it is clear that a contractor or
subcontractor may remain in compliance with the terms of its construction contracts while
simultaneously violating the builders’ trust fund act. Because the civil cause of action under the
statute does not sound in breach of contract . . . .”). We conclude that the Trust Fund Act may
apply by its own force under certain circumstances.
B.
The second issue concerns whether the Trust Fund Act applies by its own force
extraterritorially, and if so, what standard a plaintiff has to meet in order to trigger application of
the Trust Fund Act to parties or transactions occurring outside of Michigan. The parties offer
distinct interpretations. PCI’s interpretation of the Trust Fund Act’s extraterritorial applicability
is wide-ranging, and focused on the notion that “any beneficiary” to a trust fund payment could
bring suit under the Trust Fund Act. DynaSteel argues for a “sufficient contacts” interpretation,
which would require a nexus between the parties and the State of Michigan as a precondition to
bringing suit under the Trust Fund Act.
PCI advances two basic arguments to support its interpretation of the Trust Fund Act.
First, as to statutory interpretation, PCI argues that the Trust Fund Act provides that the payment
of funds by “any person” to a “contractor or subcontractor” is considered to be a “trust fund” for
the “benefit of the person making the payment, contractors, laborers, subcontractors or
materialmen.” Mich. Comp. Laws § 570.151. Therefore, according to PCI, PCI may bring suit
under the Trust Fund Act on the sole basis that PCI was a beneficiary of the payments between
Consumers Energy and DynaSteel. This argument is not without merit, however we note that
PCI does not address the preamble of the Trust Fund Act, which clearly states that its purpose is
“to protect the people of the state” of Michigan. Pmbl. to Mich. Comp. Laws §§ 570.151–153.
Second, as to case authority supporting its interpretation, PCI relies on DiPonio
Construction Co. v. Rosati Masonry Co., a case which instructs that the Trust Fund Act should
be “construed liberally for advancement of the remedy.” 631 N.W.2d at 63. In particular, PCI
focuses on DiPonio’s discussion of the prima facie elements of the civil cause of action available
No. 13-1364 Performance Contracting, Inc. v. DynaSteel Corp., et al. Page 9
under the Trust Fund Act. See id. at 62–63. The DiPonio court listed “the prima facie elements
of a civil cause of action” under the Trust Fund Act as follows:
(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.
Id. at 62. Because the DiPonio language is not explicitly conditioned or restrained by location,
PCI argues that its case falls within the bounds of the DiPonio standard, which, when viewed in
isolation, might suggest that a cause of action brought by any out-of-state actor against any other
out-of-state actor under almost any circumstances is available under the Trust Fund Act. See id.DiPonio, however, did not discuss out-of-state actors in any way, as the case was instead focused
on the statute of limitations period. See id. at 63–67 (failing to note the citizenship of the parties
to the case). In other words, there is no basis to conclude that extraterritorial application of the
Trust Fund Act was at issue in DiPonio. See id.We instead agree with DynaSteel’s interpretation that the purpose and structure of the
Trust Fund Act contemplates the need for sufficient contacts between the parties’ conduct and
the State of Michigan. While the language of the Trust Fund Act is concededly open-ended, the
preamble clearly states that the purpose of the Trust Fund Act is to protect the people of the State
of Michigan. See Pmbl. to Mich. Comp. Laws §§ 570.151–153. As the legislative history
provides little guidance, we look to the case law interpreting the Trust Fund Act to help inform
our analysis. See Lamar Corp., 482 F.2d at 860.
In Accu-Tech Corp. v. Jackson, the court found that the Trust Fund Act applied to a
Georgia corporation that was operating in Michigan. 352 F. Supp. 2d at 836. Accu-Tech
discussed DiPonio’s summary of a prima facie case under the Trust Fund Act—relied on heavily
by PCI—as follows: “No element in plaintiff’s prima facie civil claim explicitly requires an
event or party to be affiliated with Michigan. . . . Clearly, however, the Trust Fund Act does not
(and could not) reach this far. The Michigan legislature must have intended some connection to
the state.” Id. at 837. The court found sufficient contacts to Michigan existed where “only two
things [in the case were] not associated with the state” and where the plaintiff was “operating in
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Michigan[.]” Id. Accu-Tech thus stands for the proposition that the Trust Fund Act requires
sufficient contacts between the parties and the State of Michigan. See id.We find this proposition wholly consistent with the Trust Fund Act. The Trust Fund
Act’s stated purpose was to “protect the people of state [of Michigan] from imposition and fraud
in the building construction industry[,]” and relying on a sufficient contacts test in cases of
extraterritorial application fulfills that purpose. See Pmbl. to Mich. Comp. Laws §§ 570.151–
153. Furthermore, all of the case law interpreting the Trust Fund Act favors DynaSteel’s
sufficient contacts interpretation. In In re Cousino, the court ruled that a debtor had sufficient
contacts with the State of Michigan and could be reached by the Trust Fund Act with respect to
Michigan-based construction projects but not Ohio-based construction projects, because for the
latter projects, the debtor’s sole connection to Michigan was his purchase of supplies. 364 B.R.
289, 294 (N.D. Ohio 2006). In Perini/Tompkins Joint Venture v. Comerica Bank, a plaintiff
satisfied the sufficient contacts test concerning a Maryland-based project because the
“misappropriation of contract funds [occurred] in Michigan” and the company for which the
plaintiff’s judgment creditors brought the action was a Michigan-based company. No. 12-10234,
2012 WL 4009101, at *1, *3 (E.D. Mich. Sept. 12, 2012).
We therefore find that the Trust Fund Act’s language in light of the legislature’s express
purpose as well as all of the case law refutes PCI’s open-ended interpretation. Instead, the
language, purpose, and case law all support DynaSteel’s interpretation. We conclude that the
Trust Fund Act requires sufficient contacts to the State of Michigan when it applies by its own
force extraterritorially.
C.
The third issue concerns whether the Trust Fund Act applies extraterritorially by its own
force to the facts of this case. This dispute involves an out-of-state general contractor and an
out-of-state subcontractor, where the parties remained at all times out-of-state in connection with
the project, their contracts were executed out-of-state, their choice of law was out-of-state, the
work was completed out-of-state, the funds were mishandled out-of-state, the payment plan was
negotiated out-of-state, and the payment plan was executed out-of-state, but the work product
was eventually shipped to Michigan, where it was installed by a third party. We hold that the
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unique combination of facts of this case, when viewed as a whole, does not establish that the
parties had sufficient contacts to the State of Michigan, and so the Trust Fund Act does not
apply.
PCI emphasizes the Purchase Order between DynaSteel and Consumers Energy, which
included a Michigan choice-of-law provision, to support its claim that sufficient contacts with
the State of Michigan were established. But in so doing, PCI neglects its own Purchase Order
Agreement with DynaSteel, which included a Tennessee choice-of-law provision. PCI argues
that the Tennessee choice-of-law provision does not pertain in any way to its Trust Fund Act
claims. PCI suggests that the parties’ Payment Plan Proposal, which contained no choice-of-law
provision, supersedes the parties’ original Purchase Order, which contained a Tennessee choice-
of-law provision. Accordingly, PCI would assert that the Tennessee choice-of-law provision
should play no role in our sufficient contacts analysis.
We disagree. When parties enter into a subsequent agreement completely covering the
same subject matter, but containing inconsistent terms, then the effect is to supersede and rescind
the earlier contract. See Lawyers Title Ins. Corp. v. First Federal Sav. Bank & Trust, 744 F.
Supp. 778, 783 (E.D. Mich. 1990)). But if the subsequent agreement does not completely cover
the same subject matter, then the provisions in the original agreement still control (absent a
distinct provision such as a merger clause). See Nib Foods, Inc. v. Mally, 246 N.W.2d 317, 321
(Mich. Ct. App. 1976). We agree with the district court’s reasoning of why the Tennessee
choice-of-law provision is valid:
Here, the parties’ first agreement—the March 19, 2009 Purchase Order—
contained 14 distinct provisions, including a “Price and Payment” provision and a
“Governing Law and Jurisdiction” provision. The parties’ second agreement—
the November 17, 2009 Payment [Plan Proposal]—involved only the payment of
debts DynaSteel owed to PCI. It does not contain any terms that are inconsistent
with the Purchase Order’s choice-of-law provision, nor does it address the law to
be applied to any disputes. Pursuant to the guidance of Nib Foods, the November
Payment [Plan Proposal] only supersedes paragraph 2 of the Purchase Order: the
provision for Price and Payment. Accordingly, . . . the original Purchase Order’s
choice-of-law provision will remain binding[.]1
1
Section 187(2) of the Restatement (Second) of Conflict of Laws is what Michigan follows to guide
determinations of whether choice-of-law provisions in contractual arrangements are valid. See Restatement
No. 13-1364 Performance Contracting, Inc. v. DynaSteel Corp., et al. Page 12
Dist. Ct. Opn. at 7–8, PageID # 1576–77. Therefore the choice-of-law provision governs the
parties and, when viewed together with all of the facts in the case, counsels against finding
sufficient contacts between the parties’ conduct and the State of Michigan.
We stress that the choice-of-law provision, however, is not the only factor relevant to the
sufficient contacts analysis. Importantly, the alleged comingling of funds, the activity held by
some courts to be most instructive on whether parties have sufficient contacts to the State of
Michigan, occurred exclusively out-of-state. See Accu-Tech, 352 F. Supp. 2d at 837 (“[T]he
focal point of the [Trust Fund Act] is the mishandling of construction funds. Indeed, this is the
behavior the Trust Fund Act specifically makes unlawful.”). Other factors also counsel in favor
of finding that the sufficient contacts test is not satisfied. Notably, both PCI and DynaSteel are
out-of-state parties. The relationship between PCI and DynaSteel was forged exclusively in
Kansas, Tennessee, and Mississippi. PCI can point to no case applying the Trust Fund Act to
two out-of-state parties. See, e.g., Perini/Tompkins, 2012 WL 4009101, at *1–*3 (plaintiffs were
judgment creditors of a Michigan-based company); Accu-Tech, 352 F. Supp. 2d at 832–33
(defendants were Michigan companies); Cousino, 364 B.R. at 291 (plaintiff was based in
Michigan); see also DiPonio, 631 N.W.2d at 62–67 (providing no indication that the parties were
out-of-state).
We assume, without deciding, that it is conceivable that certain circumstances involving
two out-of-state parties could satisfy the sufficient contacts test and trigger application of the
Trust Fund Act. However, we find that no such circumstances exist here. Consumers Energy is
a Michigan-based power-plant owner, and the plant is located in Michigan, but all of the other
relevant acts in the case—except for the shipment of the goods by another third party—took
place in a state other than Michigan. Moreover, despite the fact that it has been in effect for over
eighty years, the Trust Fund Act has never applied to two out-of-state parties that executed a
contract in a different state that included an out-of-state choice-of-law provision, where none of
the work or payment negotiations were completed in-state, where neither party entered the state,
(Second) of Conflict of Laws § 187(2)(b) (1988) (discussing greater material interests). Applying that standard
here, DynaSteel correctly argues that choice of law provisions such as this one are valid and enforceable in
Michigan where, as here, DynaSteel’s offices were in Tennessee, PCI has an office in Tennessee, the Purchase
Order was issued and signed in Tennessee, and the individual defendants live in Tennessee.
No. 13-1364 Performance Contracting, Inc. v. DynaSteel Corp., et al. Page 13
and where the funds were handled in a different state. We conclude that this unique combination
of facts does not establish sufficient contacts between these parties and the State of Michigan for
the purpose of triggering the Trust Fund Act.
V.
We conclude that while the Trust Fund Act can apply by its own force extraterritorially, it
requires sufficient contacts between the parties and the State of Michigan. We further conclude
that the unique factual structure of this case does not establish sufficient contacts with the State
of Michigan. For the reasons stated above, the district court’s grant of summary judgment to
DynaSteel is AFFIRMED.
No. 13-1364 Performance Contracting, Inc. v. DynaSteel Corp., et al. Page 14
________________________
CONCURRING IN PART
________________________
HELENE N. WHITE, Circuit Judge (concurring in part). Because the contract between
the litigating parties contains a choice-of-law provision that runs counter to the application of
Michigan’s Trust Fund Act, and Michigan courts would honor that choice of law under these
circumstances, I agree that the Act does not apply.1 I write separately because I do not agree that
there are insufficient contacts to support application of the Trust Fund Act, and were it not for
the contractual choice-of-law provision, I would find that the Trust Fund Act applies.
I agree with the majority that application of the Trust Fund Act extraterritorially to
impose a trust upon a payment that would otherwise come within the Act requires that there be
certain minimum contacts with Michigan.2 But it cannot be seriously argued that DynaSteel has
insufficient contacts with Michigan to be subject to suit under the Act. DynaSteel’s contract
with Consumers to provide ductwork for the Michigan project expressly states that the purchase
order shall be deemed a Michigan contract and subject to the laws of Michigan. Although
DynaSteel’s contract with PCI has a different choice-of-law clause, this does not change the
minimum-contacts analysis. DynaSteel accepted money in payment for ductwork delivered to
Michigan for installation on a Michigan job. It certainly could expect to be subject to the
Michigan Trust Fund Act. Michigan has an interest in assuring that payments made by Michigan
property owners go to the subcontractors whose goods and services are incorporated into
Michigan projects. It also has an interest in assuring that out-of-state suppliers are willing to
render services and sell materials for Michigan products without fear that they have fewer
protections than Michigan suppliers might have or than they may have in their home states. In
short, I cannot agree that an out-of-state subcontractor contracting with an out-of-state contractor
1
I agree with the majority that the Purchase Order and the November Payment Plan Proposal must be
construed together “as part of the total accord,” under Nib Foods, Inc. v. Mally, 246 N.W.2d 317, 321 (Mich. Ct.
App. 1976); and therefore the choice-of-law provision is part of the total agreement.
2
It is unclear whether the majority comes to this conclusion based on a constitutional/minimum-contacts
analysis, or as a matter of statutory interpretation of the Act.
No. 13-1364 Performance Contracting, Inc. v. DynaSteel Corp., et al. Page 15
to supply product for incorporation into a Michigan project has insufficient contacts with
Michigan to invoke the Trust Fund Act in relation to the contractor and the project.
That the Trust Fund Act might be properly invoked in such a situation does not, however,
preclude a non-Michigan contractor and non-Michigan subcontractor from agreeing that their
contract and their performance thereunder will be governed by the case and statutory law of
another state. A subcontractor that enters into such a contract forgoes the protection of the
Michigan Trust Fund Act unless Michigan has a strong interest in its application.
Under Michigan law, “parties may, in general, agree [in a choice-of-law provision] that
all causes of action pertaining to a particular matter will be ... subject to the law of a particular
jurisdiction.” Offerdahl v. Silverstein, 569 N.W.2d 834, 835 (Mich. Ct. App. 1997). “[I]t is
undisputed that Michigan’s public policy favors the enforcement of contractual . . . choice-of-law
provisions.” Turcheck v. Amerifund Fin., Inc., 725 N.W.2d 684, 688 (Mich. Ct. App. 2006).
However, when parties agree to a choice-of-law provision and there is a conflict-of-law dispute,
“the approach set forth in the Restatement (Second) of Conflict of Laws” applies. Johnson v.
Ventra Grp., Inc., 191 F.3d 732, 738 (6th Cir. 1999); see also Banek Inc. v. Yogurt Ventures,
U.S.A., Inc., 6 F.3d 357, 361 (6th Cir. 1993) (“Michigan has adopted the approach articulated in
1 Restatement (Second) of Conflict of Laws § 187.”); Chrysler Corp. v. Skyline Indus. Servs.,
Inc., 528 N.W.2d 698, 703 (Mich. 1995).
In pertinent part, Section 187(2) of the Restatement states:
(2) The law of the state chosen by the parties to govern their contractual rights
and duties will be applied, even if the particular issue is one which the parties
could not have resolved by an explicit provision in their agreement directed to
that issue, unless either
(a) the chosen state has no substantial relationship to the parties or the transaction
and there is no other reasonable basis for the parties’ choice, or
(b) application of the law of the chosen state would be contrary to a fundamental
policy of a state which has a materially greater interest than the chosen state in the
determination of the particular issue and which, under the rule of § 188, would be
the state of the applicable law in the absence of an effective choice of law by the
parties.
Restatement (Second) of Conflict of Laws § 187(2) (2013).
No. 13-1364 Performance Contracting, Inc. v. DynaSteel Corp., et al. Page 16
As the majority notes in n. 1, Michigan courts would enforce the choice of law provision.
Tennessee has a substantial relationship to the parties or transaction -- DynaSteel’s principal
place of business is in Tennessee, PCI has an office in Tennessee, and the Purchase Order was
issued and signed in Tennessee. The next question is whether Michigan has a materially greater
interest than Tennessee sufficient to ignore the parties’ choice of Tennessee law. In Skyline, the
Michigan Supreme Court addressed a contractual choice-of-law provision declaring Michigan
law applicable to a project performed in Illinois:
In determining that Illinois had a materially greater interest, the Court of Appeals
focused mostly on the “place of performance” factor of § 188. As the place of
performance of the construction work, Illinois has a strong interest in ensuring
that the parties conform to its laws. Thus, the Court of Appeals correctly noted
that Illinois would have great interest in deterring specific construction practices;
however, the question is whether Illinois has a materially greater interest than
Michigan sufficient to ignore the parties’ choice of Michigan law. It is
questionable whether Illinois has a greater interest in reaching into the contractual
arrangements of out-of-state companies when those companies have negotiated an
agreement in their own state concerning the relative liability obligations between
them.
Skyline, 528 N.W.2d at 704. This is a strong indication that Michigan courts would
honor the parties’ choice of Tennessee law.
The majority correctly holds that the Trust Fund Act operates without regard to
contractual provisions. There can be a breach of the Act without a breach of contract other than
nonpayment. And, the Trust Fund Act applies even where the contract does not so provide. It is
a separate question, however, whether Michigan law applies in a given situation. If it does
apply, the Trust Fund Act operates separate and apart from the parties’ contract. But if the Act
does not apply because of a valid choice-of-law provision, then the scope of its application is
irrelevant.
In sum, I agree that the Trust Fund Act does not apply. I come to this conclusion because
DynaSteel and PCI agreed that Tennessee case and statutory law would govern their
performance under the contract. I do not agree that there are insufficient contacts to support
application of the Trust Fund Act; were it not for the choice-of-law provision, I would apply the
Act.