Demorest Law Firm, PLLC
Detroit, Michigan
In the Michigan Court of Appeals’ September 10, 2019 published opinion, TSP Services, Inc. v. National-Standard, LLC, (No. 342530), the Court held that in a dispute over a construction contract, Michigan law limits a construction lien to the amount of the contract minus any payment already made.
Plaintiff and Defendant entered into a contract on August 30, 2013, under which Plaintiff was to perform asbestos abatement, demolition and disposal of scrap steel, and site restoration work at one of Defendant’s facilities. The total price listed in the contract was $414,950.00, which was to be paid in installments – one third as a down payment and the rest due “upon completion of abatement.” Although the contract did not mention the sale of scrap steel or Plaintiff’s potential profits from the sale of scrap steel, it was clear that both parties recognized that the sale of scrap steel was a major part of the project.
The project encountered various delays. Asbestos removal did not begin until May 2014, which also caused a delay in the extraction of steel. Plaintiff completed the asbestos-abatement work and was paid $273,867.00, but after several disputes, Defendant requested that Plaintiff suspend all work on the project. At that point, Plaintiff had extracted only 9% of the available steel from the job site.
In April 2015, Plaintiff filed a claim of lien in the amount of $141,083.00, the amount still unpaid under the contract, plus additional damages, including the net value of the steel that Plaintiff was unable to extract from the site. The parties attended arbitration, and the arbitrator concluded that Defendant breached the contract. The arbitrator awarded $782,469.05 in damages to Plaintiff, which included $391,809.00 in lost profits on steel inventory. Defendant moved the trial court to vacate the arbitration award, arguing that the arbitrator committed clear legal error. The motion was denied.
On appeal, Defendant challenged both the arbitrator’s award of (1) consequential damages and (2) the construction lien securing those damages. With regard to the consequential damages, the Michigan Court of Appeals held that in a breach of contract, the party asserting the breach may recover damages that are “the direct, natural, and proximate result of the breach.” In this case, because both parties were aware that Plaintiff intended to recover and sell steel for a profit, these lost profits could reasonably be considered a result of Defendant’s breach. Therefore, there was no reason to disturb the arbitrator’s award of consequential damages.
With regard to the construction lien, Defendant argued that the arbitrator incorrectly awarded a construction lien on the amount of the entire award, rather than just the amount remaining on the contract. The Michigan Court of Appeals held that the Michigan Construction Lien Act provides that a construction lien shall not exceed the amount of the lien claimant’s contract minus any payments made on the contract. Therefore, under the plain language of the statute, the amount of the lien is determined by the terms of the contract.
Turning to the contract, the Court of Appeals went on to hold that the total amount Defendant agreed to pay Plaintiff for the work was $414,950.00, and at the time of the arbitration, it had already paid $273,867.00, leaving an unpaid balance of $141,083.00. However, the contract contained no mention of scrap steel or any compensation for Plaintiff for the removal or sale of the scrap steel. While the parties understood that Plaintiff would try to make a profit on the disposal of scrap steel, this understanding was outside of the contract. Therefore, pursuant to the plain meaning of the Construction Lien Act, the amount of any construction lien for Plaintiff could not exceed the remaining unpaid balance under the contract.
Because the arbitrator approved a construction lien well in excess of the amount authorized by statute, the Court of Appeals held that the award must be vacated to the extent that the construction lien exceeds the unpaid amount under the contract. Accordingly, the trial court’s judgment was reversed in part and affirmed in all other respects.