Steven Hinderer v. Marcus Snyder ( 2019 )

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
STEVEN HINDERER and KATHLEEN UNPUBLISHED
HINDERER, January 29, 2019
Plaintiffs-Appellants,
v No. 339759
Washtenaw Circuit Court
MARCUS SNYDER, CHELSEA BUILDERS, LC No. 15-001131-CK
INC., and JASON EASON,
Defendants-Appellees,
and
DONALD BARKER,
Defendant.
Before: CAMERON, P.J., and BECKERING and RONAYNE KRAUSE, JJ.
PER CURIAM.
In this dispute arising from the construction of a substantial addition to a residential
home, plaintiffs, Steven and Kathleen Hinderer, appeal the trial court’s orders dismissing their
claims against defendants Marcus Snyder, Chelsea Builders, Inc., and Jason Eason, for their
work and involvement in the construction of the addition in 2009.1 By March 2010, the
Hinderers identified numerous problems with Chelsea Builders’ work, and according to the
Hinderers, Chelsea Builders refused to rectify the problems and did not complete the project. On
November 6, 2015, the Hinderers filed their complaint against defendants. The trial court
granted defendants’ motion for summary disposition based on the applicable statute of
1
The Hinderers also named Donald Barker as a defendant on their original complaint, but they
never served him. The trial court later dismissed him from the case, and he is not a party to this
appeal.
limitations and laches. For the reasons more fully explained below, we affirm in part, reverse in
part, and remand for further proceedings consistent with this opinion.
I. PERIOD OF LIMITATIONS
The Hinderers first argue that the trial court erred when it dismissed their claims for
breach of contract (Count I); breach of warranty (Count II); violation of the builders’ trust fund
act (Count III); fraud (Count IV); negligent construction (Count VII); and violation of the
Michigan Consumer Protection Act (MCPA), see MCL 445.901 et seq. (Count VIII); on the
ground that those claims were each barred by the applicable statutes of limitations.
A. STANDARD OF REVIEW AND LAW
This Court reviews de novo a trial court’s decision on a motion for summary disposition.
Barnard Mfg Co, Inc v Gates Performance Engineering, Inc, 285 Mich. App. 362, 369; 775
NW2d 618 (2009). We also review de novo whether the trial court properly interpreted and
applied the relevant statutes. Pransky v Falcon Group, Inc, 311 Mich. App. 164, 173; 874 NW2d
367 (2015).
A party is entitled to have the trial court dismiss a plaintiff’s action when the claim is
barred by the applicable statute of limitations. See MCR 2.116(C)(7). As this Court has
explained, a party can establish that it is entitled to summary disposition under MCR 2.116(C)(7)
in two distinct ways: it can show that immunity is apparent on the face of the pleadings or it can
present evidence to establish that, notwithstanding the allegations in the plaintiff’s complaint,
there is no factual dispute that he or she is entitled to immunity as a matter of law. Yono v Dep’t
of Transp (On Remand), 306 Mich. App. 671, 678-680; 858 NW2d 128 (2014), rev’d on other
grounds, 499 Mich. 636 (2016).
B. CONTRACT AND WARRANTY CLAIMS
A person cannot “bring or maintain an action to recover damages or money due for
breach of contract” unless the party brings the action within six years. MCL 600.5807(1), (9).2
A breach of contract claim accrues “at the time the wrong upon which the claim is based was
done regardless of the time when damage results.” MCL 600.5827. That is, a breach occurs
when the breaching party fails to perform as required under the agreement. See Cordova
Chemical Co v Dep’t of Natural Resources, 212 Mich. App. 144, 153; 536 NW2d 860 (1995).
In this case, the Hinderers alleged that the parties entered into an oral agreement for the
construction of an addition to the Hinderers’ home using the “broad outline of the draft contract
dated November 16, 2009,” but with the understanding that additional terms applied. Although
the Hinderers alleged that the parties entered into the agreement, they did not allege that Snyder
2
The Legislature amended the statute effective May 7, 2018. The changes affected the
numbering and wording of the relevant provisions but did not alter the substance. See 2018 PA
15.
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participated in any capacity other than as the duly authorized representative of Chelsea Builders.
Indeed, even the alleged draft agreement the Hinderers attached to the complaint showed that the
agreement was between Chelsea Builders and the Hinderers.3 The Hinderers then alleged that
“[d]efendants” breached the agreement in the “numerous ways” stated under their factual
allegations, which included—but was not limited to—“refusing to complete the project,”
“demanding payments in excess of the amount agreed,” “refusing to correct code violations,”
“failing to perform the work under the contractual standards,” and by “failing to work in a
manner so as to prevent damage to the existing structure and addition.” The Hinderers similarly
alleged, in relevant part, that “[d]efendants” expressly warranted the quality of the materials and
workmanship and warranted that the materials and workmanship would comply with building
codes and standards. The Hinderers further alleged that “[d]efendants” breached the warranties
by providing substandard materials and performing substandard work.
The Hinderers allege that these acts or omissions occurred after the parties orally agreed
to begin the project and after construction commenced on November 9, 2009. Assuming these
allegations to be true and construing them in favor of the Hinderers, which this Court must do,
see Maiden v Rozwood, 461 Mich. 109, 119; 597 NW2d 817 (1999), the Hinderers alleged that
the breach of the agreement and the warranties occurred on or after November 9, 2009. The
Hinderers filed their original complaint on November 6, 2015, which means that—as alleged—
their breach of contract and warranty claims were timely. See MCL 600.5807(9); MCL
600.5827. Therefore, to the extent that the trial court dismissed the Hinderers’ breach of contract
and warranty claims as untimely, it erred.
C. BUILDERS’ TRUST FUND ACT
As for their claim under the builders’ trust fund act, see MCL 570.151 et seq., the
Hinderers alleged that Chelsea Builders and Snyder were contractors for purposes of the act and
that the Hinderers paid them more than $43,000 to purchase materials in the spring of 2009.
They wrote that they continued to make scheduled payments, which totaled over $98,000. They
further alleged that Chelsea Builders and Snyder did not use the money to purchase the materials
that were to be used in the project or to pay laborers, subcontractors, or materialmen, and that
they also appropriated the money for their own use in violation of the builders’ trust fund act.
More specifically, the Hinderers alleged that Chelsea Builders and Snyder failed to pay two
subcontractors and failed to return the funds to the Hinderers.
This Court has held that the six-year period of limitations stated under MCL 600.5813
applies to a claim under the builders’ trust fund act. See DiPonio Constr Co, Inc v Rosati
Masonry Co, Inc, 246 Mich. App. 43, 56; 631 NW2d 59 (2001). A claim under the builders’ trust
fund act accrues when the contractor receives money for either the labor or materials necessary
to make an improvement, appropriates the money to his or her own use, and fails to pay
subcontractors or materialmen that the contractor engaged to furnish labor or provide materials.
Id. at 57-58; see also BC Tile & Marble Co, Inc v Multi Bldg Co, Inc, 288 Mich. App. 576, 585;
794 NW2d 76 (2010) (stating the elements of a claim under the builders’ trust fund act).
3
The Hinderers did not allege that Eason entered into any agreement with them.
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On appeal, Chelsea Builders and Snyder argue that the Hinderers’ claim under the act had
to have accrued in the spring of 2009 because that was the period within which the Hinderers
alleged that Chelsea Builders and Snyder received the funds to purchase materials for the project.
The Hinderers, by contrast, argue that the claim accrued when Chelsea Builders and Snyder
refused to refund the money or transfer the materials that it had purchased. Neither position is
correct. Although the Hinderers suggested that Chelsea Builders and Snyder could be liable
under the act for failing to purchase the materials that they agreed to purchase, or by failing to
return the funds that were paid for that purpose, the act applies only when the contractor or
subcontractor appropriates the money for his or her own use after having engaged a
subcontractor or materialman to provide services or materials and leaves the subcontractor or
materialman unpaid. See BC Tile, 288 Mich. App. at 585; see also MCL 570.152 (providing that
it is unlawful for a contractor or subcontractor to appropriate funds paid to him or her for any
purpose other than to first pay laborers, subcontractors, or materialmen). As such, neither the
failure to purchase the materials in advance of the project, nor the failure to return any funds that
were not needed to pay laborers, subcontractors, or materialmen were a violation of the act.
Because a contractor’s failure to engage a subcontractor or purchase materials from a
materialman does not violate the act, those failures cannot serve as the point at which such a
claim accrues. See MCL 600.5827 (stating that a claim accrues when the wrong is complete).
Therefore, to the extent that the Hinderers rely on those allegations to establish their claim under
the builders’ trust find act, they failed to state a claim upon which relief could be granted. See
MCR 2.116(C)(8).
Nevertheless, the Hinderers did allege that Chelsea Builders and Snyder accepted the
money, appropriated it to their own use, and left two subcontractors unpaid. If Chelsea Builders
or Snyder engaged the services of a subcontractor and used the money for a purpose other than to
pay the contractors first, it violated the act. See BC Tile, 288 Mich. App. at 585; MCL 570.152.
Because the Hinderers alleged that the two subcontractors provided services during the
construction project, which they alleged to have begun on or after November 9, 2009, the
Hinderers alleged a timely claim under the builders’ trust fund act with regard to the failure to
pay those two subcontractors. As such, the trial court erred to the extent that it determined that
the Hinderers claim under the builders’ trust fund act was untimely under the applicable six-year
period of limitation. MCL 600.5813.
D. FRAUD
The Hinderers’ fraud claims were also subject to a six-year period of limitations. See
MCL 600.5813; Boyle v Gen Motors Corp, 468 Mich. 226, 228 n 2; 661 NW2d 557 (2003). A
claim of fraud accrues when the wrong was done—not when it was discovered, Boyle, 468 Mich.
at 231-232, and the wrong is done when the plaintiff is harmed, id. at 231 n 5.
The Hinderers did not state with particularity whether and when they suffered any harm
from the alleged misrepresentations. See MCR 2.112(B)(1) (providing that the party alleging
fraud must state the circumstances constituting the fraud with particularity); Cooper v Auto Club
Ins Ass’n, 481 Mich. 399, 414; 751 NW2d 443 (2008) (stating that every element of the fraud
claim must be pleaded with particularity); see also Frank v Linkner, 500 Mich. 133, 150; 894
NW2d 574 (2017) (stating that, to determine when a claim accrued under MCL 600.5827, courts
must look to the harm alleged in the plaintiff’s cause of action). The Hinderers did allege that
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some misrepresentations occurred before construction began and that others occurred after
construction began. Construing the allegations in the light most favorable to the Hinderers, see
Maiden, 461 Mich. at 119, any harm from the misrepresentations alleged to have occurred after
construction began would have had to have occurred on or after November 9, 2009. Thus, the
Hinderers’ claims of fraud—while lacking in particularity with regard to the nature and timing of
the harm actually suffered—nevertheless were timely to the extent that they involved
misrepresentations that occurred during the construction project. See MCL 600.5813; Boyle, 468
Mich. 231-232. Moreover, as for the misrepresentations that the Hinderers alleged to have
occurred before the construction began, they may have been able to amend their pleadings to
more clearly state when the harm occurred, and leave to amend should be freely given to correct
such deficiencies. See MCR 2.118(A)(2). Consequently, on this record, the trial court erred to
the extent that it dismissed as untimely the Hinderers’ claims of fraud that occurred during the
construction project.
E. NEGLIGENT CONSTRUCTION OF AN IMPROVEMENT
Our Legislature provided that no “person” can “maintain an action to recover damages
for injury to property, real or personal, or for bodily injury or wrongful death, arising out of the
defective or unsafe condition of an improvement to real property . . . against any contractor
making the improvement, unless the action is commenced within” “[s]ix years after the time of
occupancy of the completed improvement, use, or acceptance of the improvement.” MCL
600.5839(1)(a). This period of limitations applies to tort actions; it does not apply to contract
actions. See Miller-Davis Co v Ahrens Constr, Inc, 489 Mich. 355, 370; 802 NW2d 33 (2011).
In order for a claim to sound in tort when acting pursuant to a contract, the tortfeasor must have
breached a duty that was separate and distinct from the duties imposed under the contract. See
Bailey v Schaaf (On Remand), 304 Mich. App. 324, 332-340; 852 NW2d 180 (2014) (examining
the distinction between contractual liability and tort liability), vacated on other grounds 497
Mich. 927 (2014). Indeed, our Supreme Court explained that it was error for this Court to expand
the application of MCL 600.5839(1) to all actions brought against a contractor involving an
improvement, including those brought for damage to the improvement itself. Miller-Davis Co,
489 Mich. at 367.
Under Count VII, which was titled “Negligence in Construction,” the Hinderers alleged
numerous breaches that they claimed caused various harms. The Hinderers alleged that Chelsea
Builders and Snyder harmed their property through negligent construction practices.
Specifically, they alleged that Chelsea Builders and Snyder failed to properly protect the
property from the elements during construction, which harmed both the original structure and the
improvements made. They similarly claimed that Chelsea Builders and Snyder used “excessive,
damaging force,” which damaged the property, and used “unsafe methods” in demolishing the
sunporch to make room for the new addition. These claims, and similar ones stated under Count
VII, to the extent that they state a claim at all, do not appear to involve harms “arising out of the
defective or unsafe condition of an improvement.” MCL 600.5839(1). Rather, as Chelsea
Builders and Snyder argue on appeal, these claims appear to involve ordinary negligence, which
would be subject to the three-year period of limitations stated under MCL 600.5805, as amended
by 2011 PA 162, in addition to the statute of repose stated under MCL 600.5839(1).
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Notwithstanding the apparent application of former MCL 600.5805(10), currently MCL
600.5805(2), to the defective or unsafe condition of an improvement, this Court has held that
MCL 600.5839 established a six-year period of limitations and period of repose for all claims
involving negligent workmanship during the construction of an improvement. See Citizens Ins
Co v Scholz, 268 Mich. App. 659, 665-671; 709 NW2d 164 (2005) (discussing what constitutes a
defective or dangerous improvement subject to the six-year statute of repose and what constitutes
ordinary negligence). The Court in Citizens relied heavily on MCL 600.5805, as amended by
2002 PA 715, and our Supreme Court’s interpretation of that provision in Ostroth v Warren
Regency, GP, LLC (Ostroth I), 263 Mich. App. 1; 687 NW2d 309 (2004), aff’d 474 Mich. 36
(2006), to conclude that the Legislature intended MCL 600.5839 to apply to all actions arising
from the construction of an improvement in addition to actions arising from the defective nature
of the improvement itself. See Citizens, 268 Mich. App. at 664-665. Our Supreme Court noted
that, under MCL 600.5805(14), as amended by 2002 PA 715, the Legislature stated that all
claims against contractors shall be “as provided” in MCL 600.5839. Ostroth v Warren Regency,
GP, LLC (Ostroth II), 474 Mich. 36, 41; 709 NW2d 589 (2006), quoting former MCL
600.5804(14) (quotation marks omitted). Relying on that language, our Supreme Court
concluded that the Legislature intended MCL 600.5839 to serve as both a statute of limitations
and a statute of repose. Id. at 44-45.
Since the decisions in Ostroth II and Citizens Ins, the Legislature amended MCL
600.5805 to no longer state that the claims against contractors shall be “as provided” by MCL
600.5839. Instead, MCL 600.5805, as amended by 2011 PA 162, stated under MCL
600.5805(15), currently MCL 600.5805(14), that the “periods of limitation under this section are
subject to any applicable period of repose established in section [MCL 600.]5838a, [MCL
600.]5838b, or [MCL 600.]5839.” With this amendment, the Legislature modified the statutory
scheme to preclude MCL 600.5839 from being applied as a statute of limitations, clarifying that
it was a statute of repose that should be applied in addition to any applicable period of
limitations. Cf. Ostroth II, 474 Mich. at 44-45 (stating that there was no evidence that the
Legislature intended MCL 600.5839 to be only a statute of repose and instead concluding that
the Legislature intended that provision to be both a statute of limitations and repose). Because
the periods of limitations are now subject to the period of repose stated under MCL 600.5839,
see former MCL 600.5805(15), courts must apply both the applicable period of limitations and
the applicable period of repose. As such, the Hinderers could not bring a claim involving
negligent construction of an improvement against a contractor unless they brought the claim
within three years after the claim first accrued, see former MCL 600.5805(1) and (10), and
within six years “after the time of occupancy of the completed improvement, use, or acceptance
of the improvement,” MCL 600.5839(1)(a). Because any tort claim involving negligence during
the construction of the improvement necessarily accrued before Chelsea Builders and Snyder
stopped working on the property in April 2010, and the Hinderers did not bring the claims until
November 2015, the claims stated under Count VII were untimely. See former MCL
600.5805(10).
The trial court did not err to the extent that it dismissed the Hinderers’ claims under
Count VII as untimely under MCR 2.116(C)(7).
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F. MICHIGAN CONSUMER PROTECTION ACT
The Hinderers also argue on appeal that their claims under the MCPA were timely under
the applicable statute of limitation. The trial court, however, did not dismiss these claims as
untimely under the applicable period of limitations. Instead, it determined that Chelsea Builders
and Snyder were exempt from the requirements of the MCPA and that the MCPA claims were
barred by the doctrine of laches. Consequently, we need not address whether these claims were
barred by the applicable period of limitations.
II. LACHES
A. STANDARD OF REVIEW
The Hinderers next argue that the trial court erred when it dismissed their claims under
the equitable doctrine of laches. This Court reviews de novo a trial court’s decision on a motion
for summary disposition and reviews de novo whether the trial court properly applied an
equitable doctrine to the facts of the case. See Knight v Northpointe Bank, 300 Mich. App. 109,
113; 832 NW2d 439 (2013). “A question of fact exists when reasonable minds could differ as to
the conclusions to be drawn from the evidence.” Dextrom v Wexford Co, 287 Mich. App. 406,
416; 789 NW2d 211 (2010). This Court reviews a trial court’s findings of fact in support of the
application of the doctrine of laches for clear error. Shelby Charter Twp v Papesh, 267 Mich
App 92, 108; 704 NW2d 92 (2005).
B. ANALYSIS
The doctrine of laches arose from the requirement that a complainant in equity must
come to the court with a clean conscience, in good faith, and after acting with reasonable
diligence. Knight, 300 Mich. App. at 114. “If a plaintiff has not exercised reasonable diligence in
vindicating his or her rights, a court sitting in equity may withhold relief on the ground that the
plaintiff is chargeable with laches.” Id. Although timing is important, laches is not triggered by
the passage of time alone; rather, it is the prejudice occasioned by the delay that justifies
application of the doctrine to bar a claim. Id. at 114-115. The defendant bears the burden of
proving that the plaintiff’s lack of diligence prejudiced the defendant sufficiently to warrant
application of the doctrine of laches. See Yankee Springs Twp v Fox, 264 Mich. App. 604, 612;
692 NW2d 728 (2004).
In their original motion for summary disposition, Chelsea Builders and Snyder argued
that the doctrine of laches applied to bar all of the Hinderers’ claims because the documentation
the Hinderers submitted to the trial court and the other record evidence showed that, although
they were aware of their claims six years earlier, they had inexplicably delayed bringing them.
During that time, they proceeded to have contractors perform work and alterations to the home.
In that way, the delay resulted in the loss of evidence, which prejudiced the defense.
In response, the Hinderers stated that photos, scans, and reports documenting the defects
existed. Further, they had submitted some photos and reports that they claim document the
condition of the property before any changes were made and offered Kathleen Hinderer’s
affidavit in which she averred that there was further documentation establishing the defective
condition of the improvements. They also maintained that they advised Chelsea Builders and
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Snyder of the defects so as to allow them the opportunity to correct them. Finally, they asserted
that the delay was not unreasonable because they were pursuing their claims against Chelsea
Builders and Snyder through a state agency.
In ruling on the original motion for summary disposition, the trial court characterized the
Hinderers’ delay as inexcusable and stated that it was reasonable to infer that significant
evidence had been lost. The trial court, however, did not address the evidence that permitted an
inference that the Hinderers’ delay was reasonable in light of their efforts to secure compensation
without proceeding to court, and it did not address the Hinderers’ evidence that they sufficiently
documented the construction work to allow Chelsea Builders and Snyder to present a reasonable
defense, which implicated whether the delay prejudiced Chelsea Builders. The trial court also
did not discuss whether Chelsea Builders and Snyder had the ability to obtain additional
evidence in their defense by deposing the persons involved in the original and subsequent
improvements.
In their second motion for summary disposition, Chelsea Builders and Snyder did not
specifically raise the doctrine of laches. They argued that the trial court should dismiss the
Hinderers’ breach of contract, warranty, and fraud claims for the same reasons argued in their
first motion for summary disposition, which included laches. The trial court granted the second
motion for summary disposition and dismissed all of the Hinderers’ claims except their MCPA
claim. In granting the motion, the trial court mentioned laches, but it did not address the
evidence in support of applying the doctrine of laches to bar the claims. It also did not discuss
the possible factual dispute involving whether the doctrine could be properly applied.
Chelsea Builders and Snyder did address the issue of laches in their supplemental brief as
it might apply to the Hinderers’ claims under the MCPA. And the Hinderers reiterated their
earlier arguments with regard to the doctrine of laches as it might apply to their MCPA claim.
Specifically, they maintained that they had taken reasonable steps to assert their rights before
resorting to the courts, which included filing a claim with Chelsea Builders’ insurer and
preserving the evidence before proceeding to complete the project. Chelsea Builders also
discussed the prejudice prong of the doctrine of laches and presented evidence that the
Hinderers’ dramatically altered the property.
At the hearing to consider whether to dismiss the Hinderers’ MCPA claims, the trial court
discussed its decision to apply laches more specifically. It stated that it had not “seen and
probably won’t ever see another case as clear an example of laches.” It agreed with defense
counsel and stated that it believed that the Hinderers had “lulled” Chelsea Builders and Snyder
into believing that they were just going to pursue their complaints with the state agency and the
insurer. The trial court again did not carefully analyze the evidence implicating whether the
Hinderers’ delay in filing suit was reasonable and did not discuss the evidence tending to show
that Chelsea Builders and Snyder were not prejudiced by the delay.
Chelsea Builders and Snyder had the burden to demonstrate that the Hinderers’ claim
should be barred under the doctrine of laches. Yankee Springs Twp, 264 Mich. App. at 612. And
whether to apply the doctrine of laches may depend on the resolution of factual disputes about
the reasonableness of the delay and the prejudice occasioned by the delay. See Eberhard v
Harper-Grace Hosps, 179 Mich. App. 24, 39-40; 445 NW2d 469 (1989). In this case, there was
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evidence that would permit a trial court sitting in equity to find that the Hinderers’ delay was
unreasonable and prejudiced Chelsea Builders and Snyder. But there was also evidence from
which the trial court could have found that the Hinderers proceeded with due diligence or that the
delay did not prevent Chelsea Builders or Snyder from defending the claims. Whether treated as
a decision on a motion for summary disposition under MCR 2.116(C)(7) or (C)(10), there was a
factual dispute on which reasonable minds may differ about whether the doctrine of laches
should apply, and as such, this issue cannot be resolved on a motion for summary disposition.
See White v Taylor Distributing Co, Inc, 275 Mich. App. 615, 630; 739 NW2d 132 (2007) (stating
that trial courts may not resolve factual disputes or determine credibility in ruling on a motion for
summary disposition).
For the same reason, we decline to consider the Hinderers’ argument that the doctrine of
unclean hands bars Chelsea Builders and Snyder from asserting laches as a defense. See
Attorney General v PowerPick Players’ Club of Mich, LLC, 287 Mich. App. 13, 52; 783 NW2d
515 (2010) (stating that one with unclean hands may not assert the equitable defense of laches).
The record requires further factual development to determine whether that equitable doctrine
might apply. See, e.g., Mudge v Macomb Co, 458 Mich. 87, 109; 580 NW2d 845 (1998).
Further, although this Court has held that the equitable doctrine of laches applies to actions at
law, see Tenneco Inc v Amerisure Mut Ins Co, 281 Mich. App. 429, 456; 761 NW2d 846 (2008),
our Supreme Court has stated that the equitable doctrine of unclean hands “is only relevant in
equitable actions,” see Rose v Nat’l Auction Group, 466 Mich. 453, 467-468; 646 NW2d 455
(2002). Hence, it is unclear whether the equitable doctrine of unclean hands can be used in an
action at law to defeat the application of laches.
The trial court erred to the extent that it applied the doctrine of laches to bar the
Hinderers’ claims without first holding a trial or evidentiary hearing to resolve the factual
disputes underlying the proper application of that doctrine.
III. MCPA
A. STANDARD OF REVIEW
The Hinderers next argue that the trial court erred when it determined that Chelsea
Builders and Snyder were exempt from the requirements of the MCPA and dismissed their
MCPA claims in part on that basis. This Court reviews de novo a trial court’s decision on a
motion for summary disposition. Barnard Mfg, 285 Mich. App. at 369. This Court also reviews
de novo whether the trial court properly interpreted and applied the relevant statutes. Pransky,
311 Mich. App. at 173.
B. ANALYSIS
The Legislature prohibited certain “[u]nfair, unconscionable, or deceptive methods, acts,
or practices in the conduct of trade or commerce” in the MCPA. MCL 445.903(1). However, it
also provided that the MCPA does not apply to a “transaction or conduct specifically authorized
under laws administered by a regulatory board or officer acting under statutory authority of this
state or the United States.” MCL 445.904(1). The party claiming the exemption has the burden
of proving it. MCL 445.904(4).
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Our Supreme Court first examined the scope of this exemption in Attorney General v
Diamond Mtg Co, 414 Mich. 603; 327 NW2d 805 (1982). In that case, the Court had to
determine whether Diamond Mortgage was exempt from the MCPA for claims involving home
loans because it was licensed as a real estate broker, and the licensing act at the time, MCL
451.201 et seq., as repealed by 1980 PA 299, contemplated that real estate brokers would
negotiate such loans. Id. at 606, 616. The Diamond Court held that Diamond Mortgage was not
exempt because, “[w]hile the license generally authorizes Diamond to engage in the activities of
a real estate broker,” it did not specifically authorize the conduct at issue. Id. at 617. The Court
acknowledged that no act specifically authorizes “misrepresentations or false promises,” but it
disagreed that its construction rendered the exemption meaningless. Id. It explained that the
exemption would apply even when a party attached such labels to a transaction or conduct if the
underlying transaction or conduct had been specifically authorized under the laws administered
by a regulatory board. Id.
In Smith v Globe Life Ins Co, 460 Mich. 446; 597 NW2d 28 (1999), our Supreme Court
returned to the exemption stated under MCL 445.904(1) and again rejected the contention that
the exemption only applies when the allegedly wrongful conduct was itself authorized by law.
The Court explained that the “relevant inquiry is not whether the specific misconduct alleged by
the plaintiff” is specifically authorized by law, but rather “whether the general transaction is
specifically authorized by law, regardless of whether the specific misconduct alleged is
prohibited.” Id. at 465.
Our Supreme Court examined the meaning of the term “specifically authorized” as it
applied to residential builders in Liss v Lewiston-Richards, Inc, 478 Mich. 203; 732 NW2d 514
(2007). The Court reiterated that the focus must be on the “general transaction” and whether it
has been “explicitly sanctioned” by law and not whether the specific misconduct had been
prohibited. See id. at 212-213. The Court concluded that residential home building was conduct
that was exempt from the MCPA because the occupational code, specifically MCL 339.2401 et
seq., authorized residential home building. Liss, 478 Mich. at 214. The Court clarified that
residential homebuilding was authorized under the occupational code because the code required
the home builder to have a license and a license constituted formal permission to do something
or carry on some business. Id. at 214 n 39. The Court also noted that there were only a limited
number of instances where a “non-licensed builder” was permitted to act as a residential builder.
Id. at 214. The Court concluded that, with limited exceptions, residential home building was a
transaction specifically authorized under the occupational code:
The clear import of the statutory scheme is that there are only a few instances
where one can engage in the business of a residential home builder without
having a license. Therefore, with limited exceptions, contracting to build a
residential home is a transaction “specifically authorized” under the [Michigan
Occupational Code], subject to the administration of the Residential Builders’ and
Maintenance and Alteration Contractors’ Board. [Id. at 215.]
Notably, in both Diamond Mtg and Liss, our Supreme Court emphasized that the
defendant was either exempt or not exempt from the MCPA on the basis of the conduct that was
specifically authorized for someone holding the relevant license. In Diamond Mtg, the Court
concluded that Diamond Mortgage was not exempt from the MCPA because its real estate
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broker’s license did not authorize it to make loans. Diamond Mtg, 414 Mich. at 617; see also
Smith, 460 Mich. at 464 (recognizing that the transaction at issue in Diamond Mtg was not
exempt from the MCPA because the conduct was not specifically authorized under the
defendant’s real estate broker’s license). By contrast, in Liss, the builder had a residential
builder’s license, which specifically authorized it to engage in the business of residential building
and so it was exempt from the MCPA when engaged in such conduct. Liss, 478 Mich. at 214-
215, 214 n 39.
In this case, the Hinderers alleged that Chelsea Builders and Snyder were engaged in the
business of residential construction and alteration but did not have a residential builder’s license.
Accepting those allegations to be true, see Maiden, 461 Mich. at 119, Chelsea Builders and
Snyder were not specifically authorized by the occupational code to engage in residential
building. As such, the exemption stated under MCL 445.904(1)(a) did not apply to the conduct
at issue. Liss, 478 Mich. at 214-215; Diamond Mtg, 414 Mich. at 617. Consequently, the trial
court erred when it determined that the exemption stated under MCL 445.904(1)(a) applied
because the “transaction or conduct” was “specifically authorized under laws administered by a
regulatory board . . . .” The occupational code does not authorize persons to conduct residential
building without a license.
On appeal, Chelsea Builders and Snyder maintain that the case law must be read to
examine whether the conduct or transaction at issue was authorized under some regulatory
scheme without regard to whether the individual engaging in the conduct or transaction held the
requisite license that would allow him or her to engage in the conduct or transaction. We
disagree. In Diamond Mtg, our Supreme Court did not examine whether the issuing of loans
secured by mortgages was an activity that was authorized under any regulatory scheme; rather, it
examined whether the license held by the defendant in that case authorized the issuing of loans
secured by mortgages and determined that it did not. Similarly, in Liss, our Supreme Court
explained that it is the holding of a license that confers the authority to act under the regulatory
scheme. Consequently, the relevant inquiry is not whether the conduct was authorized generally
under some regulatory scheme, but whether the license actually held by the defendant authorized
the general conduct or transaction at issue. It follows that a person who does not hold the license
to engage in the relevant conduct cannot claim the exemption under MCL 445.904(1)(a). See
Liss, 478 Mich. at 214-215; Diamond Mtg, 414 Mich. at 617.
The trial court erred when it determined that the exemption stated under MCL
445.904(1)(a) applied to the facts as alleged in this case. Therefore, it erred to the extent that it
dismissed the Hinderers’ claims on that basis, and we reverse this aspect of the trial court’s
decision.
IV. PIERCING THE CORPORATE VEIL
The Hinderers also argue that the trial court erred by dismissing their claim for piercing
the corporate veil as stated under Count V of their complaint.
Corporations and other artificial entities are legal fictions. Green v Ziegelman, 310 Mich
App 436, 450; 873 NW2d 794 (2015). Courts indulge a presumption that the entity is separate
and distinct from its owners absent some abuse of the corporate form. Id. at 451. A court sitting
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in equity may, however, pierce the veil of corporate structure and impose liability on the owners
to prevent fraud or injustice. Id. “[P]iercing the veil of a corporate entity is an equitable remedy
sparingly invoked to cure certain injustices” and not a separate cause of action. Gallagher v
Persha, 315 Mich. App. 647, 654; 891 NW2d 505 (2016). Whether to pierce the corporate veil
depends on the specific facts of the each case, see Rymal v Baergen, 262 Mich. App. 274, 293-
294; 686 NW2d 241 (2004), and the proponent seeking to disregard the separate existence of the
entity bears the burden to prove facts that would justify doing so, see Green, 310 Mich. App. at
454 (discussing the elements that the complainant must establish to justify disregarding an
entity’s separate existence). The party asking the trial court to disregard the separate existence of
an entity may do so in his or her original complaint or may do so in a subsequent complaint after
a judgment has been entered against the entity. See Gallagher, 315 Mich. App. at 665-666. Thus,
a plaintiff must specifically ask the trial court to disregard the separate existence of an entity and
must allege facts that, if true, would justify doing so.
In a separate count (Count V) of their third amended complaint, the Hinderers alleged
that Snyder could be personally liable for the wrongs committed by Chelsea Builders because he
was Chelsea Builders’ officer at the time. They also alleged that the trial court could impose
personal liability on Snyder because Snyder used Chelsea Builders as a “mere instrumentality” to
commit frauds and wrongs on the Hinderers, which caused them to suffer an “unjust loss.” They
further alleged that he failed to maintain Chelsea Builders’ corporate form, mingled his personal
funds with the corporation’s funds, and made improper distributions that left Chelsea Builders
without assets to pay creditors. If found to be true, these allegations might justify the trial
court’s exercise of equitable power to disregard the separate existence of Chelsea Builders and
impose personal liability on Snyder for any judgment against Chelsea Builders. See Green, 310
Mich. App. at 454. Accordingly, because we have concluded that the trial court erred when it
dismissed some of the Hinderers’ claims against Chelsea Builders, we agree that their claim that
the trial court should disregard Chelsea Builders’ separate existence remains a viable remedy.
V. CLAIMS AGAINST EASON
A. STANDARD OF REVIEW
Finally, the Hinderers argue that the trial court erred when it dismissed their claims
against Eason, as stated under Count VI of their complaint, for failure to state a claim. This
Court reviews de novo a trial court’s decision on a motion for summary disposition. Barnard
Mfg, 285 Mich. App. at 369.
B. ANALYSIS
A trial court should dismiss a claim under MCR 2.116(C)(8) when the claim is so clearly
unenforceable as a matter of law that no factual development could possibly justify recovery.
See Maiden, 461 Mich. at 119.
Under Count VI of their complaint, the Hinderers alleged generally that Eason
participated in the events at issue by signing a draft version of an agreement on Chelsea
Builders’ behalf and by applying for the building permit that Chelsea Builders used in the
improvement project at issue. They then conclude from these general allegations that Eason
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could be held personally liable for the “portion of the work not done and for the defects of the
work actually done for which he pulled the permit as well as for all code violations and
violations of law which occurred during the construction regarding the Plaintiff’s project.”
In Count VI, the Hinderers did not identify any viable common law or statutory cause of
action against Eason. Although they alleged that Eason’s signature appeared on a draft
agreement, the Hinderers also alleged that they did not accept the draft agreement. As such, they
failed to state a contract claim against Eason. See Huntington Nat’l Bank v Daniel J Aronoff
Living Trust, 305 Mich. App. 496, 508; 853 NW2d 481 (2014) (stating that an essential element of
a breach of contract claim involves proving that the parties actually entered into a binding
agreement).
Similarly, although the Hinderers alleged that Eason engaged in wrongful conduct by
applying for the building permit, they did not identify any common law or statutory cause of
action that could make Eason liable for any and all harms arising from the project associated
with the building permit. On appeal, the Hinderers suggest that Eason might be liable under
MCL 339.2405(1), which provides that a corporation or other entity may obtain a license through
a qualifying officer and states that the “qualifying officer is responsible for exercising the
supervision or control of the building or construction operations” by the entity. However, the
Hinderers did not make any allegations against Eason involving MCL 339.2405(1), and on
appeal they maintain that Eason was not in fact a qualifying officer. Consequently, as alleged
under Count VI, the Hinderers failed to state any claim against Eason that was cognizable under
Michigan law.
Although the trial court did not specifically discuss the grounds for dismissing the claim
against Eason, it had the authority to dismiss the claim against Eason on its own initiative
because it was evident from the pleadings that he was entitled to judgment as a matter of law
under MCR 2.116(C)(8). See MCR 2.116(I)(1) (providing that a trial court must “render
judgment without delay” when the “pleadings show that a party is entitled to judgment as a
matter of law”).
The trial court did not err when it dismissed Count VI of the Hinderers’ third amended
complaint.
VI. CONCLUSION
For the reasons stated, we reverse the trial court’s decision to dismiss the Hinderers’
breach of contract, warranty, and fraud claims as untimely. We also reverse the trial court’s
decision to dismiss the Hinderers’ claim under the builders’ trust fund act to the extent that they
alleged that Chelsea Builders and Snyder appropriated the funds for their own use. We affirm
the trial court’s decision to dismiss the Hinderers’ negligent construction claims as untimely.
We also reverse the trial court’s decision to grant summary disposition on the ground that
the Hinderers were guilty of laches; there is a question of fact as to whether laches apply, which
could not be resolved on a motion for summary disposition. We also reverse the trial court’s
determination that Chelsea Builders and Snyder were exempt from application of the MCPA.
The Hinderers’ may continue to demand to pierce the corporate veil to the extent that the
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Hinderers have viable remaining claims against Chelsea Builders. Finally, we affirm the trial
court’s decision to dismiss Count VI of the Hinderers’ complaint for failure to state a claim.
Affirmed in part, reversed in part, and remanded for further proceedings consistent with
this opinion. We do not retain jurisdiction. Because none of the parties prevailed in full, we
order that none may tax costs. See MCR 7.219(A).
/s/ Thomas C. Cameron
/s/ Jane M. Beckering
/s/ Amy Ronayne Krause
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