Who construction contractors contract with is important. Say it three times fast. While the Michigan Construction Lien Act (CLA) affords protection and lien rights to contractors performing improvements to real property, so too does it have limits on these protections. One such limit, and its implications on the circuit court’s subject matter jurisdiction, was recently tested in the Michigan Court of Appeals’ for-publication opinion in Core Values Constr, LLC v Sheehan’s on the Green, Inc (MCOA No. 369250).
The case concerned Core Values Construction’s work performed at a property owned by Defendants Larry and Joan Sheehan, both of whom had passed away. Core Values entered into a contract with Sheehan’s on the Green, Inc. (SOTG) to provide the improvements for a total cost of $30,775. Daniel Sheehan, the deceased property owners’ son, signed the contract on behalf of SOTG. Core Values performed the construction, but SOTG only paid $24,000 of the total contract price. Displeased, Core Values recorded a construction lien on the property and filed a lien-foreclosure action against the deceased Sheehan parents in the Wayne County Circuit Court. In the same action, Core Values asserted claims of breach of contract and unjust enrichment against Daniel Sheehan, the son, and SOTG. It did so to recover what Judge Christopher Yates described as the “paltry amount” of $6,775.
Daniel and SOTG moved to dismiss arguing that Core Values’ construction lien was invalid because it did not have a contact with the deceased property owners. They further argued that Core Values’ remaining claims to recover $6,775 fell below the jurisdictional threshold of the circuit court. While that motion was pending, the clerk entered defaults against the deceased parents pursuant to an order for alternative service. After a series of hearings and rounds of briefing, the circuit court granted Daniel and SOTG summary judgment. The court concluded that the construction lien was invalid, the defaults entered against the deceased parents were improper, and that it lacked subject matter jurisdiction over Core Values’ claims against Daniel and SOTG to recover $6,775. Core Value appealed.
In an opinion authored by Judge Christopher Yates, the Michigan Court of Appeals affirmed dismissal of Core Values’ claims. At the outset, the Court noted that the CLA provides that a “contractor, subcontractor, supplier, or laborer who provides an improvement to real property has a construction lien upon the interest of the owner or lessee who contracted for the improvement to the real property….” Because Core Values’ construction contract was with SOTG, rather than the deceased property owners, its construction lien foreclosure claim failed as a matter of law. In addition, Core Values’ lien foreclosure claim against the deceased parents, personally, was improper, as any such claim was required to be brought against their estates. For both reasons, the dismissal of Core Values’ construction lien foreclosure claim was appropriate.
Turning to the dismissal of Core Values’ remaining claims for lack of subject matter jurisdiction, the Court again affirmed. The Court agreed that Core Value’s lien foreclosure claim had to be filed in circuit court. However, that claim was properly dismissed and, in any event, not asserted against SOTG or Daniel Sheehan. The Court reasoned that “[a]lthough our Supreme Court has allowed circuit courts to consider claims for breach of contract after the underlying lien-foreclosure claims were dismissed, those cases involved lien-foreclosure claims and breach-of-contract claims against the same defendants.” (Emphasis added). Distinguishing these cases, the Court held “the claim against SOTG and the son for breach of contract with a request for damages of $6,775 cannot come within the subject-matter jurisdiction of the circuit court to address the construction-lien claim against the parents.”
Core Values Construction confirms what a careful reading of the CLA should inform construction contractors – only contract for improvements with a property owner or lessee. It also forewarns litigators of the jurisdictional pitfall in pressing forward with joined lien foreclosure and contract claims in circuit court under the $25,000 jurisdictional floor when the claims are brought against separate defendants.