legal case examination
Girlfriend of Builder Found Liable Under the Michigan Builder’s Trust Fund Act
The Michigan Builder’s Trust Fund Act (MBTFA), MCL 500.151 et seq., is a remedial statute designed to protect contractors, subcontractors, and even individuals who pay for work from fraud in the construction industry by imposing a trust on funds paid to the contractor or subcontractor. The statute only applies in private construction agreements but carries significant civil and criminal penalties. And after a recent Court of Appeals opinion, individuals acting in their individual capacity, who seemingly perform no construction work and only accept money paid for work to be performed by a contractor or subcontractor, may be held liable under the MBTFA.
Case Description: Driver v bordeaux
In Driver v Bordeaux (Court of Appeals, December 28, 2023), a residential builder and his girlfriend (Bordeaux) entered into two separate agreements with two separate parties to renovate and remodel the parties’ homes. While there was no agreement between the parties and Bordeaux specifically, the residential builder held Bordeaux out to be a part of his team. Ultimately, the parties paid Bordeaux directly through her Venmo account at the direction of the residential builder. In total, the parties paid Bordeaux over $50,000, which later got spent at casinos and on lottery tickets. Bordeaux was not an employee of the residential builder, did not have a role in the company, and did little to no work on either job except for taking payment.
After no work was completed on either job, the parties filed a lawsuit against the residential builder and Bordeaux, claiming violations of the MBTFA. Bordeaux asserted that she could not be found liable under the MBTFA because she was not a contractor or subcontractor and that she had no actual role in the residential builder’s construction business or the construction work that the builder agreed to perform. However, the Court of Appeals determined that Bordeaux was a subcontractor within the meaning of the MBTFA because she admitted that she received funds into her accounts. The mere fact that she collected payments on a building contract, even in her individual capacity, was sufficient to bring her within the confines of the MBTFA. Consequently, Bordeaux became a trustee of the funds paid to her for purposes of the MBTFA.
The Court further stated that the lack of a corporate entity did not help Bordeaux. Indeed, Michigan courts have held that a sole proprietor acting as a contractor may be liable under the MBTFA, and the mere receipt of project funds on behalf of a contractor is sufficient to bring an individual within the scope of the MBTFA. And because Bordeaux fell within the scope of the MBTFA, the project funds she received were impressed with statutory trust status. This meant that she then had a fiduciary duty to account for and use those funds specifically for the projects. But because the funds were used by the residential builder at casinos and on lottery tickets, those funds were misappropriated and gave rise to violations of the MBTFA, which also meant violations of MCL 600.2919a. And when trust funds are misappropriated and converted under MCL 600.2919a, liability for treble damages and attorney fees may also be imposed.
The Lesson Learned:
It does not matter whether you are a contractor, subcontractor, corporate entity, or individual for purposes of the MBTFA. If you receive funds for a construction project in any capacity, you become a trustee and have a fiduciary duty over those funds. Best practice is to setup separate accounts for each project and only use funds related to each specific project.
If you have any questions or concerns on the legal ramifications of the MBTFA, please connect with Attorney Jeremy Orenstein for counsel on your specific needs.
