Builder’s Trust Fund Act Applies to Company President Even Though No Day-to-Day Involvement
by Benjamin H. Hammond
On June 8, 2010, the Michigan Court of Appeals published its decision in the case of BC Tile & Marble Co., Inc. v Multi Building Co., Inc., et al. BC Tile was a subcontractor to Multi Building on a project in Novi, Michigan wherein BC Tile provided tile and/or marble materials on the construction project. BC Tile invoiced Multi Building approximately $33,000 for labor and materials, but was not paid. BC Tile proceeded to record a lien. Upon the sale of the unit where the work was performed, Multi Building received funds from the sale; however, Multi Building failed to pay the amount owed to BC Tile.
BC Tile sued Multi Building alleging, in part, that Multi Building and its President, Paciocco, violated the Michigan Builder’s Trust Fund Act (MBTFA). Since Multi Building had been paid by the owner for the labor and materials provided by BC Tile, and used those funds to pay other expenses and not BC Tile, the court easily concluded that Multi Building violated the MBTFA, and met the following elements:
(1) that the defendant is a contractor or subcontract engaged in the building construction industry, (2) that the defendant was paid for labor or materials provided on a construction project, (3) that the defendant retained or used those funds, or any part of those funds, (4) that the funds were retained for any purpose other than to first pay laborers, subcontractors, and materialmen, and (5) that the laborers, subcontractors, and materialmen were engaged by the defendant to perform labor or furnish material for the specific construction project.
However, the pertinent question was whether or not the violation of the MBTFA by the company applied to its President, Paciocco. Paciocco argued that in order to hold a principal of a corporate contractor liable under the MBTFA, there must be evidence that the principal knew about or approved the alleged violation. There was no evidence that Paciocco personally used the funds owed to BC Tile, had any day-to-day involvement, or exercised any decision-making for this particular project. While Paciocco admitted that he personally dealt with the owners when they complained about the tile work, he stated that he “did not personally receive, misapply, misappropriate, and/or engage in any misappropriation of any construction funds from or relating to the subject property or know about and/or approve of any violation of the MBTFA.”
However, the court held that not having “day-to-day” involvement in the project does not absolve a corporate officer of individual liability. Moreover, it is not necessary to prove that a corporate principal personally used the funds owed to a subcontractor in order to find an officer liable for a violation of the MBTFA.