QUANTUM MERUIT CLAIMS IN THE FACE OF AN EXPRESS CONTRACT
The Michigan Court of Appeals has recently published a decision that adds risk to developers and general contractors but provides a “ray of hope” to lower tiered subcontractors and suppliers for non-payment. The recent opinion of Morris Pumps v EBI Detroit, et al, allowed a construction supplier to obtain equitable relief from a general contractor even though the supplier had already entered into an express contract covering the same subject matter with its subcontractor.
In Morris Pumps, the Plaintiffs were composed of three different material and equipment suppliers to Centerline Piping on the construction of a wastewater facility in St. Clair County that was owned by the City of Detroit. The City of Detroit hired EBI Detroit to act as the City’s general contractor. EBI Detroit hired Centerline Piping as one of its subcontractors. Centerline Piping went out of business and abandoned the Project prior to completing its scope of work for EBI Detroit. The Plaintiffs had already delivered materials to Centerline at the time Centerline went out of business. EBI terminated Centerline’s subcontract. It was unclear to the Court whether any of the 1.3 million that EBI had previously paid to Centerline prior to termination represented any of the amounts owed to the Plaintiffs. EBI’s replacement contractor used the equipment and material that had previously been delivered to the Project by the Plaintiffs.
The Plaintiffs sued Centerline for breach of contract and EBI for unjust enrichment. EBI did supply a statutory payment bond, but it was undisputed that the Plaintiffs failed to perfect their bond claims in accordance with Michigan law. The Plaintiffs moved for summary disposition against EBI. The Wayne Circuit Court granted their motion upon liability only. EBI sought leave to appeal and the Michigan Court of Appeals granted EBI’s application, and ultimately affirmed the lower court’s holding in favor of the suppliers.
First, the Appellate Court disagreed with EBI’s typical argument that the Plaintiff’s unjust enrichment claims were barred by the existence of express contracts covering the same subject matter. The Court held that because there were no express contracts between the same parties on the same subject matter, then EBI’s argument must necessarily fail. The Court only cited secondary sources to support its holding regarding the “same parties” theory, and did not cite any Michigan precedent to affirm the lower court’s ruling. It seems the Court has made new law without citing proper precedent.
The Court next recognized that “not all enrichment is necessarily ‘unjust’ in nature.” Where a third person benefits from a contract entered into between two other persons, in the absence of some misleading act by the third person, the mere failure of performance by one of the contracting parties does not give rise to a right of restitution against the third person. The Court again relied upon secondary sources and not any Michigan precedent. The Court then took a giant leap and held that since EBI “acquiesced” in its replacement contractor’s “retention and use” of the Plaintiff’s materials, then EBI’s retention of the materials, coupled with its failure to pay the Plaintiffs, resulted in the unjust enrichment at Plaintiffs’ expense. Thus, even after the court attempted to particularize “unjust” enrichment by requiring a misleading act, the Court made no express finding of an overt misleading act on the part of EBI yet ruled against EBI because it merely failed to pay the Plaintiffs.
In addition, the Court rejected EBI’s argument that EBI was not unjustly enrichment because EBI actually paid more than the full price of its original subcontract value with Centerline. When Centerline abandoned the Project, EBI was required to pay more than the balance remaining in Centerline’s subcontract to EBI’s replacement contractor. “However, this does not lessen or alleviate defendant’s obligation to compensate plaintiffs for the materials that were taken and used in the course of the construction project.” Furthermore, “the payment of $380,000 above and beyond the originally contemplated subcontract price in no way affects defendant’s SEPARATE AND DISTINCT obligation to Plaintiffs” (emphasis added). In other words, the Court held that EBI, as general contractor, owed its subcontractor’s suppliers a separate and distinct legal obligation under the law to ensure that Plaintiff received payment. This appears to be new law. Perhaps if EBI made a showing that it had paid Centerline in accordance with Centerline’s pay applications and sworn statements, then EBI would have had a better argument.
Regardless, the Court’s published ruling is a significant opinion for construction contractors at all levels. The Court has now held that a contractor may be found liable for unjust enrichment to a lower tiered subcontractor or supplier, even though an express contract existed between different companies covering the same subject matter. The court further rejected EBI’s argument that the Plaintiffs’ exclusive remedy lie within the Public Works Act and against EBI’s payment bond surety on the Project.
It appears that the Court has created new law by setting forth a new “misleading” test to determine whether enrichment has been “unjust.” But then the Court failed to identify a “misleading” act on the part of EBI and still held EBI liable to Centerline’s suppliers. EBI simply “acquiesced” in the retention of the materials without payment.
