The Michigan Court of Appeals recently issued an unpublished opinion that gives guidance to construction law practitioners and contractors.
In Lawrence M Clarke, Inc v Draeger et al, Plaintiff was a general contractor engaged to construct a public sanitary sewer system. Plaintiff accepted its subcontractor's proposal, added a profit margin of 12%, and essentially submitted the proposal as its own to perform the Project. Plaintiff heavily relied on its subcontractor and brought suit for breach of contract and unjust enrichment against its subcontractor and its principal officer for the subcontractor's alleged non-performance. The trial court awarded Plaintiff over $900,000.00 under an implied contract theory of quantum meruit. The trial court held the subcontractor's principal officer to be personally liable for the judgment award because the principal officer failed to respect the corporate form.
The Court of Appeals reversed the trial court. It reaffirmed the bedrock principle in Michigan that unjust enrichment is not an available remedy where an express contract exists between the same two contracting parties.
The Court of Appeals also reversed the trial court's calculation of back charges against the subcontractor. The Court of Appeals stated that trial courts must incorporate any savings of the injured party. Here, the general contractor was not entitled to recover damages equal to the gross value of its subcontractors' lower-tiered payment bond claimants. Rather, the damage claim should have been equal to the amounts actually paid by the general contractor to settle the claims against its payment bond.
The Court of Appeals affirmed the trial court's decision to pierce the corporate veil of the subcontract entity and hold its principal officer personally liable. The trial court found that the subcontractor did not file annual reports, was undercapitalized, did not hold shareholder or board meetings, did not pay annual filing fees, and the principal officer permitted the subcontractor to be dissolved. Michigan courts pierce the corporate veil to protect creditors where a stockholder uses the corporation to avoid legal obligations, and where the corporate form is not respected.