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The February 2007 Newsletter of the Debtor/Creditor Rights Committee of the Business Law Section of the State Bar of Michigan contains an interesting article concerning personal liability under the Michigan Builder's Trust Fund Act. Thomas R. Morris reports on a preliminary ruling in a case pending before Judge Shefferly in the U.S. Bankruptcy Court in Detroit:

The Building Contract Fund Act and 523(a)(4): An Issue Long Glossed Over
By: Thomas R. Morris of Silverman Morris, PLLC

"Bankruptcy Judge Thomas Tucker, in Franzone v. Ernst, (In re Ernst), 06?4803?TJT (Bankr. E.D. Mich., September 25, 2006) (unreported bench opinion), held that a violation by a corporate contractor of the Michigan Building Contract Fund Act, M.C.L. 570.151 et seq (the "Act") (also known as the "Builders' Trust Fund Act"), does not give rise to a debt on the part of an officer or employee of the contractor that is non?dischargeable under 11 U.S.C. § 523(a)(4). Judge Shefferly, in Conquest Construction, Inc. v. Cicero, 06-4852-PJS (Bankr. E.D. Mich., November 30, 2006)(opinion denying motion for reconsideration), disagreed.

"Applying the Sixth Circuit's holding in In re Blaszak, 397 F.3d 386, 391?392 (6th Cir. 2005) and the Supreme Court?s holding in Davis v Aetna Acceptance Co., 293 U.S. 328 (1934), Judge Tucker found that in order to find a "defalcation while acting in a fiduciary capacity" on the part of the debtor, there must be an express trust in existence prior to the alleged defalcation. The elements of an express trust were found by the court of appeals in Blaszak to include: intent to create a trust; a trustee; a trust and a definite beneficiary. Although the Sixth Circuit in In re Johnson, 691 F.2d 249, 252?253 (6th Cir. 1982), found the Act to fulfill the express?trust requirements of the Bankruptcy-Act predecessor to § 523(a)(4), in Johnson, the debtor was a sole proprietor, not an officer or other agent of a corporation or other limited-liability business organization."

For the full text of this article, see: http://www.michbar.org/business/newsmag/feb07/Articles.htm#1

For More Information

Since the facts of each case are unique, this update cannot be taken as legal advice. For more information about the Michigan Builder's Trust Fund Act and how it might affect you or your business, please contact Peter Cavanaugh.

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