HOLDS TRUST STATUTE IS ONLY APPLICABLE TO MARYLAND LITTLE MILLER ACT CASES OR MARYLAND MECHANICS’ LIEN CASES
On July 30, 2018 in the C&B Construction, Inc. v. Dashiell case, the Court of Appeals of Maryland discussed the applicability of the Maryland Construction Trust Statute (§§ 9-201, 9-202, and 9-204 of the Real Property Article), which creates a right of action against certain individuals when a subcontractor does not get paid by a general contractor after the general contractor is paid for work done by the subcontractor. The statute imposes personal liability on the directors, officers, and managing agents of a contractor corporation when they improperly use the funds held in trust, for purposes beyond the payment of subcontractors.
The case involved a breach of contract dispute before the Circuit Court for Wicomico County, due to the failure to pay for drywall and duct work performed by C&B Construction Inc. (hereafter, “C&B”), for a general contractor, Temco Builders Inc. (hereafter “Temco”), through multiple construction contracts. Temco was co-owned by Jeffrey Dashiell and Edward J. Maguire (hereinafter “Respondents”). At trial, C&B alleged that Respondents had either diverted or misappropriated funds received by Temco from the owners of the construction projects, and that the funds received were supposed to be held in trust pursuant to the Maryland Construction Trust Statute.
At trial, Temco entered into a consent judgment with C&B and the case proceeded solely against the Petitioners. At the close of C&B’s case, Petitioners moved for judgment and the Circuit Court agreed and dismissed the case, holding that the Maryland Construction Trust Statute was not applicable, because the subcontracts at issue were not subject to the Maryland Little Miller Act (§ 17-101, et seq. of the State Finance and Procurement Article of the MD Code) or the Maryland Mechanics’ Lien Statute (§ 9-102, et seq. of the Real Property Article of the MD Code). The Court of Special Appeals of Maryland affirmed the trial court decision and C&B sought review from the Court of Appeals of Maryland.
In affirming the trial court and intermediate appellate court decisions, the Court of Appeals found that the Maryland Construction Trust Statute is limited in nature. Where there has been an invocation of the Maryland Construction Trust Statute, there must be a showing that the statute applies to the contracts in dispute. Real Prop. § 9- 204(a) contains a requirement that the contracts be subject to the Maryland Little Miller Act (construction on public construction projects) or the Maryland Mechanics’ Lien Statute (which applies to new construction or renovations that meet certain threshold requirements for the value of renovations). Because there was no evidence that either statute was applicable, the Court of Appeals affirmed the dismissal of the case against Petitioners.
The case provides clarification for when a cause of action may be maintained against directors, officers or managing agents of a general contractor when a subcontractor is not paid. Normally, individuals are not subject to personal liability for the company’s failure to pay. This decision further narrows the use of the Construction Trust Statute to only public construction projects (Little Miller Act projects) or those significant enough to qualify for protection from the Mechanic’s Lien Statute.
At MacDonald Law Group, we handle a broad array of construction claims and litigation. Should you have any questions on construction litigation topics, please contact us using the email or phone contacts found on our website at www.macdonaldlawgroup.com.