One recurring issue in connection with the application of state statutes is whether they apply extraterritorially. In Performance Contracting Inc. v. DynaSteel Corporation , the Sixth Circuit considered that issue in the context of Michigan’s Builder’s Trust Fund Act. Although the act had been on the books since 1931, there was very little case law interpreting it and even less in terms of legislative history. Therefore, the Court was left with very little context with which to determine whether the act could be applied beyond the boundaries of Michigan. While some states have a presumption against the extraterritorial application of their statutes beyond their borders, the Court did not discuss that in the course of this opinion. Instead, it analyzed the language of the statute and ultimately concluded that the act could apply extraterritorially as long as “sufficient contacts to the State of Michigan” existed.
Under that standard, the Court held that sufficient contacts did not exist in this case, which involved an out-of-state general contractor and out-of-state subcontractor, and the relevant contract had a choice of law clause for Tennessee law. Under this “unique combination of facts”, the Court could not find sufficient contacts with the State of Michigan to warrant application of the act. On this point, however, Judge White wrote separately and disagreed. She detailed the context in her separate opinion that should warrant an application of the act. Nevertheless, she held that the choice of law clause in the governing contract operated to effectively displace the act, and thus she concurred in the result.
It is probably unlikely that many of us will have to litigate Michigan Builder’s Trust Fund Act cases, but the analysis here is useful when considering how other state statutes might be applied extraterritorially, which is an issue that arises with greater frequency. It also illustrates the practical problems of diving state law on a subject when there is little case law, no legislative history, and the statute itself is not exactly a portrait of clarity.
