Sejasmi Industries Case Update
Michigan’s Mold Lien Act, MCL §445.611 et seq. (the “MLA”), protects mold builders by giving them a lien on any mold they construct that requires third parties relying on the mold to respect the original purchase agreement with the mold builder. By following the procedures set forth in this act, mold builders are protected – or so they thought. Recently, the Michigan Court of Appeals (“COA”) threw this protection into doubt with its ruling in Sejasmi Industries, Inc. v A+ Mold, Inc. et al, Macomb County Circuit Case No. 14-004273-CB, Court of Appeals No. 328292, Supreme Court No. 153625, wherein the COA essentially strips the mold builder of the security interest in its own mold.
In Sejasmi, Takumi Manufacturing Co. (customer) hired Quality Cavity (mold builder) to build a mold, which was delivered to Sejasmi Industries (molder). Sejasmi, in turn, used the mold to make parts for the customer, Takumi. Sejasmi paid Takumi for the mold, but Takumi never paid the mold builder, Quality Cavity, who claimed that it retained a lien on the mold pursuant to the MLA. Sejasmi then brought suit under the MLA to invalidate Quality Cavity’s lien on the mold, claiming that the lien was discharged when Sejasmi, as the molder, “paid” the amount for which the lien was claimed, which was all that was required under the MLA. Specifically, Sejasmi relied upon the language of MCL § 445.619(5)(b), which provides that a mold builder’s lien may be invalidated if the customer receives a verified statement from the molder that it has paid the amount for which the lien is claimed. The provision does not specify to whom the amount must be paid for the lien to be extinguished. Accordingly, the COA agreed with Sejasmi and held that this provision did not require a verified statement that the lien amount had been paid to the lien holder. As such, though Quality Cavity, the lien holder, was never paid, the COA ruled that because Sejasmi served Takumi with a verified statement that the amount Sejasmi paid was at or more than the amount of Quality Cavity’s lien, Quality Cavity’s lien was no longer valid. Quality Cavity requested leave to appeal this decision to the Michigan Supreme Court, but the Supreme Court remanded to the trial court for a factual determination on whether the original complaint was actually served. The matter is expected to soon make its way back to the Supreme Court for a decision on whether to hear this case.
Possible Impact of the COA’s Decision
Clearly, the COA’s decision has an enormous impact on the mold building industry, as it essentially deprives mold builders of the specific rights and protection they were meant to receive under the MLA. Under this ruling, any original equipment manufacturer (OEM) wanting to invalidate a mold builder’s lien rights under the MLA so that it need not worry about possible disruption of its supply of parts by a mold builder threatening to repossess the mold for non-payment could certainly attempt to structure its transaction in accordance with the facts in Sejasmi. In addition, should the COA’s interpretation of the MLA stand, it would set precedent that could stretch beyond just mold builders to the rest of the tooling industry. Michigan’s Special Tools Lien Act, MCL § 570.541 et seq., which was enacted at the same time as the MLA and provides special tool builders, among others, with certain lien rights, uses similar language to the MLA and could well be interpreted to deny special tool builders of their lien rights even if they have yet to be paid for their work. For now, the tooling industry eagerly awaits the ultimate outcome of the Sejasmi matter.
Warner Norcross & Judd is actively involved and has taken the lead in representing many individual mold and tool builders, as well as their related trade associations, as “amici curiae” to convince the Supreme Court to take the appeal in Sejasmi and ultimately reverse the COA’s decision. Should you have any questions regarding this matter, or if you are a member of the tooling industry and wish to be involved, please contact any of the attorneys in our Automotive Practice Group. If you wish to stay informed on this or other legal issues impacting the automotive industry, please subscribe to the Ahead of the Curve blog today.