OPINION AND ORDER AFFIRMING JUDGMENT OF BANKRUPTCY COURT
Appellant, Kenn R. Kriegish, appeals the judgment of the United States Bankruptcy Court determining that $57,534.90 of its debt owed to appellee, Richard Li-pan, doing business as Majestic Construction, is nondischargeable because that portion of the debt owed to the appellee resulted from Kriegish’s defalcation while acting in a fiduciary capacity. The debt arose in the course of a construction project in which Lipan acted as general contractor and hired Kriegish and his company, Kenn’s Sheet Metal Corporation (Kenn’s), to serve as the heating, ventilation and air conditioning (HVAC) subcontractor. Kriegish contends that the *840 Bankruptcy Court erred in finding that Kriegish misappropriated funds paid to him by Lipan which should have been used to pay Kriegish’s material suppliers, effectively requiring Lipan to pay those obligations twice. Kriegish also argues that the finding that his conduct violated the Michigan Builders Construction Fund Act (MBCFA), Mich. Comp. Laws § 570.151 et seq., was erroneous. The Court finds that the factual determinations of the Bankruptcy Court are amply supported by evidence in the record, and that the determination that appellant breached his fiduciary duty to appellee created by. the MBCFA, rendering the portion of the debt identified by the Bankruptcy Court nondischargeable under 11 U.S.C. § 523(a)(4), was correct as a matter of law. The judgment of the Bankruptcy Court, therefore, will be affirmed.
I.
Lipan was the general contractor on a construction project known as the Fostrian Manor project. On October 28, 1997, Li-pan entered into a construction contract with Kenn’s Sheet Metal, Inc. in which the latter agreed to serve as the HVAC subcontractor for the project. The original contract price was $284,083, however Kenn’s never completed the job, and Li-pan’s obligation to pay was reduced accordingly.
The Bankruptcy Court found, and the parties do not dispute, that the appellant-debtor, Kenn Kriegish, was the sole shareholder, director and corporate officer of Kenn’s, and was the sole responsible party determining how funds received were applied and who was to be paid. He oversaw the day-to-day financial affairs of the company.
Kenn’s in turn contracted with companies known as Thermal Netics, Inc. and Aaon, Inc. to furnish equipment for the project. Thermal Netics issued an invoice for its services to Kenn’s in the amount of $29,234.80. On May 19,1998, Lipan issued a check in the amount of $89,991 payable jointly to Kenn’s and Thermal Netics, presumably intending Kenn’s to pay its bill to Thermal Netics from those funds. However, Kriegish crossed out the name of Thermal Netics and deposited the full amount of the check into Kenn’s bank account and never tendered any of the funds to Thermal Netics. Consequently, Lipan issued another check on July 16, 1998 jointly to Thermal Netics and Kenn’s in the amount of the invoice, $29,234.80, which Kriegish endorsed over to Thermal Netics and Li-pan tendered to the subcontractor.
Similarly, despite Kenn’s agreement to pay Aaon, Inc. for furnishing equipment, Kenn’s never tendered payment and Lipan paid that subcontractor directly with two checks totaling $77,018.30 in April, 1998. Kriegish contends that Lipan subsequently agreed to pay Aaon directly in change orders that were signed in August, 1998. Lipan disputes this contention, and points to the fact that he paid Kenn’s a total of $182,342.30 (excluding the joint check in the amount of $29,324.80) which Kriegish acknowledges depositing into the company account. That amount exceeded the adjusted contract amount of $204,707.19, according to Lipan, by $6,869.91, and included the amounts that should have been paid to the equipment suppliers. Consequently, Lipan argues, he double-paid Thermal Netics and Aaon.
The appellee, Lipan, contended that Kriegish became a fiduciary with respect to the contract funds Lipan paid over to him on behalf of his company and Kriegish was therefore obliged under the MBCFA to distribute those funds to the intended beneficiaries, that is, subcontractors and materialmen, before applying any of those funds to his own use. His failure to pay *841 the equipment suppliers from that fund constituted a breach of that trust requiring an accounting and, ultimately, a finding that the failure of Kriegish to reimburse Lipan for the double payment to Thermal Netics and Aaon created a “debt ... for ... defalcation while acting in a fiduciary capacity” which may not be discharged under 11 U.S.C. § 523(a)(4).
The Bankruptcy Court agreed. In his written opinion, Judge Spector concluded:
In this case, the Plaintiff, as general contractor, showed that it paid statutory beneficiaries and thereby obtained their rights to insist on an accounting. The only two statutory beneficiaries identified are Aaon, and Thermal Netics. The evidence shows that the money which paid Aaon and Thermal Netics came from the Plaintiffs bank account. The Defendant argues, however, that the evidence also shows that these payments were deducted from the amounts which the Plaintiff owed to the Defendant. See Plaintiffs Exhibit 5, pages 26, 28; Defendant’s Exhibit Q; Plaintiffs Exhibit 1 (specifically Change Orders #4 and #5). Therefore, he paid the bills by means of setoff.
If that were all there was, the Defendant’s argument would end the matter. But the Plaintiff showed that the $29,234.80 portion due to Thermal Net-ics’ represented in the larger joint check # 014281 (Plaintiffs Exhibit # 21 (top)) never got to the intended payee, Thermal-Netics. It is undisputed that all of the $89,991 in that check was deposited in the Corporation’s bank account. So, Plaintiff had to, and did, via check # 014485 (Plaintiffs Exhibit 21(bottom)), pay Thermal Netics a second time on July 16,1998.
Plaintiffs Exhibit 1 (specifically Change Orders # 4 and # 5) showed that the parties agreed that Aaon would be paid by the Plaintiff, but that the payment would reduce the amount the Plaintiff would then pay the Defendant, resulting in the Defendant being the one who ultimately “pays” the bill. But, the Plaintiff showed that those change orders, which are dated in August, 1998, arose only after he had, in April, 1998, already paid the Defendant for the Aaon invoices. See Plaintiffs Exhibit 7, pages 5 and 7, and Plaintiffs Exhibit 27. So, when the Plaintiff ultimately did pay Aaon on the two invoices a total of $77,018.30 (see Plaintiffs Exhibit 20), he, in effect, double-paid the Aaon bill (once through the Defendant, who never paid Aaon and once directly to Aaon).
Thus, the Plaintiff has shown that, by paying the Defendant’s materialmen, Aaon and Thermal-Netics, he subrogat-ed to their rights as statutory beneficiaries. Therefore, the Plaintiff is due an accounting from the Defendant of what he did with the $182,342.30 he received for his part of the Project. See [In re Little,163 B.R. 497 (Bankr.E.D.Mich.1994)]. The burden was on the Defendant to prove that all of the funds he received on the Project were properly expended. Id.
The Defendant had no ledger for the Project, the one best piece of evidence to prove his defense. The Defendant’s accounting exhibits, especially Exhibit G, lacked credibility. Several times, and for significant amounts, it was demonstrated that the exhibits were overgenerous in accounting for expenses related to the Project. Using a one-third allocation — that is, one third of all employees’ time was spent on the Project as opposed to all other work the Corporation performed during the relevant time period — the Court finds that the Defendant properly accounted for $124,807.40 of the trust funds received by the Corporation. See Defendant’s Exhibits C, D, parts of G (all items but for check num *842 bers 1054, 1056, 1117, 1260, 1276, 1299, 1438, 1447, 1596, 1168, 1079, and 1290), Z and AA.... Concomitantly, the Court finds that the Defendant did not account for $57,534.90 of the trust funds. General operating expenses of the Corporation may not be paid out of trust funds. Defendant’s Exhibits F, H, I, J, the ME SC unemployment taxes portion of Exhibit Z, and the sales and use tax portion of Exhibit E catalog the type of expenses which may not be paid from trust funds, even if they are prorated to the Project....
The expenses excepted from Defendant’s Exhibit G could not be linked up by the Defendant to the Project. Therefore, if the Defendant actually caused the Corporation to pay these expenses from the trust funds, it was a misappropriation. Regardless of whether the payments came from trust funds, though, since these expenses are not attributable to the Project, the Defendant gets no credit for their payment in his effort to show that all trust funds were used to pay the Project’s statutory beneficiaries.
While the Defendant also showed that he underbid the contract by $60,000, (perhaps coincidentally but perhaps not, about the amount for which he was unable to properly account) and that there were multiple changes made to the contract, these points are relevant to a breach of contract case, not a fiduciary defalcation case, such as this. If the Plaintiff paid the Corporation money for work done on the Project, and the funds were all used by the Corporation in payment of the Project’s statutory beneficiaries, it matters not at all that the Corporation breached its contract by not completing the job. On the other hand, if the Corporation spent funds it received in relation to the Project for non-statutory purposes, it violated the Act whether or not it underbid the contract or the contract was changed mid-course. The Court finds that the Corporation used $57,534.90 of the trust funds for its own corporate purposes and that this misappropriation'damaged the Plaintiff by requiring it to pay the statutory beneficiaries himself.
The Bankruptcy Court concluded that the appellee thus was entitled to a judgment determining $57,534.90 of his claim against the appellant to be excepted from discharge pursuant to 11 U.S.C. § 523(a)(4), and also awarded the appellee statutory costs. In a brief note at the end of the opinion, the Court noted that the appellee had alleged that his entire claim should be excepted from discharge on account of the appellee’s fraud. 11 U.S.C. § 523(a)(2). The Bankruptcy Court rejected that claim, stating that it found “no evidence tending to show that the Defendant intended to deceive the Plaintiff,” and dismissed that count of the complaint. Opinion at 8-9.
II.
In bankruptcy proceedings, the bankruptcy judge is the finder of fact.
In re Isaacman,
A.
The appellant first attacks the Bankruptcy Court’s conclusion that Lipan made double payments to the materialmen. It is not the function of this Court to revisit every factual determination made
*843
by the bankruptcy court. This Court reviews the bankruptcy court’s factual findings deferentially under the “clearly erroneous” standard. Thus, if the lower court has offered a plausible view of the evidence, this Court must defer to the bankruptcy court’s findings, even if the appellant offers another, perfectly reasonable interpretation.
See Gross v. Commissioner,
Here, the bankruptcy court’s findings are quite plausible. The court found that the appellee had been forced to “pay for” the services.of Thermal-Netics and Aaon twice. For Thermal-Netics, the appellee first included the $29,324.80 payment for Thermal-Netics in an $89,991 joint check, number # 014281. After the appellant did not remit any of the monies to Thermal-Netics, an undisputed fact, the appellee was forced to cut a second check to Thermal Netics for the missing $29,324.80. See Findings of Fact and Conclusions of Law at 5; Appellee’s Trial Exhibit 21. With respect to Aaon, the bankruptcy court found that the appellee had paid the appellant for Aaon’s work in April 1998, but again had to pay Aaon separately in August. See Findings of Fact and Conclusions of Law at 5-6. The appellant correctly notes that the August payment was to be deducted from other payments made to the appellee, but fails to account for the initial Aaon payment that disappeared into the company’s coffers. The appellant’s argument that there was no “meeting of the minds” as to whether the original payments were in fact intended to go to the subcontractors presents an interesting interpretation of the facts, but does not alter the ultimate finding that the appellee ended up making two payments to each subcontractor when it should have only made one through the appellant. The appellant’s “meeting of the minds” argument is also hotly contested by the appellee in this case. See, e.g., Pl.’s Br. at 8. The bankruptcy judge was well within his discretion to believe the appellee over the appellant.
The bankruptcy court’s finding of double-payments to Thermal Netics and Aaon was not clearly erroneous, and therefore is affirmed.
B.
The appellant next argues that the MBCFA does not apply to the transactions in this case. He contends that, first, the MBCFA does not impose a constructive trust upon each draw but upon the total monies paid by a contractor to a subcontractor, and requires that the beneficiaries must not have been paid by the subcontractor first. Second, the MBCFA treats all beneficiaries equally, with no priority given to any particular beneficiary. Li-pan’s theory of double-payment favors one beneficiary over another, namely subcontractors over the Kenn’s own employees, and is impermissible. Third, the facts at issue here concern contract law, not a violation of the MBCFA. Excess payments were approved by Lipan before paying Aaon, making the extra funds a loan, not part of a trust. Fourth, the MBCFA does not confer standing upon the appellee, says Kriegish, because the appellee never had to pay for or defend against any construction liens or lawsuits. Once Lipan paid the two subcontractors, Kenn’s obligation was at an end.
Kriegish further contends that even if his company’s conduct did violate the MBCFA, it was not required to do an accounting for Lipan’s benefit. Once all beneficiaries have been paid, there is no need to account under the MBCFA. Also, he argues that Judge Spector’s decision in
*844
In re Little,
The Court does not accept the appellant's interpretation of the MBCFA or his view of its interplay with the provisions of the Bankruptcy Code. Title 11 of the United States Code provides that no debt shall be dischargeable in bankruptcy that was incurred by “defalcation while acting in a fiduciary capacity.” 11 U.S.C. § 523(a)(4). The MBCFA states in relevant part:
In the building construction industry, the building contract fund paid by any person to a contractor, or by such person or contractor to a subcontractor, shall be considered by this act to be a trust fund, for the benefit of the person making the payment, contractors, laborers, subcontractors or materialmen, and the contractor or subcontractor shall be considered the trustee of all funds so paid to him for building construction purposes.
Mich. Comp. Laws § 570.151. The builders’ trust fund act was originally passed during the Great Depression as a means to provide additional protection to subcontractors and materialmen.
DiPonio Constr. Co. v. Rosati Masonry Co.,
Upon receiving funds for a construction project, the contractor (or subcontractor) becomes a trustee for the project, with the trust assets being distinct from the contractor’s corporate assets for bankruptcy purposes.
Weathervane Window, Inc. v. White Lake Constr. Co.,
In the case of
In re Little,
In this case, aside from his objections to the idea that the appellee “double-paid” the two subcontractors, the appellant does not specifically dispute the lower court’s finding that a significant portion of project funds were spent on non-project expenses, nor does the appellant challenge the lower court’s decision to use a one-third allocation factor to approximate an amount of damages for the appellee. Finally, the appellant does not contest that a violation of the MBCFA is a non-dischargeable obligation under 11 U.S.C. § 523(a)(4).
For reasons set forth in detail below, this Court accepts and adopts the analysis of the Bankruptcy Court in
Little.
Under the standard applied in that case, the beneficiary need not demonstrate financial irregularities at all. Instead, the beneficiary need only prove the existence of a fiduciary relationship, and then demand an accounting.
See Little,
The appellant raises a series of objections to this holding. First, the appellant cites to
Renshaw v. Samuels,
Second, the appellant argues that the appellee’s invocation of the MBCFA requires the trustee to favor one beneficiary over another, specifically particular subcontractors over other parties entitled to funds, such as the appellant’s own employees. The preference of “beneficiaries,” however, does not originate from the appellee’s theoretical arguments. Rather, it is derived from the plain language of the MBCFA. The holder of a construction trust fund must pay all laborers and subcontractors before using the funds for its own purposes, including payment of its own employees.
See Huizinga,
Third, the appellant argues that any dispute over whether the appellant was supposed to pay Aaon and Thermal Netics from payments originally made to the appellant is an issue of contract law, not trust law. It is true that this matter
would have been
a pure issue of contract law absent the MBCFA. However the MBCFA was enacted because other remedies were found by the Michigan Legislature to be inadequate.
See DiPonio,
Fourth, citing to
National Bank of Detroit v. Eames & Brown,
Equitable subrogation is a legal fiction through which a person who pays a debt for which another is primarily responsible is substituted or subrogated to all the rights and remedies of the other. It is well-established that the subrogee acquires no greater rights than those possessed by the subrogor, and that the subrogee may not be a “mere volunteer.”
Hartford Acc. & Indem. Co. v. Used Car Factory, Inc.,
Next, the appellant cites
In re Imperial Tile & Carpet, Inc.,
C.
Finally, the appellant claims that Judge Spector’s decision in Little, placing the burden of proof on the trustee, is contrary to Michigan case law. This argument is immaterial, inasmuch as the appellee did not rely on Little’s presumption of misconduct; rather, Lipan affirmatively demonstrated a series of financial irregularities at trial, including tens of thousands of dollars of unaccounted funds and wrongful diverted expenditures. The lower court found in the appellee’s favor on these factual determinations, and overwhelming evidence in the record demonstrates that this holding was not clearly erroneous. Thus, even if the lower court would have first required the appellee to demonstrate a prima facie case of financial mismanagement, the appellee would have amply met the burden, and the error, if any, is harmless.
As noted above, however, the Court finds that the bankruptcy court’s determination of the burden of proof was proper. The
Little
decision cites a litany of Michigan case law suggesting that the true burden of an accounting rests with the trustee.
See Little,
This Court likewise finds the reasoning in Little more persuasive. James Lumber is an extremely short opinion that fails to consider the impact of trust law on the MBCFA; in cursory fashion, it dismisses the plaintiffs claim without any explanation for its reliance on case law discussing undue influence and fraud instead of trust law. Because the series of cases relied upon by the Little court stem primarily from the Michigan Supreme Court, this Court is persuaded that Little better represents the view of the state’s highest court.
III.
The bankruptcy court’s findings of fact are not clearly erroneous, and the appellant has failed to provide any “cogent evidence of [a] mistake of justice.”
Baker & Getty,
Accordingly, it is ORDERED that judgment of the Bankruptcy Court is AFFIRMED.