Sejasmi Industries Case Update
Michigan’s Mold Lien Act, MCL §445.611 (MLA), protects mold builders with a lien on any mold they construct that requires third parties relying on the mold to respect the mold builder’s original purchase agreement.
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 stripped the mold builder of the security interest in its own mold.
Sejasmi Case
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 retained a lien on the mold pursuant to the MLA. Sejasmi then brought suit to invalidate.
Quality Cavity’s lien on the mold claimed that the lien was discharged when Sejasmi, as the molder, notified Takumi that it had “paid” the amount for which the lien was claimed, as required under the MLA.
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 (Takumi) 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. Though Quality Cavity, the lien holder, was never paid, the COA ruled that serving Takumi with a verified statement, that the amount Sejasmi paid was at (or more than) the amount of Quality Cavity’s lien, had extinguished the lien under the MLA. Currently, all interested parties are awaiting a decision on whether the Michigan Supreme Court will hear this case.
Possible Impact
This decision has enormous impact on the mold building industry, essentially depriving mold builders of meaningful pro-tection under the MLA. Under this ruling, any Original Equipment Manufacturer wanting to invalidate a mold builder’s lien rights under the MLA—so as to 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. Further, should this interpretation of the MLA stand, it would set precedent that could apply to the rest of the tooling industry. Michigan’s Special Tools Lien Act, MCL § 570.541, which provides tool builders with lien rights, was enacted at the same time as the MLA, uses similar language to the MLA and could well be interpreted to deny tool builders of their lien rights, even if they have yet to be paid for their work. For now, both the mold building and tooling industry eagerly await the ultimate outcome of the Sejasmi case.
With the support of 18 distinct participants, both national and international, Warner Norcross & Judd LLP has filed a motion with the Michigan Supreme Court for leave to file an Amici Curiae Brief in support of Quality Cavity’s Application for Leave to Appeal. This brief provides a strong showing of the importance of this appeal to the tooling industry and will undoubtedly get the attention of the Michigan Supreme Court.