Mandell v. Bayliss ( 2016 )

08/23/2016
DA 16-0015
IN THE SUPREME COURT OF THE STATE OF MONTANA Case Number: DA 16-0015
2016 MT 205
MICHAEL J. MANDELL,
Plaintiff and Appellant,
v.
BAYLISS WARD and BAYLISS ARCHITECTS, P.C., et al.,
Defendant and Appellee.
APPEAL FROM: District Court of the Sixth Judicial District,
In and For the County of Park, Cause No. DV 13-152
Honorable Brenda Gilbert, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Karl Knuchel, Shenandoah R. Roath, Karl Knuchel, P.C., Livingston,
Montana
For Appellee:
Alanah Griffith, Griffith Law Group, Bozeman, Montana
Submitted on Briefs: June 15, 2016
Decided: August 23, 2016
Filed:
__________________________________________
Clerk
Justice Jim Rice delivered the Opinion of the Court.
¶1 Appellant Michael J. Mandell (Mandell) contests the Sixth Judicial District
Court’s granting of relief in quantum meruit and awarding of attorney fees to Appellees
Bayliss Ward and Bayliss Architects, P.C. (Bayliss) in this residential construction
dispute. We affirm in part, reverse in part, and remand for further proceedings. We
address the following issues:
1. Did the District Court err in granting equitable relief in quantum meruit,
despite violation of the statutory requirement that residential construction contracts be in
writing?
2. Did the District Court err in awarding attorney fees for the entire case,
including the quantum meruit claim?
FACTUAL AND PROCEDURAL BACKGROUND
¶2 Mandell is the owner of real property in the Paradise Valley, outside of
Livingston. He contacted architect Bayliss Ward via email in March 2012 to inquire
whether Ward and Ward’s firm, Bayliss Architects, P.C.,1 would design and provide
architectural services for a proposed house on the property. Mandell worked in Thailand
as the events herein unfolded, so the communication between the parties was primarily
electronic, especially through email.
¶3 Bayliss and Mandell engaged in extensive communications regarding the proposed
construction project and Mandell’s budget. At one point, Bayliss stopped the process,
stating to Mandell in an email: “After spending several hours on your residence, I am
1
The record indicates that Bayliss Ward is the sole shareholder of Bayliss Architects, P.C.
Although Ward and the professional corporation are separate parties, their legal position herein is
aligned and we refer to them jointly as “Bayliss” for the sake of simplicity.
2
going to have to stop work and decline any further effort towards your project. The
budget for this project and the items that you want to include will be very difficult to
achieve and I will not lead you as if we could really do your project for your budget.
Your site it beautiful, but I cannot design a home for you with your budget.”
¶4 However, Mandell continued to pursue Bayliss, sending an email three days later,
stating: “I think it would be beneficial for both of us to have every person floating the
Yellowstone admire your work. . . . Maybe you can design something within my budget
that I will be happy with.” When Bayliss explained that the house Mandell was
requesting would cost at least $170 per square foot, Mandell answered that “I may be
able to swing the $170 per sq. ft[.] range if you think you can make it work. . . . Let’s
just save where we can, without compromising quality and your style.” In June 2012, the
parties met on the site, and Mandell testified that Bayliss agreed that he would design an
approximately 2000 square foot home costing $300,000. Bayliss testified that the parties
agreed to a construction price of $170 per square foot, with an 8-10% fee for architectural
design and structural engineering of the project.
¶5 Mandell originally intended to have another party act as the general contractor on
the project. However, this did not occur, and Mandell requested that Bayliss provide
construction management services, in addition to the architectural and structural
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engineering services. Bayliss agreed to do so for an additional payment of 7-10% of the
construction costs as a construction management fee.2
¶6 The details of the parties’ agreement were not reduced to writing, but construction
commenced, in Bayliss’ words, as a “fast track” project. Mandell wired funds in
payment of Bayliss’ invoices as the project continued, ultimately paying a total of
$394,198.65. At trial, the parties disputed the occurrence of changes in the project, with
Mandell testifying that he never approved any changes to the design, plans, or finishes,
and Bayliss testifying that he consulted with Mandell on a number of changes as the
project evolved, to which Mandell had typically responded to Bayliss to “[j]ust make it
nice.” No written change orders were prepared. The home was essentially completed in
2013, at which time Bayliss presented Mandell with a final invoice, identifying additional
amounts still owing. Mandell refused to pay, and Bayliss filed a construction lien on the
property in the amount of $138,241.35 in October 2013.
¶7 Mandell initiated this action, stating counts for breach of contract, declaratory
judgment that the lien was invalid, and quiet title to the property. Bayliss answered and
stated three counter-claims for foreclosure of the construction lien, quantum meruit, and
breach of contract.
2
Bayliss testified in his deposition that he is not a licensed general contractor in Montana. He
described his role as acting as a discounted general contractor for Mandell, stating: “[A]ll we’re
doing is being [Mandell’s] agent, because he knows – he doesn’t know contractors, subs, things,
so we’re trying to find the right people for the right job and go from there.” Bayliss admitted in
his Answer that he was engaged to act as a “project manager and general contractor during
construction,” and this was not a further issue in the litigation.
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¶8 Mandell sought summary judgment, arguing that because the parties had not
reduced their agreement to writing, in violation of § 28-2-2201(2), MCA, the oral
contract between them was invalid and unenforceable, and there was no basis for the
construction lien on his property, nor any basis for Bayliss to claim breach of contract.
The District Court partially granted Mandell’s claim for declaratory relief, concluding
that because Bayliss failed to obtain a written contract for construction services, the
contract for construction services was void and the lien for those services was invalid,
leaving only that portion of the lien related for architectural services, in a maximum
amount of $29,250, the amount claimed by Bayliss for those services. The District Court
thus denied all claims for quiet title and foreclosure, awaiting trial to determine the final
architectural lien amount. Mandell did not request summary judgment on Bayliss’
quantum meruit claim, and it was not addressed in the order. The District Court reserved
the issue of attorney fees.
¶9 At trial, Bayliss produced evidence that $75,409.53 of the amount he had claimed
was based upon invoices still owing for materials and subcontractors. The District Court
issued Findings of Fact, Conclusions of Law and Order, concluding that Mandell owed
$29,250 to Bayliss for architectural services and holding Mandell in breach of that
contract between the parties. The court held that Bayliss’ construction lien was valid
only for the $29,250 owed to him for architectural services, and ruled that, because
Bayliss had established the lien, “the Court must award Bayliss [] its fees incurred for
filing and recording the lien and reasonable attorney fees . . . .” The court further held
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that “unjust enrichment and quantum meruit concepts apply to the transaction[,]” and
awarded $75,409.53 as “an appropriate measure of quantum meruit damages.
Mr. Mandell would be unjustly enriched if he retained the benefit of said services and
materials, without paying for them.” The court summarily concluded that “[b]ased on the
foregoing findings of fact and conclusions of law, Mr. Mandell cannot succeed to prove
any of his claims.”
¶10 The District Court conducted a hearing on attorney fees. Mandell disputed
Bayliss’ entitlement to any fees beyond those related to establishing the construction lien
related to architectural services. Bayliss called an expert witness who testified briefly of
her opinion that the quantum meruit, breach of contract, and construction lien claims
were inseparably intertwined. The District Court thereafter issued an order granting the
entirety of Bayliss’ attorney fees and costs in the case. Mandell appeals.
STANDARD OF REVIEW
¶11 Mandell’s appeal involves a review of both the District Court’s findings of fact
and conclusions of law. When reviewing conclusions of law, this Court looks to see
“whether the district court correctly interpreted the applicable law.” James Talcott
Constr., Inc. v. P&D Land Enters., 2006 MT 188, ¶ 26, 333 Mont. 107, 141 P.3d 1200.
This Court applies a clearly erroneous standard using a three-part test to review a district
court’s findings of fact. Talcott Constr., ¶ 26. “A district court’s findings are clearly
erroneous if they are not supported by substantial credible evidence, if the trial court has
misapprehended the effect of the evidence, or if a review of the record leaves this Court
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with the definite and firm conviction that a mistake has been committed.” Morton v.
Lanier, 2002 MT 214, ¶ 12, 311 Mont. 301, 55 P.3d 380 (citing Guthrie v. Hardy, 2001
MT 122, ¶ 24, 305 Mont. 367, 28 P.3d 467).
¶12 This Court reviews a trial court’s order granting or denying attorney fees and costs
for abuse of discretion. Talcott Constr., ¶ 27.
DISCUSSION
¶13 1. Did the District Court err in granting equitable relief in quantum meruit,
despite violation of the statutory requirement that residential construction contracts be in
writing?
¶14 Section 28-2-2201, MCA, part of legislation enacted in 2009, provides as follows:
Residential construction contracts -- disclosure and warranty requirements.
(1) For the purposes of this section, “residential construction contract”
means a contract between a general contractor and an owner for the
construction of a new residence.
(2) All residential construction contracts that are subject to the provisions
of this section must be in writing and must contain the following:
(a) a disclosure that the general contractor has a current general
liability policy;
(b) a disclosure that the general contractor has a workers’
compensation policy or is an independent contractor without employees;
(c) a provision setting out the billing cycle establishing the payment
schedule to be followed by the owner;
(d) a provision establishing procedures for handling change orders by
the owner;
(e) a statement of all inspections and tests that the general contractor
will perform or have performed prior to, during, or upon completion of
construction and a statement that the owner is entitled to receive the results
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of any tests conducted by the general contractor or conducted at the general
contractor’s request;
(f) a statement that the owner is entitled at the owner’s expense to have
any inspections and tests conducted that the owner considers necessary; and
(g) a statement that the general contractor is providing an express
warranty that is valid for a period of at least 1 year from completion of the
construction project. The warranty must provide detailed descriptions of
those components that are included or excluded from the warranty, the
length of the warranty, and any specialty warranty provisions or time
periods relating to certain components. The warranty provisions must also
clearly set forth the requirements that must be adhered to by the buyer,
including the time and method for reporting warranty claims, in order for
the warranty provision to become applicable.
¶15 Mandell argues that the District Court erred by permitting Bayliss to pursue relief
under the equitable theory of quantum meruit because such relief circumvents
§ 28-2-2201(2), MCA, which requires that residential construction contracts be in
writing. Mandell argues that a quantum meruit claim undermines the purposes of the
statute, which he summarizes as “help[ing] to prevent conflicts that arise between
builders and homeowners.” He cites to Featherman v. Kennedy, 122 Mont. 256, 260, 200
P.2d 243, 245 (1948), where we stated in regard to a statute requiring real estate
brokerage contracts to be in writing, that “[t]o hold there could be recovery upon
quantum meruit is to ‘open the door to the very abuses the statute was enacted to prevent,
and defeat its manifest purpose.’” (citing Barney v. Lasbury, 107 N.W. 989, 991 (Neb.
1906)). Mandell also cites In re Estate of Braaten, 2004 MT 213, ¶ 12, 322 Mont. 364,
96 P.3d 1125, where we rejected a quantum meruit claim in light of the “absolute”
wording of a statute prohibiting oral agreements for a devise from an estate.
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¶16 Bayliss argues that Featherman and Braaten involved particular statutes of fraud
that are discrete exceptions to the broader rule that “where one party repudiates a contract
or breaches it by non-performance, the injured party may seek restitution of the unjust
enrichment whether the Statute of Frauds applies or not.” Robertus v. Candee, 205 Mont.
403, 407, 670 P.2d 540, 542 (1983). Bayliss’ argument finds support in the recent Third
Restatement of Restitution and Unjust Enrichment, which provides that equitable claims
may be brought despite statutes requiring contracts to be in writing so long as the statute
does not “prohibit a claim in restitution as well as a claim on the contract itself.”
Restatement (Third) of Restitution and Unjust Enrichment, § 31 (2011). On this point,
Bayliss notes that § 28-2-2201, MCA, does not contain language prohibiting equitable
claims. Bayliss further disputes Mandell’s argument that permitting equitable claims
would undermine the statute. Noting concerns expressed in the statute’s legislative
hearings about homeowners choosing not to fight liens despite defects in construction
because of the fear they would have to pay attorney fees, Bayliss states that Ҥ 28-2-2201
did [] away with a very powerful tool in any general contractor’s kit, the construction
lien. By doing so, a contractor cannot recover attorney’s fees and must prove the fair
value of his services.” Bayliss states that his failure to have a written contract led to the
District Court forcing him to forfeit his construction management fee, but that forfeiture
of the costs of materials and subcontractors in addition would be harsh and inequitable, as
Mandell has received the benefit of these costs.
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¶17 “All contracts may be oral except such as are specially required by statute to be in
writing.” Section 28-2-901, MCA. Section 28-2-2201(2), MCA, requires a “residential
construction contract” to be in writing. An oral contract, when expressly required to be
in writing, is void. See, e.g., Hanson v. Water Ski Mania Estates, 2005 MT 47, ¶¶ 17-21,
326 Mont. 154, 108 P.3d 481 (to be valid, a transfer of rights to run with land had to be in
writing pursuant to § 28-2-903, MCA). Therefore, the District Court did not err in
holding that the agreement between Mandell and Bayliss for residential construction
services was void for failure to be reduced to writing. Further, because a contractor’s lien
rights arise from a “real estate improvement contract,” § 71-3-523, MCA, the District
Court correctly held that the voiding of the contract eliminated Bayliss’ lien rights for the
construction management services he provided.
¶18 Turning to the question of whether equitable remedies remain under the statute,
we are persuaded by Bayliss’ arguments. Section 28-2-2201, MCA, does not prohibit
equitable remedies, a factor emphasized by the Restatement. The statute’s purpose of
protecting the homeowner is not undermined by equitable remedies, because the statute
operates to eliminate a contractor’s lien rights and the ability to collect attorney fees.
Where the homeowner has reaped a benefit from the contractor’s efforts, unjust
enrichment should be prevented. See Robertus, 205 Mont. at 408-09, 670 P.2d at 542
(“The theory of unjust enrichment requires that a person who has been unjustly enriched
at the expense of another must make restitution to the other.”) (citation omitted); see also
Brown v. Thornton, 150 Mont. 150, 156, 432 P.2d 386, 390 (1967) (quantum meruit
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theory “arises not from consent of the parties but from the law of natural justice and
equity, and is based on the doctrine of unjust enrichment.”). Here, although the District
Court denied Bayliss’ construction management fee as a matter of equity, Mandell
nonetheless also received the materials and services provided by subcontractors.
¶19 We conclude that our holdings in Featherman and Braaten are distinguishable.
Featherman dealt with a statute requiring real estate agency contracts to be in writing, the
purpose of which was “to prevent fraud and perjury in the enforcement of obligations
depending for their evidence on the unassisted memory of witnesses . . . .” Featherman,
122 Mont. at 259, 200 P.2d at 244. We reasoned that permitting recovery upon quantum
meruit “to the case of real estate brokers absolutely nullifies” the statute. Featherman,
122 Mont. at 261, 200 P.2d at 245. We also distinguished those cases in which an
unwritten contract was fully executed—as here—from a real estate agent’s claim. “The
fact that the contract between the buyer and seller of the real estate has been fully
performed has nothing to do with the contract between the seller and the agent claiming a
commission. . . . [The seller] has done nothing that can be said to be referable to the oral
agreement to pay a commission.” Featherman, 122 Mont. at 262, 200 P.2d at 246. Thus,
unlike Featherman, neither the claims nor defenses here depend on the “unassisted
memory of witnesses,” the statute would not be “absolutely nullified” by equitable
remedies, as explained above, and the contract here between the original parties to the
transaction has allegedly been completed. Similar reasons distinguish Braaten. There,
we held the statute at issue was stated in “absolute” terms, which, for obvious reasons,
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stated an absolute prohibition on claims that a deceased party had orally promised to
make a devise while he was alive, unless he had verified his promise in writing. Braaten,
¶ 12.
¶20 Other courts have reached the same conclusion on this issue. See, e.g., Shafer
Elec. & Constr. v. Mantia, 96 A.3d 989, 996 (Penn. 2014) (allowing recovery under
theory of quantum meruit when statute required contracts for home improvements to be
in writing); Fleissner v. Fitzgerald, 937 N.E.2d 1152 (Ill. 2010) (permitting equitable
recovery despite oral contract for home repair services in violation of statute which
required such contracts to be in writing).
¶21 We hold that the District Court did not err in declaring the parties’ residential
construction contract void in light of § 28-2-2201(2), MCA, and also did not err in
concluding that the statute does not prohibit equitable remedies and require absolute
forfeiture.
¶22 2. Did the District Court err in awarding attorney fees for the entire case,
including the quantum meruit claim?
¶23 Mandell first argues that the District Court fully adjudicated the construction lien
in its summary judgment order, that any further time Bayliss’ attorney spent on the lien
issue was unnecessary, and that the District Court erred by awarding any attorney fees for
time spent on the lien after that date. While Mandell appears to concede that Bayliss is
entitled to attorney fees for prosecution of the portion of the lien deemed valid for
architectural services, he argues that the remaining claims are easily separable and have
no statutory basis for a fee award.
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¶24 Bayliss contends that the District Court correctly awarded all of his attorney fees
pursuant to the Lodestar analysis, citing Blue Ridge Homes, Inc. v. Thein, 2008 MT 264,
345 Mont. 125, 191 P.3d 374, and JTL Group, Inc. v. New Outlook, LLP, 2010 MT 1,
355 Mont. 1, 223 P.3d 912, for the proposition that his claims were all inextricably
intertwined, and therefore were properly awarded.
¶25 The District Court’s Decision and Order Ruling on Plaintiff’s Motion for
Summary Judgment stated:
All of these issues raise questions of fact that preclude summary judgment
as to the issue of the construction lien, in so far as it reflects professional
services for the [architectural] design of the home. . . . At this juncture,
there are additional questions of fact that exist regarding the appropriate
level of fees for the architectural services and whether some or all of the
fees have been paid. . . . The amount of the architectural fee outstanding, if
any, is the subject of further determination after resolution of the disputed
fact inherent in this aspect of the case. . . . [B]ut the lien amount that can be
claimed . . . may not exceed $29,250.
After trial, the District Court found that “[t]he construction lien filed by Bayliss [], only
so far as to the $29,250 for architectural services, is a valid lien.”
¶26 Although the District Court made potentially inconsistent statements about the
status of the lien, we conclude upon review that the matter of the lien for architectural
services was not finally adjudicated by the summary judgment order, as the court
specifically found there were questions of fact remaining. After trial, the District Court
determined the final amount of the lien, granting the $29,250 originally claimed.
Because the matter was not considered final until trial, we conclude that further
reasonable time expended by Bayliss’ counsel on this matter for trial is compensable.
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Section 71-3-124(1), MCA, authorizes costs and attorney fees to be awarded to the
prevailing party in a construction lien case.
¶27 Finally, we address the District Court’s award of attorney fees for Bayliss’
remaining claims. “A court may award attorney fees only where a statute or contract
provides for their recovery.” Thein, ¶ 78 (citing Stavenjord v. Mont. State Fund, 2006
MT 257, ¶ 21, 334 Mont. 117, 146 P.3d 724). “[W]here a lawsuit involves multiple
claims or theories, an award of attorney fees must be based on the time spent by the
prevailing party’s attorney on the claim or theory under which attorney fees are
allowable.” Thein, ¶ 78.
¶28 In Thein, Blue Ridge Construction brought claims against the homeowner that
were similar to Bayliss’ claims here: breach of contract, foreclosure of construction lien,
and quantum meruit. Thein, ¶ 13. The jury awarded both contract damages and recovery
in quantum meruit, and Blue Ridge elected contractual damages. Thein, ¶ 18. The
district court awarded attorney fees on all of Blue Ridge’s related claims, including the
quantum meruit claim, because they were “inextricably intertwined.” Thein, ¶ 77. We
affirmed the fee award, reasoning that the claims at issue were “inseparable.” Thein,
¶ 79.
¶29 However, this case differs from Thein as a matter of both law and fact. We are
faced here with the application of a new statute not at issue in Thein. Bayliss has argued
and we concluded above that quantum meruit is an available remedy here in part because
§ 28-2-2201, MCA, would not be undermined by such relief—a violation of the statute
14
still operates to eliminate the contractor’s lien rights, including attorney fees. See
Opinion, ¶¶ 16, 18. However, despite having forfeited attorney fees under the statute,
Bayliss was nonetheless awarded fees on his quantum meruit claim in the final fee order.
In order to give effect to the new statute, we conclude that the award of fees on the
quantum meruit claim was error and must be reversed. Further, unlike Thein, the claims
here in our view are not inseparable as a matter of fact, and the District Court’s finding to
the contrary was clearly erroneous. Though some factual questions remained, the
architectural lien issue was largely established by the summary judgment order, and the
District Court ultimately granted the amount it had set as the maximum amount for the
lien in its earlier order.
¶30 We remand this matter to the District Court to enter an award of attorney fees due
to Bayliss in conjunction with the prosecution of his lien for architectural services only,
pursuant to the analysis for determining reasonable attorney fees, see JTL Group, ¶ 18,
and for entry of an amended judgment.
¶31 Affirmed in part, reversed in part, and remanded for further proceedings consistent
with this Opinion.
/S/ JIM RICE
We concur:
/S/ MIKE McGRATH
/S/ LAURIE McKINNON
/S/ PATRICIA COTTER
/S/ JAMES JEREMIAH SHEA
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