Byrd Underground, L.L.C. v. Angaur, L.L.C. , 2014 NV 62 ( 2014 )

130 Nev., Advance Opinion 472-
IN THE SUPREME COURT OF THE STATE OF NEVADA
BYRD UNDERGROUND, LLC; AND No, 61978
WELLS CARGO, INC.,
Appellants,
vs.
FILED
ANGAUR, LLC; BALAJI PROPERTIES AUG 0 7 2014
INVESTMENT, LLC; AND US BANK
C K cLINDEMAN
NATIONAL ASSOCIATION, CLEI •
Respondents. BY At E
tirAriports::::
11 I er
i
Certified questions, pursuant to NRAP 5, concerning the
priority of mechanics' liens based on visible commencement of
construction. United States Bankruptcy Court for the District of Nevada;
Bruce T. Beesley, Judge.
Questions answered in part.
Foley & Oakes, PC, and Daniel T. Foley, Las Vegas; M. Nelson Segel, Las
Vegas; Peel Brimley LLP and Eric B. Zimbelman and Richard L. Peel,
Henderson,
for Appellants.
Fennemore Craig Jones Vargas and Craig S. Dunlap and Christopher H.
Byrd, Las Vegas; Meier & Fine, LLC, and Glenn F. Meier, Las Vegas,
for Respondents.
BEFORE THE COURT EN BANC.
OPINION
By the Court, GIBBONS, C.J.:
In Nevada, a mechanic's lien takes priority over other
encumbrances on a property that are recorded after construction of a work
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of improvement visibly commences. The visible-commencement-of-
construction requirement often gives rise to dispute, however, and the
United States Bankruptcy Court for the District of Nevada has certified
three questions of law to this court regarding this aspect of mechanic's lien
priority law.'
The first question queries whether the placement of dirt
material on a future project site before building permits are issued and the
'The three certified questions were presented as follows:
1. Can a mechanic's lien claimant properly
claim lien priority under NRS 108.225 when the
dirt/material that is the basis of the lien on the
project was placed on a prospective building
project site months before the building permit was
issued or the general contractor hired? Stated
another way, does placing significant quantities of
dirt/material on a prospective building project site
months before a building permit is issued
constitute "commencement of construction" on
such a site pursuant to NRS [108.221121?
2. Did the Nevada Supreme Court in J.E.
Dunn Northwest, Inc. v. Corus Construction
Venture, LLC, 249 P.3d 501, 509, 127 Nev. Adv.
Op. 5 (Nev. 2011) mistakenly use the term of art
"clearing and grading" instead of "clearing and
grubbing" when describing preparatory work on a
construction project?
3. Does "grading" in the circumstances
presented here constitute visible "commencement
of construction" under NRS 108.22112 for
purposes of establishing lien priority under NRS
108.225?
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general contractor is hired can constitute commencement of construction.
The second question asks us to clarify our decision in J.E. Dunn
Northwest, Inc. v. Corns Construction Venture, L.L.C., 127 Nev. 249
P.3d 501 (2011), in which we stated that "clearing or grading" does not
constitute commencement of construction. 127 Nev. at 249 P.3d at
509. In our view, answering this question requires us to evaluate the
appropriate precedential weight that courts should give to the passage in
question, and we therefore rephrase the• second certified question to
include whether this statement was dictum. See, e.g., Boorman v. Nev.
Mem'l Cremation Soc'y, 126 Nev. „ 236 P.3d 4, 6 (2010) (rephrasing
certified questions under NRAP 5). We rephrase the second question as
follows:
Was the passage in J.E. Dunn Northwest, Inc. v.
Corns Construction Venture, L.L.C., 127 Nev. ,
249 P.3d 501, 509 (2011), that states
"preparatory work on a site, such as clearing or
grading, does not constitute commencement of
construction," dictum? If so, can grading work
constitute visible commencement of construction
under NRS 108.22112?
Finally, the third question inquires whether the grading that took place in
this case constituted visible commencement of construction, such that the
mechanics' liens at issue take priority.
Because the second question influences our analysis of the
other questions, we address it first. We respond to the three questions as
follows. Regarding the bankruptcy court's second question, we conclude
that this court's use of the term "clearing or grading" was dictum, and
thus, our holding in J.E. Dunn does not preclude a trier of fact from
finding that grading property for a work of improvement constitutes
visible commencement of construction. Regarding the first question, we
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conclude that contract dates and permit issuance dates are irrelevant to
the visible-commencement-of-construction test, but may assist the trier of
fact in determining the scope of the work of improvement. Finally, we
decline to answer the third question because it would require this court to
resolve the factual dispute as to whether the grading presented here
constituted visible commencement of construction of the work of
improvement.
FACTS AND PROCEDURAL HISTORY
The construction project
The debtor respondents Angaur, LLC, and Balaji Properties
Investment, LLC (collectively, the owners), jointly purchased a parcel of
unimproved real property in Las Vegas, Nevada. No relevant activity took
place with respect to the subject property until the spring and summer of
2006; when two different third parties placed, and allegedly spread,
between 200 and 300 truckloads of dirt/material on the property. 2 Both of
the third parties were performing work on unrelated construction projects
on neighboring parcels and roadways. The degree to which the subject
property was covered and subsequently spread or graded is unclear given
the record before this court.
Meanwhile, the owners solicited bids from general contractors
to construct a strip mall on the property. During bidding on the project,
2 The parties could not agree what to call the substance that was
placed on the property, so the bankruptcy court used the term
"dirt/material." The bankruptcy court noted that it did not intend the
term to carry any specific legal meaning. We also will use the term
"dirt/material" to remain consistent with the bankruptcy court.
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appellant Byrd Underground, LLC, submitted a bid to general contractor
Joseph's Construction to perform subcontracted grading work, but Atlas
Construction Ltd., not Joseph's Construction, was selected as the general
contractor. On November 2, 2006, at the request of Atlas, a representative
of Byrd dug four to six holes on the subject property with a backhoe. Byrd
dug these holes to determine how much dirt/material had been brought
onto the subject property since its prior bid in order to submit a revised
bid to Atlas incorporating the new scope of work. On November 8, 2006,
Atlas and the owners executed the written contract for Atlas to serve as
the general contractor on the construction project.
On November 28, 2006, a title company conducted a site
inspection of the subject property and concluded that the land was vacant
and that there was no evidence of a recent work of improvement.
Thereafter, the owners borrowed funds from PFF Bank & Trust for the
purpose of constructing the strip mall on the subject property, 3 and on
November 29, 2006, a deed of trust for the construction loan was recorded
with the Clark County Recorder. Byrd had not performed any work on the
subject property prior to November 29, 2006, other than digging the test
holes and submitting bids to Joseph's Construction and Atlas.
Subsequently, a dust control permit and a building permit
were issued for the subject property. During construction, Atlas used and
incorporated at least a portion of the dirt/materials into the construction
project. Atlas and Byrd executed three written subcontracts—for wet
3 PFF
Bank eventually went into FDIC receivership and respondent
US Bank now claims ownership of the construction loan and deed of trust.
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utilities, dry utilities, and grading—in 2007. Byrd and another
subcontractor, appellant Wells Cargo, Inc. (collectively, lien claimants),
provided services for the construction project but were not paid. As a
result, they commenced mechanic's lien actions in state court and obtained
judgments against Angaur, Balaji, and Atlas.
Angaur and Balaji file bankruptcy petitions and the lien claimants'
objections lead the bankruptcy court to certify questions to this court
After the construction project was completed, the owners filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code.
Both of the owners' schedules of creditors holding secured claims included
(1) a "[first [m]ortgage" to US Bank, and (2) both lien claimants' judgment
liens. The owners and US Bank entered into a forbearance agreement and
created a disclosure statement and plan of reorganization with the
bankruptcy court that stated that US Bank was the only "Class 1" secured
creditor.
The lien claimants filed an objection to the owners' disclosure
statement and plan of reorganization, and they subsequently filed an
adversary complaint in bankruptcy court to determine the priority of liens.
At the close of discovery, the owners, US Bank, and the lien claimants
filed competing motions for summary judgment.
During briefing on the competing motions for summary
judgment, the lien claimants requested that the bankruptcy court certify
questions to this court in order to clarify whether this court in J.E. Dunn
mistakenly used the term "clearing [or] grading" instead of "clearing and
grubbing" when describing non-"construction" preparatory work on a
construction project. The lien claimants argued that "clearing and
grubbing" is a recognized term of art used in the construction industry,
whereas "clearing and grading" is not. Additionally, the lien claimants
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argued that evidence of the dirt/materials being spread or graded on the
subject property creates genuine issues of material fact regarding when
the construction visibly commenced sufficient to avoid summary judgment.
In response, the bankruptcy court certified questions to this court.
DISCUSSION
Priority of mechanics' liens in Nevada
A mechanic's lien is a "statutory creature established to help
ensure payment for work or materials provided for construction or
improvements on land." In re Fontainebleau Las Vegas Holdings
(Fontainebleau II), 128 Nev. „ 289 P.3d 1199, 1210 (2012); see also
Hearing on S.B. 343 Before the Assembly Judiciary Comm, 73d Leg.
(Nev., May 13, 2005) (indicating that mechanics' liens "assist people who
have improved real property so that they can get paid for their efforts").
Here, the parties do not dispute that the lien claimants performed lienable
work. But "whether work is entitled to a lien pursuant to NRS 108.22184
and whether it is entitled to priority over other encumbrances pursuant to
NRS 108.225 are two entirely separate issues." J.E. Dunn, 127 Nev. at
, 249 P.3d at 507.
Relevant to the priority issue, Nevada's mechanic's lien
priority statute, NRS 108.225, provides that mechanics' liens are entitled
to priority over any encumbrance that attaches after construction of a
work of improvement began:
1. The liens provided for in NRS 108.221 to
108.246, inclusive, are preferred to:
(a) Any lien, mortgage or other encumbrance
which may have attached to the property after the
commencement of construction of a work of
improvement.
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2. Every mortgage or encumbrance imposed
upon, or conveyance made of, property affected by
the liens provided for in NRS 108.221 to 108.246,
inclusive, after the commencement of construction
of a work of improvement are subordinate and
subject to the liens provided for in NRS 108.221 to
108.246, inclusive, regardless of the date of
recording the notices of liens.
Thus, if construction has commenced on a "work of improvement" before a
deed of trust is recorded, then a mechanic's lien will take a priority
position over the deed of trust regardless of when the notice of lien is
recorded. NRS 108.225; see J.E. Dunn, 127 Nev. at , 249 P.3d at 509;
Fontainebleau II, 128 Nev. at , 289 P.3d at 1211. Moreover, to claim
priority, a claimant itself need not perform before the deed of trust is
recorded, so long as the work of improvement began before the deed's
recordation, because "all mechanics' liens relate back to the date overall
construction is commenced." J.E. Dunn, 127 Nev. at n.2, 249 P.3d at
504 n.2. As a result, in this case, the lien claimants are entitled to priority
positions over the deed of trust if the work of improvement's construction
commenced, as those terms are defined by statute, on the subject property
before the deed of trust was recorded on November 29, 2006.
Visibility of the work of improvement alone determines priority
NRS 108.22112 defines "[c]ommencement of construction" as
the date on which:
1. Work performed; or
2. Materials or equipment furnished in
connection with a work of improvement,
is visible from a reasonable inspection of the site.
This court analyzed NRS 108.22112 in J.E. Dunn and concluded that,
consistent with "the recognized policy interest in maintaining certainty
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and predictability in construction financing," which would be hindered if
lenders were forced to assume the risk associated with funding a
construction project over which nonvisible work could grant contractors
priority, "visibility alone determines priority." 127 Nev. at „ 249
P.3d at 508, 506. We then reviewed the preconstruction activities that
Dunn—the lien claimant—had performed, in light of NRS 108.22112's
visibility standard. In doing so, we stated, "[o]ther courts have more
generally held, and we agree, that preparatory work on a site, such as
clearing or grading, does not constitute commencement of construction."
Id. at ,249 P.3d at 509 (citing Clark v. Gen. Elec. Co., 420 S.W.2d 830,
833-34 (Ark. 1967), superseded by statute as stated in May Constr. Co. v.
Town Creek Constr. & Dev., L.L.C., 383 S.W.3d 389, 392-95 (Ark. 2011)).
Because placing an architect's sign at the project site and removing power
lines was "insufficient to provide lenders notice of lienable work entitled to
priority," we held that those preconstruction activities failed to constitute
visible commencement of "'actual on-site construction." Id. at , 249
P.3d at 509 (quoting Aladdin Heating Corp. v. Trs. of Cent. States, 93 Nev.
257, 260, 563 P.3d 82, 84 (1977)).
Regarding the second question, the lien claimants take issue
with our statement in J.E. Dunn that listed "clearing or grading" as types
of nonvisible preparatory work that fail to establish construction
commencement, and they argue that the statutes require merely that
construction be visible to a reasonable site inspection to establish lien
priority. J.E. Dunn, 127 Nev. at , 249 P.3d at 504-05 (citing Aladdin
Heating, 93 Nev. at 260, 563 P.2d at 84). The lien claimants argue that it
is unnecessary to declare broad categories of construction activities per se
"nonvisible," thereby depriving the trier of fact of the opportunity to
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evaluate the visibility of such activities on a case-by-case basis. As
concerns clearing and grading, we agree.
As noted, mechanics' liens have priority over other
encumbrances that attach to the property after "the [visible]
commencement of construction of a work of improvement." NRS
108.225(1)(a). NRS 108.22188 defines "[w]ork of improvement" as the
"entire structure or scheme of improvement as a whole, including, without
limitation, all work, materials and equipment to be used in or for the
construction, alteration or repair of the property or any improvement
thereon." Nothing in these provisions excludes preconstruction activities
from the definition of work of improvement, and indeed, subsection 2 of
NRS 108.22188 expressly recognizes that activities undertaken to prepare
the project site can be a work of improvement. NRS 108.22188(2) (stating
that "the improvement of the site" may be "contemplated by the contracts
to be a separate work of improvement to be completed before the
commencement of construction of the buildings"). Moreover, NRS
108.22128 defines "Mmprovement," in pertinent part, as including
buildings, irrigation systems and landscaping, removal of trees or other
vegetation, the drilling of test holes, and grading, grubbing, filling, or
excavating. In construing these provisions together, as we must, City of
N. Las Vegas v. Warburton, 127 Nev. „ 262 P.3d 715, 718 (2011),
we conclude that the trier of fact must look to the entire structure or
scheme of improvement as a whole—the "overall construction"—rather
than solely evaluating the activities based on whether they are
preparatory or structural or vertical construction, in determining whether
construction on a work of improvement has commenced. J.E. Dunn, 127
Nev. at n.2, 249 P.3d at 504 n.2.
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Accordingly, grading work can be an integral part of the
"entire structure or scheme of improvement as a whole" and part of the
actual on-site construction. NRS 108.22188. If it is, grading may be
sufficient to establish commencement of construction in Nevada as long as
it is visible from a reasonable inspection of the site sufficient to provide
lenders notice that lienable work has commenced, and we are unwilling to
conclude, as a matter of law, that on-site grading work can never place
lenders on notice that lienable work has begun. NRS 108.22112; see also
May Constr. Co., 383 S.W.3d at 392-94 (construing Arkansas's mechanic's
lien statute "just as it reads, giving the words their ordinary and usually
accepted meaning in common language" in determining that grading can
constitute commencement of construction).
This holding is consistent with J.E. Dunn, in which we
explained that the visibility requirement for determining lien priority
applies to preconstruction activities. 127 Nev. at „ 249 P.3d at 507-
08, To the extent that the examples of nonconstruction preparatory work
in J.E. Dunn suggest otherwise, neither clearing nor grading were at issue
in that case, and thus the examples are mere dicta. See St. James Vill.,
Inc. v. Cunningham, 125 Nev. 211, 216, 210 P.3d 190, 193 (2009). We take
this opportunity to clarify that J.E. Dunn does not preclude a trier of fact
from finding that clearing and grading work constitutes visible
commencement of construction of a work of improvement. We thus
answer the second question, as we have rephrased it, in the affirmative:
our statement in J.E. Dunn, 127 Nev. at , 249 P.3d at 509, regarding
"clearing or grading" was dictum, and grading work may constitute visible
commencement of construction under NRS 108.22112.
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Contract dates and permit issuance dates are irrelevant to the visible-
commencement-of-construction test set forth by NRS 108.22112
The bankruptcy court's first certified question asks whether a
mechanic's lien claimant can properly claim lien priority under NRS
108.225 based on work that was performed or materials that were
delivered months before the building permit was issued and the general
contractor was hired. The lien claimants argue that the plain language of
MRS 108.225 and NRS 108.22112 require visibility, and that nothing in
the statutes conditions the priority of a lien on the issuance of permitting
or contract dates. The lien claimants argue that the timing of contracts
and permits related to a given project is irrelevant to the issue of whether
the delivery of materials or the performance of work had, in fact, been
furnished prior to the date the deed of trust was recorded. We agree.
Here, "the meaning of NRS 108.22112 is plain and requires
visibility for work performed, including preconstruction services, in order
for a mechanic's lien to take a priority position over a deed of trust." J.E.
Dunn, 127 Nev. at , 249 P.3d at 506-07; see also Aladdin Heating, 93
Nev. at 260, 563 P.2d at 84. Thus, any subjective intent on the part of an
owner to commence construction on a given date, based on either a
contract or permit issuance date, is not an element of the commencement
of construction and should therefore not be considered dispositive. See
May Constr., 383 S.W.3d at 395 (concluding that the district court erred
when it failed to make factual determinations regarding objective, visible
manifestation of activity on the property, and instead ruled that
construction did not commence until after the mortgage was recorded
based on the perceived intent of the lender).
But while the date of the contract or permits does not directly
affect priority, the contract and permits may have some bearing on the
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issue, because the fact-finder must define the work of improvement before
it can determine when that work of improvement visibly commenced. In
this regard, contracts and permits may assist in determining the scope of
the work of improvement's "structure or scheme ... as a whole." NRS
108.22188. If the contract expressly or impliedly excludes certain work,
then that work might not be a part of the "work of improvement." See
Schultz v. King, 68 Nev. 207, 212-13, 228 P.2d 401, 404 (1951) (looking to
the contract in addressing the possible scope of a work of improvement);
see also L Cox Constr. Co. v. CH2 Invs., L.L.C., 129 Nev. „ 296 P.3d
1202, 1205 (2013) (determining a work of improvement's scope by looking
to the purpose, impetus, and continuity of the work, the parties'
contemplations regarding the project, the building and operating permits,
and the timing of the work in relation to the rest of the construction).
Thus, we answer the first question in the affirmative, with a
caveat: a mechanic's lien claimant may properly claim lien priority under
NRS 108.225 when the work or material forming the basis of the lien's
priority was placed or performed on the site "months before the building
permit was issued or the general contractor hired," as long as there was,
in fact, visible commencement of construction as defined by NRS
108.22112 and as long as all of the work or material placed or performed
on the site in the prior months was a part of the same work of
improvement under NRS 108.22188 as the later work giving rise to the
mechanic's lien.
We decline to answer the third certified question because it asks this court
to make findings of fact that should be left to the bankruptcy court
The third certified question asks: "[d] oes 'grading' in the
circumstances presented here constitute visible 'commencement of
construction' under NRS 108.22112 for purposes of establishing lien
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priority under NRS 108225?" But the visibility, scope, and duration of a
work of improvement generally are factual questions for the trier of fact to
decide, L Cox Construction, 129 Nev. at 296 P.3d at 1205, and this
court recently noted that it cannot make findings of fact in responding to a
certified question. In re Fontainebleau Las Vegas Holdings (Fontainebleau
I), 127 Nev. „ 267 P.3d 786, 795 (2011). "The answering court's role
is limited to answering the questions of law posed to it, and the certifying
court retains the duty to determine the facts and to apply the law provided
by the answering court to those facts." Id. at 267 P.3d at 794-95.
"This approach prevents the answering court from intruding into the
certifying court's sphere by making factual findings or resolving factual
disputes." Id. at , 267 P.3d at 795.
The dispute between the parties as to whether the importing
and spreading or grading of the dirt/material in this case constituted
visible "commencement of construction" of one comprehensive "work of
improvement" is, as explained above, of an intensively factual nature.
Given these unresolved factual disputes, we decline to answer the third
question.
CONCLUSION
We conclude that this court's use of the term "clearing or
grading" in J.E. Dunn Northwest, Inc. v. Corus Construction Venture,
L.L.C., 127 Nev. „ 249 P.3d 501, 509 (2011), was dictum and does
not alter our ultimate holding that visibility alone determines priority.
We therefore clarify that grading work may constitute visible
commencement of construction of a work of improvement in some
circumstances, as long as it is visible from a reasonable inspection of the
site in a manner sufficient to provide notice of lienable work that may be
entitled to priority. Additionally, we conclude that contract dates and
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permit issuance dates are irrelevant to the visible-commencement-of-
construction test set forth by NRS 108.22112, but may assist the trier of
fact in determining the scope of the work of improvement. Finally, we
decline to decide whether the circumstances presented here constitute
visible commencement of construction under MRS 108.22112 of a
comprehensive work of improvement under NRS 108.22188 because it
would require this court to resolve thOactual dispute between the parties.
Gibbons
We concur:
tehiL J.
Pickering
J.
Hardesty
J.
Parraguirre
J.
, J.
Saitta
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