A & J Plumbing, Inc. v. Huntington Natl. Bank , 2014 Ohio 5707 ( 2014 )


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  • [Cite as A & J Plumbing, Inc. v. Huntington Natl. Bank, 2014-Ohio-5707.]
    IN THE COURT OF APPEALS
    ELEVENTH APPELLATE DISTRICT
    LAKE COUNTY, OHIO
    A & J PLUMBING, INC.,                                  :          OPINION
    Plaintiff-Appellant,                  :
    CASE NO. 2014-L-023
    - vs -                                         :
    HUNTINGTON NATIONAL BANK, et al.,                      :
    Defendants-Appellees.                 :
    Civil Appeal from the Lake County Court of Common Pleas, Case No. 12 CV 001183.
    Judgment: Affirmed.
    Frederick L. Zuch, 7343 Chillicothe Road, Mentor, OH 44060 (For Plaintiff-Appellant).
    Kirk W. Roessler and Douglas M. Eppler, Ziegler Metzger LLP, 925 Euclid Avenue,
    Suite 2020, Cleveland, OH 44115-1441 (For Defendant-Appellees).
    THOMAS R. WRIGHT, J.
    {¶1}     This accelerated-calendar appeal stems from a final judgment of the Lake
    County Court of Common Pleas, granting summary judgment in favor of appellee, the
    North American Specialty Insurance Company, on two claims for enforcement of surety
    bonds. Appellant, A & J Plumbing, Inc., challenges the trial court’s legal determination
    that it was not entitled to recover under the surety bonds because the two underlying
    mechanic’s liens are invalid. For the following reasons, the court’s ruling is affirmed.
    {¶2}     The relevant facts of this case are not in dispute. Wilshire Homes, Inc. is
    engaged in the business of residential home construction. In 2006, it purchased two
    parcels of property in Lake County for the purpose of building a single-family residence
    on each. The first parcel was on Cambden Crossing Way in Concord, Ohio, while the
    second property was on Jennings Drive in Leroy, Ohio.
    {¶3}   To finance the construction of both homes, Wilshire Homes obtained two
    commercial loans from Huntington National Bank. In each transaction, Wilshire Homes
    executed an open-end mortgage in favor of Huntington National Bank on each parcel.
    Each mortgage was duly recorded.
    {¶4}    In each of the two projects, Wilshire Homes hired appellant to install the
    plumbing. When work on both projects was finished in early 2009, appellant submitted
    its final bill in accordance with the underlying contracts. Since Wilshire Homes could
    not sell either of the homes, appellant was never paid for the plumbing work.
    {¶5}   In June 2009, appellant submitted affidavits with the clerk of courts for the
    purpose of obtaining mechanic’s liens on each of the parcels. Although both liens were
    duly recorded, appellant did not take steps necessary to perfect the liens. As a result,
    copies of the affidavits were never served upon Wilshire Homes, and copies were
    never posted on either of the subject parcels.
    {¶6}   No further action was taken in regard to the mechanic’s liens over the next
    thirty months. In 2011, appellant and Huntington National Bank were named as parties
    in a tax foreclosure action on the “Cambden Crossing” property. While this action was
    pending, Wilshire Homes and its realtor found a potential buyer for that parcel. In order
    to facilitate the sale, the realtor attempted to negotiate a final settlement of all pending
    liens on the “Cambden Crossing” property, including the liens held by appellant and
    Huntington National Bank. Ultimately, no settlement was reached because appellant
    would not agree to certain terms sought by Huntington National Bank. Therefore, the
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    proposed sale of the property was never finalized, and a final order of foreclosure was
    issued in the “tax” action.
    {¶7}    In February 2012, Huntington National Bank filed with the common pleas
    court two applications for approval of bonds to discharge the mechanic’s liens on each
    of the properties. Attached to each application was a surety bond issued by appellee
    for the total amount owed under the respective lien. Each bond provided that payment
    under the bond was conditioned upon a subsequent adjudication that appellant has a
    valid claim against the subject property. Upon due consideration, the common pleas
    court approved both applications, ordering that the liens be discharged and that the
    bonds be substituted as the security for the underlying debts.
    {¶8}   In compliance with the requirements of the bonds, appellant initiated a civil
    action against appellee, Huntington National Bank, Wilshire Homes, and three other
    defendants. Under the first four claims of its complaint, appellant sought recovery from
    Wilshire Homes for the total amount owed for the plumbing work. These claims were
    based upon theories of breach of contract, amounts on account, and quantum meruit.
    Appellant’s fifth claim sounded in tortuous interference with a contractual relationship,
    and was predicated upon the events surrounding the attempted settlement negotiations
    concerning the liens on the “Cambden Crossing” property. Under its sixth and seventh
    claims, appellant sought recovery on the bonds issued by appellee.
    {¶9}   The majority of the underlying proceedings pertained solely to appellant’s
    “tortuous interference” claim. As to the two “bond” claims, the discovery process was
    short. As part of its responses to Huntington National Bank’s requests for admissions,
    appellant made the following admissions: (1) after filing its affidavits for the mechanic’s
    liens on both properties, it did not serve copies of the affidavits upon Wilshire Homes;
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    and (2) it also did not post copies of the affidavits upon either of the subject properties.
    These admissions were verified by appellant’s vice president.
    {¶10} Based solely upon the admissions, appellee moved for summary judgment
    on the two “bond” claims. Citing R.C. 1311.07, appellee first argued that the failure to
    serve or post the affidavits rendered the two mechanic’s liens invalid. Appellee further
    argued that, in the absence of valid liens, appellant was not entitled to recovery under
    the bonds for any amount owed by Wilshire Homes.
    {¶11} In responding to the summary judgment motion, appellant did not contest
    the fact that the mechanic’s liens were invalid as a result of the failure to comply with
    R.C. 1311.07. Nevertheless, appellant contended that it could still seek recovery under
    the bonds because the invalidity of the liens would have no effect upon the merits of its
    claims against Wilshire Homes. In support, appellant emphasized that the wording of
    the bonds referred to the existence of a valid “claim” against the properties, not a valid
    “lien.”
    {¶12} After appellee submitted a reply brief on the matter, the trial court issued
    its order granting summary judgment against appellant on both “bond” claims. Citing
    R.C. 1311.11(C), the trial court noted that, once a surety bond is approved, it is merely
    intended to act as a substitute for the mechanic’s lien. Based upon this, the court held
    that appellant must be able to establish the validity of its liens on the two parcels before
    it could recover under the bonds. Thus, since appellant’s liens were invalid due to the
    lack of service or posting of the affidavits, appellant could not prove a set of facts under
    which it would be entitled to the funds covered by the bonds.
    {¶13} Immediately following the issuance of the foregoing order, the trial court
    entered a final judgment in favor of appellant on its four claims against Wilshire Homes.
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    The entry of the latter decision had the effect of disposing of all remaining claims in the
    action, thereby making the summary judgment determination a final appealable order.
    In only appealing the trial court’s ruling on its two “bond” claims, appellant asserts one
    assignment of error for review:
    {¶14} “The trial court committed prejudicial error by concluding as a matter of
    law, pursuant to R.C. 1311.11, that a claim against real property cannot exist without a
    valid original lien.”
    {¶15} Under this assignment, appellant does not contest the fact that, by failing
    to either serve its affidavits for the mechanic’s liens upon Wilshire Homes or post them
    at the respective properties, it did not follow the necessary procedure in R.C. 1311.07
    for obtaining such a lien. Consequently, neither of the underlying liens was ever valid
    and enforceable. Despite this, appellant still argues it was entitled to go forward on its
    “bond” claims because the invalidity of the liens had no effect upon its right to enforce
    its judgment against Wilshire Homes under the bonds. Specifically, appellant contends
    that it has the right to recover under the bonds so long as it can prove that it has never
    been paid for the plumbing work rendered on the two properties.
    {¶16} R.C. 1311.11 delineates the procedure an owner or mortgagee of property
    can follow to have a mechanic’s lien removed from its record of title. Subsections (A)
    and (B) generally provides the means by which the owner or mortgagee can force the
    lienholder to immediately bring a civil action to resolve the underlying dispute between
    the parties. Under subsection (A), the owner or mortgagee can serve notice upon the
    lienholder that he is required to “commence suit on the lien” within sixty days. If proper
    service of the notice is achieved and an affidavit verifying such service is filed with the
    county recorder, subsection (B) provides: “If the lienholder fails to commence suit upon
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    the lien within sixty days after completion of service upon him of the notice to
    commence suit, or if the suit is commenced but dismissed with prejudice before
    adjudication, the lien is void and the property wholly discharged from the lien.”
    {¶17} R.C. 1311.11(C) states a separate procedure under which a mechanic’s
    lien can be declared void even before the lienholder has been compelled to commence
    the action on the underlying dispute. Specifically, subsection (C) allows for the lien to
    be replaced by a bond, cash deposit, or other reasonable security. In order for this to
    occur, the owner or mortgagee of the property must file with the common pleas court
    an application for approval of the new security. After holding a hearing on the matter,
    the common pleas court must decide whether the new security is “sufficient” to protect
    the lienholder’s interest to the same extent as the lien. As to the effect of a judgment of
    approval, R.C. 1311.11(C)(3) provides: “As of the date of the entry of approval, the
    security of the bond, cash deposit, * * * or other reasonable security shall be
    substituted for the security of the lien, and the lien is void and the property wholly
    discharged from the lien.”
    {¶18} Focusing upon the word “void” in the foregoing provision, appellant argues
    that, since the mechanic’s lien no longer exists, any problem with the enforceability of
    the lien has no effect upon the lienholder’s right to recover under the bond. However,
    this argument fails to account for the fact that the provision also states that the bond or
    other new security is meant to act as a mere substitute for the lien. To this extent, any
    obligation stemming from the bond will always be based upon the prior existence of the
    lien.
    {¶19} Given the nature of its provisions, the purpose of R.C. 1311.11(C) is to
    give a landowner or mortgagee the ability to clear the title to the subject real estate.
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    See In re Mechanics’ Lien of Whitta, 
    7 Ohio App. 3d 153
    , 156 (3d Dist.1982). Clearly,
    in order for this purpose to be served, the lien on the real estate must be void once the
    bond has been approved.       Moreover, since the bond is viewed as a substitute for the
    lien, it follows that the surety on the bond steps into the “shoes” of the owner or
    mortgagee of the property. Thus, in the context of an action based upon a mechanic’s
    lien, the surety on the bond is entitled to invoke all “mechanic’s lien” defenses available
    to the landowner. Midwest Curtainwalls, Inc. v. Pinnacle 701, LLC, 8th Dist. Cuyahoga
    No. 92269, 2009-Ohio-3740, ¶59.        Thus, if the mechanic’s lien would not have been
    enforceable as invalid, the surety cannot be held responsible to pay on the bond.
    Construction One, Inc. v. Shore Thing, Inc., 8th Dist. Cuyahoga No. 81135, 2003-Ohio-
    1339, ¶25.
    {¶20} As part of its interpretation of R.C. 1311.11, appellant maintains that, by
    moving the common pleas court to approve the two bonds in lieu of the liens, appellee
    essentially waived its right to challenge the validity of the liens. In support of this point,
    appellee cites R.C. 1311.11(A). However, subsection (A) only has provisions relating
    to the service of the notice to the lienholder to commence a lawsuit; it does not have
    any provision regarding the effect of substituting a bond for the lien. Furthermore, our
    review of the other statutes in R.C. Chapter 1311 does not reveal any provision stating
    that a challenge to a mechanic’s lien must be raised in a particular type of proceeding
    or within a particular time limit. Finally, appellant has not cited any case law to support
    its contention that a landowner or mortgagee waives all challenges to the validity of the
    lien by invoking the procedure under R.C. 1311.11(C).
    {¶21} In support of its basic argument, appellant further notes that, pursuant to
    R.C. 1311.11(B)(3), if a lien becomes void as a result of the lienholder’s failure to bring
    7
    the required lawsuit within sixty days, “the claim upon which the lien was founded is not
    prejudiced * * *.” This provision simply restates the general principle that the merits of
    the underlying “debt” dispute will not be affected by any flaw in the security; i.e., if the
    lienholder is successful in the separate proceeding on the debt, it simply means that
    the judgment debt will be unsecured. To this extent, the cited provision is irrelevant to
    the proper interpretation of R.C. 1311.11(C).
    {¶22} As a separate argument, appellant submits that its right to recover under
    the two surety bonds should be controlled solely by the wording of those documents.
    Appellant emphasizes that the bonds do not employ the term “lien” in describing when
    appellee will be liable to pay, but instead only uses the word “claim.” Appellant argues
    that the term “claim” could only mean the claim it has against Wilshire Homes, and that
    the only condition it must satisfy to collect under the bonds is to show that it has
    prevailed in its action against Wilshire Homes.
    {¶23} The first paragraph of each bond states that Huntington National Bank and
    appellee agree to pay appellee the amount of the bond upon the condition that “if
    [appellant] shall commence suit upon the Bond and * * * the court shall adjudge and
    decree that that said claim is a valid claim and [Huntington] shall pay the sum for which
    [appellant] is adjudged and decreed by the Court to have had as a valid claim against
    the property, * * *.” In light of the quoted language, the word “claim” is not intended to
    refer to appellant’s claim against Wilshire Homes, but instead refers to a separate claim
    to enforce the bond itself. In the beginning, the passage refers to the commencement
    of a lawsuit “upon the Bond.” At the end, the passage refers to a “valid claim against
    the property.”
    {¶24} Accordingly, appellant’s interpretation of the quoted language is incorrect;
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    payment is conditioned upon a court’s adjudication that a valid claim has been brought
    against the bond. In this case, appellant cannot bring a valid claim under either bond
    because the underlying mechanic’s liens are invalid.
    {¶25} Based on the foregoing, the sole assignment lacks merit. The judgment of
    the Lake County Court of Common Pleas is affirmed.
    DIANE V. GRENDELL, J., concurs,
    COLLEEN MARY O’TOOLE, J., concurs with a Concurring Opinion.
    ____________________
    COLLEEN MARY O’TOOLE, J., concurs with a Concurring Opinion.
    {¶26}   I concur with the well-reasoned opinion of the majority. I write separately
    simply to emphasize that the failure of appellant’s action against the bonds, due to its
    failure to perfect its liens on the subject properties, does not in any way affect the
    validity of its underlying contractual claims against Wiltshire Homes.    Jaric, Inc. v.
    Chakroff, 
    63 Ohio App. 3d 506
    , 511-512 (10th Dist.1989). It appears the trial court
    granted appellant default judgment against Wiltshire on these claims, which may be
    made a lien against Wiltshire. See, e.g., R.C. 2329.02.
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Document Info

Docket Number: 2014-L-023

Citation Numbers: 2014 Ohio 5707

Judges: Wright

Filed Date: 12/29/2014

Precedential Status: Precedential

Modified Date: 12/31/2014