Glasser & Glasser v. Jack Bays, Inc. ( 2013 )

PRESENT: All the Justices
GLASSER & GLASSER, PLC, TRUSTEE FOR
FIRST MORTGAGE BONDHOLDER, 2006 SERIES
v. Record No. 120287 OPINION BY
JUSTICE DONALD W. LEMONS
February 28, 2013
JACK BAYS, INC., ET AL.
CITIZENS BUSINESS BANK
v. Record No. 120288
JACK BAYS, INC., ET AL.
CELTIC BANK
v. Record No. 120289
JACK BAYS, INC., ET AL.
FROM THE CIRCUIT COURT OF PRINCE WILLIAM COUNTY
Mary Grace O'Brien, Judge
In this appeal, we consider the validity of various
mechanics' liens filed under Code § 43-4.
I. Facts and Proceedings
A. New Life's Construction Project, Contractors,
and Financing
Jack Bays, Inc. ("Jack Bays") is a commercial general
contracting firm with expertise in new church construction.
In 2004, the company's President, Lynn Bays Fuechsel
("Fuechsel"), met the Senior Pastor and Founder of New Life
Anointed Ministries International ("New Life"), Bishop Eugene
Reeves ("Bishop Reeves"). At the time, New Life was beginning
the process of building a church in Woodbridge, Virginia.
Jack Bays ultimately became the general contractor on the
project.
On August 22, 2005, Jack Bays submitted a proposal for
the site work portion of the project. Site work included
excavation and grading, utility installation, concrete and
asphalt paving, landscaping, and fencing. New Life accepted
the proposal either contemporaneously or shortly thereafter by
signing an owner/contractor agreement form ("August '05
Agreement"). The agreement form stated that New Life would
pay Jack Bays a stipulated sum of $4,209,532 for initial work
at the project site.
On September 29, 2005, Jack Bays began site work. On
April 26, 2006, a new Agreement ("April '06 Agreement")
provided that New Life would pay Jack Bays a stipulated sum of
$12,016,000. The April '06 Agreement incorporated the sum and
scope of work from the August '05 Agreement.
On December 5, 2006, the parties increased the value of
the contract for the final time. Change Order 13 required
construction on a preschool, sanctuary, lobby and corridors.
The cost of this project was $5,858,732, which brought the
total cost of the project to $17,874,732. The contract
provided for payment of requisitions from Jack Bays based upon
percentage completion of the project.
2
To perform work at the site, Jack Bays contracted with
several subcontractors, the following eleven of which are
parties to this action: Structural Steel, LLC ("Structural
Steel"), United Sprinkler Company, Inc. ("United Sprinkler"),
Virginia Paving Company ("Virginia Paving"), Sparkle Painting
Company, Inc. ("Sparkle Painting"), Scaffold Resource, LLC
("Scaffold Resource"), Miller Construction, Inc. ("Miller
Construction"), Adrian L. Merton, Inc. ("Adrian Merton"),
Century Contracting Corporation ("Century Contracting"),
Clover Contracting, Inc. ("Clover Contracting"), General Glass
Corporation ("General Glass"), and Becker Electric Company. ∗
After briefly working with Branch Banking and Trust, New
Life sought additional funds for the project. To obtain these
funds, New Life worked with Strongtower, a bonding company for
church financing. This collaboration led New Life to obtain
additional financing, specifically in the amount of $13.6
million. San Joaquin Bank (the predecessor to and hereinafter
"Citizens Business Bank"), 1st Centennial Bank (the
predecessor to and hereinafter "Celtic Bank"), and Glasser &
Glasser, PLC ("Glasser & Glasser") (collectively, "Lenders")
were listed as "Lenders" on the Deed of Trust for the new
financing, while Stewart Title Guaranty Company ("Stewart
∗
When referring to the general contractor and the
subcontractors we will use the term "Contractors."
3
Title") was designated "Trustee." Glasser & Glasser was also
designated Trustee for "First Mortgage Bondholders, 2006
Series" ("Bondholders"). Citizens Business Bank obtained a
note evidencing the debt in the principal amount of
$8,962,000. Celtic Bank obtained a note in the principal
amount of $4,491,000. Additionally, the Deed of Trust
incorporated a $13,453,000 Trust Indenture "for the benefit of
certain Bondholders," with Glasser & Glasser as Trustee, and
Reliance Trust Company as the trust company and disbursement
agent. The Lenders recorded their Deed of Trust on June 27,
2006.
On September 29, 2005, Jack Bays issued its first
requisition for payment to New Life. New Life paid in full,
and continued to pay its requisitions in full each month
through March 2007. New Life paid part of Jack Bays' April
2007 requisition, falling $141,498.70 short of total payment.
Thereafter, New Life made no payments to Jack Bays from May
through October 2007, because funding for the project was
exhausted.
Throughout the May-October 2007 period, New Life
attempted to obtain additional financing. Jack Bays
understood from Bishop Reeves that new funding would be
obtained to cover the cost of the project. On July 27, 2007,
Monika Taylor, an underwriter for Quest Capital Funding, wrote
4
to Fuechsel to "inform [Fuechsel] that we are going through
final approval for a $20,000,000.00 (Twenty Million Dollar)
loan for New Life Anointed Church." From her conversations
with Bishop Reeves, Fuechsel expected to be paid for Jack
Bays' prior, ongoing, and future work on or around August 3,
2007. After the anticipated loan from Quest Capital Funding
did not close, Fuechsel was told that financing would instead
be in place by the end of August. However, no further
financing was obtained. Jack Bays continued construction work
at the site from May through September 28, 2007.
B. Contract Work and Demobilization,
Mechanics' Liens, and Termination
On September 28, 2007, Jack Bays sent a memorandum to its
subcontractors. The memorandum detailed New Life's efforts to
obtain financing, and informed the subcontractors that delays
in the approval process caused Jack Bays to immediately
"stop[] active work on the site until all payments are
current." The letter asked the subcontractors to consider
waiting until November 2007 to file a mechanics' lien so that
title could remain clear and enable New Life to "have the best
opportunity to obtain financing."
After September 28, 2007, Jack Bays began to shut down
active work on the project by collecting equipment and
rectifying unsafe conditions on the premises. Jack Bays
5
maintained a log of site work during this time and issued a
requisition for October 2007 work it classified as
"demobilization."
According to Jack Bays, subcontractors continued work at
the site through October 11, 2007. However, United Sprinkler
performed "normal course of business" work through at least
October 18, 2007. Sparkle Painting had an employee working on
site through at least October 1, 2007, and possibly through
October 9, although information supporting the latter date was
inconclusive. Scaffold Resource entered the premises on
October 1 to remove scaffolding provided, completing this work
– which was provided for in its contract with Jack Bays – on
October 16. Becker Electric continued contract completion
work on the project by performing wiring work related to pulls
and terminations at electrical panel locations and rooftop
units through October 16, although this was primarily in an
effort to address safety concerns associated with exposed live
electrical wires.
Jack Bays alleged that its activity at the project site
between October 1 and November 16, 2007, was a necessary part
of its demobilization efforts, and that any contract work
performed by subcontractors during that time was at the
subcontractors' own risk. However, Jack Bays increased the
percentage by which it evaluated the completeness of the
6
project's work between its September and October 2007
requisitions by 2%, from 92% to 94%. Whether Jack Bays'
actions and the actions of the subcontractors in October and
November 2007 constitute continuing contract work or
demobilization is disputed by the parties to this action.
On December 28, 2007, Jack Bays recorded its Memorandum
of Mechanic[s'] Lien against New Life in the amount of
$5,942,487.48 in the Circuit Court of Prince William County.
The following table summarizes the dates on which
subcontractors recorded their memoranda of mechanics' liens,
and the value of those liens:
Subcontractor Date Value
Clover 12/20/07 $60,814.37
Contracting
Adrian L. 12/20/07 $323,165.20
Merton
General Glass 12/20/07 $50,544.00
Century 12/20/07 $134,303.00
Contracting
Capital 12/21/2007 $217,575.00
Contracting
Virginia 12/27/07 $423,583.27
Paving
Sparkle 12/27/07 $13,950.00
Painting
Structural 12/27/07 $139,922.00
Steel
Miller 12/28/07 $99,654.00
Construction
Scaffold 1/11/08 $75,867.80
Resource
Becker 1/22/08 $549,545.00
Electric
United 1/29/08 $97,664.40
Sprinkler
7
On May 8, 2008, Jack Bays sent a letter to New Life
terminating the April 26, 2006 construction contract. Between
June 19 and July 14, 2008, all Contractors timely filed
complaints in the Circuit Court of Prince William County
("circuit court") against the Lenders and Stewart Title.
C. Proceedings before the Commissioner of Accounts and the
Circuit Court
By Decree of Reference and Order of Consolidation and
Reference entered by the circuit court in late 2008 and early
2009, Prince William County Commissioner in Chancery Robert J.
Zelnick ("Commissioner Zelnick") held a proceeding from
January 11-15, 2010, to address "only issues concerning
enforceability" of the mechanics' liens. The issues of
valuation and priority were "deferred to a subsequent hearing,
if needed."
On May 31, 2011, Commissioner Zelnick filed his report.
He found that:
• All necessary parties were made defendants in the
Contractors' suits to enforce their mechanics' liens;
• Jack Bays did not violate the 90-day rule embodied in
Code § 43-4;
• Jack Bays complied with the 150-day rule embodied in Code
§ 43-4;
• The other Contractors complied with the 150-day rule
embodied in Code § 43-4;
• Jack Bays did not include charges for labor and materials
prior to May 1, 2007;
• Jack Bays acted reasonably in waiting until September 28,
2007 to recommend ceasing current work on the New Life
project, and therefore did not fail to mitigate damages;
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• The mechanics' liens of Century Contracting, Adrian L.
Merton, Scaffold Resource, Becker Electric, United
Sprinkler, General Glass, Miller Construction, Structural
Steel, Sparkle Painting, Virginia Paving, and Clover
Contracting were valid and enforceable;
• Capital Contracting's mechanics' lien was extinguished;
• The liens of Samaha Associates, Loudoun Sheet Metal
Company, and Phillip C. Clarke, Incorporated, were not
enforceable;
• A priority of liens existed, with the subcontractors
holding top priority, Jack Bays second priority, the
Lenders third priority, and a September 2008 Jack Bays
Deed of Trust and Trustee for General Mortgage
Bondholders holding fourth priority; and
• The property should be sold to satisfy the outstanding
liens.
On June 10, 2011, Citizens Business Bank, Celtic Bank,
and Glasser & Glasser filed exceptions to the report. The
Lenders filed a Joint Brief in Support of Exceptions to the
report. Their exceptions primarily focus on the
Commissioner's interpretation of Code § 43-4 concerning filing
procedures and lien value. Additionally, the Lenders asserted
that the Contractors failed to mitigate damages during their
October 2007 work and that they also did not include necessary
parties to their action to enforce the liens. Finally, the
Lenders disputed the validity of some of the subcontractors'
liens.
The circuit court issued a final order on November 18,
2011, rejecting the Lenders' arguments in their entirety. The
circuit court incorporated its October 14, 2011 letter opinion
9
into its final order. The circuit court further ordered that
the property be sold at public auction to the highest bidder,
with proceeds of the sale to be applied in satisfaction of the
mechanics' liens in the order of priority established by
Commissioner Zelnick. Lenders timely filed notices of and
petitions for appeal, raising fourteen assignments of error.
We awarded an appeal.
II. Analysis
A. Standard of Review
In their first assignment of error, the Lenders assert
that "[t]he trial court lacked subject matter jurisdiction as
necessary parties were not joined in any of the lawsuits which
are the subject matter of this appeal." This assignment
involves a question of law and is reviewed de novo. Conyers
v. Martial Arts World of Richmond, Inc., 273 Va. 96, 104, 639
S.E.2d 174, 178 (2007).
For the remaining assignments of error, the Lenders
challenge the circuit court's conclusion that Commissioner
Zelnick properly determined issues related to the Contractors'
liens. "When a circuit court approves a report by a
commissioner in chancery who heard evidence ore tenus, we will
affirm the court's decree unless it is plainly wrong or
without evidence to support it." Amstutz v. Everett Jones
Lumber Corp., 268 Va. 551, 558, 604 S.E.2d 437, 441 (2004)
10
(citing Shepherd v. Davis, 265 Va. 108, 117, 574 S.E.2d 514,
519 (2003); Snyder Plaza Props., Inc. v. Adams Outdoor Adver.,
Inc., 259 Va. 635, 641, 528 S.E.2d 452, 456 (2000)). "[W]e
look at the commissioner's conclusions, as approved by the
circuit court, and determine whether the conclusions are
supported by credible evidence." Id. (citing Chaney v.
Haynes, 250 Va. 155, 158, 458 S.E.2d 451, 453 (1995)); see
also Code § 8.01-610. However, this standard "is not
applicable to pure conclusions of law contained in the
report," which are reviewed de novo. Hill v. Hill, 227 Va.
569, 577, 318 S.E.2d 292, 296 (1984) (citations omitted).
B. Necessary Parties
Suits to enforce mechanics' liens must name all necessary
parties within the time set forth by Code § 43-17, and a
failure to name a necessary party as defendant requires
dismissal. Mendenhall v. Douglas L. Cooper, Inc., 239 Va. 71,
72, 75, 387 S.E.2d 468, 469-70 (1990).
Citing James T. Bush Constr. Co. v. Patel, 243 Va. 84,
87-88, 412 S.E.2d 703, 704-05 (1992), the Lenders contend that
"[i]n the context of mechanic[s'] lien litigation, necessary
parties include the owner of the property, and both the
trustee and beneficiaries of a deed of trust secured by the
property." The beneficiaries here, the Lenders assert, are
the Bondholders under the Trust Indenture. Because the
11
Contractors did not name the Bondholders, their suits must be
dismissed, according to the Lenders.
The Contractors rejoin that this Court stated otherwise
in Michael E. Siska Rev. Trust v. Milestone Development, LLC,
282 Va. 169, 181, 715 S.E.2d 21, 27 (2011), where we held that
"the necessary party doctrine does not implicate subject
matter jurisdiction." They also allege that "[p]arties filing
mechanic[s'] liens are entitled to rely on the land records,"
citing Blue Ridge Constr. v. Stafford Dev. Grp., Ltd., 244 Va.
361, 365, 421 S.E.2d 199, 201 (1992) in support. The
Contractors finally assert that Glasser & Glasser, as Trustee
for the Bondholders, is in position to protect the
Bondholders' interests.
In their Reply, the Lenders argue that Siska "does not
address statutorily created causes of action such as
mechanics' liens, or modify the clear line of authority of
Bush v. Patel." The Lenders also claim that the rule
concerning whether parties may rely on land records is not the
law in Virginia, citing a 1956 case, Chavis v. Gibbs, 198 Va.
379, 94 S.E.2d 195, in support. Finally, the Lenders state in
a footnote that "[the Contractors'] reliance upon the powers
of the Trustee under the Trust Indenture to take action to
prevent any impairment of the Trust Estate is misplaced as
12
they are no different in kind than the power any trustee has
to take action to protect the Trust property."
In Siska, we stated that "the necessary party doctrine
does not implicate subject matter jurisdiction. If the
doctrine involved subject matter jurisdiction, the absence of
a necessary party would, by definition, deprive the court of
the power to render a decree. There could not logically be
exceptions." 282 Va. at 177, 715 S.E.2d at 25. We observed
that questions of personal jurisdiction and the ability to
"render complete relief" guide the decision whether to
exercise subject matter jurisdiction. Id.
However, Siska's rule is not applicable in the present,
limited context. As "purely a creature of statute," Wallace
v. Brumback, 177 Va. 36, 40, 12 S.E.2d 801, 802 (1941), a
mechanics' lien must be "perfected within the proper time and
in the proper manner, as outlined by the statute, [or] it is
lost." American Standard Homes Corp. v. Reinecke, 245 Va.
113, 119, 425 S.E.2d 515, 518 (1993) (internal quotation marks
omitted).
The Lenders are correct that both trustees and trust
beneficiaries to a deed of trust are necessary parties to a
mechanics' lien suit. See Bush, 243 Va. at 87, 412 S.E.2d at
704; Walt Robbins, 232 Va. at 47, 348 S.E.2d at 226. Although
Bush did not concern the question whether a beneficiary of a
13
trust indenture was a necessary party, its principles remain
clear: a party must name a beneficiary to the deed of trust
because that beneficiary has "a substantial interest in being
given the opportunity to challenge the validity of the
mechanic[s'] lien, or otherwise to litigate the elements of
the lien." 243 Va. at 88, 412 S.E.2d at 705. Because this
purpose is fulfilled by the deed of trust beneficiaries, it
follows that the beneficiaries of a trust indenture are not
necessary parties. As a named beneficiary of the Deed of
Trust and as a Trustee for the Bondholders, naming Glasser &
Glasser is sufficient to comply with the requirements of Bush.
Also, we note that there is little evidence supporting
the Lenders' contention that the Contractors were aware of the
Bondholders' identity or that the Contractors could have
inquired to determine it. The Trust Indenture states that
Reliance Trust Company would maintain in Georgia a bond
register containing names, addresses, bond numbers, and
amounts of purchase of all issued bonds. However, Reliance
had no obligation to keep the list accurate. ("[Reliance]
shall be under no responsibility with regard to the accuracy
of [the bond registration] list."). Nor could the Contractors
have obtained the information on the list without the express
written consent of another entity, California Plan of Church
Finance, Inc. Even without regard to the Bush precedent, the
14
Contractors could not be expected to accurately ascertain the
identity of bondholders under these circumstances. A rule to
the contrary would render compliance with the statute
effectively impossible.
C. Code § 43-4
1. The Ninety-Day Rule
In relevant part, Code § 43-4 provides:
A general contractor, or any other lien
claimant under §§ 43-7 and 43-9, in order to
perfect the lien given by § 43-3, provided such
lien has not been barred by § 43-4.01 C, shall
file a memorandum of lien at any time after the
work is commenced or material furnished, but not
later than 90 days from the last day of the
month in which he last performs labor or
furnishes material, and in no event later than
90 days from the time such building, structure,
or railroad is completed, or the work thereon
otherwise terminated.
Therefore, each contractor had ninety days from the end of the
last month in which it last performed labor or furnished
material to file a lien, unless work on the church was
complete or "otherwise terminated."
It is not disputed that as of the date of Jack Bays'
September 28, 2007 letter, the church was incomplete. Nor is
it disputed that Jack Bays recorded its lien on December 28,
2007. The Lenders allege that although work was not complete,
Jack Bays' September 28 letter "otherwise terminated" work on
the church, beginning the ninety-day filing limitation. If
15
this is true, then we must dismiss Jack Bays' suit: The
difference between September 28 and December 28 is ninety-one
days. If it is not, then Jack Bays earns the benefit of
starting the ninety-day clock on the last day of September,
two days later. Importantly, the difference between the last
day in September and December 28 is eighty-eight days.
Accordingly, in order for Jack Bays to have timely filed its
lien, its letter of September 28, 2007, cannot have operated
to "otherwise terminate[]" work on the church, as the Lenders
insist.
The Lenders cite to Mills v. Moore's Super Stores, Inc.,
217 Va. 276, 279, 227 S.E.2d 719, 722 (1976) and Northern
Virginia Savings and Loan Ass'n v. J.B. Kendall Co., 205 Va.
136, 135 S.E.2d 178 (1964), in support of their argument. In
the latter case, they allege, this Court found that a
contractor's work had "otherwise terminated" when work on the
project came to a "standstill" due to the property owner's
lack of financing and the contractor's failure to provide
labor or material to the job. See J.B. Kendall Co., 205 Va.
at 147-48, 135 S.E.2d at 186. The Lenders conclude that J.B.
Kendall Co. should apply here because work came to a
standstill after September 28, 2007.
Jack Bays argues that September 30, 2007, is the proper
date to use for the 90-day deadline imposed by Code § 43-4,
16
because the statute gives a claimant "90 days from the last
day of the month in which he last performs labor or furnishes
material." Jack Bays claims that Virginia law on the matter
is contrary to the Lenders' assertion; "the law provides that
all activity must have come to an end in order for the work to
be deemed terminated as of September 28, 2007[,] which plainly
did not occur here." See Mills, 217 Va. at 276, 227 S.E.2d at
719; J.B. Kendall Co., 205 Va. at 148, 135 S.E.2d at 187.
The Commissioner concluded that
[t]he Supreme Court has recognized that the 90-
day time period "begins to run from the time
the entire building is completed or work
thereon is otherwise terminated, and not
necessarily from the time the general
contractor has completed his specific contract
to furnish labor or materials, or both." [J.B.
Kendall Co., 205 Va. at 144, 135 S.E.2d at
184]. In light of the uncontroverted fact that
the building was never completed, and that
several subcontractors, such as Becker Electric
and Scaffold Resources, Inc. continued to work
on the Project in October, 2008, your
Commissioner finds that Jack Bays' lien does
not violate the 90-day rule.
The circuit court "agree[d] with the Commissioner that the
evidence established that Jack Bays properly used the last day
of September, 2007, to begin calculating the ninety-day filing
deadline."
We held in Mills that "otherwise terminated" under Code
§ 43-4 meant when work under the contract ceased. 217 Va. at
279, 227 S.E.2d at 722. There, the contract ceased upon the
17
combination of several factors: financial difficulties
encountered by the general contractor, uncontroverted evidence
that neither the general contractor nor any subcontractors
worked at the site after the termination date, and the owner's
firing of the general contractor. Id. Here, unlike in Mills,
work did not stop at the construction site; several
subcontractors remained and performed contract work through
October. Jack Bays also terminated its involvement in May
2008. Therefore, it cannot be said that "work [on the
structure was] otherwise terminated" under Code § 43-4, and
the circuit court was not plainly wrong in upholding the
Commissioner's ruling that Jack Bays complied with the ninety-
day rule.
2. The 150-day Rule
In relevant part, Code § 43-4 provides:
The lien claimant may file any number of
memoranda but no memorandum filed pursuant to
this chapter shall include sums due for labor or
materials furnished more than 150 days prior to
the last day on which labor was performed or
material furnished to the job preceding the
filing of such memorandum.
Accordingly, whether Jack Bays offered sufficient proof to
conform to the 150-day rule prescribed by Code § 43-4 is a
factual inquiry. If a claimant violates this rule, their
mechanics' lien is unenforceable. Carolina Builders Corp. v.
Cenit Equity Co., 257 Va. 405, 411, 512 S.E.2d 550, 553 (1999).
18
i. Does the Rule Provide for a Unitary Date
Range for all Contractors?
The Lenders first claim that the 150-day rule has a
unitary date range for all contractors.
As we stated in Carolina Builders, 257 Va. at 409, 512
S.E.2d at 551, the 150-day rule
specifies that "[t]he lien claimant may file any
number of memoranda but no memorandum . . .
shall include sums due for labor or materials
furnished more than 150 days prior to the last
day on which labor was performed or material
furnished to the job preceding the filing of
such memorandum."
Id. (quoting Code § 43-4) (emphasis added); see also Smith
Mt. Bldg. Supply, LLC v. Windstar Props., LLC, 277 Va. 387,
390-91, 672 S.E.2d 845, 846 (2009). The Lenders' argument
that the 150-day rule does not apply separately for each
claimant ignores the language of the statute, which plainly
states that the period is calculated according to the actions
of the lien claimant. Code § 43-4. Because time is
calculated in this fashion, it cannot be "unitary" for all
lien claimants.
ii. Propriety of the September 28, 2007 End Date
The Lenders allege that, even if the 150-day rule is not
unitary, Jack Bays failed to comply with the rule because it
used the wrong end date, September 28, 2007, from which it
looked back. Because the circuit court agreed with
19
Commissioner Zelnick's conclusion that Jack Bays complied with
the 150-day rule prescribed by Code § 43-4, the Lenders must
show that the decision was plainly wrong or without evidence
to support it. Amstutz, 268 Va. at 558, 604 S.E.2d at 441.
Jack Bays' Site Superintendent for the New Life project,
Steven Wise ("Wise"), supervised the work site during the
September-November 2007 period. The same day that Jack Bays
informed its subcontractors to cease work via mail and fax,
September 28, 2007, Wise began making phone calls to all
subcontractors to inform them that, per instructions from
Fuechsel, Jack Bays was "shut[ting active work on the project]
down." The afternoon of September 28, 2007, Wise made no
fewer than nine phone calls to various subcontractors,
explaining to them that Jack Bays was "demobilizing" and that
the subcontractors should not return to the work site the
following week and that if they did so, it would be at their
own risk.
Wise also vividly recounted his interaction with
subcontractors and efforts related to Jack Bays' work at the
site from October 1 through November 16, 2007, none of which
work involved labor performed "to the job" – that is,
construction of the church. Fuechsel's testimony supported
Wise's account. The Lenders offered no controverting
evidence, instead asserting that "value" was added to the
20
project through Jack Bays' labor after September 28, 2007, and
that this added value precluded Jack Bays from using September
28 as the end point for purposes of the 150-day rule.
The Lenders' arguments to both Commissioner Zelnick and
the circuit court on this issue were rejected. Although
several subcontractors added value to the project after
September 28, 2007, the Commissioner concluded that the same
was not true for Jack Bays.
This Court "look[s] at the commissioner's conclusions, as
approved by the circuit court, and determine[s] whether the
conclusions are supported by credible evidence." Amstutz, 268
Va. at 558, 604 S.E.2d at 441. Whether Jack Bays showed it
complied with the 150-day rule was a factual inquiry for
Commissioner Zelnick to decide. Based on the testimony of
Wise and Fuechsel, Jack Bays sufficiently demonstrated to the
Commissioner and the circuit court that the last day it
performed labor or furnished material to the job was September
28, 2007.
iii. Propriety of Fees Included in Jack Bays' Lien
Jack Bays must also show that it did not include in its
lien "sums due for labor or materials furnished" before May 2,
2007, the date 150 days prior to September 28, 2007. Code
§ 43-4.
21
The Lenders argue that Jack Bays' lien is invalid because
it includes sums for work performed prior to May 2, 2007, the
beginning of the 150-day period.
First, the Lenders claim that
[p]rior to May 1, 2007, Jack Bays had
clearly not billed New Life for all of the work
Miller Construction had performed to date. In
the following months, Jack Bays' requisitions
to New Life accounted for these previous
shortcomings, and thus included sums
attributable to work performed prior to May 1,
2007. Therefore, because the liens were based
on these later billings, they too included sums
for work done prior to May 1, 2007.
The Lenders offered the testimony of Thomas Chappell as
an expert witness in construction accounting to support their
argument before the Commissioner. Chappell testified that
between December 2006 and April 2007 Miller Construction
billed $424,624 to Jack Bays, and Jack Bays billed only
$327,362 to New Life for work that Chappell believed was
attributable to Miller Construction. Jack Bays subsequently
charged New Life amounts varying from the monthly value
invoiced to it by Miller Construction through July 2007.
According to Chappell, Jack Bays' May 2007 billing
appears to be a catch-up for the under-billing
in the prior months which would mean that costs
incurred, labor and materials incurred in the
prior period are now being drawn into the May
requisition by Jack Bays, which is also
included as part of the basis for the
mechanic[s'] lien.
22
It is true that Jack Bays invoiced New Life different
values for masonry work – Miller Construction's job – than
Miller Construction invoiced Jack Bays a month prior. Jack
Bays argues that the discrepancy exists because it billed New
Life under a stipulated sum agreement, rather than a cost-plus
contract. Semon Samaha ("Samaha"), the project architect,
described before the Commissioner the difference between the
two billings:
Well, the cost-plus is somewhat open-ended, I
mean the contractor is providing a fee
basically to do the work and then whatever
costs are incurred plus that fee is what the
owner pays, so part of the problem is trying to
determine which cue [sic] the costs go in. And
I know that one of the projects that we did a
while back, there was a dispute, for example,
about whether a saw that the contractor
purchased should be part of the cost or part of
the contractor's fee and whether it should have
just been a rental charge, and so it becomes
much more cumbersome, where a stipulated sum,
the amount is agreed upon ahead of time and
from then on, it's just based on how much of
the work gets done as a percentage of that
amount.
Chappell also acknowledged that differences exist between
stipulated sum agreements and cost-plus agreements.
Fuechsel, who qualified before the Commissioner as an
expert witness in commercial general contracting with a sub-
specialty in new church construction, testified that
requisitions were prepared around the 25th of each month and
projected through the end of that month. Jack Bays
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"reasonably assume[d]" progress made in various construction
areas as compared to the prior billing period, with the
percentage increase serving as the basis for the requisition.
This process is consistent with the April '06 Agreement and
the AIA A201-1997 General Conditions ("General Conditions")
incorporated therein. Fuechsel testified that subcontractor
billings were used to "confirm our percent complete at the
time of each monthly invoice." Additionally, all requisitions
were submitted to and approved by Samaha. Samaha could only
approve requisitions for payment based on the value of work
completed beyond the prior month's performance, not by a
subcontractor's individual billing.
Commissioner Zelnick was persuaded by Jack Bays'
argument, finding that its monthly requisitions "were not
formulated based on costs incurred from the subcontractors and
suppliers, but rather were the product of Jack Bays'
reasonable estimation of the value added to the project with
that billing period." He also found that Chappell's testimony
was unpersuasive due to the differences between his testimony
and the nature of a stipulated sum agreement. The circuit
court reviewed and accepted these findings without
qualification.
Whether Jack Bays proved that it did not include in its
lien Miller Construction's sums due prior to May 1 was a
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factual inquiry. Although the Lenders offered expert
testimony and cross examined Jack Bays' witnesses regarding
the relationship between subcontractor billings and Jack Bays'
requisitions, the Commissioner found that Jack Bays did not
include charges for Miller Construction's work in its lien.
The circuit court accepted these findings. Based upon the
record, we cannot say that these findings were plainly wrong
or without evidence to support them.
The Lenders also argue that the trial court erred in its
conclusion that no charges for labor or material provided
before May 2, 2007, were included in Jack Bays' lien.
Fuechsel testified regarding how Jack Bays calculated the
proper value for the 150-day period between May 2, 2007, and
September 28, 2007. This process involved using the
requisitions from May to September to ascertain the value of
the lien. However, because May 1, 2007, was included in the
May requisition but was not validly part of the lien, Fuechsel
stated that Jack Bays omitted this day from its calculation.
The company did so by taking the total number of work days in
May and dividing by the total amount invoiced to come up with
a per-day value of labor performed or materials furnished, and
then subtracted a per-day value in an effort to comply with
Code § 43-4.
Referring to May 1, Fuechsel testified:
25
Looking at the daily reports, there wasn't, you
know, it was kind of business as usual, it
wasn't a big delivery day, no major activities
or unusual activities happened, so we took the
number of work days in May, which was twenty-
one, divided it into the total May invoice, and
deleted what essentially mathematically came out
to one day. . . .
Commissioner Zelnick found that testimony on this point was
offered without contradiction. The circuit court concurred
with his assessment. This factual determination was not
plainly wrong or without evidence to support it.
Jack Bays sufficiently proved to both the Commissioner
and the circuit court that it did not include sums due for
labor provided or material furnished before May 2, 2007, nor
did it perform labor or furnish material after September 28,
2007. Accordingly, we hold that Jack Bays properly perfected
its lien under Code § 43-4.
It may appear inconsistent to use September 30, 2007, as
the relevant date from which to analyze Jack Bays' compliance
with Code § 43-4 for purposes of the 90-day calculation, and
September 28, 2007, as the relevant date from which to analyze
Jack Bays' compliance with Code § 43-4 for purposes of the
150-day calculation. These distinct dates are used because
Code § 43-4 provides that in the circumstances presented by
this case, the proper date to use when evaluating compliance
with the 90-day rule is the end of the relevant month where a
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contractor last works on a structure, when that structure is
not fully completed. The 150-day rule, on the other hand,
requires that courts calculate time based on when the
contractor last performs labor or furnishes material – not
necessarily at the end of a month.
3. Duty to Mitigate
The Lenders contend that Jack Bays was obligated to
mitigate its damages from May 25, 2007 onward, when New Life
made its last payment to the contractor. The Lenders also
argue that Jack Bays never requested assurances from New Life
that payments would be forthcoming, and instead accrued
millions in charges when it knew it would not receive payment.
Jack Bays notes that "[t]he failure to mitigate defense
asserted by [the Lenders] apparently has never been applied in
the mechanic[s'] lien context – the Lenders have been
challenged to produce such authority, but it has never been
forthcoming." It asserts that the defense is contractual in
nature, and that the Lenders have no grounds to assert the
mitigation defense because they were not parties to the
contract. During oral argument, counsel for Jack Bays also
argued that Code § 43-4 already contains a "mitigation-like"
provision, the 150-day rule, which limits the fees a lien
claimant may request. Finally, in the event the Lenders can
27
raise a mitigation defense, Jack Bays asserts that its actions
were reasonable under the circumstances.
Assuming without deciding that the Lenders may raise the
defense of failure to mitigate, Jack Bays took reasonable
measures under the circumstances. Specifically, Jack Bays
introduced during the Commissioner's hearing evidence stating
that in July 2007 New Life was in "final approval for a
$20,000,000.00 (Twenty Million Dollar) loan." It was also
uncontroverted that Bishop Reeves told Fuechsel that New Life
would pay for Jack Bays' prior, current, and future work in
early August 2007, and if not then, shortly thereafter. When
it became apparent that additional funding would not be
obtained, Jack Bays acted promptly and decisively. The
Commissioner and the trial court did not err in holding that
Jack Bays properly mitigated its damages.
Accordingly, the circuit court was not plainly wrong in
failing to rule that Jack Bays was required to mitigate its
damages.
4. Subcontractor Liens
The Lenders argue that if this Court determines that work
on the structure "otherwise terminated" on September 28, 2007,
then Scaffold Resource, Becker Electric, and United Sprinkler
were untimely in filing their liens on January 11, 22, and 29,
2008 respectively.
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Because we find that the circuit court was not plainly
wrong in concluding that work on the church did not terminate
on September 28, 2007, and because we have held that the
ninety-day deadline applies to each individual contractor,
rather than the group collectively, United Masonry Inc. of Va.
v. Riggs Nat'l Bank of D.C., 233 Va. 476, 479, 357 S.E.2d 509,
511 (1987) ("the [ninety-day] filing deadline [is] dependent
upon each contractor's own activity"), the validation of the
mechanics' liens of Scaffold Resource, Becker Electric, and
United Sprinkler was not plainly wrong or without evidence to
support it.
D. The Stipulation, Lien Priority, and Sale of Land
1. The Stipulation
The Lenders argue that at the January 2010 hearing before
Commissioner Zelnick, "all parties stipulated, and the
Commissioner ruled, that the hearing was confined to the issue
of the enforceability of the liens, and all other issues of
valuation and priority would be deferred to a subsequent
hearing." Relying on Bauer v. Harn, 223 Va. 31, 36, 286
S.E.2d 192, 194 (1982), they contend that "[s]tipulations are
definitive of the issues" and are binding. Unfortunately, the
Lenders omit from their argument that the Commissioner's
stipulation was contingent on future hearings being necessary.
29
The parties agreed that Commissioner Zelnick could
address issues of priority and valuation at the January 2010
hearing, and that those issues would be "deferred to a
subsequent hearing, if needed." The Commissioner reiterated
the conditional nature of future hearings on priority and
valuation by stating that a hearing on those matters would
occur only if necessary. For this reason, the stipulation did
not require that further hearings be held.
2. Lien Priority
The Lenders argue that no evidence concerning lien
priority was submitted to Commissioner Zelnick during the
five-day hearing. Consequently, they claim, the Commissioner
and circuit court were plainly wrong in determining that the
Contractors' liens had priority over the Lenders' Deed of
Trust.
Jack Bays argues that evidence of lien priority was
introduced. Various subcontractors claim that because Jack
Bays commenced its contract work on the church before the Deed
of Trust was recorded, "any mechanic[s'] liens arising out of
that contract take priority over the Lenders' Deed of Trust."
Commissioner Zelnick reviewed the validity of the liens
filed by each of the dozen-plus claimants and concluded that
"the Claimants' liens, with the exception of the lien filed by
Capital Contracting, are valid and enforceable, [and] have
30
priority over the . . . Deed of Trust." The Commissioner
reasoned that "[p]ursuant to Virginia Code § 43-23, there is
no priority among mechanic[s'] liens, 'except that the lien of
a subcontractor shall be preferred to that of his general
contractor. . . .' " Accordingly, the Commissioner gave
priority to subcontractor liens over Jack Bays' lien, and gave
priority to Jack Bays' lien over the Lenders' lien. See Code
§ 43-23.
In relevant part, Code § 43-21 states that
[n]o lien or encumbrance upon the land created
before the work was commenced or materials
furnished shall operate upon the building or
structure erected thereon, or materials
furnished for and used in the same, until the
lien in favor of the person doing the work or
furnishing the materials shall have been
satisfied; nor shall any lien or encumbrance
upon the land created after the work was
commenced or materials furnished operate on the
land, or such building or structure, until the
lien in favor of the person doing the work or
furnishing the materials shall have been
satisfied.
Of course, a "lien" or "encumbrance" upon land may include a
deed of trust. See Bayview Loan Servicing, LLC v. Simmons,
275 Va. 114, 119, 654 S.E.2d 898, 900 (2008); see also
Woodington Electric, Inc. v. Lincoln Sav. & Loan Ass'n, 238
Va. 623, 630, 385 S.E.2d 872, 875 (1989) ("the mechanic[s']
lien 'leaps to the head of the class,' coming before virtually
every other lien."). With the possible exception of priority
31
concerning the land (discussed infra), the Commissioner was
not plainly wrong or without evidence to support his
determination concerning priority.
3. Sale of the Land
The Lenders also assert that, under Code § 43-3, a
mechanics' lien applies only to " 'so much land therewith as
shall be necessary for the convenient use and enjoyment
thereof.' " See Code § 43-3. They maintain that there was
"no basis for suggesting th[at] all of the land is necessary
for the use and enjoyment of the improvements." They argue
that "[i]n the case of the property at issue, the uncompleted
church sits on approximately 22 acres of land. The
uncompleted structure accounts for only 125,000 square feet
(or 2.8 acres)."
Jack Bays suggests that objections to the sale of the
entire parcel of land were not preserved. At the hearing on
exceptions to the Commissioner's report, counsel for Citizens
Business Bank stated to the circuit court, "I don't see how
the property can be sold at this point because it is clear
from the record that the way the hearing proceeded, those
issues were not determined, and by agreement they were not
determined. They were deferred." The question of objection
to the sale of the entire parcel was adequately preserved.
32
Because of the significant total sum of the mechanics'
liens, Commissioner Zelnick determined that a sale of the land
was necessary to satisfy the liens. See Code § 43-3. The
Commissioner stated that proceeds remaining after the sale and
satisfaction of the liens would be payable to New Life.
Code § 43-3(A) states as relevant here that
[a]ll persons performing labor or furnishing
materials of the value of $150 or more,
including the reasonable rental or use value of
equipment, for the construction, removal, repair
or improvement of any building or structure
. . . shall have a lien . . . upon such building
or structure, and so much land therewith as
shall be necessary for the convenient use and
enjoyment thereof.
(emphasis added).
Commissioner Zelnick recommended the sale of the twenty-
two acre property because there were liens totaling
approximately $32,360,000, and sale of the entire parcel was
necessary to pay all of the liens. However, not all of these
liens were mechanics' liens. Additionally, sale of the
property to satisfy a mechanics' lien may only extend to "so
much [of the] land therewith as shall be necessary for the
convenient use and enjoyment thereof." Code § 43-3. The
record does not reflect evidence presented on this question.
Sale of the entire property may or may not be proper.
Determination of this question may affect priority
determination as it applies to the land.
33
III. Conclusion
For the reasons stated, we hold that on this record,
Commissioner Zelnick and the circuit court erred in approving
the sale of the entire parcel of land to satisfy the
Contractors' liens, where no evidence was introduced to
support this decision. Accordingly, we will affirm in part
and reverse in part the judgment of the circuit court and
remand for further proceedings consistent with this opinion.
Affirmed in part,
reversed in part,
and remanded.
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