Borst Brothers Construction, Inc. v. Thomas Dostal Developers, Inc.

IN THE COURT OF APPEALS OF IOWA
No. 20-0972
Filed August 18, 2021
BORST BROTHERS CONSTRUCTION, INC.,
Plaintiff-Appellee,
vs.
FINANCE OF AMERICA COMMERCIAL, INC.,
Defendant-Appellant.
________________________________________________________________
FINANCE OF AMERICA COMMERCIAL, INC.,
Plaintiff-Appellant/Cross-Appellee
vs.
THOMAS DOSTAL DEVELOPERS, INC., and RANDY T. DOSTAL,
Appellees/Cross-Appellants.
and
KELLY CONCRETE COMPANY, INC., AFFORDABLE HEATING AND
COOLING, INC., 5 STAR PLUMBING, INC., and BORST BROTHERS
CONSTRUCTION, INC.,
Defendants-Appellees.
________________________________________________________________
BORST BROTHERS CONSTRUCTION, INC.,
Plaintiff-Appellee
vs.
FINANCE OF AMERICA COMMERCIAL, LLC,
Defendant-Appellant.
________________________________________________________________
2
FINANCE OF AMERICA COMMERCIAL, LLC,
Plaintiff-Appellee
vs.
THOMAS DOSTAL DEVELOPERS, INC., and RANDY T. DOSTAL
Defendants-Appellants
and
KELLY CONCRETE COMPANY, INC., DARNELL HOLDINGS, LLC d/b/a
DARNELL CONSTRUCTION, AFFORDABLE HEATING AND COOLING, INC.,
5 STAR PLUMBING, INC., BORST BROTHERS CONSTRUCTION, INC., and
KEN-WAY EXCAVATING SERVICE, INC.,
Defendants-Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Linn County, Mary E. Chicchelly,
Judge.
Finance of America Commercial, LLC appeals the district court’s trial ruling
and award of attorney fees. Thomas Dostal Developers, Inc., and Randy T. Dostal
cross-appeal the district court’s trial ruling and award of attorney fees. AFFIRMED
IN PART AND REVERSED IN PART ON APPEAL; AFFIRMED ON CROSS-
APPEAL.
John F. Fatino of Whitfield & Eddy, P.L.C., Des Moines, for appellant
Finance of America Commercial, LLC.
Matthew L. Preston, David T. Meyers (until withdrawal), and Brad J. Brady
of Brady Preston Gronlund PC, Cedar Rapids, for appellee Borst Brothers
Construction, Inc.
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S.P. DeVolder of The DeVolder Law Firm, P.L.L.C, Norwalk, for
appellees/cross-appellants.
William H. Roemerman of Elderkin & Pirnie, P.L.C, Cedar Rapids, for
appellee Kelly Concrete Co., Inc.
Heard by Vaitheswaran, P.J., Schumacher, J., and Blane, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206
(2021)
4
VAITHESWARAN, Presiding Judge.
This appeal and cross-appeal from consolidated foreclosure actions raises
issues of lien validity and priority, guarantor liability, attorney fees, hearsay, and
notice.
Thomas Dostal Developers, Inc. (Dostal Developers) obtained five
commercial loans from Finance of America Commercial, LLC (FAC) in connection
with a residential construction project in Cedar Rapids, Iowa, known as “Hawks
Point, Seventh Addition.” The loans were guarantied by Randy Dostal and were
secured by mortgages on specified real estate. FAC stipulated that the mortgages
were executed on November 10, 2017, and recorded on November 13, 2017. In
time, FAC notified Dostal Developers that the company had defaulted on the loans.
Dostal Developers did not cure the defaults, and FAC filed suit on the notes and
guaranties and sought foreclosure of the mortgages.
Meanwhile, Dostal Developers contracted with Borst Bros. Construction,
Inc. (Borst) to furnish labor and materials. Borst worked from July 3, 2017, through
December 19, 2017. Borst posted a statutory notice of commencement of work to
the Iowa Mechanic’s Notice and Lien Registry (MNLR) on February 2, 2018, and
a statutory preliminary notice on November 8, 2018. Borst then filed a petition to
foreclose its mechanic’s lien in the amount of $143,316.59 and for attorney fees.
FAC moved to dismiss the petition for failure to state a claim. The district court
denied the motion. The action was consolidated with FAC’s action.
Dostal Developers also contracted with Kelly Concrete Co., Inc. (Kelly) to
furnish labor and services. Kelly began providing services in September 2017,
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and its final work day was January 15, 2018.1 Kelly filed its notice of
commencement of work and a preliminary notice on February 1, 2018. Kelly was
named in FAC’s and Borst’s lawsuits. The company filed answers, cross-claims,
and counterclaims seeking an in rem judgment of $39,236.21, foreclosure of its
mechanic’s liens, and “first priority” superior to the liens of other parties. Kelly also
sought attorney fees.
FAC filed a motion for summary judgment, asserting Borst could not “lien
for work performed prior to the posting of the [n]otice of [c]ommencement” and, if
the liens were valid, they were “junior and inferior” to its mortgages. The district
court denied the motion. Following a bench trial, the court concluded FAC was
“not required to provide any notice to Dostal Developers of Default before
accelerating the balances due and owing” but did so nonetheless. The court
further concluded FAC was “entitled to enforce and foreclose on its five promissory
notes and mortgages.” The court next addressed Borst’s mechanic’s liens and
concluded they were “superior in priority to FAC’s mortgages.” With respect to
Kelly, the district court found the company was “entitled to enforce” its mechanic’s
liens against four lots.2 The court concluded Kelly’s mechanic’s liens were superior
to Borst’s because they were posted earlier. The court declined to hold Randy
Dostal individually liable under the guaranty agreements. The court later granted
1 Although December 19, 2017, was listed as the last date Kelly generated an
invoice, the record contains evidence that Kelly had workers at the site on January
15, 2018, if only for “a couple hours.” The district court adopted the January 15,
2018 date. FAC does not challenge the court’s finding.
2 The court concluded Kelly could not enforce its mechanic’s lien on a fifth lot
because no notice of commencement with respect to that lot appeared on the
MNLR.
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Borst attorney fees in the amount of $89,843.50, Kelly attorney fees of $30,997.44,
and FAC attorney fees of $39,869.62. FAC appealed both rulings. Dostal
Developers and Randy Dostal cross-appealed.
I. Validity and Priority of Mechanic’s Liens
A general contractor or owner-builder who has contracted or will contract
with a subcontractor “shall” post a notice of commencement of work to the MNLR
within ten days of commencement of work on the property. See Iowa Code
§ 572.13A(1) (2018).3 If a general contractor or owner-builder fails to post the
notice within the prescribed time frame, “a subcontractor may post the notice in
conjunction with the filing of the required preliminary notice pursuant to section
3
The provision states in full:
1. Either a general contractor, or an owner-builder who has
contracted or will contract with a subcontractor to provide labor or
furnish material for the property, shall post a notice of
commencement of work to the mechanics’ notice and lien registry
internet site no later than ten days after the commencement of work
on the property. A notice of commencement of work is effective only
as to any labor, service, equipment, or material furnished to the
property subsequent to the posting of the notice of commencement
of work.
Iowa Code § 572.13A(1).
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572.13B.”4 Id. § 572.13A(2). Subcontractors must identify themselves on the
MNLR by filing a “preliminary notice.” Id. § 572.13B(1).5
FAC reads these provisions to mean that a subcontractor must post a notice
of commencement of work within ten days of beginning work on a project and “work
performed by the subcontractor prior to the posting of the notice of commencement
is not subject to any subsequent mechanic’s lien even if the subcontractor later
posts a preliminary notice.” FAC asserts “no lien claimant posted to the MNLR a
notice of commencement, preliminary notice or lien within 10 days of
commencement of the work on the properties” and “no lien claimant posted to the
MNLR a notice of commencement or preliminary notice within 10 days of the
commencement of its own work.” In its view, “[b]y filing their Notices of
Commencement long after the 10-day period, Borst and Kelly failed to comply with
section 572.13A, and prohibited any opportunity to perfect mechanic’s liens.” A
plain reading of these provisions leads us to a different conclusion.
4
The provision states in full:
2. If a general contractor or owner-builder fails to post the
required notice of commencement of work to the [MNLR] internet
website pursuant to subsection 1, within ten days of commencement
of the work on the property, a subcontractor may post the notice in
conjunction with the filing of the required preliminary notice pursuant
to section 572.13B. A notice of commencement of work must be
posted to the mechanics’ notice and lien registry internet website
before preliminary notices pursuant to section 572.13B may be
posted.
Iowa Code § 572.13(A)(2).
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The provision states:
1. A subcontractor shall post a preliminary notice to the
mechanics’ notice and lien registry internet website. A preliminary
notice posted before the balance due is paid to the general contractor
or the owner builder is effective as to all labor, service, equipment,
and material furnished to the property by the subcontractor.
Iowa Code § 572.13B(1) (emphasis added).
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Section 572.13A(1) requires the general contractor/owner-builder—not the
subcontractor—to post a notice of commencement of work within ten days of the
commencement of work. Section 572.13A(2) allows a subcontractor to make the
posting if the general contractor/owner-builder does not. A subcontractor would
have every incentive to do so because the posting is a prerequisite to its posting
of a preliminary notice and, critically, the posting of a preliminary notice is a
prerequisite to enforcement of a mechanic’s lien. See Iowa Code § 572A.13A(2),
(4).
In terms of a subcontractor’s timing of notices, the subcontractor might not
know whether the general contractor/owner-builder satisfied its obligation to post
the notice of commencement of work until after the ten-day period set forth in
section 572A.13A(1) expires. The subcontractor’s first opportunity to post its
notice of commencement would be on the eleventh day after commencement of
work. As for the preliminary notice, the statute imposes no obligation on the
subcontractor to post that notice within ten days of commencing work. The only
time limit specified in the statute is posting before the balance due is paid to the
general contractor. See id. § 572.13B(1).
The district court read the statute as we have and then applied the statute
as follows:
Borst started to perform labor and/or materials on July 3, 2017
and the last day Borst furnished labor and/or materials was on
December 19, 2017. Based on Borst Exhibit 2, the Court concludes
that Borst filed its Notice of Commencement on February 2, 2018
when it filed its Mechanic’s Lien and filed its Preliminary Notice on
November 8, 2018. Due to Dostal never selling the lots at issue, the
Court concludes that Borst posted its Preliminary Notice before the
balance was due to Dostal Developers. The Court finds that Borst
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complied with the filing and timing requirements of a subcontractor
pursuant to Iowa Code §§ 572.13A and 572.13B.
....
The Court concludes that January 15, 2018 was the correct
last date of furnished labor and materials on Lot 6, 7, and 8 [as to
Kelly]. Kelly complied with the requirements pursuant to Iowa Code
§§ 572.13A and 572.13B for Lots 5, 6, 7, and 8 by filing the notices
of commencement and preliminary notices. The Court finds that
Kelly is entitled to enforce its mechanic’s liens against Lots 5, 6, 7,
and 8 in this matter.
We discern no error in the district court’s interpretation of Iowa Code section
572.13. On our de novo review, we further conclude the court’s findings of fact
and application of law to fact are supported by the record and are equitable. See
Standard Water Control Sys., Inc. v. Jones, 938 N.W.2d 651, 656 (Iowa 2020)
(reviewing issues of statutory interpretation and construction on error but normally
reviewing validity of mechanic’s lien de novo).
FAC also takes issue with the district court’s decision to prioritize the
mechanic’s liens over its mortgage liens. FAC notes that it recorded mortgages
between November 10, 2017, and December 20, 2017, “[y]et each and every
Notice of Commencement was posted to the MNLR after December 20, 2017.”
Iowa Code section 572.18(1) states:
1. Mechanics’ liens posted by a general contractor or
subcontractor within ninety days after the date on which the last of
the material was furnished or the last of the claimant’s labor was
performed and for which notices were properly posted to the
mechanics’ notice and lien registry internet website pursuant to
sections 572.13A and 572.13B shall be superior to all other liens
which may attach to or upon a building or improvement and to the
land upon which it is situated, except liens of record prior to the time
of the original commencement of the claimant’s work or the
claimant’s improvements, except as provided in subsection 2.6
6 Iowa Code section 572.18(2) states:
Construction mortgage liens shall be preferred to all
mechanics’ liens of claimants who commenced their particular work
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(Emphasis added.) Under this provision, “[a] mechanic’s lien may enjoy priority
over another lien if the work for which it is filed was commenced before the
competing lien was recorded.” Dewitt Bank & Tr. Co. v. Monarch Dev. Co., No.
98-1921, 2000 WL 328040, at *2 (Iowa Ct. App. Mar. 29, 2000); see also Metro.
Fed. Bank of Iowa v. A.J. Allen Mech. Contractors, Inc., 477 N.W.2d 668, 671
(Iowa 1991) (“The lien arises on the day work commences under the contract, and
attaches for all services and materials furnished.”); Nw. Nat’l Bank of Sioux City v.
Metro Ctr., Inc., 303 N.W.2d 395, 398 (Iowa 1981) (“[T]he mechanic’s lien arises
upon furnishing of labor or material; not upon its filing.”).
As discussed above, Borst and Kelly began their work in July and
September 2017 respectively, well before FAC recorded its mortgages. A plain
reading of section 572.18(1) affords the mechanic’s lien holders priority over FAC.
We discern no error in the district court’s interpretation of the statute, and on our
de novo review we conclude the court acted equitably in granting the liens of Borst
and Kelly priority over the mortgages of FAC. We further conclude the court did
not err in granting Kelly’s liens on the four lots priority over Borst’s liens. See Iowa
Code §§ 572.8, .17.
or improvement subsequent to the date of the recording of the
construction mortgage lien. For purposes of this section, a lien is a
“construction mortgage lien” to the extent that it secures loans or
advancements made to directly finance work or improvements upon
the real estate which secures the lien.
(Emphasis added.)
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II. Guaranty Agreements
FAC contends, “Randy Dostal personally guarant[i]ed five commercial
mortgage loans FAC[] made to Dostal Developers by signing five guarant[ie]s
associated with the loans.” In its view, “The district court . . . erred in holding that
Randy Dostal is not personally liable under the Guaranties.”
“[A] guaranty is a contract by one person to another person for the fulfillment
of a promise of a third person.” City of Davenport v. Shewry Corp., 674 N.W.2d
79, 86 (Iowa 2004) (alteration in original) (quoting Andrews & Co. v. Tedford, 37
Iowa 314, 316 (1873)); see also Rabo AgServices, Inc. v. Dallas Collins Farm
P’ship, No. 07-1547, 2009 WL 139496, at *2 (Iowa Ct. App. Jan. 22, 2009). “The
extent of a guarantor’s obligation must be determined from the parties’ written
contract.” Rabo, 2009 WL 13946, at *2.
As noted, Randy Dostal served as “Guarantor” on the loans made by FAC
to Dostal Developers. “Thomas Dostal Developers Inc.” was defined as the
“Borrower.” The contract stated Randy Dostal would “jointly and severally,
unconditionally, absolutely and irrevocably guarantee, for the benefit of each and
every present and future holder or holders of the Note . . . the full and prompt
payment to the Obligees at maturity . . . of the indebtedness of the Borrower . . .
under and pursuant to the Mortgage.” Dostal signed four of the five agreements
individually, and the fifth listed him as guarantor and was signed individually by
Thomas Dostal. These signatures stand in stark contrast to the mortgage
agreements, which Randy Dostal signed as president of Thomas Dostal
Developers. The language and the signatures unambiguously establish Randy
Dostal’s intent to serve as personal guarantor of the loans extended to Dostal
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Developers. See Nat’l Loan Investors, L.P. v. Martin, 488 N.W.2d 163, 168 (Iowa
1992) (concluding the defendant signed the guaranty and personally guarantied
the debts according to the terms of the guaranty); Builders Kitchen & Supply Co.
v. Moyer, No. 09-0194, 2009 WL 2951295, at *3–4 (Iowa Ct. App. Sept. 2, 2009)
(concluding an application for credit “expressly bound [the defendant] in both his
representative and his individual capacities” and noting a contrary conclusion
would “negate” the “language in the agreement” (citations omitted)). We conclude
it was error to absolve Randy Dostal of personal liability on the loans. We reverse
the district court’s order finding the guaranty agreements unenforceable against
Randy Dostal individually.
III. Attorney Fees
Iowa Code section 572.32(1) allows a prevailing party in a mechanic’s lien
action to recover “reasonable attorney fees.” See Iowa Code § 572.32(1);
Standard Water, 938 N.W.2d at 657. Fee awards are discretionary. Star Equip.,
Ltd. v. State, Iowa Dep’t of Transp., 843 N.W.2d 446, 463 (Iowa 2014). FAC
contends, “Should this Court vacate the lien positions of Borst and Kelly . . . the
underlying award of attorney fees to Borst and Kelly should be vacated as well.”
Having affirmed their lien positions, we also affirm the attorney fee awards.
On cross-appeal, Dostal Developers and Randy Dostal challenge the
district court’s award of attorney fees to FAC. They argue that FAC should not
have prevailed on the mortgage foreclosure claim and the arrearage claims. But
FAC did prevail on the mortgage foreclosure claims, and, as FAC asserts, proving
the guaranty claims required scant additional effort. Accordingly, we conclude the
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district court did not abuse its discretion in awarding fees to FAC and in declining
to reduce the requested amount at Dostal’s request.
IV. Cross Appeal—Admission of Hearsay Evidence
On cross-appeal, Dostal Developers and Randy Dostal argue the district
court improperly admitted hearsay evidence to prove the amounts owing on the
FAC notes. Our review is for errors of law. GE Money Bank v. Morales, 773
N.W.2d 533, 536 (Iowa 2009).
“Hearsay is an out-of-court statement offered in court by a person other than
the declarant to prove the truth of the matter asserted.” Id. at 538 (citing Iowa R.
Evid. 5.801(c)). The documents FAC sought to introduce were five letters
identified as payoff statements prepared two weeks before trial and addressed but
never sent to Thomas Dostal Developers, Inc. FAC appears to concede the
documents were hearsay but argues the documents fell within the business
records exception to the hearsay rule. See Iowa R. Evid. 5.803(6). The
foundational elements for admission of a document under that exception are:
(1) That it is a business record;
(2) That it was made at or near the time of an act;
(3) That it was made by, or from information transmitted by, a
person with knowledge;
(4) That it was kept in the course of a regularly conducted
business activity;
(5) That it was the regular practice of that business activity to
make such a business record.
State v. Reynolds, 746 N.W.2d 837, 841 (Iowa 2008) (quoting Beachel v. Long,
420 N.W.2d 482, 484 (Iowa Ct. App. 1988)).
Assuming without deciding that the documents did not fall within the
business records exception, admission of them was non-prejudicial because the
14
same evidence entered the record through other means. State v. Hildreth, 582
N.W.2d 167, 170 (Iowa 1998). Specifically, an FAC witness testified without
objection to the figures contained in the documents before the documents were
offered or admitted.
V. Cross-Appeal—Notices—Judgment on the Foreclosure Claim
Dostal Developers contends FAC “failed to accord [it] with adequate-and
contractually required-notice of the default (as well as the subsequent
acceleration) and let alone accord [it] the required post-notice period to either
contest or cure the default.” After examining the contract language, the district
court concluded otherwise. We discern no error in the court’s conclusion that FAC
was not contractually obligated to furnish notice. We further find support for the
court’s statement that FAC provided notice nonetheless.
V. Disposition
We affirm the district court’s judgment of foreclosure in favor of FAC. We
affirm the district court’s enforcement of Borst’s mechanic’s liens and the court’s
conclusion that they have priority over FAC’s mortgages. We affirm the district
court’s enforcement of Kelly’s mechanic’s liens and the court’s conclusion that they
are superior to Borst’s mechanic’s liens. We affirm the attorney fee awards in favor
of Borst, Kelly, and FAC. We reverse the district court’s conclusion that the
guaranty agreements are unenforceable against Randy Dostal individually.
AFFIRMED IN PART AND REVERSED IN PART ON APPEAL;
AFFIRMED ON CROSS-APPEAL.