Dck Worldwide Holdings Inc. v. CH S

August 4 2015
DA 14-0602
Case Number: DA 14-0602
IN THE SUPREME COURT OF THE STATE OF MONTANA
2015 MT 225
dck WORLDWIDE HOLDINGS INC.,
Cross-Claim Plaintiff and Appellee,
v.
CH SP ACQUISITION LLC,
Cross-Claim Defendant and Appellant.
APPEAL FROM: District Court of the Eighteenth Judicial District,
In and For the County of Gallatin, Cause No. DV 09-1023 AX
Honorable David Cybulski, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Randy J. Cox, Thomas J. Leonard, Boone Karlberg P.C.; Missoula,
Montana
For Appellee:
Dorie Benesh Refling, Jessica Penkal Hodges, Benjamin L. Refling,
Refling Hodges Law Group PLLC; Bozeman, Montana
Kellie M. Sironi, Attorney at Law; Billings, Montana
Submitted on Briefs: May 27, 2015
Decided: August 4, 2015
Filed:
__________________________________________
Clerk
Justice Jim Rice delivered the Opinion of the Court.
¶1 CH SP Acquisition LLC (CHSP) appeals from an order entered by the Eighteenth
Judicial District Court, Gallatin County, granting summary judgment in favor of dck
Worldwide Holdings, Inc. (Worldwide). We reverse and remand for entry of summary
judgment in favor of CHSP.
¶2 We address the following issues on appeal:
¶3 1. Did the District Court err by concluding that the unpaid portion of the
contractor’s fee was lienable as a matter of law?
¶4 2. Did the District Court err by concluding that the subcontractor’s fee was
lienable as a matter of law?
FACTUAL AND PROCEDURAL BACKGROUND
¶5 On August 24, 2007, Dick Construction Company (Dick), predecessor in interest
to Worldwide, entered into a cost-plus contract with Spanish Peaks Lodge, LLC (Spanish
Peaks) to serve as the general contractor for the construction of Spanish Peaks Lodge
Resort (Resort) near Big Sky. Pursuant to the contract, Spanish Peaks was to reimburse
Dick for the actual costs of construction plus a contractor’s fee of 5% of the total cost of
the project and 5% on self-performed work. The parties capped the total price for the
Resort at $130,483,926, which resulted in a contractor’s fee of $6,915,195. Under the
terms of the contract, Spanish Peaks was to pay the contractor’s fee in installments as the
work progressed, and Dick was entitled to the entire fee in the event the contract was
terminated, based upon an estimate of the cost of the work that remained to be completed.
To bankroll the project, Spanish Peaks procured financing through Citigroup Global
2
Markets Realty Corp. (Citigroup), predecessor in interest to CHSP, and Citigroup took a
$130 million mortgage against all of Spanish Peaks’ development property, including the
Resort.
¶6 In the fall of 2008, during the economic recession, Spanish Peaks suspended work
and ceased making the requisite payments to Dick in breach of the parties’ contract. By
that point, Dick had invoiced approximately $21 million to Spanish Peaks in materials
and labor and had been paid $1,438,968 of the total $6,915,195 contractor’s fee. Spanish
Peaks thus owed Dick the unpaid portion of the contractor’s fee, or $5,476,277, under the
terms of the contract. Spanish Peaks thereafter filed for Chapter 7 bankruptcy, and the
Resort was never finished.
¶7 Dick filed a construction lien claiming the amount of $10,500,000. Included in the
lien was the unpaid portion of the contractor’s fee as well as the amount Dick owed to a
subcontractor, Allied Steel, Inc. (Allied Steel), in the amount of $661,767. Allied Steel
also filed its own construction lien for unpaid services and materials.
¶8 Allied Steel initiated this action against Spanish Peaks, Dick, and Citigroup
seeking foreclosure of its construction lien, a money judgment, and a determination of
priority.1 Dick filed a cross-claim against Citigroup likewise seeking a determination of
priority.
¶9 Allied Steel, Spanish Peaks, and Dick entered into a settlement agreement. The
agreement provided a full and final settlement of Allied Steel’s claims against Dick and
Spanish Peaks. The agreement provided for Spanish Peaks to pay $500,000 to Dick and
1
Numerous other parties had also filed liens on the project and were named in the action.
3
for Dick to then pay the $500,000 to Allied Steel. In consideration for the compensation,
Allied Steel released and relinquished all claims against Dick and Spanish Peaks. Allied
Steel assigned all of its claims against Dick and Spanish Peaks to Dick. Allied Steel was
then dismissed from the action.
¶10 Thereafter, Worldwide purchased the assets of Dick, including Dick’s lien, at a
public auction and CHSP purchased the mortgage. Consequently, Worldwide and CHSP
became the real parties in interest to this action.
¶11 On April 24, 2013, the District Court issued an order concluding that Worldwide’s
construction lien had priority over CHSP’s mortgage. However, the court noted “the
dollar amount that is the basis of the lien is legitimately in dispute.” The court granted
summary judgment with respect to priority, but denied summary judgment with respect to
the amount of Worldwide’s lien.
¶12 On November 5, 2013, CHSP and Worldwide reached a partial settlement,
memorialized in a second settlement agreement. Under the terms of the second
agreement, Worldwide was paid $2.7 million, and Worldwide released all claims against
CHSP, except for its claims concerning its right to lien the unpaid contractor’s fee and the
amount of Allied Steel’s subcontractor’s lien. On those issues, Worldwide and CHSP
filed cross-motions for summary judgment. The District Court granted Worldwide’s
motion, concluding that the unpaid portion of the contractor’s fee and the subcontractor’s
fee were both secured by Worldwide in the amount of $5,476,277 and $661,767,
respectively, and lienable as a matter of law.
¶13 CHSP appeals.
4
STANDARD OF REVIEW
¶14 We review a district court’s ruling on a motion for summary judgment de novo,
applying the same criteria of M. R. Civ. P. 56 as the district court. Steichen v. Talcott
Props., LLC, 2013 MT 2, ¶ 7, 368 Mont. 169, 292 P.3d 458. Summary judgment is
appropriate when “the pleadings, the discovery and disclosure materials on file, and any
affidavits show that there is no genuine issue as to any material fact and that the movant
is entitled to judgment as a matter of law.” M. R. Civ. P. 56(c)(3).
¶15 The district court’s interpretation of a statute is a matter of law, which we review
de novo to determine whether the court’s interpretation is correct. State v. Weaver, 2008
MT 86, ¶ 10, 342 Mont. 196, 179 P.3d 534.
DISCUSSION
¶16 1. Did the District Court err by concluding that the unpaid portion of the
contractor’s fee was lienable as a matter of law?
¶17 A construction lien, formerly known as a mechanic’s lien, is “‘a creature of
statute, remedial in nature, with its foundation in equity and natural justice.’” Matos v.
Rohrer, 203 Mont. 162, 174, 661 P.2d 443, 450 (1983) (quoting Beck v. Hanson, 180
Mont. 82, 87, 589 P.2d 141, 144 (1979)). Under the lien statutes, “it is not the contract
for erecting or repairing the building which creates the lien, but it is the use of the
materials furnished and the work and labor expended by the contractor . . . .” Smith v.
Gunniss, 115 Mont. 362, 375, 144 P.2d 186, 189 (1944) (citing Van Stone v. Stillwell &
Bierce Mfg. Co., 142 U.S. 128, 134, 12 S. Ct. 181, 183); see also Hammer v. Chapin, 256
F. Supp. 818, 819-820 (D. Mont. 1966).
5
¶18 The statutes governing construction liens are codified in Title 71, chapter 3, part 5
of the Montana Code Annotated. Section 71-3-526(1), MCA, entitles a “person who has
furnished services or materials pursuant to a real estate improvement contract” to a
construction lien for the “unpaid part of the person’s contract price.” In turn, § 71-3-522,
MCA, defines “contract price” as the “amount agreed upon by the contracting parties for
performing services and furnishing materials covered by the contract, increased or
diminished by: (i) the price of change orders or extras; (ii) any amounts attributable to
altered specifications; or (iii) a breach of contract, including but not limited to defects in
workmanship or materials.”
¶19 CHSP challenges the District Court’s conclusion that the unpaid portion of the
contractor’s fee was lienable. CHSP offers that it is an undisputed fact that the unpaid
fee represents compensation for “work not actually performed,” and argues that only
“profit and overhead on work actually performed” is lienable under § 71-3-522, MCA,
reasoning that this interpretation is “consistent with the underlying historical purpose of
the construction lien statutes to compensate those who have made actual improvements to
real property.” (Emphasis in original.) 2
¶20 Worldwide counters that CHSP misinterprets the construction lien statutes and
mischaracterizes the unpaid fee. Citing the language in § 71-3-526, MCA, entitling a
2
While § 71-3-522, MCA, speaks in terms of “services” and “materials,” CHSP makes no
argument that profits are beyond the scope of the statute. Instead, CHSP presupposes that profits
are included within the terms “services” and “materials” and thus are properly lienable so long as
the services and materials concomitant with the profits are lienable, although this is not explicitly
stated within the text of § 71-3-522, MCA. We note that at least one authority takes the position
that “[o]n a cost-plus contract, only the cost of labor and materials qualifies for lien purposes
because the statute makes no provision for profits on this type of contract.” 56 C.J.S.
Mechanics’ Liens § 198 (2007). Nonetheless, we address the issues here as argued.
6
contractor “to a lien for the unpaid part of the person’s contract price,” Worldwide argues
that the law “unambiguously entitles [it] to secure its entire unpaid contract price with its
lien.” Worldwide offers that the “unpaid part of the parties’ contract price dictates the
lien amount” and that “the contract price is controlling.” Worldwide also argues that,
contrary to CHSP’s statement that it is undisputed that the unpaid contractor’s fee was for
unperformed work, Worldwide has “never agreed the Fee was for work not performed,”
and that the record establishes that the fee compensated Dick for the services it did
provide on the project.
¶21 We construe a statute by “reading and interpreting the statute as a whole, ‘without
isolating specific terms from the context in which they are used by the Legislature.’”
State v. Triplett, 2008 MT 360, ¶ 25, 346 Mont. 383, 195 P.3d 819 (quoting Mont. Sports
Shooting Ass’n v. State, 2008 MT 190, ¶ 11, 344 Mont. 1, 185 P.3d 1003). “Statutory
construction is a ‘holistic endeavor’ and must account for the statute’s text, language,
structure, and object.” Stockman Bank of Mont. v. Mon-Kota, Inc., 2008 MT 74, ¶ 31,
342 Mont. 115, 180 P.3d 1125 (citing State v. Heath, 2004 MT 126, ¶ 24, 321 Mont. 280,
90 P.3d 426) (internal brackets omitted). The duty of this Court is to “read and construe
each statute as a whole” so that we may “give effect to the purpose of the statute.”
Triplett, ¶ 25 (internal quotations omitted).
¶22 In light of Worldwide’s argument that it is entitled to broadly claim “the entire
contract price,” it should first be clarified that the lien statutes permit claims for “the
amount agreed upon by the contracting parties for performing services and furnishing
materials covered by the contract.” Section 71-3-522(3)(a), MCA (emphasis added). By
7
using this language, the Legislature was authorizing liens only for the unpaid amounts of
services and materials provided under a construction contract, and not other items. While
most construction contracts may primarily provide for services and materials, it is clear
that the Legislature did not tie authority to lien to the total amount of the construction
contract, but to the unpaid amounts for services and materials provided therein.
¶23 Further, CHSP’s argument that construction liens are limited to services that are
actually performed and materials that are actually furnished is well supported by the text,
structure, and purpose of the lien statutes. As noted above, § 71-3-522(3)(a), MCA,
defines “contract price” as the amounts the contracting parties have agreed to “for
performing services and furnishing materials.” Section 71-3-526, MCA, permits a person
to lien the “unpaid part” of the contract price, but “subject to the provisions of 71-3-524.”
In turn, § 71-3-524, MCA, limits lienable materials to those that: (1) “are supplied with
the intent that they be used in the course of construction of or incorporated into the
improvement”; and (2) are “incorporated in the improvement or consumed as normal
wastage in construction operations”; “specifically fabricated for incorporation into the
improvement”; or “used for the construction or operation of machinery or equipment
used in the course of construction and not remaining in the improvement.” Thus,
§ 71-3-524, MCA, expressly prohibits a contractor from including within its lien amounts
for a claim of materials that the contractor has not furnished.
¶24 Further, the requisite procedures for perfection of a construction lien contemplate
work the contractor has completed. Section 71-3-532, MCA, governing the content of
the notice of right to claim, provides: “The notice of the right to claim a lien must be in
8
writing and state that it is a notice of a right to claim a lien against real estate for services
or materials furnished in connection with improvement of the real estate.” (Emphasis
added.) Likewise, § 71-3-535(3)(e), MCA, the filing requirement provision, requires that
a person provide “a description of the services or materials provided.” (Emphasis added.)
¶25 Lastly, the purpose of the construction lien is to protect the equitable interest of
those whose labor or materials have enhanced the value of the property. 56 C.J.S.
Mechanics’ Liens § 3 (2007). They are “designed to give security to those who, by their
labor, skill, and materials, add value to property.” Davis v. Alvord, 94 U.S. 545, 547, 24
L. Ed. 283, 284 (1877). We have explained that: “Our lien statutes are remedial. They
are for the express purpose of providing for the payment of the claims of builders,
mechanics and materialmen out of the property to which their work and material have
contributed an increased value.” Smith v. Gunniss, 115 Mont. 362, 376, 144 P.2d 186,
189 (1943); see also Van Stone, 142 U.S. at 136, 12 S. Ct. at 183 (“it is the use of the
materials furnished and the work and labor expended by the contractor, whereby the
building becomes a part of the freehold, that gives the material man and laborer his lien
under the statute”) (emphasis added). Thus, the purpose of the construction lien statutes
is advanced only so far as the statutes allow a person to lien for the amount the person has
contributed to the property, and it would be wholly inconsistent with the statutes’
purposes to permit a person to lien for uncompleted work.
¶26 CHSP concedes that Worldwide could lien for the contractor’s fee on work done
prior to termination of the contract. Further, CHSP is correct that, even though
Worldwide is contractually entitled to payment of a contractor’s fee based upon a
9
reasonable estimate of the cost of the work that would have been performed, the
construction lien statutes do not permit Worldwide to claim a lien for a fee related to such
unperformed work.
¶27 Worldwide argues that it never conceded that the unpaid contractor’s fee
represented compensation for unperformed work, and that the fee should be considered
compensation for performed work. Worldwide offers that “[t]here is, in fact, no evidence
that the reasonable value of all the services and materials Dick provided does not include
the Fee.”
¶28 We conclude that the record establishes the opposite position. The construction
contract between Dick and Spanish Peaks provided that, in the event of termination, the
calculation of the contractor’s fee would include “a reasonable estimate of the Cost of the
Work for the Work not actually completed.” (Emphasis added.) Thus, under the plain
terms of contract, the unpaid fee that Worldwide is now seeking to lien was calculated
based upon work “not actually completed.” Dick’s counsel, Ray Crothers, admitted this
was the correct interpretation of the contract. When asked whether “the 5 and-a-half
million included in Dick’s construction lien is for the contractor’s fee on work not
actually completed,” Crothers responded, “That’s correct.” In District Court, Worldwide
conceded that “Dick agreed to take a Contractor’s Fee of only 5% because the Spanish
Peaks Contract allowed for it to still receive the Fee on its unperformed work in the event
the Spanish Peaks Contract was terminated.” We conclude that there is no dispute of fact
that the unpaid portion of the contractor’s fee represents compensation for work that was
not completed.
10
¶29 In reaching these conclusions, we underscore the difference between what Dick
could have recovered in a breach of contract action against Spanish Peaks, and what
recovery is permissible in a construction lien situation. Under the language of the
cost-plus contract between Dick and Spanish Peaks, Dick was entitled to the entire
contractor’s fee in the event the contract was terminated. Once Spanish Peaks went into
bankruptcy, however, Dick was compelled to pursue foreclosure of its construction lien
against Citigroup, a non-party to the construction contract.
¶30 For the reasons stated herein, we hold the District Court erred by holding that the
unpaid contractor’s fee claimed by Worldwide was properly lienable under the lien
statutes.
¶31 2. Did the District Court err by concluding that the subcontractor’s fee was
lienable as a matter of law?
¶32 CHSP argues the District Court also erred by holding that the subcontractor’s fee
remained lienable after Allied Steel settled its claim. Worldwide counters that it is
entitled to lien the subcontractor’s fee on two grounds: first, as assignee of the lien and,
second, as a general contractor claiming its subcontractor’s lien as part of its own
contract price.
¶33 “This Court has long held that an assignment does not create a new lien.” Watts v.
HSBC Bank United States Tr., 2013 MT 233, ¶ 11, 371 Mont. 295, 308 P.3d 57. Instead,
an assignee “stands in the shoes of the assignor.” Watts, ¶ 14 (quoting Credit Serv. Co. v.
Crasco, 2011 MT 211, ¶ 17, 361 Mont. 487, 264 P.3d 1061). “The assignee obtains no
greater rights against the account debtor than the assignor.” Credit Serv., ¶ 17. Under the
11
terms of the settlement agreement, Allied Steel received compensation for its claim, and,
in consideration, Allied Steel relinquished all claims against Spanish Peaks, thereby
extinguishing its construction lien. Thus, Worldwide cannot claim a construction lien by
way of assignment because Allied Steel had no lien to assign.
¶34 Worldwide next argues that, as the general contractor, it appropriately included
the subcontractor’s fee in its lien because Spanish Peaks owes Worldwide the debt under
the contract. However, § 71-3-526(2), MCA, provides that a “person’s lien is reduced by
the sum of the liens of persons claiming construction liens through that person.”
Pursuant to the statute, Worldwide’s lien must be reduced by the amount of Allied Steel’s
lien as Allied Steel is a person claiming a construction lien through it. Therefore,
because Allied Steel settled its lien in full, Worldwide cannot, as a general contractor,
include within its lien the amounts formerly owed to Allied Steel. We therefore conclude
the District Court erred by holding the subcontractor’s fee was lienable.
¶35 We hold that the District Court erred in granting summary judgment to
Worldwide. We reverse the grant of summary judgment in favor of Worldwide and
remand for entry of summary judgment in favor of CHSP on the two issues here
presented.
/S/ JIM RICE
We concur:
/S/ BETH BAKER
/S/ PATRICIA COTTER
/S/ LAURIE McKINNON
12