Opinion
No. 1 CA-CV 13-0147
03-27-2014
HACI MECHANICAL CONTRACTORS, INC., an Arizona corporation, Cross-Claimant/Appellant, v. BMO HARRIS BANK (fka M&I Marshall & Ilsley Bank) and LEXINGTON AVENUE, LLP, Cross-Defendants/Appellees.
Jennings Haug & Cunningham, LLP, Phoenix By Chad L. Schexnayder, James L. Csontos and Russell R. Yurk Counsel for Cross-Claimant/Appellant Gust Rosenfeld, PLC, Phoenix By Timothy W. Barton Counsel for Cross-Defendant/Appellee BMO Harris Bank, NA Jennings, Strouss & Salmon, PLC, Phoenix By John J. Egbert Counsel for Cross-Defendant/Appellee Lexington Avenue, LLP
NOTICE: NOT FOR PUBLICATION.
UNDER ARIZ. R. SUP. CT. 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT
AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.
Appeal from the Superior Court in Maricopa County
No. CV2009-018671
The Honorable John A. Buttrick, Judge
REVERSED AND REMANDED
COUNSEL
Jennings Haug & Cunningham, LLP, Phoenix
By Chad L. Schexnayder, James L. Csontos and Russell R. Yurk
Counsel for Cross-Claimant/Appellant
Gust Rosenfeld, PLC, Phoenix
By Timothy W. Barton
Counsel for Cross-Defendant/Appellee BMO Harris Bank, NA
Jennings, Strouss & Salmon, PLC, Phoenix
By John J. Egbert
Counsel for Cross-Defendant/Appellee Lexington Avenue, LLP
MEMORANDUM DECISION
Presiding Judge Patricia A. Orozco delivered the decision of the Court, in which Judge Lawrence F. Winthrop and Judge Kenton D. Jones joined. OROZCO, Judge:
¶1 HACI Mechanical Contractors, Inc. (HACI) appeals the trial court's grant of summary judgment in favor of BMO Harris Bank formerly known as M & I Marshall & Iisley Bank (BMO) and Lexington Avenue, LLP (Lexington) (collectively Appellees). The trial court found BMO's liens were equitably subrogated to HACI's mechanic's lien. For the following reasons, we reverse the trial court's decision and remand to the trial court to enter summary judgment in favor of HACI.
FACTS AND PROCEDURAL HISTORY
¶2 This case arises out of the Century Plaza construction project (the Project) converting an office building into residential condominium units. The owner, Windsor Century Plaza (Owner) hired Summit Builders (Summit) as the general contractor. Summit then entered into a subcontract agreement with HACI to perform work on the Project. Construction began on or about March 2, 2006. On June 21, 2006, HACI served a preliminary twenty-day notice and Claim of Mechanics' and Materialmen's lien notice on Owner and BMO.
¶3 Owner sought a construction loan from BMO. At that time, the property was encumbered by two deeds of trust totaling $6,750,000 (The Sir Mortgage loans) which had been recorded in 2004. As a condition of closing, BMO required Owner to pay off the Sir Mortgage loans. BMO provided construction loans in the amount of $39,852,000.00. At the time of closing, Owner placed $2,257,895.58 in an escrow account along with funds from the BMO loan and paid $6,814,483.23 to satisfy the Sir Mortgage loans and obtain a release from those deeds of trust. At that point, all superior liens were released. BMO then secured its loans by a first position deed of trust recorded on August 16, 2006, fifty-six days after HACI's preliminary twenty day lien notice was served.
¶4 Owner defaulted on its loan agreement twice in 2008 causing BMO to declare Owner in default. On February 20, 2009, HACI recorded its notice and claim of mechanics' lien. As of that recording date, fifteen units had been sold and the proceeds were used to satisfy a portion of the BMO loan. BMO subsequently held a trustee's sale pursuant to its deed of trust in October of 2009. BMO was the successful credit bidder at $11.1 million, and consequently, received a Trustee's Deed concerning the remaining condominiums. Shortly after the trustee's sale, BMO conveyed the remaining units to Lexington through a Special Warranty Deed.
BMO no longer has legal interest in the property; however, it continues to defend this action pursuant to its agreement to indemnify Lexington.
¶5 Heritage Interiors commenced a suit against Owner for breach of contract. In their suit, Heritage named Owner, Summit, HACI, and several other individuals and companies as parties asserting an interest in the property. Thereafter, HACI answered and asserted cross-claims and counter claims against the other defendants to foreclose its' mechanics' lien and asserted breach of contract claims against Summit and Lexington. Appellees moved for summary judgment upon HACI's claims arguing its lien priority was "clearly established" under the doctrine of equitable subrogation. The trial court agreed and granted Appellees' motion. HACI timely appealed. We have jurisdiction over their appeal pursuant to Arizona Revised Statute (A.R.S.) section 12-2101.A.1 (Supp. 2013).
DISCUSSION
¶6 Summary judgment is appropriate when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Johnson v. Earnhardt's Gilbert Dodge, Inc., 212 Ariz. 381, 385, ¶ 15, 132 P.3d 825, 829 (2006). We review the trial court's grant of summary judgment de novo. Eller Media Co. v. City of Tucson, 198 Ariz. 127, 130, ¶ 4, 7 P.3d 136, 139 (App. 2000). We view the evidence in the light most favorable to the nonmoving party. Tilley v. Delci, 220 Ariz. 233, 236, ¶ 7, 204 P.3d 1082, 1085 (App. 2009). I. Equitable Subrogation
¶7 Equitable subrogation is "the substitution of another person in place of a creditor, so that the person in whose favor it is exercised succeeds to the rights of the creditor in relation to the debt." Sourcecorp, Inc. v. Norcutt, 229 Ariz. 270, 272, ¶ 5, 274 P.3d 1204, 1206 (2012) (quoting Mosher v. Conway, 45 Ariz. 463, 468, 46 P.2d 110, 112 (1935)). It is an equitable remedy designed to prevent a person from "receiving an unearned windfall at the expense of another." Id. On appeal, HACI contends the preference granted to mechanics' liens in A.R.S. § 33-992 leaves no room for equitable remedies, and the court erred in applying the doctrine.
¶8 Mechanics' liens protect the rights of those who furnish labor and materials to improve another's property and are generally preferred to other lien claimants. Collins v. Stockwell, 137Ariz. 416, 418, 671 P.2d 394, 396 (1983); see also Wylie v. Douglas Lumber Co., 39 Ariz. 511, 515, 8 P.2d 256, 258 (1932) ("We are ... convinced that our Legislature intended that laborers and materialmen, who contribute of their labor and means to enhance the value of the property of another, should be jealously protected."). As a result, A.R.S. § 33-992.A provides mechanics' liens priority over all "liens, mortgages or other encumbrances" attaching subsequent to the time labor was commenced or materials provided, subject to a narrow exception not applicable here.
¶9 This court has expressly held that equitable subrogation cannot override the statutory preference enjoyed by mechanics' liens. See Weitz Co., L.L.C. v. Heth, 233 Ariz. 442, 449, ¶ 24, 314 P.3d 569, 576 (App. 2013). Weitz also involved a residential condominium project. See id. at 444, ¶ 2, 314 P.3d at 571. Weitz, a subcontractor who properly recorded a mechanics' lien on the property, filed suit against various lenders after proceeds from condominium sales were used to pay construction loans and Weitz's construction sub-contractors remained unpaid. Id. at . 444-45, ¶¶ 2-6, 314 P.3d at 571-72. The trial court found the Weitz lien was superior because of the priority afforded mechanics' liens. Id. at 449, ¶ 25, 314 P.3d at 576. On appeal, we affirmed the trial court's decision despite the lenders' contention that their loans had priority under the doctrine of equitable subrogation. Id.
¶10 In Weitz we recognized the historical preference enjoyed by mechanics' liens and determined that A.R.S. § 33-992.A contained clear, unambiguous language. Id. at 445-46, ¶¶ 9, 11, 314 P.3d at 572-73. Moreover, it is a well-established principle that an equitable remedy cannot override unambiguous statutory language. See, e.g., id. at 448, ¶ 20, 314 P.3d at 575; see also Valley Drive-in Theater Corp. v. Super. Ct., 79 Ariz. 396, 399, 291 P.2d 213, 214 (1955) ("When rights are clearly established and defined by a statute, equity has no power to change or upset such rights."); McDermott v. McDermott, 129 Ariz. 76, 77, 628 P.2d 959, 960 (App. 1981) ("Whenever the rights of parties are clearly defined and established by statutory provisions, equity follows law.").
¶11 In support of its position, Appellees rely heavily upon Cont'l Lighting & Contracting, Inc. v. Premier Grading & Utils., 227 Ariz. 382, 258 P.3d 200 (App. 2011), Lamb Excavation, Inc. v. Chase Manhattan Mortg. Corp., 208 Ariz. 478, 95 P.3d 542 (App. 2004), and Peterman-Donnelly Eng'rs & Contractors Corp. v. First Nat'l Bank of Ariz., 2 Ariz. App 321, 408 P.2d 841 (1965). First, Continental is easily distinguishable because it dealt with the replacement doctrine rather than equitable subrogation. See Cont'l Lightng 227 Ariz. at 386-87, ¶ 15, 258 P.3d at 204-05.
¶12 Second, in Weitz, we explicitly held that the courts in Lamb Excavation and Peterman-Donnelly "failed to adhere to the plain language of [A.R.S.] § 33-992 . . . [and] to recognize that § 33-992 does not provide an exception for altering the lien priority our legislature has afforded to mechanics' liens." Weitz, 233 Ariz. at 447, ¶¶ 14-15, 314 P.3d at 574. Thus, we find that the trial court erred in applying the doctrine of equitable subrogation in favor of Appellees' lien. II. Appellees' Issues on Cross-Appeal
¶13 Notwithstanding their equitable subrogation argument, Appellees urge alternative bases for us to affirm the trial court's grant of summary judgment. We will affirm the trial court's decision if its conclusion is correct for any reason." Hill v. Safford Unified Sch. Dist., 191 Ariz. 110, 111, 952 P.2d 754, 755 (App. 1997).
A. HACI's Lien as an Impermissible Blanket Lien
¶14 Appellees argue HACI "failed to apportion the amount due among the several properties benefited, and . . . seeks to enforce its entire mechanics' lien against only some of the condominium units for labor and materials that benefited all of the units."
¶15 Generally, "a notice and claim of lien which fails to apportion the amount due between the several properties benefited is defective and no rights accrue thereunder." See Michael Weller, Inc. v. Aetna Cas. & Sur. Co., 126 Ariz. 323, 329, 614 P.2d 865, 871 (1980). This is in accord with the underlying rationale that a holder of a mechanics' lien should only be entitled to a lien for the actual labor or materials he uses to enhance a property. Wahl v. Sw. Sav. & Loan Ass'n, 106 Ariz. 381, 386, 476 P.2d 836, 841 (1970).
¶16 However, as HACI points out, our supreme court has held that when construction on a particular development was conceived as a single project, "[a] multi-building condominium development may constitute a single improvement within the meaning of A.R.S. § 33-993(A)." S.K. Drywall, Inc. v. Developers Fin. Grp., Inc., 169 Ariz. 345, 353, 819 P.2d 931, 939 (1991).
¶17 Courts typically hold that work performed under separate contracts require claimants to timely file a lien under each contract. Id. at 350, 819 P.2d at 936. Conversely, when work is performed pursuant to a single contract, a single filing is typically sufficient. Id. at 349, 819 P.2d at 935. Here, HACI entered into a single contract with Summit to complete work on a single project, and the trial court did not err in denying Appellees' motion for summary judgment on this issue.
B. HACI's Compliance with A.R.S. § 33-993
¶18 Finally, Appellees argue HACI's lien is invalid because "it does not contain a correct legal description of the property to be liened and it does not state the names of the owners of the property" pursuant to A.R.S. § 33-993. We disagree.
¶19 When HACI recorded its notice and claim of lien, Owner owned all the units except the fifteen previously sold. Moreover, HACI only sought to attach its lien to Owner's by-then lienable interest in the property. Furthermore, it was not necessary to list the owners of the fifteen sold units as HACI's work on the Project was under a single contract. See, e.g., S.K. Drywall, 169 Ariz. at 349, 819 P.2d at 935. Thus, we reject Appellees' arguments on cross-appeal. III. Attorney Fees
¶20 Both parties request their attorney fees and costs on appeal pursuant to A.R.S. §§ 33-995, -998 and 12-341.01. We award HACI its reasonable attorney fees and costs on appeal, subject to compliance with ARCAP 21.
CONCLUSION
¶21 For the above stated reasons, we reverse the trial court's decision and remand for the trial court to enter judgment in favor of HACI.