Opinion
F070346
02-22-2017
KAWEAH CONSTRUCTION COMPANY, Plaintiff and Appellant, v. FOX HILLS LANDOWNERS ASSOCIATION, LLC, et al., Defendants and Respondents.
Dowling Aaron Incorporated, Steven D. McGee and Stephanie Hamilton Borchers for Plaintiff and Appellant. Best Best & Krieger, Robert J. Hanna and William E. Robinson for Defendants and Respondents Compass Financial Partners, LLC; Silar Special Opportunities Fund, LP; Silar Advisors, LP; Asset Resolution, LLC (as successors in interest to certain former assets of USA Commercial Company); and certain individual beneficiaries.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. CU149690)
OPINION
APPEAL from a judgment of the Superior Court of Merced County. Donald J. Proietti, Judge. Dowling Aaron Incorporated, Steven D. McGee and Stephanie Hamilton Borchers for Plaintiff and Appellant. Best Best & Krieger, Robert J. Hanna and William E. Robinson for Defendants and Respondents Compass Financial Partners, LLC; Silar Special Opportunities Fund, LP; Silar Advisors, LP; Asset Resolution, LLC (as successors in interest to certain former assets of USA Commercial Company); and certain individual beneficiaries.
-ooOoo-
Plaintiff appeals from the judgment against it in its action to foreclose a mechanic's lien. The trial court concluded plaintiff, the general contractor on the project, recorded its mechanic's lien claim before it completed its contract; plaintiff continued to work on the project for approximately two months after recordation of its lien claim. Under the applicable statute, the trial court found plaintiff's mechanic's lien was premature and unenforceable. It entered judgment in favor of defendants.
Plaintiff does not challenge the trial court's factual finding that it continued to work on the project after recordation of its lien, but challenges only the trial court's interpretation of the statutory language regarding completion of the contract. We conclude the trial court correctly interpreted the statute, and plaintiff has not demonstrated any error in its determination that plaintiff's mechanic's lien claim was recorded prematurely and was therefore unenforceable. Accordingly, we affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
On March 25, 2005, plaintiff entered into a contract with Fox Hills Landowners Association (Fox Hills) to construct a water treatment plant for a planned residential development, which was to be built in two phases. Phase I of the development, in which the water treatment plant was to be located, was financed by a loan from Point Center Financial, Incorporated. (Point Center). Acquisition of the properties for phase II was financed by loans from USA Commercial Mortgage Company, acting on behalf of multiple individual investors, who are among the defendants involved in this appeal.
For convenience, we will refer to the respondents in this appeal as "defendants," although they do not include all of the defendants named in the action.
Plaintiff commenced construction of the water treatment plant in April 2005. Despite a significant payment to plaintiff in December 2005, the payments for plaintiff's work on the water treatment plant became seriously delinquent. On May 25, 2006, when plaintiff still had not been paid, plaintiff recorded its first mechanic's lien. On August 22, 2006, plaintiff withdrew the first mechanic's lien and recorded a new one, in the amount of approximately $6.3 million. On September 1, 2006, plaintiff filed this action against Fox Hills and others, seeking foreclosure of its mechanic's lien.
Defendants moved for summary judgment, contending, among other things, that the August 22, 2006, mechanic's lien was recorded prematurely and was therefore invalid and unenforceable. The trial court granted the motion, but this court reversed on appeal and remanded the matter to the trial court. On remand, defendant Volta, LLC, moved for summary judgment, asserting plaintiff's mechanic's lien claim was premature and unenforceable; plaintiff filed a motion for summary adjudication that Volta's affirmative defense, which asserted plaintiff failed to comply with the statutory time requirements in recording its mechanic's lien, was without merit. Both motions were denied.
The trial court bifurcated the issue of the timeliness of the August 22, 2006, mechanic's lien from other issues and heard it first in a court trial. By statute, the earliest plaintiff was entitled to record its mechanic's lien was "after [the contractor's] completes his contract." (Civ. Code former § 3115.) The parties stipulated that Fox Hills materially breached the construction contract as early as the fall of 2005. Plaintiff contended its obligations under the contract were discharged, and its contract was therefore complete, when Fox Hills materially breached the contract. Plaintiff continued to work on the project after Fox Hills's breach in the expectation or hope that Fox Hills would obtain financing and be able to pay it. Plaintiff asserted it began to wind down the project in July 2006, after Point Center recorded a notice of default on its loan to Fox Hills; plaintiff claimed all work performed after recordation of its mechanic's lien on August 22, 2006, was aimed at responsibly shutting down the site and leaving it in a safe and secure condition.
The former mechanic's lien law, found in former title 15 of part 4 of division 3 of the Civil Code (former §§ 3082-3267), was repealed as of July 1, 2012, and replaced with part 6 of division 4 of the Civil Code (§§ 800-9566). (Stats. 2010, ch. 697, § 16.) Section 8052, subdivision (b) of the new law provides that "the effectiveness of a notice given or other action taken on a work of improvement before July 1, 2012, is governed by the applicable law in effect before July 1, 2012, and not by this part." Accordingly, prior law applies in determining the validity of the mechanic's lien claim in this case.
All further statutory references are to former sections of the Civil Code unless otherwise indicated.
The parties presented evidence regarding the nature and extent of the work performed by plaintiff after recordation of plaintiff's lien, which included attempting to cancel orders for materials, installing some materials already received, and taking steps to make the site safe and to secure the facilities already installed. Plaintiff's final day on the job site was October 31, 2006. The trial court concluded plaintiff did not complete its contract prior to recording its mechanic's lien. There was never a work stoppage from commencement of construction in April 2005 through mid-October 2006. The trial court determined plaintiff's mechanic's lien was premature and unenforceable, and entered judgment in favor of defendants. Plaintiff appeals.
We previously granted plaintiff's request for judicial notice filed on June 20, 2016, of the record in the previous appeal, Kaweah Constr. Co. v. Fox Hills Landowners Ass'n. (Dec. 20, 2012, F062860) nonpublished opinion (Kaweah Constr. Co.).
We now also grant plaintiff's request for judicial notice filed on September 3, 2015, of our nonpublished opinion in the previous appeal.
DISCUSSION
I. Standard of Review
The meaning and construction of a statute is a question of law, which we review de novo. (B.H. v. County of San Bernardino (2015) 62 Cal.4th 168, 189.) "In construing a statute, our fundamental task is to ascertain the Legislature's intent so as to effectuate the purpose of the statute." (Smith v. Superior Court (2006) 39 Cal.4th 77, 83.) "'Because the statutory language is generally the most reliable indicator of that intent, we look first at the words themselves, giving them their usual and ordinary meaning and construing them in context. [Citation.] If the plain language of the statute is clear and unambiguous, our inquiry ends, and we need not embark on judicial construction.'" (Stephens v. County of Tulare (2006) 38 Cal.4th 793, 802.) "If the text is not plain and unambiguous, go to legislative history. If there is evidence of clear legislative intent, implement that intent, and stop there. If there is no clear evidence of intent, use reason, practicality and common sense to ascertain what best approximates the legislative intent." (Busse v. United PanAm Financial Corp. (2014) 222 Cal.App.4th 1028, 1038.)
Plaintiff expressly denies challenging the factual and credibility findings of the trial court, and asserts the only issue on appeal is the interpretation of section 3115 in light of the case law construing it. Accordingly, our review is de novo.
II. Mechanic's Lien Law
Contractors, subcontractors and others "performing labor upon or bestowing skill or other necessary services on, or furnishing materials ... to be used on or consumed in ... a work of improvement shall have a lien upon the property upon which they have bestowed labor or furnished materials." (§ 3110.) "Each original contractor, in order to enforce a lien, must record his claim of lien after he completes his contract and before the expiration of (a) 90 days after the completion of the work of improvement as defined in Section 3106 if no notice of completion or notice of cessation has been recorded, or (b) 60 days after recordation of a notice of completion or notice of cessation." (§ 3115, italics added.) "'Original contractor' means any contractor who has a direct contractual relationship with the owner." (§ 3095.) There is no dispute plaintiff was an original contractor on the water treatment plant construction project, so section 3115 governed recordation of its mechanic's lien.
To prevail in an action to foreclose a mechanic's lien, "the plaintiff bears the burden of proving, among other things, the validity of the lien. [Citation.] For the lien to be valid, the claim of lien must have been timely recorded in compliance with the applicable statute." (Howard S. Wright Construction Co. v. BBIC Investors, LLC (2006) 136 Cal.App.4th 228, 238 (Wright).) Here, the applicable statute was section 3115, which provided "both an earliest date and a latest date for timely recording." (Wright, at p. 238.) It defined the earliest date on which an original contractor could record a timely claim of lien: "after he completes his contract." (Ibid.) Accordingly, a claim of lien recorded prematurely, prior to completion of the original contractor's contract, is invalid and therefore unenforceable. (See Picerne Construction Corp. v. Castellino Villas (2016) 244 Cal.App.4th 1201, 1210 ["the failure of a claimant to timely record a claim of lien precludes the enforcement of a mechanic's lien"].)
III. "Completes His Contract"
In Wright, the court considered the meaning of "completes his contract" as that term was used in section 3115. (Wright, supra, 136 Cal.App.4th at p. 238.) There, the plaintiff contracted with the defendant, the lessee of business premises, to perform construction work on the leased premises. (Id. at p. 231.) On June 18, the lessee advised the plaintiff that it did not intend to make any further payments to the plaintiff. (Ibid.) On June 19, the plaintiff's laborers and tradesmen left the construction site and no more work was done under the contract with the lessee, except that, between June 21 and June 26, some materials were moved from one place to another within the job site; this took a short time and the plaintiff did not charge anyone for the work. (Id. at pp. 233, 235.) On June 20, the plaintiff recorded its claim of mechanic's lien against the property. (Id. at p. 233)
When the plaintiff sued to foreclose the mechanic's lien, the lessee contended the lien was invalid because it was prematurely recorded. (Wright, supra, 136 Cal.App.4th at p. 235.) The trial court agreed, concluding pursuant to section 3086 that "completion" occurred 60 days after the cessation of labor, which would have put the completion date in August, long after recordation of the lien. Further, it found recordation was premature under section 3115 because work on the project did not end until June 26, six days after the lien claim was recorded. (Wright, at p. 236.)
The appellate court reversed the judgment in favor of the owner. It concluded the provision of section 3086 stating that "completion ... in the case of any work of improvement" occurs 60 days after cessation of labor applied only in determining the last date for recording the lien. (Wright, supra, 136 Cal.App.4th at pp. 238-239.) "The earliest date for timely recording turns on completion of the 'contract.'" (Id. at p. 239.) Accordingly, section 3086 and its definition of completion of a work of improvement did not apply. Rather, "a construction contract is 'complete[]' within the meaning of section 3115 if the contractor's obligations have been fully performed. As a corollary, a contract is generally not completed for purposes of section 3115 if work under the contract remains to be done. [Citation.] More precisely, a contractor completes the contract upon substantial performance of its obligations." (Wright, at p. 240, fn. omitted.)
The court recognized that full performance of the contract is not always required in order to record a lien against the property, otherwise the contract would never be deemed complete if it was "cut short by mutual termination or the owner's material breach." (Wright, supra, 136 Cal.App.4th at p. 241.) Instead, a construction contract is also complete "when, by some event before full performance, [the contractor] no longer has any further obligations under the contract." (Ibid.) "Simply put, a contract is complete for purposes of commencing the recordation period under section 3115 when all work under the contract has been performed, excused, or otherwise discharged." (Ibid.)
The Wright court found the contractor's obligations under the contract were terminated by the lessee's repudiation of the contract. (Wright, supra, 136 Cal.App.4th at pp. 242-243.) "Anticipatory breach arises where a party repudiates performance of its obligations before they come due; if sufficiently significant, the anticipatory breach discharges the other party's obligations and creates in the other party the right to pursue remedies for breach immediately." (Id. at p. 243.) The communications between the owner and the plaintiff around June 19 demonstrated an anticipatory breach. The owner advised the plaintiff on June 18 that it would make no further payments to the plaintiff; on June 19, the plaintiff pulled its laborers and trades people from the construction site. Thereafter, the plaintiff performed no significant work at the site under the contract. (Ibid.) Thus, the contract was terminated as of June 19. Because of the anticipatory breach, the plaintiff had completed its contract, within the meaning of section 3115, on June 19, so recordation of the mechanic's lien on June 20 was not premature. (Wright, at p. 243.)
In this appeal, plaintiff contends the trial court was required to find that it completed its contract prior to recordation of its mechanic's lien, because the parties stipulated that Fox Hills materially breached the contract "as early as the fall of 2005," months before plaintiff recorded its lien. Plaintiff reasons that a contractor's contract is complete "when all work under the contract has been performed, excused, or otherwise discharged" (Wright, supra, 136 Cal.App.4th at p. 241), and a material failure of consideration discharges the other party's obligation to perform further (1 Witkin, Summary of Cal. Law (10th ed. 2016) Contracts, § 814); therefore a material breach of the contract automatically discharges the contractor and completes the contract. Thus, plaintiff's theory is that, although the evidence showed plaintiff continued to work on the project without stopping from the fall of 2005 until October 2006, its obligations were discharged by Fox Hills's breach and its contract was therefore complete long before recordation of the August 22, 2006, mechanic's lien.
In Wright, however, it was not the lessee's anticipatory breach or repudiation of the contract alone that completed the contractor's contract. Rather it was the lessee's repudiation of the contract combined with the contractor's cessation of work on the project in response to that repudiation that completed it. Both occurred prior to recordation of the mechanic's lien.
Despite evidence the plaintiff moved some materials from one floor to another on the construction site after June 20, the court concluded the plaintiff "performed no significant work at the site" after June 19, so the plaintiff had completed its contract as of June 19. (Wright, supra, 136 Cal.App.4th at pp. 235, 243.)
Defendants contend law of the case precludes relitigation of this issue. Under the doctrine of law of the case, "'[t]he decision of an appellate court, stating a rule of law necessary to the decision of the case, conclusively establishes that rule and makes it determinative of the rights of the same parties in any subsequent retrial or appeal in the same case.'" (Morohoshi v. Pacific Home (2004) 34 Cal.4th 482, 491 (Morohoshi).) "The law of the case must be adhered to both in the lower court and upon subsequent appeal. [Citation.] This is true even if the court that issued the opinion becomes convinced in a subsequent consideration that the former opinion is erroneous." (Santa Clarita Organization for Planning the Environment v. County of Los Angeles (2007) 157 Cal.App.4th 149, 156.)
The doctrine applies even when the first appellate decision is nonpublished. (See Morohoshi, supra, 34 Cal.4th at pp. 491-492, analyzing whether a rule purportedly set out in its prior appellate opinion (Morohoshi I) was law of the case in the second appeal (Morohoshi II), without regard to the fact Morohoshi I was an nonpublished opinion.)
In our decision in the previous appeal of this matter, we stated: "'A breach does not terminate a contract as a matter of course but is a ground for termination at the option of the injured party. [Citations.] Thus a finding of termination is not one which must be implied from a finding of a breach.' (Whitney Inv. Co. v. Westview Dev. Co. (1969) 273 Cal.App.2d 594, 602.) If the breach is material, however, the other party may elect to terminate the contract and be discharged from its duty to perform further under the contract. (Brown v. Grimes (2011) 192 Cal.App.4th 265, 277; B.L. Metcalf General Contractor, Inc. v. Earl Erne, Inc. (1963) 212 Cal.App.2d 689, 693-694.)" (Kaweah Constr. Co., supra, at pp. 9-10.) After reviewing the evidence presented in support of and opposition to the motion for summary judgment then under review, we concluded:
"Thus, the facts were disputed regarding whether plaintiff continued to work on the project despite defendants' breach or elected to terminate the
contract based on the developers' breach and pursue its legal remedies. There was sufficient evidence to at least raise a triable issue of material fact regarding whether, at the time the mechanic's lien was recorded, plaintiff was continuing to perform under the contract or had elected to terminate it, thereby discharging plaintiff's further obligations and completing the contract for purposes of section 3115. In light of the existence of that triable issue of fact, the motion for summary judgment should not have been granted." (Kaweah Constr. Co., supra, at p. 10.)
Thus, this determination—that, in the event of a breach by the owner, the contractor must, in some fashion, elect to terminate the contract and discharge its further obligations under the contract in order to "complete" the contract for purposes of section 3115—was necessary to the determination of the prior appeal, and this court is bound to apply that rule in resolving this appeal. The rule is inconsistent with plaintiff's contention that Fox Hills's material breach of the contract, without more, automatically discharged plaintiff's contractual obligations and completed its contract, and we reject that contention. In addition, we conclude that, as part of completing the contract by electing to terminate it and be discharged from further contractual obligations, the contractor must end its performance under the contract.
A. Definition of "complete"
The verb "complete" means: "to bring to an end and especially into a perfected state," to "[f]inish making or doing," or "to bring to an end; finish." In light of these definitions, we conclude the ordinary meaning of the phrase "after he completes his contract," as used in section 3115, means after the contractor has finished or ended the work under the contract. A contractor has not "complete[d] his contract" until the performance is brought to a close; the performance is not brought to a close and the contract completed if there continues to be significant work that was within the scope of the contract.
Merriam-Webster <https://www.merriam-webster.com/dictionary/complete> (as of Feb. 15, 2017).
Oxford English Dictionary <https://en.oxforddictionaries.com/definition/us/complete> (as of Feb. 15, 2017).
Dictionary.com <http://www.dictionary.com/browse/complete> (as of Feb. 15, 2017). --------
The statement in Wright that the original contractor's contract is complete "when all work under the contract has been performed, excused, or otherwise discharged" does not change that meaning. (Wright, supra, 136 Cal.App.4th at p. 241.) Wright recognized that full performance of all obligations under the contract is not the only way a contract may be completed; the contract may be completed short of full performance, when it has been materially breached by the owner and terminated or rescinded by the contractor as a result. (Id. at pp. 241-243.) Even in the event of a breach by the owner, however, the contractor must "complete" the contract prior to recording its mechanic's lien. The contractor must conclude its performance and treat all further obligations under the contract as discharged in order to "complete" the contract for purposes of section 3115. As defendants stated in their brief: "Neither full performance of a contract, nor excuse or discharge of contractual obligations, contemplates ongoing performance under the contract." Wright is consistent with this interpretation; there, the evidence demonstrated the contractor substantially completed its work, "'including the mothball or closeout work,'" before it recorded its mechanic's lien. (Wright, at p. 233.) After recordation, the contractor "performed no significant work at the site" under the contract. (Id. at p. 243.)
The trial court found plaintiff continued to perform substantial work toward completion of the project after recordation of the lien. Plaintiff has not challenged this finding. In light of this finding, the trial court correctly determined that plaintiff recorded its mechanic's lien prematurely, before it had completed its contract.
B. Formal termination
Plaintiff contends section 3115, by its terms, does not require formal written notice of termination of the contract in order for the contractor to complete the contract, but the trial court erroneously imposed such a requirement. The trial court, however, after noting that the construction contract required written notice of termination and written notice was not given, stated: "Without deciding whether written notice is the exclusive means to terminate under the terms of the WTP [water treatment plant] contract, the court reviews Kaweah's statements, activity, and writings to determine if Kaweah clearly indicated to Fox Hills that it considered the WTP contract terminated at or before recording the August lien." Thus, the trial court did not rest its decision on whether written notice of termination was given. Rather, it focused on whether plaintiff, by words or actions, manifested an election to terminate the contract based on the breach by Fox Hills and completed its contract prior to recordation of the lien, as required by section 3115.
The trial court found plaintiff sent written notice of termination to Fox Hills in an October 12, 2006, letter, which advised that plaintiff "intend[ed] to immediately demobilize from the site." It further found plaintiff's records indicated its work after the August 22, 2006, lien recordation moved the project closer to completion. The trial court concluded plaintiff's business records, its statements, and a judicial admission in a related bankruptcy action all indicated plaintiff elected to continue the contract, and engaged in contract work, after recordation of the lien. Thus, the trial court concluded, based on plaintiff's actions and the business records reflecting its work on the project, as well as its formal letter of termination, that plaintiff did not complete its contract prior to recordation of its August 22, 2006, mechanic's lien.
C. Language of sections 3115 and 3116
Plaintiff contends "completion" of the contract does not require cessation of all work by the contractor because section 3115 did not expressly require cessation of work. Plaintiff contrasts the language of section 3115 with the language of 3116, which applied to subcontractors and material suppliers. Section 3115 provided, in part: "Each original contractor, in order to enforce a lien, must record his claim of lien after he completes his contract ...." Section 3116 provided, in part: "Each claimant other than an original contractor, in order to enforce a lien, must record his claim of lien after he has ceased furnishing labor, services, equipment, or materials ...."
An original contractor, by definition, was a contractor who had "a direct contractual relationship with the owner." (§ 3095.) The "completes his contract" language of 3115 could not have been used to define the earliest date for a claimant other than an original contractor to record its lien, because such a claimant had no contract with the owner to complete. Instead, the Legislature used language defining a similar stage of performance of the claimant's work to prescribe the earliest date on which a claimant other than an original contractor was permitted to record its mechanic's lien: the date on which the claimant ceased furnishing labor, services, equipment or materials for the construction project.
As previously discussed, we believe the plain meaning of the term "completes his contract" encompasses bringing an end to or finishing the contractor's performance under the contract. The contract is not complete if the contractor continues to perform. The absence of the words "ceased furnishing labor, services, equipment, or materials" from section 3115 does not change this meaning.
D. Policy
The remedy of a mechanic's lien is provided for by the California Constitution (Cal. Const., art. XIV, § 3) and implemented by statute. (Gary C. Tanko Well Drilling, Inc. v. Dodds (1981) 117 Cal.App.3d 588, 593 (Tanko).) The purpose of the mechanic's lien statutes "is to provide protection to the supplier of materials or services used in an improvement to land, and to ensure that the supplier receives the payment due." (Ibid.) "In enacting the mechanic's lien statutes, the Legislature intended 'to prevent unjust enrichment of a property owner at the expense of a laborer or material supplier.' [Citation.] At the same time, the recordation of a mechanic's lien encumbers real property and, at least temporarily, deprives the owner of valuable property rights. [Citation.] Thus, inherent in the legislative purpose to provide security and a swift remedy for unpaid contractors and laborers is '"'"a recognition also of the rights of the owner of the benefited property. It has been stated that the lien laws are for the protection of property owners as well as lien claimants."'"'" (T.O. IX, LLC v. Superior Court (2008) 165 Cal.App.4th 140, 146.)
"The constitutional scheme requires a balancing of the interests of lien claimants and property owners. Our statutes relating to mechanics' liens result from the legislative adjustment regarding the respective rights of lien claimants with those of the owners of property improved." (Tanko, supra, 117 Cal.App.3d at p. 594.) "Having an earliest day for recording the lien attempts to strike a balance between the contractor who wants to secure its right to be paid, and the property owner who does not want its property burdened with a lien until the contractor's obligations are fulfilled." (Wright, supra, 136 Cal.App.4th at p. 241, fn. 6.) After quoting this statement from Wright, plaintiff argues: "The Legislature has an interest in preventing the premature recording of liens in cases where the property owner has done nothing wrong, but once the owner/developer harms the contractor in such a way that the law recognizes that the contractor no longer has an obligation to perform, there is simply no public policy supporting the owner/developer's property interests over the contractor's right to be paid." Plaintiff then proceeds to argue that section 3115 should be interpreted to permit recordation immediately upon the owner's breach because this would permit the contractor to use the mechanic's lien to leverage payment from the owner.
The language of section 3115 does not authorize the contractor to burden the owner's property with a mechanic's lien when the owner has breached the contract or when, due to breach, the contractor has an option to continue performing or treat the contract as breached and terminate its performance. Rather, the statute permits the contractor to record its lien only "after [the contractor] completes his contract" or, as Wright put it, when "the contractor's obligations are fulfilled." (Wright, supra, 136 Cal.App.4th at p. 241, fn. 6.) Under plaintiff's theory, the statute would authorize the contractor, after a breach by the owner, to record multiple successive liens, while continuing to perform under the contract without interruption and without "completion" of anything. Breach alone does not discharge the contractor's further obligations under the contract; the contractor's obligations are discharged, and its contract is complete, when it treats the breach as a termination of the contract and ceases to perform under the contract.
DISPOSITION
The judgment is affirmed. Defendants are entitled to their costs on appeal.
/s/_________
HILL, P.J. WE CONCUR: /s/_________
LEVY, J. /s/_________
FRANSON, J.