Opinion
Case No. 117,043
02-14-2020
MILLER VALVE AND CONTROLS, INC., Plaintiff/Counter-Defendant, v. JEDSON ENGINEERING, INC., Defendant/Cross-Claimant/Cross-Defendant/Third-Party Plaintiff/Appellant/Counter-Appellee, and CP Kelco U.S., Inc., Defendant/Counter-Claimant/Cross-Defendant, and Rexel, Inc., Elliott Roofing, LLC, Nabholz Industrial Services, and HIMIC Sales Corporation, Defendants/Counter-Claimants/Cross-Claimants/Cross-Defendants, and Logan and Company, Inc., and Elliott Electric Supply, Inc., Defendants/Counter-Claimants/Cross-Claimants/Counter-Defendants/Cross-Defendants/Third-Party Plaintiffs/Appellees/Counter-Appellants, and Elliott Electric Supply, Inc., Defendant/Counter-Claimant/Cross-Claimant/Counter-Defendant/Cross-Defendant/Third-Party Plaintiff, and Rachid Abdallah, John Vignale Lighthouse Electric, Inc., Fischer Pump & Valve Company, d/b/a Fischer Process Industries, Spirax Sarco, Inc., Shelby McDonald, and John H. Carter Co., Inc., Third-Party Defendants, and Young's Sheet Metal, Inc., and Brazeal Masonry, Inc., Intervenors.
James S. Daniel, Diane M. Black, SECREST, HILL, BUTLER and SECREST, Tulsa, Oklahoma, for Jedson Engineering, Inc., James M. Elias, Rick D. Tucker, ROBINETT, KING, ELIAS, BUHLINGER, BROWN & KANE, Bartlesville, Oklahoma, for Logan and Company, Inc.
James S. Daniel, Diane M. Black, SECREST, HILL, BUTLER and SECREST, Tulsa, Oklahoma, for Jedson Engineering, Inc.,
James M. Elias, Rick D. Tucker, ROBINETT, KING, ELIAS, BUHLINGER, BROWN & KANE, Bartlesville, Oklahoma, for Logan and Company, Inc.
Opinion by Kenneth L. Buettner, Judge: ¶1 Defendant/Appellant/Counter-Appellee Jedson Engineering, Inc. and Defendant/Appellee/Counter-Appellant Logan and Company, Inc. appeal an interlocutory order granting injunctive relief to Logan by directing Jedson to place $745,439.89 in escrow to protect construction trust funds pending the outcome of litigation. Jedson challenges the court's decision to enter the injunction while Logan argues the trial court erred in limiting the injunction to an amount less than the pending lienable claims. By statute, Jedson had a fiduciary duty to hold funds it received under its contract with Defendant CP Kelco (CPK) in trust for payment of lienable claims. The evidence showed Jedson may have breached that duty by paying itself before paying lienholders and therefore we find no abuse of discretion in the decision to enter the injunction. Furthermore, we agree with Logan that because the lienable claims exceeded the amount Jedson received from CPK, the trial court abused its discretion in limiting the injunction to less than all funds subject to the statutory trust. We affirm in part and remand with directions to modify the temporary injunction to include all funds received by Jedson, pending final distribution to lienholders.
¶2 CPK hired Jedson to renovate a manufacturing plant in Okmulgee. As part of the project, Jedson purchased materials from several parties, including Logan and Plaintiff Miller Valve and Controls, Inc. After Jedson left the project, Miller initiated this case by filing a petition against CPK and Jedson seeking payment for materials. Miller's Petition named Logan as a defendant but did not assert any claims against Logan. The numerous defendants then filed claims against each other, Miller, and third parties.
¶3 Logan filed its answer with counterclaims, cross-claims, and third party claims October 21, 2016. Logan asserted the contract between CPK and Jedson provided CPK would pay Jedson $7,660,023 for the project, and CPK had paid Jedson 75% of that before litigation began. Logan asserted Jedson owed Logan $131,169 on a purchase order for fabrication of piping, and $2,169,341.05 on a time and materials agreement for electrical and mechanical installation. Logan sought judgment against Jedson for breach of contract seeking payment on an open account, quantum meruit, unjust enrichment, foreclosure on its liens, and for violation of Oklahoma's construction trust fund statutes. Jedson denied Logan's claims.
¶4 Logan filed its motion for temporary injunction November 27, 2017. Logan asserted Jedson's counsel had acknowledged that CPK had paid Jedson $5,745,017, of which Jedson had paid $2,763,975 to vendors and $2,235,602.11 to itself, leaving $745,439.89 that Jedson was holding for distribution after the lien claims were resolved. Logan asserted the funds Jedson had paid itself and the funds it was holding (totaling $2,981,042) were statutory construction trust funds which Jedson was required to hold pending payment of lienable claims and that a temporary injunction was necessary to safeguard those funds. Logan urged lienholders had a high likelihood of success on the merits, there was a risk of irreparable harm to their interests without an injunction, Jedson was merely the trustee of the construction funds and therefore would not suffer if enjoined from disposing of the funds, and an injunction would further the policy goal of insuring lienable claims are paid.
Logan asserted Jedson and CPK originally entered an agreement for a fixed price of $7,666,023 for Jedson to complete the project. Jedson and CPK dispute how and why Jedson stopped work before completing the project.
¶5 Jedson objected, denying the funds it held were construction trust funds and arguing Logan could not prove it would be irreparably harmed without an injunction. Jedson contended Logan's quest for an injunction was an attempt to deny Jedson payment for its work. Jedson also asserted Logan was not entitled to an injunction because Logan had no ownership interest in the funds until the lien claims were resolved.
¶6 Following a hearing, the trial court entered its Order Granting Injunctive Relief May 14, 2018. The trial court found Logan had met its burden of showing the four factors required for an injunction. The court noted Jedson had admitted to receiving and not objecting to Logan's pre-lien notice. The court found temporary injunctive relief was necessary to preserve the construction funds, but the court limited the injunction to $745,439.89, an amount Jedson had admitted it was holding pending determination of lien claims. The trial court denied Logan's request for a temporary injunction on the remaining funds pending further discovery as to whether Jedson retained those funds. The trial court ordered Jedson to deposit the enjoined funds in its attorney's client trust account until further order.
¶7 Both Jedson and Logan appeal.
As an equitable matter, "[i]njunction is an extraordinary remedy and relief by this means should not be granted lightly." ... We review the grant or denial of an injunction to determine whether the trial court abused its discretion in making its decision. ... "Under an abuse of discretion standard, the appellate court examines the evidence in the record and reverses only if the trial court's decision is clearly against the evidence or is contrary to a governing principle of law." ...
A party must prove the following to obtain an injunction: "1) the likelihood of success on the merits; 2) irreparable harm to the party seeking injunction relief if the injunction is denied; 3) his threatened injury outweighs the injury the opposing party will suffer under the injunction; and 4) the injunction is in the public interest." ... The party seeking an injunction must establish the right to injunctive relief "by clear and convincing evidence and the nature of the injury must not be nominal, theoretical or speculative." ...
Autry v. Acosta, Inc. , 2018 OK CIV APP 8, ¶24 and ¶34, 410 P.3d 1017 (citations omitted).
¶8 Logan sought an injunction based on the fact Jedson held the funds it had received from CPK in trust for lienholders pursuant to statute: "The amount payable under any building or remodeling contract shall , upon receipt by any contractor or subcontractor, be held as trust funds for the payment of all lienable claims due and owing or to become due and owing by such contractors or subcontractors by reason of such building or remodeling contract." 42 O.S.2011 § 152(1) (emphasis added). Logan urged that Jedson had paid itself with construction trust funds as defined by § 152(1) and therefore an injunction was necessary to protect lienable claims from Jedson dissipating the trust funds.
¶9 At the hearing, the trial court noted that Jedson had admitted it paid itself first without perfecting a lien, which the trial court found would be a breach of the fiduciary duty implicit in the statutory construction trust. A contractor or subcontractor must have complied with the lien filing statutes in order to assert a claim to construction trust funds. In re Tefertiller , 1989 OK 60, 772 P.2d 396. "Having failed to perfect its lien under § 143, [Jedson] lost the benefits accorded by §§ 152 and 153, and is in the same position as other general creditors of the construction trust funds ...." Id . at ¶19. At the hearing, Jedson agreed Logan had complied with the lien notice requirements. The court concluded that because Jedson had already paid itself in violation of the construction trust statute, then preserving the remaining funds in a trust account to safeguard them for lienholders was necessary to protect the statutory trust.
"(T)he trust created by the Oklahoma lien trust statutes is an express trust that effected a fiduciary relationship ...." Carey Lumber Co. v. Bell , 615 F.2d 370, 374 (5th Cir.1980).
¶10 Jedson's first argument on appeal is that the trial court failed to make specific findings on each of the four elements for granting an injunction. The order on appeal includes the statement that the court found Logan had met its burden of proving each of the four elements. At the hearing, Logan noted that a violation of statute satisfied the irreparable harm element, citing Public Service Co. of Oklahoma v. Duncan Public Utilities Authority, 2011 OK CIV APP 15, ¶14, 248 P.3d 400. The trial court found there was a risk of irreparable harm because Section 152(1) created a fiduciary duty to protect the funds at issue here which Jedson had violated by paying itself with trust funds. The court also found Logan had shown a likelihood of success. The court found Jedson would not suffer harm by imposition of the injunction because it intended to hold the funds pending resolution of the lien claims. We find the trial court made the necessary findings to enter an injunction.
¶11 Jedson next argues an injunction was not warranted because Logan sought only a money judgment so that there was no irreparable harm. Logan sought to enjoin Jedson's violation of the construction trust fund statutes by dissipating funds to the disadvantage of lienable claims.
When it appears, by the petition, that the plaintiff is entitled to the relief demanded, and such relief, or any part thereof, consists in restraining the commission or continuance of some act ... which ... would produce injury to the plaintiff; or when ... it appears that the defendant is doing ... some act in violation of the plaintiff's rights respecting the subject of the action, and tending to render the judgment ineffectual, a temporary injunction may be granted to restrain such act. And when, during the pendency of an action, it shall appear, by affidavit, that the defendant threatens or is about to remove or dispose of his property with intent to defraud his creditors, or to render the judgment ineffectual, a temporary injunction may be granted to restrain such removal or disposition. ...
12 O.S.2011 § 1382. The record here supports a temporary injunction under the plain language of § 1382. The authority cited by Jedson on this issue provides, "[w]here the alleged contemplated injury is such as can be fully compensated in money damages, and the defendants are wholly and unquestionably solvent and responsible , a temporary injunction should not be granted; ...." Marshall v. Homier , 1903 OK 84, 74 P. 368, 369, 13 Okla. 264 (emphasis added). The record shows Jedson retained $745,000 in construction trust funds to pay $4,000,000 in lienable claims. Money damages are considered inadequate where they cannot be collected because of insolvency or concealment of assets. See Restatement (Second) of Contracts § 360 (1981).
¶12 We find Logan showed it was entitled to a temporary injunction by clear and convincing evidence and the trial court did not abuse its discretion in granting Logan's motion. We next consider Logan's counter-appeal, in which it challenges the trial court's decision to limit the injunction to the $745,440 remaining after Jedson paid itself. Logan contends the analysis supporting a temporary injunction applies to all construction trust funds, comprising all funds Jedson received on the construction contract. We agree. The construction trust fund statute quoted above is followed by the following statute:
(1) The trust funds created under Section 152 of this title shall be applied to the payment of said valid lienable claims and no portion thereof shall be used for any other purpose until all lienable claims due and owing or to become due and owing shall have been paid .
(2) If the party receiving any money under Section 152 of this title is an entity having the characteristics of limited liability pursuant to law, such entity and the natural persons having the legally enforceable duty for the management of the entity shall be liable for the proper application of such trust funds and subject to punishment under Section 1451 of Title 21 of the Oklahoma Statutes. For purposes of this section, the natural persons subject to punishment shall be the managing officers of a corporation and the managers of a limited liability company.
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42 O.S.2011 § 153 (emphasis added). The plain language of § 153(1) shows that Jedson violated the statute by paying itself with trust funds before paying lienable claims. We see no reason to limit an order preserving the trust funds to an amount so reduced. We therefore reverse the trial court's limit of the injunction to $745,440 and remand with directions to modify the temporary injunction consistent with this opinion.
The parties' dispute about what intent is currently required to avoid discharge of a construction debt in bankruptcy is not relevant to our decision.
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¶13 AFFIRMED IN PART, REVERSED IN PART AND REMANDED.
BELL, P.J., and GOREE, J., concur.