June 18, 2019

Colorado Court of Appeals: Notice of Mechanics’ Lien Sufficient when Amended Lien Filed Same Day as Original Lien

The Colorado Court of Appeals issued its opinion in Sure-Shock Electric, Inc. v. Diamond Lofts Venture, LLC on Thursday, August 28, 2014.

Property—Mechanics’ Lien—Contract—Foreclosure—Notice—Equitable Apportionment—Prevailing Party—Costs.

Diamond Lofts Venture, LLC (DLV) was the developer and owner of a building project at 2210 Blake Street in Denver (Blake Street property). Sure-Shock Electric, Inc. (Sure-Shock), as the primary electrical contractor on the project, installed the electrical work throughout the building. Thereafter, Sure-Shock filed a mechanics’ lien for the unpaid contract price. Pursuant to their contract, DLV and Sure-Shock participated in arbitration. The arbitrator determined that Sure-Shock had proved its claims, and awarded it the principal amount claimed in the amended lien statement. The trial court affirmed the arbitrator’s award and entered a decree of foreclosure authorizing the sale of the DLV units to satisfy Sure-Shock’s lien.

On appeal, DLV contended that the trial court erred in allowing Sure-Shock to foreclose on its lien because Sure-Shock failed to comply with the statutory requirements necessary to perfect the lien. The Court of Appeals disagreed. Sure-Shock provided DLV proper notice more than ten days before filing the original lien statement. Sure-Shock was not required to provide an additional notice before it filed its amended lien statement the same day as the original lien to correct the amount claimed. Additionally, although DLV only owned seven of the twenty-nine units in the Blake Street property at that time, Sure-Shock’s lien statement sufficiently identified the property by listing the entire Blake Street property and naming only DLV as the property owner. Finally, Sure-Shock was not required to apportion the unpaid contract price according to the amount due for work on the DLV units, rather than claiming the full amount due.

In its cross-appeal, Sure-Shock contended that the trial court abused its discretion in apportioning the lien. A court may equitably apportion a blanket lien. Here, the trial court determined that an equitable apportionment should be based on the actual benefit enjoyed by each unit. Therefore, Sure-Shock was awarded 33.1% of the lien amount, which corresponded to the total square footage of the DLV units relative to the square footage of the entire Blake Street property. Because Sure-Shock’s electrical work benefited the entire Blake Street property, and Sure-Shock chose to encumber only the DLV units, Sure-Shock may not recover the entire unpaid amount of the contract. Therefore, the trial court’s apportionment was not an abuse of its discretion.

In addition, because Sure-Shock’s lien was determined to be valid, Sure-Shock succeeded on a “significant issue in the litigation.” Therefore, the trial court did not abuse its discretion in concluding that Sure-Shock was the prevailing party and awarding it costs. The judgment was affirmed.

Summary and full case available here, courtesy of The Colorado Lawyer.

Colorado Court of Appeals: No Authority Permits Counterclaims or Cross-Claims in Spurious Lien Action

The Colorado Court of Appeals issued its opinion in Fiscus v. Liberty Mortgage Corp. on Thursday, June 19, 2014.

Spurious Lien—Deed of Trust—Forgery—Statute of Limitations—Counterclaims—Cross-Claims—Ownership Interest.

Raymond L. Fiscus (owner) sued Liberty Mortgage Corporation, BB&T Corporation, and Branch Banking and Trust Company (collectively, the banks) under the spurious lien statute, seeking to have a deed of trust recorded by Branch Banking and Trust in 2009 declared spurious after owner’s wife executed the deed of trust on owner’s behalf based on a forged power of attorney. The banks counterclaimed against owner, asking to judicially foreclose on the property, alleging unjust enrichment and seeking an equitable lien against the property. The banks also filed a third-party complaint against wife, alleging theft. The trial court declared the deed of trust spurious and ordered its release, and dismissed the bank’s counterclaims and third-party claims.

On appeal, the banks contended that the trial court erred when it held that owner’s spurious lien petition was not barred by the statute of limitations. Spurious lien actions must be brought within two years of accrual. A cause of action accrues on the date “both the injury and its cause are known or should have been known by the exercise of reasonable diligence.” Here, the trial court concluded that, had owner exercised reasonable diligence, April 2010 was the earliest date he could or should have discovered the existence of the deed of trust. Therefore, owner timely filed the spurious lien petition on March 29, 2012.

The banks contend that the trial court erred when it granted owner’s motion to strike their counterclaims for judicial foreclosure, unjust enrichment, and an equitable lien, as well as their third-party claim against wife. However, there is no authority permitting counterclaims or cross-claims to be brought in a spurious lien action. Therefore, the trial court did not err when it dismissed these claims without prejudice. Because these claims were dismissed without prejudice and the banks were not prohibited from bringing a separate action regarding their claims, the banks were not deprived of any due process rights to pursue them.

The banks also argued that the trial court erred when it concluded wife did not have an ownership interest in the property sufficient to allow her to encumber the property. However, wife was not the record owner of the property. Therefore, she had an inchoate interest only and did not have the authority to encumber the property.

Summary and full case available here.

Colorado Court of Appeals: Funds Received in Arbitration Award Determined to be “General Intangibles”; Prevailing Party Entitled to Attorney Fees

The Colorado Court of Appeals issued its opinion in Millenium Bank v. UPS Capital Business Credit on Thursday, March 13, 2014.

Summary Judgment—Creditors’ Rights— Uniform Commercial Code.

UPS Capital Business Credit (UPS) loaned Superior Plaster and Drywall, Inc. (Superior) $1,027,000, secured by Superior’s assets. Millennium Bank (Millennium) loaned Superior $1.5 million, also secured by Superior’s assets. Millennium and UPS entered into an Intercreditor Agreement to establish the respective priority of their secured interests in Superior’s assets. Under the Intercreditor Agreement, (1) Millennium had first priority, and UPS second priority, in Superior’s accounts receivable; and (2) UPS had first priority, and Millennium second priority, in Superior’s general intangibles.

This case arose when Millennium and UPS disputed their rights to funds awarded to Superior in an arbitration proceeding. Superior had subcontracted with Beck Development, LLC (Beck) to perform drywall and paint work as part of the construction of two condominium towers. Superior claimed Akzo Nobel Paints, LLC (Akzo) had supplied defective paint; Akzo countered that Superior’s application techniques were to blame. Superior repainted the project four times at Beck’s insistence. The problem was not fixed, and Beck terminated Superior, without paying Superior for the costs incurred in repainting.

Superior sued Beck and Akzo, claiming (1) breach of contract by Beck and Akzo; (2) breach of warranty by Akzo; and (3) the right to receive payment on a mechanic’s lien it had filed on the condominium towers for work performed on the subcontract. The three entities agreed to arbitrate the claims against Akzo.

The arbitration panel determined that Akzo’s paint was the cause of the paint problems. The panel awarded consequential damages to Beck and Superior. To Superior, the damages encompassed (1) the amount due on Superior’s lien for work performed under the subcontract on the towers; (2) Superior’s costs for excess labor and excess materials in repainting the towers; and (3) punitive damages. Two weeks later, Superior filed for bankruptcy. Approximately one year later, Beck successfully moved, without objection, for dismissal of Superior’s claims against it.

The funds awarded in the arbitration became part of Superior’s bankruptcy estate. Millennium and UPS asserted their rights in those funds as secured creditors under Colorado’s version of the Uniform Commercial Code (UCC). They disputed only the priority rights with respect to the part of the funds representing the excess costs in labor and materials ($638,226.83) incurred by Superior in repainting the towers (challenged funds).

Millennium asserted the challenged funds were the proceeds of an account, on which it had first priority; UPS asserted they were the proceeds of an intangible right, on which it had first priority. The bankruptcy court determined it lacked jurisdiction to adjudicate the priority dispute and ordered the trustee to deliver the challenged funds to Millennium and UPS jointly for state law determination of their interests in the funds.

After the parties filed a statement of undisputed facts and cross-motions for summary judgment, the district court entered summary judgment for UPS, concluding that the challenged funds were general intangibles, rather than accounts. Millennium appealed and the Court of Appeals affirmed.

The parties agreed the resolution of the case depended on whether, as a matter of law, the challenged funds were, under the UCC, proceeds of an “account” or the proceeds of a “general intangible.” The “general intangible” category of assets traditionally encompassed proceeds from the right to pursue many types of lawsuits between a debtor and a party other than the interested creditor. However, this category, under the UCC, does not include “accounts.”

Here, the challenged funds were from an arbitration award Superior recovered from Akzo on a breach of warranty claim, not the right to payment of a monetary obligation for services rendered or to be rendered. Thus, the funds recovered from Akzo were not proceeds from an “account,” but rather proceeds of a “general intangible.” The district court’s classification of the funds was affirmed.

UPS requested its attorney fees incurred on appeal pursuant to a prevailing party fee provision in the Intercreditor Agreement. The Court agreed that UPS was entitled to those fees and remanded the case to the district court to award a reasonable amount of attorney fees incurred on appeal.

Summary and full case available here.

Colorado Court of Appeals: Mechanics’ Lien Had Priority Over Bank Lien But Lien Cannot Be Filed in Excess of Contract Price

The Colorado Court of Appeals issued its opinion in Byerly v. Bank of Colorado on Thursday, March 14, 2013.

Excessive Mechanic’s Lien—CRS § 38-22-101(3).

Defendants Bank of Colorado and Delta Properties II, LLC (collectively, Bank) appealed the trial court’s judgment in favor of Daniel Byerly (Contractor). The judgment was reversed and the case was remanded with directions.

In 2006, Widwing Development, LLC (Developer) hired Contractor to help develop a residential subdivision in Timnath. It was a four-phase project with an extensive contract, including a compensation scheme that involved both cash payments and “Lot Compensation.” By late 2009, Developer had sold only half of the thirty-two villa home lots (valued at $110,000 each) and four of the seventy-six single family home lots (valued between $294,500 and $350,000). It had not paid Contractor’s monthly fee for several months. The Bank, which had issued construction loans to Developer, declared a default. Though Developer was in no position to do so, it sent Contractor a letter stating that as of January 5, 2010, Contractor had “earned” Lot Compensation for the first phase. The Bank later foreclosed and acquired the unsold land parcels. Neither Developer nor the Bank ever tendered Lot Compensation to Contractor.

In March 2010, shortly before the Bank’s foreclosure, Contractor recorded a mechanic’s lien on one of the parcels of land for $824,000 (later amended to $641,000) and filed a complaint in foreclosure, naming the Bank as an interested party. The amended lien included $84,000 of unpaid monthly fees and $557,000 in Lot Compensation. At trial, Contractor admitted that the conditions precedent to Developer’s duty to pay the Earned Cash Value portion of the Lot Compensation had not been met. Contractor also asserted a breach of contract claim against Developer and was awarded a default judgment based on eighteen months of unpaid monthly fees ($126,000), plus interest and costs.

Following a bench trial, the trial court made findings regarding the value of Contractor’s lien and concluded that the “full and accurate value” of Contractor’s services totaled $346,000, to which 12% interest was added, for a total of $417,095. The trial court also made findings regarding whether Contractor had knowingly filed an excessive lien under CRS § 38-22-128, and concluded he did not. The court found in favor of Contractor on his mechanic’s lien claim and ruled that Contractor’s lien was prior to the Bank’s lien.

On appeal, the Bank argued that the trial court erred in determining that Contractor’s lien was measured by the “value” of his services, rather than by the contract terms, and that it was unlawful to file a lien that exceeded the contract price. The trial court interpreted CRS § 38-22-101(3) to mean that when a contract is not recorded, a contractor may file a mechanic’s lien for the “value” of his or her services. The Court of Appeals found that interpretation to disregard the plain language of subsection 3 when read in the context of the entire subsection. Subsection 3 applies only to subcontractors and material providers, not to the direct contractor. Subcontractors are the only ones who would have occasion to do work that must be “deemed” to have been done for the owner, given that the direct contractor already has a contract with the owner. Thus, where a direct contractor performs services, the value of which is alleged to have exceeded the contract price, the contract price is the maximum amount for which a lien can be filed. Accordingly, it was error to find that subsection 3 allowed Contractor to file a lien in excess of the contract price.

The Bank also argued that it was error to determine that Contractor did not violate CRS § 38-22-128 by filing an excessive lien. The trial court found that Contractor could have reasonably anticipated receiving Lot Compensation after Developer informed him that he had “earned” it and, from Contractor’s perspective, it was not obvious that the conditions precedent for Lot Compensation could not occur and would never occur. The Court rejected these findings because there was no evidence in the record to support them. The judgment was reversed and the case was remanded for entry of judgment in favor of defendants.

Summary and full case available here.

Colorado Supreme Court: Funds Disbursed to Limited Liability Company by Member Need Not Be Held in Trust Under Colorado’s Construction Trust Fund Statute

The Colorado Supreme Court issued its opinion in Yale v. AC Excavating, Inc. on Monday, February 4, 2013.

Construction—Mechanics’ Liens—Statutory Trusts

The Supreme Court held that an LLC member’s voluntary injection of capital into the company in this case did not constitute “funds disbursed to [a] contractor . . . on [a] construction project” under CRS § 38-22-127(1). Therefore, such money was not required to be held in trust under that provision. The Court further held that the court of appeals erred in remanding the case for further proceedings to determine whether petitioner, a member and manager of the LLC, was civilly liable for theft under CRS §§ 38-22-127(5), 18-4-401, and 18-4-405, for using the funds in a manner inconsistent with the trust obligations of § 38-22-127(1). Accordingly, the judgment of the court of appeals was reversed.

Summary and full case available here.

Colorado Court of Appeals: Insurance Company Had No Duty to Provide Coverage to Third Party Under Lapsed Commercial General Liability Policy

The Colorado Court of Appeals issued its decision in TCD, Inc. v. American Family Mutual Insurance Co. on April 12, 2012.

Summary Judgment—Duty to Defend.

Plaintiff TCD, Inc. appealed the district court’s summary judgment in favor of defendant American Family Mutual Insurance Company (American Family), on the ground that the insurance company had no duty to defend TCD under a commercial general liability (CGL) insurance policy. The judgment was affirmed.

The developer, Frisco Gateway Center, LLC (Gateway), entered into a contract with TCD, the general contractor, to construct a building. TCD subcontracted with Petra Roofing and Remodeling Company (Petra) to install the roof. The subcontract required Petra to “indemnify, hold harmless, and defend” TCD against claims arising out of or resulting from the performance of Petra’s work on the project. Petra also was to name TCD as an additional insured on its CGL policy. American Family issued a CGL policy to Petra, with TCD as an additional insured. The policy was cancelled on June 10, 2007 for nonpayment of the premium.

TCD sued Gateway, seeking payment on the project. Gateway counterclaimed for breach of contract, negligence, and violation of the Consumer Protection Act. This action proceeded to arbitration and resulted in a binding award. As an additional insured under the CGL policy, TCD demanded that American Family defend and indemnify it in the underlying action, but American Family denied coverage.

TCD sued Petra and American Family, asserting claims for declaratory judgment, breach of insurance contract, breach of contract, and negligence. The district court entered a default judgment against Petra and granted summary judgment in favor of American Family.

On appeal, TCD argued that Gateway’s counterclaims were sufficient to raise a genuine issue as to whether American Family had a duty to defend it against those counterclaims. Alternatively, TCD argued it was entitled to have the Court of Appeals consider evidence not contained in the counterclaims that purportedly shows the insurance company had a duty to defend. Finally, TCD argued that CRS § 13-20-808, enacted three years after the CGL policy was cancelled, requires reversal. The Court rejected all three arguments.

TCD argued that Gateway’s claims constituted “property damage” covered by the CGL policy. The Court stated that defense and liability coverage in CGL policies issued to subcontractors generally is limited to property damage caused by an “occurrence.” In this policy, an “occurrence” is “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” In analyzing the counterclaims made by Gateway, the Court found no alleged “accident,” but found that Petra improperly installed the roof, resulting in defects that caused TCD to breach its contract with Gateway.

TCD argued that it should be allowed to go outside the “four corners” of the counterclaims and offer other evidence. The Court found the argument unpersuasive.

In May 2010, the legislature enacted HB 10-1394, codified as CRS § 13-20-808. The Court held that the statute was not retroactive, and therefore was inapplicable. The judgment was affirmed.

Summary and full case available here.