Lead Opinion
In this case, Falcon Steel, Inc. (“Falcon”) sued US Technology Marine Services, LLC (UST) in state court to enforce a materialman’s lien on certain fully and partially constructed barges, alleging that the barges incorporate $376,659.82 worth of steel, for which payment remains due. Following removal to federal court and a
I. Background
UST is a Nevada corporation maintaining its principal place of business in Sebastian County, Arkansas, and specializing in the construction of barges and tugboats. Falcon, a Missouri corporation headquartered in Springfield, Missouri, fabricates and supplies industrial steel. On December 21, 2007, UST agreed to build J. Russell Flowers, Inc.
In its defense, UST elicited testimony from both Swain and Heinz that, from the time Falcon agreed to supply UST with steel until the filing of this suit, neither Swain nor Heinz had actually reviewed or was familiar with the details of UST’s contract with Flowers. Moreover, Swain and Heinz each admitted that, after shipping commenced, they eventually learned that UST also was building a barge for Canal Barge Company (“Canal”) at the same Fort Smith site where it was completing Flowers’s project, and that Canal’s barge was being built pursuant to an agreement unrelated to the Flowers contract. Nevertheless, Heinz maintained that, even at the time of Falcon’s final shipment to UST, he understood UST to be using Falcon steel only in the construction of Flowers’s barges.
UST also offered the testimony of Jeffrey Don Cluck, its former industrial engineer. According to Cluck, UST ordered steel from at least ten to twelve suppliers, depending on price and availability. Cluck testified that, because UST’s agreement with Flowers included an “escalation clause” passing on the cost of price spikes in the steel market to Flowers, Cluck kept a logbook tracking which steel was incorporated into the various barges. Based on his logbook, a summary of which UST presented in chart-form at trial, Cluck acknowledged that certain amounts of Falcon steel — roughly $65,000 worth — went into Barges FI through F5 but maintained that it is impossible for those barges to contain more Falcon steel than his chart reflects.
Q: Can you describe for the Court all of the documentation that you would have reviewed in order to create this chart?
A [Cluck]: Well, the main thing I went over was the steel logbook as to when the steel was received at the yard so I know when it would have been used, and then at that particular time, all I had was the Purchase Order number, so I — those were on the chart. And then I used that to add the cost of weight, and then once I got the invoice numbers that were in question, I went back and married those into this. * * *
Q: Okay. And you have designated [referring to Cluck’s chart] that that [particular Falcon] steel was used in Flowers Barge Number 2. Is that right?
A [Cluck]: Yes.
Q: How do you know that that was used in only Barge Number 2?
A: Because that’s what we needed at that time for that barge.
Moreover, Cluck admitted that his logbooks are kept solely to account for price escalations in the steel market, not to serve as a means for ascertaining a particular piece of steel’s origin, or “whether Falcon steel went into one barge as opposed to another.” UST did contend that the purchase orders that it sent to Falcon bore purchase-order numbers followed by the capital letter “F” or “C,” purportedly indicating whether the steel was purchased for Flowers’s or Canal’s project. However, UST’s own evidence on this point conflicts. Cluck initially conceded that this was “a recognized internal system” being used “at [UST] in order to designate which project it [sic] was being worked on.” (emphasis added). But, upon further probing, Cluck testified that UST did not fill out its own purchase orders in their entirety and that Falcon added the numbers along with the “F’s” and “C’s.” Falcon denied knowing of or relying on such a system.
Regardless of what steel went where, Falcon and UST agree that on February 1, 2008, UST submitted a “credit application” to Falcon and that shortly thereafter Falcon began shipping steel to UST on a $100,000 line of credit. Falcon and UST never memorialized a written contract. UST soon exceeded its credit line, and Falcon agreed to ship additional steel, subject to a case-by-case determination of UST’s creditworthiness. Between February 6, 2008, and April 9, 2008, UST ordered $1,185,948.28 worth of steel from Falcon, and Falcon shipped these orders through May 12, 2008. Some time after May 12, UST ceased paying on its account with Falcon.
Falcon and UST intensely dispute the details surrounding Falcon’s final shipment to UST, sent by Falcon on August 29, 2008, and received by UST on September 5, 2008. Still, both parties do agree on three facts. First, Falcon and UST concur that in late August 2008, UST’s Ray Williams contacted Heinz to request an additional shipment of steel despite UST’s delinquent account. Second, both parties agree that UST — based on an anticipated need for the steel — had previously submitted a purchase order on April 4, 2008, but that, pursuant to industry standard and the two parties’s course of dealing, Falcon merely added the material to its inventory and delayed invoicing UST until UST requested delivery. Third, both parties agree that on August 28, 2008, UST wired $65,000 to Falcon and that on the following day, Falcon shipped approximately $58,000 worth of steel to UST.
On September 15, 2008, ten days after UST’s receipt of this final shipment of steel, Falcon notified UST of a material-man’s lien securing a past-due balance of $476,659.82. On December 10, 2008, Falcon filed its “Account of Materialmen’s Lien” in Arkansas state court, and on December 28, 2008, filed suit in the same court to enforce the lien and collect the debt. Subsequently, UST removed the action to the United States District Court for the Western District of Arkansas.
The district court determined, and neither party disputes, that UST transferred Barge FI to Flowers, and that “there is and can be no lien against it.” Additionally, Falcon and UST concur that on December 30, 2008 — seven days after the commencement of suit — Falcon and UST executed a “Partial Release and Assignment,” reciting therein that Flowers previously paid $100,000 in exchange for the release of any lien liability as to Barge F2. Accordingly, fully-constructed Barges F3, F4, and F5, as well as partially-constructed Barge F6, are the only barges to which Falcon’s asserted lien might attach.
On November 3, 2009, the district court held a day-long bench trial in this matter, and on November 17, 2009, issued its “Memorandum Opinion with Findings of Fact and Conclusions of Law.” Therein, the district court found, inter alia, the following five facts now relevant to the instant appeal. First, UST did not furnish Falcon with a copy of UST’s contract with Flowers, but nevertheless Dismer informed Swain of its existence; consequently Falcon “expected that a number of barges would be built pursuant to it.” Second, “[t]he types of steel shipped were the types of steel shown on the materials list for the barges[,]” a list that Dismer provided Swain in their initial meeting. Third, Swain and Heinz’s testimonies regarding the final shipment were more credible than Williams’s and thus the $65,000 payment was not an advance payment for that final shipment. Fourth, “[n]either Falcon nor UST kept close track of what steel was placed in which barge as construction progressed.” Fifth, and finally, UST ordered steel from Falcon and various other suppliers contemporaneously and UST did not purchase steel from Falcon exclusively for use in Flowers’ barges but also purchased steel from Falcon for incorporation into Canal’s barges.
II. Discussion
On appeal, UST urges this court to reverse the district court’s judgment for Falcon on the grounds that (1) Falcon’s lien is invalid because it was not timely perfected; or alternatively, (2) even if Falcon’s lien is valid, it may not attach jointly and severally to Barges F3 through F6 because Falcon failed to show how much of its steel is incorporated in each barge. We consider each contention in turn.
A. The Validity of UST’s Lien
We review the findings of fact made by the district court in a bench trial only for clear error, Yankton Sioux Tribe v. Podhradsky,
[e]very ... material supplier ... who supplies ... material ... in the construction or repair of ... any boat or vessel of any kind, by virtue of a contract with the owner, proprietor, contractor, or subcontractor, or agent thereof, upon complying with the provisions of this subchapter, shall have, to secure payment, a lien upon the improvement. ...”
Ark.Code Ann. § 18-44-101(a). The materialman’s-lien statute adds that “[i]f the improvement is to any boat or vessel, then the lien shall be upon the boat or vessel to secure the payment for labor done or materials ... furnished.” Id. § 18-44-101(b).
To acquire a materialman’s lien under Arkansas law, suppliers like Falcon must comply with the materialman’s-lien statute’s perfection procedures. Under those statutory procedures, an uncompensated materialman must “file with the clerk of the circuit court of the county in which the building, erection, or other improvement to be charged with the lien is situated,” the following two documents: (1) “[a] just and true account of the demand due or owing to him or her after allowing all credits” and (2) “[a]n affidavit of notice attached to the lien account.” Id. § 18-44-117(a)(l)(A)-(B). Finally, and at issue in the instant appeal, the statute sets a limitations period requiring a materialman to file its account and affidavit of notice “within one hundred twenty (120) days after the things specified in this subchapter shall have been furnished or the work or labor done or performed.... ” Id. § 18-44-117(a)(l).
Despite this express limitations period, the Arkansas Supreme Court has carved out a narrow tolling exception to the statutory limitations period, applicable when a materialman furnishes a builder with supplies on an “open” or “running” account. Under this exception, if a materialman (1) begins to furnish supplies
without any specified agreement as to the amount to be furnished, or the time within which they were to be furnished, and [ (2) ] there was reasonable expectation that further material would be required of him, and he was afterwards called upon, from time to time, to furnish the same, he should file [the accounting] within 90 days [now, 120 days] after the last item was delivered.
Kizer Lumber Co. v. Mosely,
In its first issue on appeal, UST asserts that Falcon did not timely perfect its materialman’s lien because Falcon failed to file its account within 120 days of the last material furnished on UST’s account.
In response, Falcon correctly notes that UST’s argument on this point reflects disagreement with the district court’s factual characterization of the September 5 shipment as the final shipment on the contract. Under the Arkansas Supreme Court’s precedents, whether materials are furnished under an “entire contract” or an “open account” — rather than under separate contracts — is “an exceedingly close question of fact” to be determined by the factfinder. Burel v. E. Ark. Lumber Co.,
Having heard all of the testimony at trial, and having observed firsthand the witnesses’ demeanor, the district court credited Swain’s and Heinz’s testimony. The court thus found that Williams and Heinz agreed to apply UST’s August 28 payment of $65,000 to its oldest invoices per the parties’ course of dealing and industry practice. The August 28 payment did not serve as prepayment for the last steel delivery on September 5. The district court found particularly persuasive that UST’s own records listed the invoice for the September 5 shipment as “unpaid.” Moreover, UST and Falcon agree that they never memorialized a contract outlining how much steel was to be delivered or for how long deliveries were to continue. All of these facts support the district court’s conclusion that UST purchased steel on an open account from Falcon. See Kizer Lumber Co.,
The only fact that might weigh in favor of UST’s position that the shipment was not on an open account, is the apparent four-month shipping hiatus between May and August. In Kizer, the Arkansas Supreme Court stated that a reviewing court, in determining the existence of an open account, ought to consider, among other facts, whether “materials were furnished at short intervals.” Id. However, this too is a fact that the district court considered. Cluck testified that UST, in accordance with the parties’ course of dealing and industry practice, actually ordered the particular steel in question on April 4 in anticipation of future need and with the understanding that Falcon would warehouse the steel at UST’s convenience until the need arose. Based on this evidence, the district court concluded that “[t]he length of the interval between shipments, under the circumstances here, is not evidence that a different contract or project had come into play ... because it is traceable to UST’s request that the steel be held for later shipment and to UST’s financial difficulties.”
Accordingly, we conclude that the district court did not clearly err in finding
B. The Extent of UST’s Lien
In its second and final point of error, UST contends that the district court erred when it held that the entire $376,659.82 value of Falcon’s material-men’s lien attached to the remaining four constructed and partially-constructed barges either moored or at dry dock in UST’s shipyard. UST grounds this argument on the premise that “[t]he material-men’s[-]lien statutes give a lien only against property that was constructed using the materials furnished by the supplier.” See Central Lumber Co. v. Braddock Land & Granite Co.,
UST’s argument states the general rule under Arkansas law that property may be encumbered by a materialman’s lien only to the extent of its improvement by the unpaid-for material. See S. Lumber Co. v. Riley,
As with UST’s first issue on appeal, whether Falcon steel was actually incorpo
UST relies on Cluck’s chart as proof that much of the unpaid-for steel was used in Canal’s barge, as well in Barge F2, for which Flowers paid $100,000 to release from any encumbrances. On the other hand, Cluck admitted that his chart is a document that: (1) he does not normally prepare and (2) is based on logbooks not intended to identify a particular piece of steel’s origin or end-use. Moreover, the district court found that Cluck created his chart solely for use at trial and that “[n]either Falcon nor UST kept close track of what steel was placed in which barge as construction progressed.... ” Based on this evidence, the district court did not clearly err when it found that UST failed to rebut the presumption that the barges at issue incorporated Falcon steel.
Finally, UST argues for a de novo standard of review by urging that, as a matter of law, Falcon may not avail itself of Central Lumber’s presumption because Falcon knew that it was furnishing steel to be used for two different projects: Flowers’s and Canal’s. To UST’s credit, the Arkansas Supreme Court has stated that an “attempt to invoke the rule that a lien may be asserted upon two or more lots where materials are furnished under a single contract is without application ... where it is undisputed that the parties treated each [project] as a separate account and contract.” S. Lumber Co.,
Here, Falcon shipped steel to the same shipyard, not to two different plants, and substantial evidence indicates that Falcon shipped the steel with the understanding that UST was using it to build Flowers’s barges. The only fact that the district court found tending to suggest separate Flowers and Canal accounts is the finding that UST’s purchase orders were specially numbered to indicate “which purchases were made on Flowers’s account, and which on Canal’s account.” Critically, the court made no finding as to who placed this special numbering system on UST’s purchase orders, and, as previously noted, UST’s own evidence conflicts on this point. See supra Section I. Thus, this one fact— when considered against the balance of contrary evidence — does not render the district court’s finding of a single account
III. Conclusion
Accordingly, we affirm the judgment of the district court.
Notes
. The Honorable Jimm Larry Hendren, United States District Judge for the Western District of Arkansas.
. Flowers was a party to the district court proceedings but has since settled with Falcon and is not a party to this appeal.
. Presently, UST has either built or partially built six of the twenty barges for which Flowers contracted, and to facilitate review, the parties refer to them sequentially as "Barges F1-F6.”
. UST claims no other defect in the lien’s validity aside from its allegedly untimely perfection.
Dissenting Opinion
dissenting in part.
I agree with the majority opinion that the lien is timely, but cannot agree with the majority’s determination as to the amount. I do not believe Falcon can encumber the four barges in UST’s possession with a lien in the amount of UST’s entire liability to Falcon even though Falcon can only prove that the barges collectively contain a fraction of unpaid steel. Because as a lien claimant, Falcon must establish the materials forming a basis for the lien were actually used in the four barges subject to the lien, the amount of Falcon’s lien cannot exceed $65,803.52, the amount of Falcon’s steel contained in the four barges.
The critical mistake in the majority opinion is the assumption that the dispute between the parties turns on a factual question about the extent of Falcon’s steel that went into the four barges in UST’s possession. This assumption is incorrect. The reality is that UST has successfully rebutted any presumption of actual use that resulted from Falcon’s delivery of steel to UST’s shipyard through the testimony of Jeffrey Cluck. See E.C. Barton & Co. v. Neal,
Instead of a factual dispute, the parties’ disagreement is doctrinal. UST urges, and the district court agreed with this assertion, that the open-account rule of Kizer Lumber Co. v. Mosely,
Where the debtor rebuts the presumption of actual use which arises by virtue of the supplier’s delivery of materials to the construction site, see Cent. Lumber Co. v. Braddock Land & Granite Co.,
There are several reasons for courts’ insistence on demonstrating actual use as a prerequisite for obtaining a lien. First, the showing of actual use is necessary to give full effect to § 18 — 44—110(b)(1) of the Arkansas Code Annotated, which gives priority to the materialmen’s lien only to the extent the use of the materials enhances the value of the property. Del Mack Construction, Inc.,
In sum, because Falcon has not proved actual use to the tune of $376,659.82, I would reverse the judgment of the district court and remand for further proceedings.