WINKLER CONSTRUCTION COMPANY, INC. v. Scott JEROME, et al.
No. 157, Sept. Term, 1998.
Court of Appeals of Maryland.
Aug. 2, 1999.
734 A.2d 212
George Psoras, Jr. (Gregory J. Psoras on brief), Towson, for respondents.
Argued before BELL, C.J., and ELDRIDGE, RODOWSKY, RAKER, WILNER, CATHELL, and ROBERT L. KARWACKI (retired, specially assigned), JJ.
WILNER, Judge.
The application of
BACKGROUND
The relevant background of the case can best be understood in the light of the procedural requirements established by the General Assembly and this Court for the obtaining of a mechanic‘s lien by a subcontractor, and it is therefore appropriate to begin by summarizing those required procedures.1
If the defendant files a timely answer showing cause why a lien should not be established in the amount claimed, the matter must be set for hearing.
- (1) If the pleadings, admissions, and evidence show that there is no genuine dispute of material fact and that the lien, as claimed, should attach as a matter of law, the court shall enter a judgment establishing the lien in the amount claimed.
§ 9-106(b)(1) ;Rule 12-304(e)(1)(A) . - (2) If the pleadings, admissions, and evidence show that there is no genuine dispute as to a portion of the lien claimed [and that a lien in that partial amount should attach as a
matter of law],3 the court shall enter an interlocutory order establishing the validity of the lien as to that portion, and the action shall then proceed only on the disputed amount of the lien claim. § 9–106(b)(1) ;Rule 12-304(e)(1)(A) . - (3) If the pleadings, admissions, and evidence show that there is no genuine dispute of material fact “and that the plaintiff, as a matter of law, has failed to establish a right to a lien,” a judgment shall be entered denying the lien.
§ 9-106(b)(2) ;Rule 12-304(e)(1)(B) . - (4) If, from the pleadings, admissions, and evidence, the court determines that a judgment establishing the lien in the full amount claimed should not be entered but that there is probable cause to believe that the plaintiff is entitled to a lien in some amount, the court shall enter an interlocutory order that (i) establishes a lien, (ii) describes the land to which the lien attaches, (iii) states the amount of the claim for which probable cause is found, (iv) specifies the amount of a bond which may be filed by the defendant to have the land released from the lien, and (v) sets a date within six months for trial of all matters necessary to adjudicate the establishment of the lien.
§ 9-106(b)(3) ;Rule 12-304(e)(2) .4 - (5) If neither a judgment nor an interlocutory order is entered under
Rule 12-304(e)(1) or (2), the court shall enter an order that the portion of the complaint seeking to establish a lien be dismissed unless the plaintiff, within 30 days, files a written request that that part of the complaint be set for trial.Rule 12-304(e)(3) . There is no comparable provision to this section of the Rule in§ 9-106 .
On June 17, 1997, petitioner, Winkler Construction Company, Inc., filed a two-count complaint in the Circuit Court for Carroll County. In Count I, it sought to establish a mechanic‘s lien against certain property of respondents, Scott Jerome and Barbara Chait. Winkler averred that, pursuant to a “trade agreement” with Richard J. Musser, t/a R.J. Musser Construction, Inc., it had performed work and provided materials for a newly constructed residence on the property, that the work was performed within 180 days prior to the filing of the complaint, that the contract price was $9,600, that $5,760 remained due and owing, and that Winkler had given the owners written notice of its intention to claim a lien. Winkler alleged that it had completed the “1st deck and all interior and exterior 1st floor walls,” the “2nd deck and all interior and exterior 2nd floor walls,” the “roof deck and all interior and exterior walls,” “windows and exterior doors and exterior trim package,” and “framing punch out after trades, ready for drywall.” Documents evidencing some of those averments were attached as exhibits to the petition—the trade agreement with Musser, the legal description of the property, the notice sent to the owners, and a return receipt evidencing receipt by them of that notice. Those allegations were also supported by an affidavit of William Winkler, the plaintiff Winkler‘s president.
Although the construction was alleged to be of a “residence,” there was no allegation that the residence was to be for the owners’ use, that it was a single family residence, or whether the owners had paid the prime contractor in full by the time the notice was sent. Winkler asked that the court order the owners to show cause why a lien in the amount of $5,760 should not be established, and, once a lien was established, enforce it. Count II incorporated the allegations of Count I and asserted a breach of contract claim against
On July 8, 1997, in conformance with
Musser answered the complaint and denied that Winkler had performed the agreed-upon services and that any money was due to Winkler. The answer contained no factual basis for those denials—just the bald statements denying the allegations. Musser also filed a counterclaim alleging a breach of the subcontract and an abandonment of the job site by Winkler and seeking $20,000 in damages. In the counterclaim, Musser accused Winkler of filing the complaint for a mechanic‘s lien in bad faith and without substantial justification. Attached as exhibits were (1) a letter from Musser dated March 13, 1997, accusing Winkler of having abandoned the job and terminating the subcontract by reason of noncompliance, (2) a letter dated April 21, 1997, claiming gross damages from Winkler‘s breach in the amount of $13,000, less the balance due on Winkler‘s contract of $5,760, for a net claim of $7,240, and (3) several corroborating invoices. Musser did not ask for a jury trial on the counterclaim.
The owners never filed a response of any kind to the complaint and show cause order. Nor did they appear, personally or through counsel, at the hearing held on August 14. Musser appeared through counsel, arguing only that the dispute was really between Musser and Winkler and did not involve the owners. No one raised the question of whether
The order, filed on August 20, recited that, from the documents on file and the lack of any response from the owners, it appeared that there was no genuine dispute of material fact and that Winkler was entitled to a mechanic‘s lien as a matter of law. The order established a lien in the amount of $5,760, directed that the property be sold unless that amount was paid by September 15, 1997, appointed plaintiff‘s attorney as trustee to conduct the sale, directed that he file a bond in the amount of $7,500 and advertise the sale in a particular manner, and ordered the trustee, upon ratification of the sale, to convey the property to the purchaser.
On August 22, the owners and Musser, all represented by Musser‘s attorney, filed a motion to vacate and reconsider that final order. In that motion, they asserted that Musser, which also was a subcontractor, was defending the action on the owners’ behalf. They averred that, when the owners were served with the show cause order, they contacted their prime contractor, Valley Homes, which assured them “that the matter would be taken care of, as a mechanic‘s lien release bond was obtained so that no further action was required on their part.” Musser‘s attorney advised the court that the owners had personal knowledge of defects in the carpentry work, which Musser attributed to Winkler. It does not appear that the owners themselves made any assertion as to who was
On October 14, the owners and Musser filed a motion “to alter and revise denial of defendants’ petition to file a mechanic‘s lien release bond.” The thrust of that motion was a request that the court accept an attached bond in the amount of $5,760, release the land from the lien, vacate the order denying the earlier motion to vacate, and try the case on the merits. No reference to the conditions provided for in
The Court of Special Appeals, relying on its earlier decision in F. Scott Jay & Co., Inc. v. Vargo, 112 Md.App. 354, 685 A.2d 799 (1996), reversed the judgment, holding that the provisions of
The intermediate appellate court also admonished Winkler and, at least inferentially, its attorney, for not presenting to the court, with the complaint, the documents supplied by Musser indicating a dispute over Winkler‘s entitlement to the lien. At 556, 720 A.2d at 6, the court noted that a pleading in a mechanic‘s lien case is subject to the same scrutiny as any other verified pleading and concluded that, if the pleader “has information that is contrary to its sworn statements in the verified pleading,” it may not “ignore that contrary evidence and couch its pleading in a manner that, because of the withheld information, might mislead the court.” It also referenced Rule 3.3 of the Maryland Rules of Professional Conduct, dealing with “Candor Toward the Tribunal,” although it did not specify how (or whether) that rule had been transgressed.
We granted certiorari to address whether the allegations in Winkler‘s petition were sufficient to permit the trial court to issue a final lien upon the owner‘s failure to file an answer and to appear at the show cause hearing.
DISCUSSION
Jurisdiction
Before delving into the substantive issues, we need to comment on a jurisdictional matter. As noted, Winkler, in its complaint, not only sought a mechanic‘s lien against the owners’ property but also sued Musser for breach of contract. Musser filed a counterclaim against Winkler. Those claims, between Winkler and Musser, have never been resolved and
The Matters Before Us
On the facts of this case, the issue raised by Winkler embodies two sub-issues that need to be identified and addressed. One, certainly, is which party had the burden of pleading and proving whether, at the time Winkler sent notice of its intent to seek a lien, the owners had paid the prime contractor in full and, if not, the amount remaining unpaid. A second issue, which is governed by the answer to the first, is the effect of the owners’ failure to respond to the show cause order and to offer any information or evidence with respect to those matters.
A third issue, quite apart from the first two, arises from the gratuitous comment by the Court of Special Appeals suggesting that counsel for Winkler had a duty under Rule 3.3 of the Maryland Rules of Professional Conduct and Winkler itself had some pleading duty to disclose to the court documents in their possession—presumably the documents attached by Musser to its counterclaim—indicating a dispute over Winkler‘s entitlement to a lien.
Duty of Disclosure
The third issue stands alone, and we shall dispose of it first. We agree with the general statement that a party
Who Bears The Burden And How May It Be Met?
The mechanic‘s lien law has historically been construed “in the most liberal and comprehensive manner in favor of mechanics and materialmen.” T. Dan Kolker, Inc. v. Shure, 209 Md. 290, 296, 121 A.2d 223, 226 (1956) and cases cited therein. Indeed, the law itself provides that it is remedial and is to be construed to give effect to its purpose.
Prior to 1976, a mechanic‘s lien attached automatically as soon as the work was done or the materials were provided. That lien, created by operation of law, lasted for six months and could be extended simply by the contractor or subcontractor filing a claim with the clerk of the circuit court. See Barry Properties v. Fick Bros., 277 Md. 15, 19, 353 A.2d 222, 226 (1976). Upon that ex parte filing, the lien continued for an additional year, subject to the claimant‘s suing to enforce it or the owner or other interested person suing to compel the claimant to prove the validity of the claim. Theoretically, the lien could exist for as long as 18 months before the claimant was required to prove the underlying basis for it. The only condition, in the case of a subcontractor who did not deal directly with the owner, was that the subcontractor give written notice to the owner within 90 days after furnishing the work or material. The function of that notice was to allow the owner to protect itself by withholding the amount of the claim from what otherwise would be due to the prime contractor, subject to later resolution or adjudication. Barry Properties, supra, at 20, 353 A.2d at 226. As we indicated in Bounds v. Nuttle, 181 Md. 400, 406, 30 A.2d 263, 266 (1943):
“The theory of it is that the owner gets the benefit of the materials, and he has control of the money. If he negligently and carelessly pays the money out to the contractor without taking precautions to see that it is applied to the payment of the materials which go into the building, then he must stand the loss rather than the material man, who has no opportunity to protect himself once he has delivered the materials.”
See also Palmer Park Ltd. v. Marvelite, Inc., 255 Md. 121, 126, 257 A.2d 169, 171-72 (1968).
A more focused change, which underlies this appeal, came in 1982, with the enactment of 1982 Md. Laws, ch. 251. The fundamental purpose of that statute, articulated in its title, was to “limit[] the liability of an owner to a subcontractor for work performed and materials rendered by the subcontractor on a single family dwelling erected on the owner‘s land for his own residence, to the extent that the owner has rendered payment to the contractor.” The expressed intent of the Legislature was clearly remedial, but remedial, in this instance, in favor of the owner, rather than the claimant. The ability under the existing law of an owner, upon receipt of a subcontractor‘s notice, to withhold the amount of the claim from the prime contractor was obviously not regarded as sufficient protection in the case of a single family residence being built for the owner‘s own residential use. By the time the notice is received, the owner may already have paid the prime contractor or have accumulated set-offs or credits exceeding what is owed on the contract. The Legislature chose to achieve its intended result in three ways, all of which fit together: (1) by amending
It is often the case with well-intended beneficent legislation that a devil lurks in the unconsidered details, and the 1982 Act is no exception. The statute has produced a number of questions, not the least of which are those now before us. In 1986, the Court of Special Appeals dealt with the meaning of the phrase in
In Reisterstown Lumber v. Tsao, 319 Md. 623, 574 A.2d 307 (1990), we were required to determine the point at which the owners’ intent with respect to occupying a dwelling as their residence was to be determined. The claimant supplied materials for what undisputedly was a single family residence. The question was whether the owners intended the structure to be their residence. The evidence showed that, when the contract was entered into, they did intend to live in the house when it was completed, that, at some point during the construction, they changed their minds and listed the property for sale, but, that after receiving the claimant‘s notice of intent to claim a lien, they changed their minds again and eventually occupied the house themselves. We did not deal there with a dearth of allegations or evidence but rather with what to make of the evidence that was presented: at what point, given the owners’ fluctuating intents, was their intent to be fixed for purposes of determining whether
In addressing that issue, we noted the ever-present prospect of owners changing their minds during the construction period, for a wide variety of reasons, and the difficult problem that can cause in applying the statute. We stated, at 631, 574 A.2d at 311:
“In selecting the standard, ‘for [the owner‘s] own residence,’ the General Assembly surely did not intend to put on the lien claimant the burden of demonstrating a predominant intent over the entire course of construction in order to avoid the residential exception. Indeed, it is difficult enough to establish intent at the moment of the res gestae in the prosecution of some crimes. A construction of
§ 9-104(a)(2) which is heavily dependent on subjective intent or tracing, over a long period of time, the conduct of persons with whom the claimant has no privity would not allow liens to be established, or the residential exception to be applied, with relative simplicity.”
To avoid that uncertainty, we held that the owner‘s intent is to be determined when the subcontractor “commences an otherwise substantially uninterrupted performance of work for, or selling of materials to, the contractor.” Although the case did not directly involve the issue of burden of proof, it did point out the need for rules of interpretation that will allow the statute to operate efficiently and not place on claimants a burden so onerous as effectively to frustrate their ability to obtain liens.
In F. Scott Jay & Co. v. Vargo, supra, 112 Md.App. 354, 685 A.2d 799, it was undisputed that the claimant, a subcontractor, supplied materials to the prime contractor for use in constructing a single family dwelling intended for the owner‘s own residence and that $4,343 remained due and owing. Indeed, the subcontractor obtained summary judgment for that amount in its breach of contract action against the prime contractor. The dispute with regard to the mechanic‘s lien claim was whether the owners were indebted to the prime
With no discussion, the court concluded that, “[u]nder the express terms of [
We indicated above that we disagree in part with the conclusions of the Court of Special Appeals. We adhere to the view that, in general, the burden is on the claimant to establish its entitlement to a lien and that the owner bears no
The intermediate appellate court held that Winkler‘s petition was “not in compliance with the statute” because it “fails to allege the amount of the indebtedness of the property owners to the general contractor at the time the notice of intent to seek the lien was given....” Jerome v. Winkler, supra, 123 Md. App. at 552-53, 720 A.2d at 4. There are two problems with that ruling. First,
The more significant problem lies in the fact that such a requirement would be virtually impossible, in most instances, to satisfy. A subcontractor, which has no privity with the owner, will likely have no knowledge when it files a complaint, and no practical basis for acquiring knowledge at that time, of whether the owner had paid the prime contractor in full prior to the sending of the subcontractor‘s notice and, if not, the amount that remained unpaid at that time and whether the owner had any legitimate set-off to that amount.
The practical effect of the appellate court‘s ruling is to make virtually every complaint filed by a subcontractor legally insufficient. It is not a matter, as the court assumed, of the trial court entering an interlocutory lien subject to later proof
We do not believe that the Legislature intended that result, and we are unwilling to establish a rule that would encourage claimants, in order to avoid that result, to make allegations under oath for which they have no reasonable basis. That would, at the very least, be contrary to
The same practical problem is presented with respect to the production of evidence on that matter. The subcontractor is not likely to have evidence of what, if anything, remained unpaid on the prime contract. Only the owner, the prime contractor, and possibly the owner‘s construction lender will have that information, and none of them are likely to prove cooperative in sharing it with the subcontractor. A full range of discovery may be possible against the owner, but, unless the prime contractor is a party to the action, it will be far more limited with respect to that person and any construction lender.7
We believe that approach is a reasonable one to adopt in this situation. As noted, we adhere to our general rule that the overall burden of proving an entitlement to a lien remains with the claimant. If a subcontractor who has supplied labor or material to a single family dwelling properly alleges that which the statute and the Rule require, however, it may be presumed that, at the time the contractor‘s notice was sent, the owner was indebted to the prime contractor in an amount at least equivalent to the subcontractor‘s claim. Such a presumption is not pulled from the ether, but is justified by (1)
If the owner fails to raise the issue and present evidence on it, the court may credit the presumption, as in District Hgts. Apts., in determining whether the plaintiff has met the burden of establishing its entitlement to a lien. If the owner does raise the issue and presents evidence sufficient, prima facie, to establish that, at the time the subcontractor‘s notice was sent, the owner either had paid the prime contractor in full or was indebted for an amount less than the subcontractor‘s claim, a question of fact will be created as to which the plaintiff will have the ultimate burden of persuasion. This approach gives full force and effect to
Applying this principle to the case at hand, it is clear that the circuit court did not err in establishing the lien. The owners had ample opportunity to raise the issue of their indebtedness to the prime contractor and consistently failed to do so. They ignored the court‘s show cause order by neither filing an answer nor appearing at the hearing. Even after the lien was established, they failed, in their motion to alter the judgment, to raise the issue. It was not until they moved to stay enforcement of the lien, in October, that they complained of Winkler‘s failure to prove an indebtedness on their part to Valley Homes, but even then they made no assertion that they were not so indebted. To this day, they have never even alleged, much less offered evidence on, the status of the prime contract when Winkler‘s notice was sent. There thus being no countervailing evidence before the court, it could properly presume that the owners were still indebted to Valley Homes
JUDGMENT OF COURT OF SPECIAL APPEALS REVERSED; CASE REMANDED TO THAT COURT WITH INSTRUCTIONS TO AFFIRM JUDGMENT OF CIRCUIT COURT FOR CARROLL COUNTY; COSTS IN THIS COURT AND IN COURT OF SPECIAL APPEALS TO BE PAID BY RESPONDENTS.
ELDRIDGE and CATHELL, JJ., dissent.
CATHELL, Judge, dissenting:
I respectfully dissent. At page 254, the majority states: “As noted, we adhere to our general rule that the overall burden of proving an entitlement to a lien remains with the claimant.” As I read the majority‘s opinion, it does not adhere to the general rule.
The majority correctly notes at page 248 that the fundamental purpose of 1982 Md. Laws, Chap. 251, was to “limit[] the liability of an owner to a subcontractor for work performed and materials rendered by the subcontractor on a single family dwelling erected on the owner‘s land for his own residence, to the extent that the owner has rendered payment to the contractor.” The Court, however, has taken upon itself to minimize the legislative purpose because of the difficulties it perceives subcontractors may have in establishing a lien against an owner‘s property. The Legislature wanted it to be
The majority states at page 254 that if the statute is read sensibly (in other words, read as the majority thinks the statute should have been drafted), then it provides a fair and reasonable balance to the competing interests. In essence, the Court substitutes what it perceives to be a fair and reasonable balance for the preferential treatment of homeowners that the Legislature intended. The effect of the majority opinion is to set a course back to the status between subcontractors seeking liens and landowners that existed prior to the 1982 statute and this Court‘s decision in Barry Properties v. Fick Bros. Roofing Co., 277 Md. 15, 37, 353 A.2d 222, 235 (1976) (holding that the portion of the mechanic‘s lien statute that created a lien the moment the work was performed or the materials were furnished was unconstitutional because it violated owners’ due process rights under
To be fair, the majority discusses at some length the difficulty a potential lien holder will encounter in attempting to ascertain the nature of the ownership, intent to reside, and amount owed by the owner to a general contractor. It bases its bottom line, at least in part, on a perceived difficulty of proof. But at the inception of arrangements between homeowners and general contractors, there is no way, other than constant presence on-site, for an owner to be able to identify the subcontractors or materialmen. Even then, such a determination could be difficult. Furthermore, when a general contractor presents a signed release of liens, there is no way for the owner to know if the release is accurate, complete, or even authentically signed. Matters of proof could be equally difficult.
When, however, a complaint (petition) is filed by a subcontractor and service of process obtained, he has the ability to avail himself fully of all the discovery procedures available to any other litigant, including depositions, interrogatories, mo-
Each matter of which an admission is requested shall be deemed admitted unless, within 30 days after service of the request or within 15 days after the date on which that party‘s initial pleading or motion is required, whichever is later, the party to whom the request is directed serves a response signed by the party or the party‘s attorney.
Each of the matters such as ownership, residence, and indebtedness with the general contractor is particularly suited for such a request. The framing of a request for such admissions would not prove difficult.
Interrogatories likewise could be used to develop information. Depositions of the owner, general contractor, and even representatives of construction loan lenders could be taken. These people may not like to be deposed; most people do not. Regardless, they will be deposed anyway if litigants perceive that their testimony would be helpful.
Barry Properties began the process of protecting property owners from the abuses to which they had been subjected prior to that decision; the 1982 statute continued the trend of affording protection to some homeowners. The majority opinion, in my view, reverts to the time when subcontractors, who could not or chose not to protect themselves against the abuses general contractors sometimes inflicted upon them, held homeowners hostage financially. I decline to promote such a course of action and respectfully dissent.
Judge ELDRIDGE has authorized me to state that he joins in the views expressed herein.