Source: http://mn.gov/law-library-stat/archive/ctapun/0501/opa040906-0111.htm
Timestamp: 2017-10-21 19:41:56
Document Index: 608146179

Matched Legal Cases: ['§ 514', '§ 514', '§ 514', '§ 514', '§ 514', '§ 514', '§ 514', '§ 514', '§ 514', '§ 514']

J. Roux Design & Associates, Inc., Appellant, vs. Dennis Backes, et al., Defendants, Vogue Design & Realty, Inc., et al., Respondents, Ulf Henriksson, et al., Respondents, and Ulf Henriksson, et al., Third Party Plaintiffs, vs. Superior Value Homes, Inc., Third Party Defendant, Respondent. A04-906, Court of Appeals Unpublished, January 11, 2005.
A04-906
J. Roux Design & Associates, Inc.,
Dennis Backes, et al.,
Vogue Design & Realty, Inc., et al.,
Ulf Henriksson, et al.,
Superior Value Homes, Inc., Third Party Defendant,
File No. LN03-04203
William G. Clelland, Anna Krause Crabb, Carson, Clelland & Schreider, 6300 Shingle Creek Parkway, Suite 305, Minneapolis, MN 55430 (for appellant)
John J. Bergland, Berglund & Baumgartner Ltd., 2140 Fourth Avenue North, Anoka, MN 55303 (for respondents Vogue Design & Realty, Vogue Homes, and Eric Vogstrom)
Katherine M. Bergenthal, Steven R. Little, Coleman, Hull & Van Vliet, PLLP, 8500 Normandale Lake Boulevard, Suite 2110, Minneapolis, MN 55437 (for respondents Ulf and Anneli Henriksson)
James E. Betz, 2140 Fourth Avenue North, Anoka, MN 55303 (for respondent Superior Value Homes)
Appellant J. Roux Design & Associates, Inc., challenges the district court's order discharging a mechanic's lien filed by it. Roux Design argues the district court erred by concluding that no lien attached because Roux Design failed to comply with statutory prelien notice requirements. We affirm.
In May 2002, Dennis Backes sold property in Minnetonka to respondent Superior Value Homes, Inc. pursuant to an unrecorded contract for deed whereby Superior was to design and construct a residence on the property. The contract required that Superior make various specific improvements to the property. Superior then entered into an oral contract with respondent Vogue Design & Realty, Inc. to design and construct the home whereby Vogue hired the subcontractors and Superior paid them; Superior and Vogue agreed to divide the proceeds from the sale of the home. Vogue contracted with Roux Design to do certain construction work on the home. Roux Design planned to complete the work by using subcontractors and material suppliers.
On January 9, 2003, after a pay dispute arose between Roux Design and Vogue, Roux Design filed a mechanic's lien with the Hennepin County Recorder for approximately $26,000, the alleged value of the work performed by Roux Design. It is undisputed that Roux Design did not serve any prelien notices before filing the lien. Although Roux Design sent lien statements by certified mail to business addresses used by Backes and Vogue, as required Minn. Stat. § 514.08, subd. 2 (2002), it is undisputed that Roux Design did not attempt to serve a lien statement upon Superior by any means. On January 15 2003, Superior sold the property and residence by warranty deed to respondents Ulf and Anneli Henriksson.
In March 2003, Roux Design commenced a lien foreclosure proceeding against Backes, Vogue, and the Henrikssons. The complaint also alleged breach of contract and unjust enrichment and requested foreclosure of the mechanic's lien. Roux Design's claim did not name Superior, which became a party to this matter only when the Henrikssons brought a third-party complaint against it for indemnification from costs arising from defending their property rights against the lien. In September 2003, the parties stipulated to the dismissal of all claims against Backes and his businesses.
Vogue moved the district court for summary judgment as to the mechanic's lien, arguing the lien must be discharged because Roux Design had failed to file a prelien notice, as required by statute, and had failed to properly serve the lien statements. The district court granted Vogue's motion, reasoning that Roux Design's conceded failure to serve a prelien notice on any person or entity involved with the ownership, construction, or improvement of the property rendered its lien invalid pursuant to Minn. Stat. § 514.011, subd. 1 (2002). The court rejected Roux Design's argument that its failure to file a prelien notice was immaterial because a constructive lien had arisen against Backes by operation of section 514.06. The court also concluded that Roux Design's service of the lien was sufficient as to Vogue and Backes and insufficient as to Superior, but that the issue was moot in light of Roux Design's failure to file a prelien notice.
The court discharged Roux Design's mechanic's lien, ordered that judgment be entered as to that issue, and observed that the matter will continue as to Roux Design's breach of contract and unjust enrichment claims.
On appeal from summary judgment, this court must determine whether there are any genuine issues of fact and whether the district court erred in its application of the law. Wiederholt v. City of Minneapolis, 581 N.W.2d 312, 315 (Minn. 1998). Construction of a statute, such as the mechanic's lien statute, is a question of law reviewed de novo on appeal. Ryan Contracting, Inc. v. JAG Invs., Inc., 634 N.W.2d 176, 181 (Minn. 2001).
"Mechanic's lien laws are strictly construed as to the question whether a lien attaches, but are construed liberally after the lien has been created." Dolder v. Griffin, 323 N.W.2d 773, 780 (Minn. 1982) (quotation omitted); see also Pella Prods., Inc. v. Arvig Tel. Co., 488 N.W.2d 316, 318 (Minn. App. 1992) (stating that mechanics' liens must be strictly construed so as not to give statutory language "an application and meaning not intended by the legislature"), review denied (Minn. Sept. 30, 1992).
1. Minn. Stat. § 514.011 (2002) requires that every contractor "who enters into a contract with the owner for the improvement of real property and who has contracted or will contract with any subcontractors or material suppliers to provide labor, skill or materials for the improvement" must give the property owner notice of the subcontractors' right to make claims or liens upon the contractor's failure to pay and of the owner's right to ensure payment to the subcontractors. Id., subd. 1. "Owner" is defined by the statute as
the owner of any legal or equitable interest in real property whose interest in the property (1) is known to one who contributes to the improvement of the real property, or (2) has been recorded or filed for record if registered land, and who enters into a contract for the improvement of the real property.
Id., subd. 5. A general contractor or subcontractor who "fails to provide the notice shall not have the lien and remedy provided by this chapter." Id., subd. 1.
The notice requirement's "evident purpose [is] to protect an owner from hidden liens arising from labor or materials supplied to the contractor by subcontractors or materialmen who extended credit to the contractor on the security of the owner's property and whose identities were unknown and often unascertainable by the owner." Nasseff v. Schoenecker, 312 Minn. 485, 490-91, 253 N.W.2d 374, 377 (1977). "Minn. Stat. § 514.011 should be strictly construed as to prelien notice because this statute was adopted to remedy the unfairness arising from the foreclosure of mechanics liens on property of unsuspecting owners." Dolder, 323 N.W.2d at 780 (quotation omitted). Because section 514.011 is remedial and protective, the notice required therein functions as a condition precedent to the attachment of a contractor's lien: "The pre-lien notice is no mere technicality. Failure to give the notice defeats the mechanic's lien. There must be strict compliance with the pre-lien notice statutory requirements." Merle's Constr. Co. v. Berg, 442 N.W.2d 300, 302 (Minn. 1989) (citation omitted).
It is undisputed here that Roux Design contracted with Vogue for the improvement of the property and subsequently hired subcontractors and material suppliers to perform the work. Roux Design argues that it should have its lien despite its failure to give the prelien notice because it did not know at the time it contracted to do the work that, or if, Backes, Vogue, or Superior had an ownership interest in the property and because none of the three met the statutory definition of a "property owner" for the purposes of notice.
This argument disregards the prelien statute's purpose of protecting property owners from hidden liens filed by unpaid contractors and creates the possibility of the very situation the statute was intended to prevent. As to Backes, the registered property owner here, and Superior, the equitable owner, Roux Design simply asserts that those parties' interest was not "known to it," as required by section 514.011, subd. 5. We have previously observed that a contractor who is "aware of a vendor's interest in the property and, for whatever reason, put[s] on 'blinders' rather than taking the simple step of inquiring as to [the owner's] identity," is not excused from the prelien requirement thereby. Custom Design Studio, a Div. of L.B. Baron Props., Inc. v. Chloe, Inc., 584 N.W.2d 430, 433 (Minn. App. 1998), review denied (Minn. Nov. 24, 1998).
We therefore find no merit in Roux Design's argument concerning Backes that a contractor need not make a minimal effort to identify a property owner who – though unknown in name – must logically be presumed to exist. See id. (observing that contractor has "duty of inquiry" with respect to "identity of an unknown person with a known [property] interest" and may not escape prelien requirement by refusing to make inquiry).
As to Superior, the undisputed record demonstrates that Superior paid Roux Design directly with a check issued from Superior's account with the word "Vogue" written above Superior's name and the address of the subject property written in the memorandum line. Consistent with Custom Design Studio, we conclude as a matter of law that Roux Design is not excused from the prelien requirement solely because it chose to avoid "taking the simple step of inquiring as to [the owner's] identity," id., particularly where it was presented with documents indicating that both Superior and Vogue were involved in the improvements.
As to Vogue, Roux Design maintains that it was erroneously led to believe that Vogue was an owner because Vogue held itself out to Roux Design as the owner in advertisements and on the building permit for the property improvement. Even assuming, as we must in the context of the motion for summary judgment, that Roux Design was led to believe that Vogue was the owner, the record is clear that Roux Design failed to give Vogue prelien notice. We conclude that whether or not Roux Design believed that either Superior or Vogue was the property owner, its failure to serve prelien notice on either one evinces a disregard for the purpose of the prelien statute.
Roux Design knew when it contracted with Vogue that it would have to use subcontractors and material suppliers, and nevertheless failed to give or attempt to give the mandatory prelien notice to Vogue, Superior, or Backes, and thereby failed to meet the statutory condition precedent to obtaining a lien. To adopt Roux Design's reasoning for its failure to comply with the statute would be to transform the statutory prelien notice – a condition precedent to a lien – into a condition subsequent, thereby thwarting the statute's preemptive purpose.
Mechanics' liens are statutory creations that depend for their existence on rights and procedures granted by the legislature, and we are bound to strictly construe them so as not to give the statutory language "an application and meaning not intended by the legislature." Pella Prods., 488 N.W.2d at 318. We therefore conclude as a matter of law that in order to have a valid lien, Roux Design was required to serve a prelien notice; because it failed to do so, Roux Design was not entitled to the remedy of mechanic's lien foreclosure.
2. Roux Design argues that despite its failure to give prelien notice, a lien arises here under Minn. Stat. § 514.06 (2002), which provides:
When improvements are made by one person upon the land of another, all persons interested therein . . . shall be deemed to have authorized such improvements, in so far as to subject their interests to liens therefor. Any person who has not authorized the same may protect that person's interest from such liens by serving . . . written notice that the improvement is not being made at that person's instance, or by posting like notice[.]
Roux Design argues that because Backes failed to protect his interest against liens by disclaiming the improvements performed by Roux, he was not entitled to prelien notice.
Roux Design's argument in favor of the applicability of section 514.06 relies primarily on Korsunsky Krank Erickson Architects, Inc. v. Walsh, 370 N.W.2d 29 (Minn. 1985). There, a fee owner entered into an option contract with a developer to sell commercial retail estate on which the developer intended to build a mall; the developer hired Korunsky, an architectural firm, to work on the project. Korunsky, 370 N.W.2d at 30. The developer abandoned the contract, and Korunsky sought recovery against the property owner under Minn. Stat. § 514.06. Id. The court held a lien arose against the owner by operation of section 514.06 because the fee owner had actual knowledge of the improvement and failed to disclaim it. Id.
We find Korunsky inapposite. First, in that case, the improved property was exempt from the prelien requirement under section 514.011 because it was nonresidential and was to provide more than 5,000 total usable feet of floor space. See id. at 33 n.2. The subject property in this matter was not exempt from prelien notice. Second, Korunsky involved a forfeited contract; there was no forfeiture here.
Roux Design also relies upon Nasseff in support of the proposition that a contractor is always free to disregard the lien-notice statute as long as the owner has knowledge of the improvements. We find Nasseff distinguishable. There, the court held that a fee owner's knowledge of lessee-initiated improvements, and his failure to object to such improvements, subjects his interest to mechanics' liens if the contractors did not contract with subcontractors or materialmen. Id. at 492 (stating that prelien requirement does not apply where lien claimant has "entered into no subsidiary contracts for the improvements"). Here, Roux Design used the services of both subcontractors and materialmen, and was bound to preserve its lien rights by filing prelien notice.
We disagree with Roux Design's argument that either Korunsky of Nasseff authorizes it to use Minn. Stat. § 514.06 as an alternative basis for its lien where it has no lien for failure to comply with the notice requirement set forth in Minn. Stat. § 514.011. We further observe that the parties stipulated in September 2003 to the dismissal of all claims against Dennis C. Backes and his businesses. Roux Design now argues that Backes must be considered a property owner subject to a lien for the purpose of section 514.06 but must not for the purpose of the prelien requirement; this argument is both inconsistent and an impermissible attempt to frustrate legislative purpose by transforming section 514.06 into an alternative remedy for contractors who fail to comply with section 514.011.
3. Roux Design argues the district court erred in concluding it did not effect service of the lien statement upon Superior. Because we conclude that Roux Design's lien failed by its failure to comply with the prelien requirement, we do not reach the service issue.
Roux Design was obligated – but failed – to give the prelien notice required of contractors under Minn. Stat. § 514.011, subd. 1. That obligation was not excused by operation of Minn. Stat. § 514.06. We therefore conclude that the district court did not err in granting respondents partial summary judgment and discharging Roux Design's lien.