Court Opinion

ID: 2716617
Source: CourtListenerOpinion
Date Created: 2014-08-08 18:10:08.902895+00
Date Added: 2024-06-11T15:22:15.622637
License: Public Domain

130 Nev., Advance Opinion 472-
                          IN THE SUPREME COURT OF THE STATE OF NEVADA

                   BYRD UNDERGROUND, LLC; AND                           No, 61978
                   WELLS CARGO, INC.,
                   Appellants,
                   vs.
                                                                                FILED
                   ANGAUR, LLC; BALAJI PROPERTIES                                AUG 0 7 2014
                   INVESTMENT, LLC; AND US BANK
                                                                                     C K cLINDEMAN
                   NATIONAL ASSOCIATION,                                  CLEI   •
                   Respondents.                                           BY        At E
                                                                                tirAriports::::
                                                                               11 I er

                                                                                         i
                               Certified questions, pursuant to NRAP 5, concerning the
                   priority of mechanics' liens based on visible commencement of
                   construction. United States Bankruptcy Court for the District of Nevada;
                   Bruce T. Beesley, Judge.
                               Questions answered in part.

                   Foley & Oakes, PC, and Daniel T. Foley, Las Vegas; M. Nelson Segel, Las
                   Vegas; Peel Brimley LLP and Eric B. Zimbelman and Richard L. Peel,
                   Henderson,
                   for Appellants.

                   Fennemore Craig Jones Vargas and Craig S. Dunlap and Christopher H.
                   Byrd, Las Vegas; Meier & Fine, LLC, and Glenn F. Meier, Las Vegas,
                   for Respondents.

                   BEFORE THE COURT EN BANC.

                                                   OPINION

                   By the Court, GIBBONS, C.J.:
                              In Nevada, a mechanic's lien takes priority over other
                   encumbrances on a property that are recorded after construction of a work
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                   of improvement visibly commences. The visible-commencement-of-
                   construction requirement often gives rise to dispute, however, and the
                   United States Bankruptcy Court for the District of Nevada has certified
                   three questions of law to this court regarding this aspect of mechanic's lien
                   priority law.'
                               The first question queries whether the placement of dirt
                   material on a future project site before building permits are issued and the

                         'The three certified questions were presented as follows:

                                     1. Can a mechanic's lien claimant properly
                               claim lien priority under NRS 108.225 when the
                               dirt/material that is the basis of the lien on the
                               project was placed on a prospective building
                               project site months before the building permit was
                               issued or the general contractor hired? Stated
                               another way, does placing significant quantities of
                               dirt/material on a prospective building project site
                               months before a building permit is issued
                               constitute "commencement of construction" on
                               such a site pursuant to NRS [108.221121?
                                     2. Did the Nevada Supreme Court in J.E.
                               Dunn Northwest, Inc. v. Corus Construction
                               Venture, LLC, 249 P.3d 501, 509, 127 Nev. Adv.
                               Op. 5 (Nev. 2011) mistakenly use the term of art
                               "clearing and grading" instead of "clearing and
                               grubbing" when describing preparatory work on a
                               construction project?
                                     3. Does "grading" in the circumstances
                               presented here constitute visible "commencement
                               of construction" under NRS 108.22112 for
                               purposes of establishing lien priority under NRS
                               108.225?

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                   general contractor is hired can constitute commencement of construction.
                   The second question asks us to clarify our decision in J.E. Dunn
                   Northwest, Inc. v. Corns Construction Venture, L.L.C.,   127 Nev. 249
P.3d 501 (2011), in which we stated that "clearing or grading" does not
                   constitute commencement of construction. 127 Nev. at 249 P.3d at
                   509. In our view, answering this question requires us to evaluate the
                   appropriate precedential weight that courts should give to the passage in
                   question, and we therefore rephrase the• second certified question to
                   include whether this statement was dictum.      See, e.g., Boorman v. Nev.
                   Mem'l Cremation Soc'y, 126 Nev. „ 236 P.3d 4, 6 (2010) (rephrasing
                   certified questions under NRAP 5). We rephrase the second question as
                   follows:
                               Was the passage in J.E. Dunn Northwest, Inc. v.
                               Corns Construction Venture, L.L.C., 127 Nev.     ,
                                     249 P.3d 501, 509 (2011), that states
                               "preparatory work on a site, such as clearing or
                               grading, does not constitute commencement of
                               construction," dictum? If so, can grading work
                               constitute visible commencement of construction
                               under NRS 108.22112?
                   Finally, the third question inquires whether the grading that took place in
                   this case constituted visible commencement of construction, such that the
                   mechanics' liens at issue take priority.
                               Because the second question influences our analysis of the
                   other questions, we address it first. We respond to the three questions as
                   follows. Regarding the bankruptcy court's second question, we conclude
                   that this court's use of the term "clearing or grading" was dictum, and
                   thus, our holding in J.E. Dunn does not preclude a trier of fact from
                   finding that grading property for a work of improvement constitutes
                   visible commencement of construction. Regarding the first question, we
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                conclude that contract dates and permit issuance dates are irrelevant to
                the visible-commencement-of-construction test, but may assist the trier of
                fact in determining the scope of the work of improvement. Finally, we
                decline to answer the third question because it would require this court to
                resolve the factual dispute as to whether the grading presented here
                constituted visible commencement of construction of the work of
                improvement.
                                   FACTS AND PROCEDURAL HISTORY
                The construction project
                              The debtor respondents Angaur, LLC, and Balaji Properties
                Investment, LLC (collectively, the owners), jointly purchased a parcel of
                unimproved real property in Las Vegas, Nevada. No relevant activity took
                place with respect to the subject property until the spring and summer of
                2006; when two different third parties placed, and allegedly spread,
                between 200 and 300 truckloads of dirt/material on the property. 2 Both of
                the third parties were performing work on unrelated construction projects
                on neighboring parcels and roadways. The degree to which the subject
                property was covered and subsequently spread or graded is unclear given
                the record before this court.
                              Meanwhile, the owners solicited bids from general contractors
                to construct a strip mall on the property. During bidding on the project,

                      2 The parties could not agree what to call the substance that was
                placed on the property, so the bankruptcy court used the term
                "dirt/material." The bankruptcy court noted that it did not intend the
                term to carry any specific legal meaning. We also will use the term
                "dirt/material" to remain consistent with the bankruptcy court.

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                appellant Byrd Underground, LLC, submitted a bid to general contractor
                Joseph's Construction to perform subcontracted grading work, but Atlas
                Construction Ltd., not Joseph's Construction, was selected as the general
                contractor. On November 2, 2006, at the request of Atlas, a representative
                of Byrd dug four to six holes on the subject property with a backhoe. Byrd
                dug these holes to determine how much dirt/material had been brought
                onto the subject property since its prior bid in order to submit a revised
                bid to Atlas incorporating the new scope of work. On November 8, 2006,
                Atlas and the owners executed the written contract for Atlas to serve as
                the general contractor on the construction project.
                              On November 28, 2006, a title company conducted a site
                inspection of the subject property and concluded that the land was vacant
                and that there was no evidence of a recent work of improvement.
                Thereafter, the owners borrowed funds from PFF Bank & Trust for the
                purpose of constructing the strip mall on the subject property, 3 and on
                November 29, 2006, a deed of trust for the construction loan was recorded
                with the Clark County Recorder. Byrd had not performed any work on the
                subject property prior to November 29, 2006, other than digging the test
                holes and submitting bids to Joseph's Construction and Atlas.
                              Subsequently, a dust control permit and a building permit
                were issued for the subject property. During construction, Atlas used and
                incorporated at least a portion of the dirt/materials into the construction
                project. Atlas and Byrd executed three written subcontracts—for wet

                      3 PFF
                          Bank eventually went into FDIC receivership and respondent
                US Bank now claims ownership of the construction loan and deed of trust.

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                 utilities, dry utilities, and grading—in 2007.         Byrd and another
                 subcontractor, appellant Wells Cargo, Inc. (collectively, lien claimants),
                 provided services for the construction project but were not paid. As a
                 result, they commenced mechanic's lien actions in state court and obtained
                 judgments against Angaur, Balaji, and Atlas.
                 Angaur and Balaji file bankruptcy petitions and the lien claimants'
                 objections lead the bankruptcy court to certify questions to this court
                             After the construction project was completed, the owners filed
                 voluntary petitions for relief under Chapter 11 of the Bankruptcy Code.
                 Both of the owners' schedules of creditors holding secured claims included
                 (1) a "[first [m]ortgage" to US Bank, and (2) both lien claimants' judgment
                 liens. The owners and US Bank entered into a forbearance agreement and
                 created a disclosure statement and plan of reorganization with the
                 bankruptcy court that stated that US Bank was the only "Class 1" secured
                 creditor.
                             The lien claimants filed an objection to the owners' disclosure
                 statement and plan of reorganization, and they subsequently filed an
                 adversary complaint in bankruptcy court to determine the priority of liens.
                 At the close of discovery, the owners, US Bank, and the lien claimants
                 filed competing motions for summary judgment.
                             During briefing on the competing motions for summary
                 judgment, the lien claimants requested that the bankruptcy court certify
                 questions to this court in order to clarify whether this court in J.E. Dunn
                 mistakenly used the term "clearing [or] grading" instead of "clearing and
                 grubbing" when describing non-"construction" preparatory work on a
                 construction project. The lien claimants argued that "clearing and
                 grubbing" is a recognized term of art used in the construction industry,
                 whereas "clearing and grading" is not. Additionally, the lien claimants
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                argued that evidence of the dirt/materials being spread or graded on the
                subject property creates genuine issues of material fact regarding when
                the construction visibly commenced sufficient to avoid summary judgment.
                In response, the bankruptcy court certified questions to this court.
                                               DISCUSSION
                Priority of mechanics' liens in Nevada
                            A mechanic's lien is a "statutory creature established to help
                ensure payment for work or materials provided for construction or
                improvements on land."        In re Fontainebleau Las Vegas Holdings
                (Fontainebleau II), 128 Nev. „ 289 P.3d 1199, 1210 (2012); see also
                Hearing on S.B. 343 Before the Assembly Judiciary Comm, 73d Leg.
                (Nev., May 13, 2005) (indicating that mechanics' liens "assist people who
                have improved real property so that they can get paid for their efforts").
                Here, the parties do not dispute that the lien claimants performed lienable
                work. But "whether work is entitled to a lien pursuant to NRS 108.22184
                and whether it is entitled to priority over other encumbrances pursuant to
                NRS 108.225 are two entirely separate issues." J.E. Dunn, 127 Nev. at
                , 249 P.3d at 507.
                            Relevant to the priority issue, Nevada's mechanic's lien
                priority statute, NRS 108.225, provides that mechanics' liens are entitled
                to priority over any encumbrance that attaches after construction of a
                work of improvement began:
                                 1. The liens provided for in NRS 108.221 to
                            108.246, inclusive, are preferred to:
                                 (a) Any lien, mortgage or other encumbrance
                            which may have attached to the property after the
                            commencement of construction of a work of
                            improvement.

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                                   2. Every mortgage or encumbrance imposed
                            upon, or conveyance made of, property affected by
                            the liens provided for in NRS 108.221 to 108.246,
                            inclusive, after the commencement of construction
                            of a work of improvement are subordinate and
                            subject to the liens provided for in NRS 108.221 to
                            108.246, inclusive, regardless of the date of
                            recording the notices of liens.
                Thus, if construction has commenced on a "work of improvement" before a
                deed of trust is recorded, then a mechanic's lien will take a priority
                position over the deed of trust regardless of when the notice of lien is
                recorded. NRS 108.225; see J.E. Dunn, 127 Nev. at , 249 P.3d at 509;
                Fontainebleau II, 128 Nev. at , 289 P.3d at 1211. Moreover, to claim
                priority, a claimant itself need not perform before the deed of trust is
                recorded, so long as the work of improvement began before the deed's
                recordation, because "all mechanics' liens relate back to the date overall
                construction is commenced." J.E. Dunn, 127 Nev. at n.2, 249 P.3d at
                504 n.2. As a result, in this case, the lien claimants are entitled to priority
                positions over the deed of trust if the work of improvement's construction
                commenced, as those terms are defined by statute, on the subject property
                before the deed of trust was recorded on November 29, 2006.
                Visibility of the work of improvement alone determines priority
                            NRS 108.22112 defines "[c]ommencement of construction" as
                            the date on which:
                                   1. Work performed; or
                                 2. Materials or equipment furnished in
                            connection with a work of improvement,
                            is visible from a reasonable inspection of the site.
                This court analyzed NRS 108.22112 in J.E. Dunn and concluded that,
                consistent with "the recognized policy interest in maintaining certainty

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                and predictability in construction financing," which would be hindered if
                lenders were forced to assume the risk associated with funding a
                construction project over which nonvisible work could grant contractors
                priority, "visibility alone determines priority." 127 Nev. at „ 249
P.3d at 508, 506. We then reviewed the preconstruction activities that
                Dunn—the lien claimant—had performed, in light of NRS 108.22112's
                visibility standard. In doing so, we stated, "[o]ther courts have more
                generally held, and we agree, that preparatory work on a site, such as
                clearing or grading, does not constitute commencement of construction."
                Id. at ,249 P.3d at 509 (citing Clark v. Gen. Elec. Co., 420 S.W.2d 830,
                833-34 (Ark. 1967), superseded by statute as stated in May Constr. Co. v.
                Town Creek Constr. & Dev., L.L.C., 383 S.W.3d 389, 392-95 (Ark. 2011)).
                Because placing an architect's sign at the project site and removing power
                lines was "insufficient to provide lenders notice of lienable work entitled to
                priority," we held that those preconstruction activities failed to constitute
                visible commencement of "'actual on-site construction."       Id. at , 249
                P.3d at 509 (quoting Aladdin Heating Corp. v. Trs. of Cent. States, 93 Nev.
257, 260, 563 P.3d 82, 84 (1977)).
                            Regarding the second question, the lien claimants take issue
                with our statement in J.E. Dunn that listed "clearing or grading" as types
                of nonvisible preparatory work that fail to establish construction
                commencement, and they argue that the statutes require merely that
                construction be visible to a reasonable site inspection to establish lien
                priority. J.E. Dunn, 127 Nev. at , 249 P.3d at 504-05 (citing Aladdin
                Heating, 93 Nev. at 260, 563 P.2d at 84). The lien claimants argue that it
                is unnecessary to declare broad categories of construction activities per se
                "nonvisible," thereby depriving the trier of fact of the opportunity to

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                evaluate the visibility of such activities on a case-by-case basis. As
                concerns clearing and grading, we agree.
                            As noted, mechanics' liens have priority over other
                encumbrances that attach to the property after "the [visible]
                commencement of construction of a work of improvement." NRS
                108.225(1)(a). NRS 108.22188 defines "[w]ork of improvement" as the
                "entire structure or scheme of improvement as a whole, including, without
                limitation, all work, materials and equipment to be used in or for the
                construction, alteration or repair of the property or any improvement
                thereon." Nothing in these provisions excludes preconstruction activities
                from the definition of work of improvement, and indeed, subsection 2 of
                NRS 108.22188 expressly recognizes that activities undertaken to prepare
                the project site can be a work of improvement. NRS 108.22188(2) (stating
                that "the improvement of the site" may be "contemplated by the contracts
                to be a separate work of improvement to be completed before the
                commencement of construction of the buildings"). Moreover, NRS
                108.22128 defines "Mmprovement," in pertinent part, as including
                buildings, irrigation systems and landscaping, removal of trees or other
                vegetation, the drilling of test holes, and grading, grubbing, filling, or
                excavating. In construing these provisions together, as we must, City of
                N. Las Vegas v. Warburton, 127 Nev. „ 262 P.3d 715, 718 (2011),
                we conclude that the trier of fact must look to the entire structure or
                scheme of improvement as a whole—the "overall construction"—rather
                than solely evaluating the activities based on whether they are
                preparatory or structural or vertical construction, in determining whether
                construction on a work of improvement has commenced.       J.E. Dunn, 127
                Nev. at n.2, 249 P.3d at 504 n.2.

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                             Accordingly, grading work can be an integral part of the
                 "entire structure or scheme of improvement as a whole" and part of the
                 actual on-site construction. NRS 108.22188. If it is, grading may be
                 sufficient to establish commencement of construction in Nevada as long as
                 it is visible from a reasonable inspection of the site sufficient to provide
                 lenders notice that lienable work has commenced, and we are unwilling to
                 conclude, as a matter of law, that on-site grading work can never place
                 lenders on notice that lienable work has begun. NRS 108.22112; see also
                 May Constr. Co., 383 S.W.3d at 392-94 (construing Arkansas's mechanic's
                 lien statute "just as it reads, giving the words their ordinary and usually
                 accepted meaning in common language" in determining that grading can
                 constitute commencement of construction).
                             This holding is consistent with J.E. Dunn, in which we
                 explained that the visibility requirement for determining lien priority
                 applies to preconstruction activities. 127 Nev. at „ 249 P.3d at 507-
                 08, To the extent that the examples of nonconstruction preparatory work
                 in J.E. Dunn suggest otherwise, neither clearing nor grading were at issue
                 in that case, and thus the examples are mere dicta.     See St. James Vill.,
                 Inc. v. Cunningham, 125 Nev. 211, 216, 210 P.3d 190, 193 (2009). We take
                 this opportunity to clarify that J.E. Dunn does not preclude a trier of fact
                 from finding that clearing and grading work constitutes visible
                 commencement of construction of a work of improvement. We thus
                 answer the second question, as we have rephrased it, in the affirmative:
                 our statement in J.E. Dunn, 127 Nev. at , 249 P.3d at 509, regarding
                 "clearing or grading" was dictum, and grading work may constitute visible
                 commencement of construction under NRS 108.22112.

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                  Contract dates and permit issuance dates are irrelevant to the visible-
                  commencement-of-construction test set forth by NRS 108.22112
                              The bankruptcy court's first certified question asks whether a
                  mechanic's lien claimant can properly claim lien priority under NRS
                  108.225 based on work that was performed or materials that were
                  delivered months before the building permit was issued and the general
                  contractor was hired. The lien claimants argue that the plain language of
                  MRS 108.225 and NRS 108.22112 require visibility, and that nothing in
                  the statutes conditions the priority of a lien on the issuance of permitting
                  or contract dates. The lien claimants argue that the timing of contracts
                  and permits related to a given project is irrelevant to the issue of whether
                  the delivery of materials or the performance of work had, in fact, been
                  furnished prior to the date the deed of trust was recorded. We agree.
                              Here, "the meaning of NRS 108.22112 is plain and requires
                  visibility for work performed, including preconstruction services, in order
                  for a mechanic's lien to take a priority position over a deed of trust."   J.E.
                  Dunn, 127 Nev. at , 249 P.3d at 506-07; see also Aladdin Heating, 93
Nev. at 260, 563 P.2d at 84. Thus, any subjective intent on the part of an
                  owner to commence construction on a given date, based on either a
                  contract or permit issuance date, is not an element of the commencement
                  of construction and should therefore not be considered dispositive.        See
                  May Constr., 383 S.W.3d at 395 (concluding that the district court erred
                  when it failed to make factual determinations regarding objective, visible
                  manifestation of activity on the property, and instead ruled that
                  construction did not commence until after the mortgage was recorded
                  based on the perceived intent of the lender).
                              But while the date of the contract or permits does not directly
                  affect priority, the contract and permits may have some bearing on the
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                issue, because the fact-finder must define the work of improvement before
                it can determine when that work of improvement visibly commenced. In
                this regard, contracts and permits may assist in determining the scope of
                the work of improvement's "structure or scheme ... as a whole." NRS
                108.22188. If the contract expressly or impliedly excludes certain work,
                then that work might not be a part of the "work of improvement."           See
                Schultz v. King, 68 Nev. 207, 212-13, 228 P.2d 401, 404 (1951) (looking to
                the contract in addressing the possible scope of a work of improvement);
                see also L Cox Constr. Co. v. CH2 Invs., L.L.C., 129 Nev. „ 296 P.3d
1202, 1205 (2013) (determining a work of improvement's scope by looking
                to the purpose, impetus, and continuity of the work, the parties'
                contemplations regarding the project, the building and operating permits,
                and the timing of the work in relation to the rest of the construction).
                            Thus, we answer the first question in the affirmative, with a
                caveat: a mechanic's lien claimant may properly claim lien priority under
                NRS 108.225 when the work or material forming the basis of the lien's
                priority was placed or performed on the site "months before the building
                permit was issued or the general contractor hired," as long as there was,
                in fact, visible commencement of construction as defined by NRS
                108.22112 and as long as all of the work or material placed or performed
                on the site in the prior months was a part of the same work of
                improvement under NRS 108.22188 as the later work giving rise to the
                mechanic's lien.
                We decline to answer the third certified question because it asks this court
                to make findings of fact that should be left to the bankruptcy court
                            The third certified question asks: "[d] oes 'grading' in the
                circumstances presented here constitute visible 'commencement of
                construction' under NRS 108.22112 for purposes of establishing lien
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                priority under NRS 108225?" But the visibility, scope, and duration of a
                work of improvement generally are factual questions for the trier of fact to
                decide, L Cox Construction, 129 Nev. at 296 P.3d at 1205, and this
                court recently noted that it cannot make findings of fact in responding to a
                certified question. In re Fontainebleau Las Vegas Holdings (Fontainebleau
                I), 127 Nev. „ 267 P.3d 786, 795 (2011). "The answering court's role
                is limited to answering the questions of law posed to it, and the certifying
                court retains the duty to determine the facts and to apply the law provided
                by the answering court to those facts."    Id. at 267 P.3d at 794-95.
                "This approach prevents the answering court from intruding into the
                certifying court's sphere by making factual findings or resolving factual
                disputes." Id. at , 267 P.3d at 795.
                            The dispute between the parties as to whether the importing
                and spreading or grading of the dirt/material in this case constituted
                visible "commencement of construction" of one comprehensive "work of
                improvement" is, as explained above, of an intensively factual nature.
                Given these unresolved factual disputes, we decline to answer the third
                question.
                                              CONCLUSION
                            We conclude that this court's use of the term "clearing or
                grading" in J.E. Dunn Northwest, Inc. v. Corus Construction Venture,
                L.L.C., 127 Nev. „ 249 P.3d 501, 509 (2011), was dictum and does
                not alter our ultimate holding that visibility alone determines priority.
                We therefore clarify that grading work may constitute visible
                commencement of construction of a work of improvement in some
                circumstances, as long as it is visible from a reasonable inspection of the
                site in a manner sufficient to provide notice of lienable work that may be
                entitled to priority. Additionally, we conclude that contract dates and
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                        permit issuance dates are irrelevant to the visible-commencement-of-
                        construction test set forth by NRS 108.22112, but may assist the trier of
                        fact in determining the scope of the work of improvement. Finally, we
                        decline to decide whether the circumstances presented here constitute
                        visible commencement of construction under MRS 108.22112 of a
                        comprehensive work of improvement under NRS 108.22188 because it
                        would require this court to resolve thOactual dispute between the parties.

                                                             Gibbons

                        We concur:

                          tehiL                         J.
                        Pickering

                                                        J.
                        Hardesty

                                                        J.
                        Parraguirre

                                                        J.

                                                    ,   J.
                        Saitta

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