Court Opinion

ID: 1038827
Source: CourtListenerOpinion
Date Created: 2013-08-28 22:10:22.448986+00
Date Added: 2024-06-11T15:26:30.338302
License: Public Domain

IN THE SUPREME COURT OF THE STATE OF IDAHO

                                         Docket No. 39415

AMERICAN BANK, a Montana banking                    )
corporation,                                        )
                                                    )
      Plaintiff-Cross Defendant-Appellant-          )
      Cross Respondent,                             )       Coeur d’Alene, April 2013 Term
                                                    )
v.                                                  )       2013 Opinion No. 89
                                                    )
WADSWORTH GOLF CONSTRUCTION                         )       Filed: August 16, 2013
COMPANY OF THE SOUTHWEST, a                         )
Delaware corporation,                               )       Stephen Kenyon, Clerk
                                                    )
      Defendant-Cross Defendant-Respondent-         )
      Cross Appellant,                              )
                                                    )
and                                                 )
                                                    )
TAYLOR ENGINEERING, INC., a                         )
Washington corporation,                             )
                                                    )
      Defendant-Third Party Plaintiff,              )
                                                    )
and                                                 )
                                                    )
BRN DEVELOPMENT, INC., an Idaho                     )
corporation; BRN INVESTMENTS, LLC, an               )
Idaho limited liability company; LAKE               )
VIEW AG, a Lichtenstein company; BRN-               )
LAKE VIEW JOINT VENTURE, an Idaho                   )
general partnership; ROBERT LEVIN                   )
Trustee for the ROLAND M. CASATI                    )
FAMILY TRUST, dated June 5, 2008; E.                )
RYKER YOUNG, Trustee for the E. RYKER               )
YOUNG REVOCABLE TRUST;                              )
MARSHALL CHESROWN, a single man;                    )
THORCO, INC., an Idaho corporation;                 )
CONSOLIDATED SUPPLY COMPANY, an                     )
Oregon corporation; THE TURF                        )
CORPORATION, an Idaho corporation;                  )
POLIN & YOUNG CONSTRUCTION, INC.,                   )
an Idaho corporation; PRECISION                     )
IRRIGATION , INC., an Arizona                       )

                                                1
corporation; and                         )
                                         )
     Defendants-Cross Defendants,        )
                                         )
                                         )
and                                      )
                                         )
IDAHO ROOFING SPECIALIST, LLC, an )
Idaho limited liability company;         )
INTERSTATE CONCRETE & ASPHALT            )
COMPANY, an Idaho corporation;           )
CONCRETE FINISHING, INC., an Arizona )
corporation; and SPOKANE WILBERT         )
VAULT CO., a Washington corporation, dba )
WILBERT PRECAST,                         )
                                         )
     Defendants,                         )
                                         )
and                                      )
                                         )
ACI NORTHWEST, INC., an Idaho            )
corporation,                             )
                                         )
    Third Party Defendant-Crossclaimant, )
                                         )
and                                      )
                                         )
STRATA, INC., an Idaho corporation; and  )
SUNDANCE INVESTMENTS, LLP, a             )
limited liability partnership,           )
                                         )
     Third Party Defendants.             )
_______________________________________ )

      Appeal from the District Court of the First Judicial District of the State of Idaho,
      Kootenai County. Hon. John P. Luster, District Judge.

      The decision of the district court allowing Wadsworth to recover against the lien
      release bond is reversed and the judgment in favor of Wadsworth is vacated.

      Moffatt, Thomas, Barrett, Rock & Fields, Boise, for appellant. Charles Clayton
      Gill argued.

      Witherspoon Kelley, Coeur d’Alene, for respondent. Edward J. Anson argued.
           _______________________________________________

                                                2
HORTON, Justice.
         This appeal relates to a mechanic’s lien filed against the Black Rock North Development
in Coeur d’Alene, Idaho, arising from an uncompleted golf course community development.
American Bank (the Bank) was the lender to BRN Development, Inc. (BRN). BRN hired
Wadsworth Golf Construction Company of the Southwest (Wadsworth) to construct a golf
course. BRN failed to pay Wadsworth for a portion of the work it performed, and Wadsworth
filed a mechanic’s lien against the property. BRN defaulted on the loan, and the Bank initiated
foreclosure proceedings. Wadsworth’s claim of lien was subordinate to the Bank’s mortgage
interest in the property. In order to proceed with a foreclosure sale, the Bank posted a lien release
bond in order to secure the district court’s order releasing Wadsworth’s lien. The Bank’s credit
bid was sufficient to make it the successful bidder at the foreclosure sale.
         The district court ruled that priority of the parties’ claims against the property was
irrelevant once the property was replaced by the lien release bond as security for Wadsworth’s
claim and the Bank (by way of the bond) was responsible for payment of Wadsworth’s lien
claim.
         The Bank appeals the decision of the district court, arguing that Wadsworth should have
been prevented from recovering against the lien release bond because its interest would have
been extinguished if it had attempted to foreclose its mechanic’s lien and the bond merely served
as substitute security in place of the property. The Bank further argues that Wadsworth should
have been barred from recovery because it was not registered under the Idaho Contractor’s
Registration Act (ICRA) at all times it worked on the project and it hired subcontractors who
were likewise unregistered. Wadsworth cross-appeals, arguing the district court erred in holding
that Wadsworth waived its right to file a lien for the unpaid retainage on the contract. Wadsworth
also argues that it is entitled to additional attorney’s fees for the proceedings in district court and
attorney fees on appeal.
                     I. FACTUAL AND PROCEDURAL BACKGROUND
         BRN planned to develop a high-end residential golf course community. The golf course,
a central feature of the development, was situated on two hundred acres in the thousand-acre
development. BRN entered into a financing agreement with the Bank in which the Bank agreed
to loan BRN $15,000,000 for the development of the project. The Bank recorded its mortgage on
February 6, 2007. The loan documents specified that the Bank had a first priority mortgage on

                                                  3
the property and required BRN to certify that it had received lien waivers from any person or
entity that had provided labor or materials on the project before loan funds for progress payments
would be disbursed.
       BRN then hired Wadsworth to construct the golf course. Wadsworth began work in 2006,
shaping two holes of the course from October through December before it was forced to suspend
work due to weather conditions. This work was done before a final contract was executed, as
Wadsworth relied on a conditional letter of intent as it negotiated the final contract with BRN.
Wadsworth was not registered under the ICRA at this time. Wadsworth registered under the
ICRA on January 9, 2007, prior to its executing the final contract with BRN on January 27,
2007. The final contract provided that Wadsworth would be paid $9,796,938 for its work on the
golf course construction.
       Under the contract, Wadsworth was entitled to monthly progress payments for work
performed and materials supplied. The contract specified that five percent of the progress
payments would be withheld as retainage to ensure Wadsworth’s completion of any required
warranty work. In order to receive these monthly progress payments, Wadsworth was required to
submit “in a form satisfactory to [BRN], partial lien releases . . . .” The contract incorporated
several documents by reference that were attached as exhibits. One of these documents was
entitled “Exhibit ‘B’: Conditional Lien Waiver, Release, and Subordination” (the BRN Release).
The BRN Release waived any right to lien the property for work performed or materials
furnished through the date of receipt of the progress payment. During the course of its work on
the project, Wadsworth submitted twenty-five progress payment applications to BRN. All but six
of those applications were accompanied by a partial lien release in a form prepared by
Wadsworth (the Wadsworth Release), rather than the BRN Release. The most significant
difference between those forms was that the Wadsworth Release did not waive Wadsworth’s
right to lien for unpaid retainage while the BRN Release did.
       BRN defaulted on its loan. Prior to the default, BRN’s last progress payment to
Wadsworth covered all work performed and materials supplied through July 31, 2008. The last
lien release executed by Wadsworth covered work through August 31, 2008, but Wadsworth did
not receive a complete progress payment. Both of these payment applications were accompanied
by a Wadsworth Release. Wadsworth’s last payment application that was accompanied by a
BRN Release was submitted on March 10, 2008.

                                                4
       On January 6, 2009, Wadsworth filed a claim of lien, asserting that it had provided
$2,329,439.72 worth of work and materials for which it was not paid. This sum included
retainage that had been withheld since the beginning of the project totaling $343,985. On April 1,
2009, the Bank initiated a foreclosure action, naming Wadsworth as a defendant in order to
establish the priority of its lien. Wadsworth counterclaimed, asserting that its mechanic’s lien
was prior and superior to the mortgage. In order to clear the way for a foreclosure sale of the
property, the Bank purchased a Release of Mechanic’s Lien Bond (the lien release bond). Upon
the Bank’s motion, the district court released Wadsworth’s mechanic’s lien against the property
in accordance with I.C. § 45-521.
       Both parties moved for partial summary judgment. The Bank argued that it was entitled
to judgment as a matter of law because its superior priority prevented Wadsworth from
recovering against the lien release bond. The district court denied the Bank’s motion and granted
Wadsworth’s motion. The district court concluded as a matter of law the issue of priority of the
parties’ interests in the property was irrelevant to Wadsworth’s right of recovery against the lien
release bond.
       Following its order granting Wadsworth’s motion for partial summary judgment, the
district court entered an order establishing the amount BRN owed the Bank and directing that the
property be sold. At the May 19, 2011, foreclosure sale, the Bank was the highest bidder with its
credit bid of $18,682,767.78. This sum represented the balance BRN owed the Bank, costs of
sale, sheriff’s fees and receiver’s fees. Thus, the sale left no surplus proceeds for junior
lienholders.
       The district court conducted a two-day bench trial in early May of 2011 in order to
determine the validity of Wadsworth’s lien and the amount Wadsworth was entitled to recover.
In its Findings of Fact and Conclusions of Law entered after the foreclosure sale, the district
court held that Wadsworth’s lien was valid and awarded Wadsworth $1,845,697.78 in principal,
$371,368.82 in prejudgment interest, and $208,417.47 in costs and attorney fees, for a total
judgment of $2,425,484.07.
       The district court held that Wadsworth agreed to subordinate its lien priority date to other
third party liens that attached to the property prior to the date inserted in BRN releases and that
this subordination was “for the express benefit” of other lienholders, including the Bank. The
district court also held that Wadsworth was not entitled to recover outstanding sums that

                                                5
Wadsworth owed to its unregistered subcontractors, which amounted to $139,756.94.
Wadsworth does not challenge these holdings on appeal.
        Wadsworth does challenge the district court’s finding that Wadsworth had waived its
right to a lien for the retainage, which thereby reduced its recovery by $343,985. The district
court reasoned that, despite the fact that Wadsworth had submitted its own release in conjunction
with its requests for progress payments on many occasions, Wadsworth was contractually
obligated to submit the BRN Release with its payment applications and thus waived its right to
lien for the retainage.
        The district court’s award equaled 79.2 percent of its initial claim. Wadsworth sought
$270,043.18 in attorney fees and costs. The district court determined that Wadsworth was
entitled to recover attorney fees in an amount proportionate to its success and awarded
Wadsworth $208,417.47, equaling 79.2 percent of its requested attorney fees.
        The Bank appeals, arguing that the district court erred in holding that lien priority is
irrelevant when a lien claimant seeks to recover against a lien release bond. The Bank also
argues that the district court erred in allowing Wadsworth to recover even though Wadsworth
was not duly registered under the ICRA at all times it worked on the project and hired
unregistered subcontractors. Wadsworth cross-appeals, arguing that the district court erred in
finding that it had waived its right to lien for the unpaid retainage. Wadsworth argues in the
alternative that, even if it did waive its rights to retainage by submitting the six BRN Releases,
the district court erred by holding that it waived its right to lien for retainage after the date of its
final BRN Release. Wadsworth argues that if it is successful in its cross-appeal on the retainage
issue, any increase in its recovery should also result in a proportionate increase in the award of
attorney fees for the proceedings before the district court. Finally, Wadsworth argues it is entitled
to attorney fees on appeal. We reverse.
                                  II. STANDARD OF REVIEW
                It is well established that “[A] motion for summary judgment shall be
        rendered forthwith if the pleadings, depositions, and admissions on file, together
        with the affidavits, if any, show that there is no genuine issue as to any material
        fact and that the moving party is entitled to judgment as a matter of law.” I.R.C.P.
        56(c). Upon a motion for summary judgment, all controverted facts are liberally
        construed in favor of the non-moving party. Likewise, all reasonable inferences
        which can be made from the record shall be made in favor of the party resisting
        the motion. The burden at all times is upon the moving party to prove the absence
        of a genuine issue of material fact. However, the plaintiff’s case must be anchored

                                                   6
        in something more than speculation and a mere scintilla of evidence is not enough
        to create a genuine issue. If the record contains conflicting inferences or
        reasonable minds might reach different conclusions, a summary judgment must be
        denied. All doubts are to be resolved against the moving party, and the motion
        must be denied if the evidence is such that conflicting inferences may be drawn
        therefrom, and if reasonable people might reach different conclusions.
G & M Farms v. Funk Irr. Co., 119 Idaho 514, 516-17, 808 P.2d 851, 853-54 (1991) (internal
citations omitted). “This Court freely reviews the interpretation of a statute and its application to
the facts.” State v. Yzaguirre, 144 Idaho 471, 474, 163 P.3d 1183, 1186 (2007).
                                           III. ANALYSIS
A. The district court erred in finding that the priority of the parties’ interests in the
property became irrelevant upon the posting of the lien release bond.
        Property encumbered by a mechanic’s lien may be unencumbered by posting a bond in
lieu of the property. I.C. § 45-518. The Bank argues that when a bond is posted, recovery against
the bond is limited to the amount the lien holder would have recovered in a foreclosure action
against the property. It further argues that because Wadsworth would have recovered nothing in
a foreclosure action, due to its subordinate priority, it should not have been able to recover
against the lien release bond. We agree.
        “A mechanic’s lien of record upon real property may be released upon the posting of a
surety bond in the manner provided in sections 45-519 through 45-524, Idaho Code.” I.C. § 45-
518. Upon petition for release of the bond in the form prescribed by I.C. § 45-520, the court may
release the property from the lien, and “[u]pon entry of the order, the lien is released of record in
its entirety and for all purposes and the real property, the subject of the lien, is released from the
encumbrances of the lien.” I.C. § 45-521. The district court held that because posting the lien
release bond releases the lien in its entirety and for all purposes, the priority of liens became
irrelevant. It noted that “[i]t is difficult to prioritize a lien that no longer exists of record.” Thus,
the district court held that once the lien release bond was posted, the only remaining issues for
trial were the validity and the amount of the lien. However, I.C. § 45-521 is not the only
applicable statutory provision.
        Resolution of this issue turns on the meaning of one phrase in the mechanic’s lien statutes
that was included verbatim in the lien release bond filed with the court. Idaho Code section 45-
519 provides that the lien release bond must be in substantially the following form:
                WHEREAS, .................... (name of owner, contractor, or other person
        disputing the lien) desires to give a bond for releasing the following described real
                                                   7
       property from that certain claim of mechanic’s lien in the sum of $ ...........,
       recorded ..............., ...., in the office of the recorder in ....................... (name of
       county where the real property is situated):
              (legal description)

               NOW, THEREFORE, the undersigned principal and surety do hereby
       obligate themselves to ........................., (name of claimant) the claimant named in
       the mechanic’s lien, under the conditions prescribed by sections 45-518 through
       45-524, Idaho Code, inclusive, in the sum of $ ....... (1-1/2 x claim), from which
       sum they will pay the claimant such amount as a court of competent jurisdiction
       may adjudge to have been secured by his lien, with interest, costs and attorney’s
       fees.

              IN WITNESS WHEREOF, the principal and surety have executed this
       bond at ..................., Idaho, on the ......... day of ............, .....
The phrase at issue here is “such amount as a court of competent jurisdiction may adjudge to
have been secured by his lien.” The meaning of this phrase is a matter of statutory interpretation.
       The objective of statutory interpretation is to derive the intent of the legislative
       body that adopted the act. Statutory interpretation begins with the literal language
       of the statute. Provisions should not be read in isolation, but must be interpreted in
       the context of the entire document. The statute should be considered as a whole,
       and words should be given their plain, usual, and ordinary meanings. It should be
       noted that the Court must give effect to all the words and provisions of the statute
       so that none will be void, superfluous, or redundant. When the statutory language
       is unambiguous, the clearly expressed intent of the legislative body must be given
       effect, and the Court need not consider rules of statutory construction.
State v. Schulz, 151 Idaho 863, 866, 264 P.3d 970, 973 (2011) (quoting Farber v. Idaho State
Ins. Fund, 147 Idaho 307, 310, 208 P.3d 289, 292 (2009)). However, “[i]f the words of the
statute are subject to more than one meaning, it is ambiguous and we must construe the statute
‘to mean what the legislature intended it to mean.’ ” KGF Dev., LLC v. City of Ketchum, 149
Idaho 524, 528, 236 P.3d 1284, 1288 (2010) (quoting Hayden Lake Fire Protection Dist. v.
Alcorn, 141 Idaho 388, 398–99, 111 P.3d 73, 83–84 (2005)). To determine that intent, the Court
will consider “not only the literal words of the statute, but also the reasonableness of proposed
constructions, the public policy behind the statute, and its legislative history.” Id.
       The district court did not specifically address the meaning of “such amount as a court of
competent jurisdiction may adjudge to have been secured by his lien.” Rather, it resolved the
issue by holding that posting a lien release bond releases the lien of record for all purposes and
thus the issue of priority is similarly extinguished. The Bank argues that the plain meaning of the
“amount secured” phrase is that a lien claimant is limited to recover against the bond what it
                                                      8
could have recovered against the property in a foreclosure action. Wadsworth argues that
“amount secured” refers to the amount of the lien, not the amount that could have been recovered
in lien foreclosure proceedings. Both parties construe the phrase in a reasonable fashion; thus,
the provision is ambiguous. Ada Cnty. Prosecuting Attorney v. 2007 Legendary Motorcycle, 154
Idaho 351, ___, 298 P.3d 245, 247 (2013) (citing Porter v. Bd. of Trustees, Preston School Dist.
No. 201, 141 Idaho 11, 14, 105 P.3d 671, 674 (2004)).
        Whether the amount found “to have been secured by his lien” refers to the sufficiency of
the security to satisfy the lien or simply the amount of the lien is a matter of first impression.
Both parties cite multiple out-of-state cases that purportedly support their positions. The Bank
relies heavily on York Federal Sav. & Loan Ass’n v. William A. Hazel, Inc., 506 S.E. 2d 315 (Va.
1998), for the proposition that a lender’s priority position can preclude a lien claimant from
recovering on a lien release bond. The facts of that case were similar to this case. In York, the
party seeking enforcement of the lien against the bond argued that priority was not an issue once
the bond was posted. It argued that it need only show that the lien was enforceable, not that it
was collectible. The court disagreed and held that priority was an important factor to consider
when recovering against a lien release bond. However, the Virginia statute differs from the Idaho
statute. The Virginia statute provides that recovery on a lien release bond is limited to “the
amount for which the same would have been enforceable against the real estate. . . .” Va. Code
Ann. § 43-70. This differs from Idaho’s provision that limits recovery to “such amount as a court
of competent jurisdiction may adjudge to have been secured by his lien . . . .” I.C. § 45-519.
While the Virginia statute is more explicit in its limitation, the effect of the Idaho statute is the
same.
        We believe that the California Supreme Court appropriately focused on the function of a
lien release bond:
        [A]uthorities from other jurisdictions have concluded that a cause of action to
        foreclose a mechanic’s lien is substantially the same whether relief is sought
        against the liened property or against a bond which has been substituted for the
        property. Thus it has been said that the bond does not change the relation or rights
        of the parties otherwise than in substituting its obligations for the property subject
        to the lien, and it was not within the legislative purpose in permitting the
        substitution to deteriorate the lienor’s rights.
Hutnick v. U.S. Fid. & Guar. Co., 763 P.2d 1326, 1330 (Cal. 1988) (internal quotation omitted).
We agree that the lien release bond is merely meant to act as substitute security for the real

                                                  9
property and does not otherwise affect the rights of interested parties. We are unable to identify a
legitimate policy consideration supporting recovery against the property’s replacement in those
cases where the lien claimant would recover nothing by way of lien foreclosure. Thus, we hold
that “such amount as a court of competent jurisdiction may adjudge to have been secured by his
lien” is limited to the amount that the lien holder could have recovered against the real property
in a foreclosure action.
       As previously noted, Wadsworth does not challenge the district court’s determination that
it expressly subordinated its lien to that of the Bank. Although the Bank suggests that this matter
should be remanded “for a factual determination of the amount that Wadsworth’s claim of lien
was secured by the [p]roperty,” we decline to do so. There is no room for dispute that the
“amount secured” by Wadsworth’s lien was zero, as the foreclosure sale upon the Bank’s credit
bid left no surplus proceeds available to lien holders with priority behind the Bank. We therefore
reverse the district court’s determination that Wadsworth was entitled to recover from the lien
release bond and vacate the judgment.
       This decision makes it unnecessary to address the Bank’s remaining arguments on
appeal. It is also unnecessary for us to address Wadsworth’s cross-appeal, as it is entirely
contingent upon its ability to recover against the lien release bond.
                                        IV. CONCLUSION
       We reverse the decision of the district court allowing Wadsworth to recover against the
lien release bond and vacate the district court’s judgment in favor of Wadsworth. No attorney
fees are awarded. Costs to the Bank.

       Chief Justice BURDICK and Justices EISMANN, J. JONES and W. JONES, CONCUR.

                                                 10