EW Allen & Associates, Inc. v. FDIC

• Decision Date: 05 November 1991
• Docket Number: Civ. No. 88-C-598A.
• Court: U.S. District Court — District of Utah
• Parties: E.W. ALLEN & ASSOCIATES, INC., and Nautilus Architecture and Planning, Inc., Plaintiffs, v. FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Defendants.

776 F. Supp. 1504

E.W. ALLEN & ASSOCIATES, INC., and Nautilus Architecture and Planning, Inc., Plaintiffs, v. FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Defendants.

Civ. No. 88-C-598A.

United States District Court, D. Utah, C.D.

November 5, 1991.

Craig Coburn, Salt Lake City, Utah, Michael Hughes, St. George, Utah, for consolidated plaintiff Nautilus.

Jeffrey Silvestrini, Martha Stonebrook, Salt Lake City, Utah, for consolidated defendant, F.D.I.C.

ALDON J. ANDERSON, Senior District Judge.

The above captioned case is now before the court on cross motions for summary judgment. Consolidated plaintiff Nautilus Architecture and Planning, Inc. ("Nautilus") filed a Motion for Partial Summary Judgment seeking a determination of priority in favor of itself against consolidated defendant Federal Deposit Insurance Corporation ("FDIC"). FDIC then filed a Motion for Summary Judgment seeking a ruling on the same issue. The court held a hearing on the cross motions for summary judgment on October 7, 1991. Michael Hughes and Craig Coburn appeared on behalf of Nautilus. Jeffrey Silvestrini and Martha Stonebrook appeared on behalf of FDIC. Having reviewed the briefs of the parties, the file, and relevant available authorities, the court is prepared to rule.

I.

This lawsuit revolves around a 280 acre parcel of wooded land in the mountains of southern Utah. The parties now before the court, Nautilus and FDIC, claim competing interests in the parcel. The owner of the parcel originally envisioned building a multi-million dollar luxury resort complex on the parcel. Unfortunately, that vision never came to fruition. The project, however, did not expire before acquiring some creditors, two of which, Nautilus and FDIC, are now vying for priority before this court.

Early in the life of the project, the owner hired Nautilus, an architecture firm, to give substance to his vision of a luxury resort by drawing plans and specifications for the resort complex. Nautilus then subcontracted with E.W. Allen & Associates ("Allen")¹ to provide some structural engineering assistance. Allen finished its work and, not having been paid for its work, recorded a notice of lien on the property to protect its mechanics' lien interest. Allen recorded its notice of lien on January 25, 1985. Shortly after Allen recorded its notice of lien, Nautilus apparently finished its work on the project because it also began complying with the procedural requirements for preserving its mechanics' lien interest. The owner of the property never fully paid either Nautilus or Allen for their work. Nautilus now asserts its claim for payment in this lawsuit as a mechanics' lien against the 280 acre parcel.

FDIC is the successor in interest to North American Savings and Loan ("North American"). North American helped finance the owner in attempting to build the multi-million dollar resort complex. North American loaned the owner substantial sums of money for the project on the security of a trust deed to the 280 acre parcel. The owner failed to repay the loan given him by North American. The trust deed in favor of North American on which FDIC now bases its claim to the parcel is dated February 25, 1985, and was recorded on March 16, 1985. FDIC and Nautilus now dispute which of their claims in the parcel has priority.

II.

A. Nautilus' Motion for Partial Summary Judgment

1. commencement of work.

Nautilus argues it has a valid mechanics' lien that takes priority over FDIC's interest in the parcel and is, therefore, entitled to judgment as a matter of law. The parties do not dispute that Nautilus performed lienable work for which it has not been paid. Nautilus' first asserted ground for priority is that sufficient construction had been completed on the property to constitute "commencement to do work" under the applicable statute prior to the execution of FDIC's deed of trust. Nautilus' position is based on the Utah statutes governing mechanics' liens.²

Utah statutory law provides a mechanics' lien for architects such as Nautilus that perform services in the improvement of land. See Utah Code Ann. § 38-1-3 (1988). The priority of a mechanics' lien with respect to other encumbrances, such as a deed of trust, is governed by § 38-1-5 of the Utah Code which provides in pertinent part:

Mechanics' liens shall relate back to, and take effect as of, the time of the commencement to do work or furnish materials on the ground for the structure or improvement, and shall have priority over any lien, mortgage or other encumbrance which may have attached subsequently to the time when the building, improvement or structure was commenced, work begun, or first material furnished on the ground.

Utah Code Ann. § 38-1-5 (1988) (emphasis added).

Nautilus claims a lien against the 280 acre parcel and argues that work had "commenced" on the ground on the development of the resort complex prior to FDIC's trust deed. Nautilus makes specific factual allegations regarding actions it claims constituted "commencement to do work" and had been completed prior to the trust deed. Nautilus' claim, however, is not appropriate for decision on summary judgment. Significant factual disputes exist in the deposition testimony as to when and if the actions alleged by Nautilus to be "commencement to do work" were taken. Consequently, the court cannot grant Nautilus summary judgment since substantial issues of material fact remain disputed. See Fed.R.Civ.P. 56.

2. record notice of lien.

As an alternative, Nautilus asserts that Allen's recording of its notice of lien claim in January of 1985, prior to FDIC's trust deed, entitles Nautilus to summary judgment on the issue of priority. Nautilus begins its argument by properly noting that all mechanics' liens stand on an equal footing with each other for purposes of priority. See Utah Code Ann. § 38-1-10. In other words, once any mechanic establishes the priority of its lien, that date serves as the date of priority for all mechanics' liens on the same project. See First of Denver Mortgage Investors v. C.N. Zundel, 600 P.2d 521, 526 (Utah 1979). Nautilus next cites § 38-1-9(2) of the Utah Code which states, "From the time the claim is filed for record, all persons are considered to have notice of the claim." Utah Code Ann. § 38-1-9(2). From these two principles of Utah mechanics' lien law, equal footing and record notice, Nautilus concludes that Allen's recording of a notice of lien on January 25, 1985, established the priority date for Nautilus' mechanics' lien. Nautilus cites no directly supporting authority for giving this interpretation to these two principles. But cf. Hostetter v. Inland Dev. Corp. of Montana, 172 Mont. 167, 561 P.2d 1323, 1326 (1977) (filing of a lien does not create lien, it merely extends and preserves life of lien).

The court does not agree with Nautilus' interpretation of the statutory provisions. The Utah statutes expressly address the issue of priority between a mechanics' lien and other encumbrances. Section 38-1-5 of the Utah Code states that priority is established at the occurrence of one of two events, commencement to do work or delivery of materials. Utah Code Ann. § 38-1-5. The priority section makes no mention of record notice or any other form of notice. The legislature chose a specific test for the determination of priority, commencement to do work. Presumably, the Utah legislature had the opportunity to use the record notice system for establishing easily ascertainable priority dates for mechanics' liens but did not.

In a recent decision from the Utah Court of Appeals, a position similar to that proposed by Nautilus was posited. In Ketchum, Konkel, Barrett, Nickel & Austin v. Heritage Mountain Dev. Co., 784 P.2d 1217 (Utah Ct.App.1989), cert. denied, 795 P.2d 1138 (Utah 1990), the Utah Court of Appeals reviewed the Utah mechanics' lien statute regarding priority, § 38-1-5 of the Utah Code, in a context quite similar to that now presented this court. In the Ketchum case, the court of appeals was faced with an architect asserting a mechanics' lien against a ski resort development. The architects claimed that actual notice to their competing creditor of their off site lienable work was sufficient to establish priority for their mechanics' lien. In considering the position asserted by the architects, the Ketchum court reviewed the statute, the court's view of the legislature's intent in choosing the language used in the statute, and authority from other jurisdictions on the issue. The court determined that the "commencement to do work" standard in the statute was established as a means of determining when third parties could have had notice that liens might have attached to a construction project. However, the court ruled that actual notice is not an option for establishing priority under the statutory scheme as established by the Utah legislature. Ketchum, 784 P.2d at 1224.

In the case now before this court, Nautilus argues that record notice should be an option for establishing priority under Utah's law of mechanics' liens. Though a record notice test arguably serves the purposes of the legislature of providing notice of liens to third persons, current Utah case law mandates that we follow the commencement of work test as established by the Utah legislature. See Ketchum, 784 P.2d at 1224 n. 15 and accompanying text. But see id. at 1224 n. 12. Cf. Western Mortgage Loan Corp. v. Cottonwood Constr. Co., 18 Utah 2d 409, 424 P.2d 437, 439 (1967) (problem is one of notice to third persons that liens may have attached). The court, therefore, determines that Allen's recorded notice of lien does not establish the date of priority for the Nautilus lien under Utah's mechanics' lien law as it now exists.

Nautilus proposed two grounds for granting partial summary judgment and establishing that its lien has priority over the FDIC's trust deed. The court finds that the first is founded on disputed issues of material fact and...