Brendsel v. Winchester

• Decision Date: 10 May 2006
• Docket Number: No. 66, September Term, 2005.,66, September Term, 2005.
• Citation: 898 A.2d 472,392 Md. 601
• Parties: Leland BRENDSEL, et al. v. WINCHESTER CONSTRUCTION COMPANY, INC.
• Court: Court of Special Appeals of Maryland

Page 472

898 A.2d 472

392 Md. 601

Leland BRENDSEL, et al. v. WINCHESTER CONSTRUCTION COMPANY, INC.

No. 66, September Term, 2005.

Court of Appeals of Maryland.

May 10, 2006.

Lawrence S. Greenwald (Lawrence P. Fletcher-Hill and Catherine A. Bledsoe of Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC, Baltimore), on brief, for petitioners.

Robert M. Wright (William P. Pearce of Whiteford, Taylor & Preston, Baltimore), on brief, for respondent.

Argued before BELL, C.J., RAKER, WILNER, CATHELL, HARRELL, BATTAGLIA, and GREENE, JJ.

WILNER, J.

We shall resolve here the dilemma faced by a contractor who (1) is operating under a construction contract that requires disputes arising out of or relating to the contract to be submitted to binding arbitration, but (2) also may be entitled to a mechanics' lien, pursuant to Maryland Code, title 9, subtitle 1 of the Real Property Article (RP), for work done or materials furnished under the contract. Can the contractor seek to assure the prospect of ultimate payment by obtaining a provisional interlocutory lien on the property without giving up its contractual right to have the merits of its claim determined through arbitration? We shall conclude that the contractor does not waive its right to compel arbitration of an arbitrable dispute merely by seeking and obtaining an interlocutory mechanics' lien.

BACKGROUND

In November, 1999, respondent Winchester Construction Company and petitioner Diane Brendsel entered into a contract for the renovation of Wye Hall, a historic plantation house in Queen Anne's County owned by Ms. Brendsel and her husband Leland.¹ The contract was a "cost of the work plus a fee" contract; it called for Winchester to be reimbursed for the costs necessarily incurred in the proper performance of the work and to receive a contractor's fee of 10% of that cost for overhead and an additional 10% for profit. The contract was a standard Abbreviated Form of Agreement Between Owner and Contractor, coupled with attached General Conditions, drafted by the American Institute of Architects (AIA Document A117 (1987 Ed.)). Among other things, the contract specified those costs which would be reimbursed and those which would not, required Winchester to keep detailed accounting records, and provided for progress payments and final payment.

Article 15 of the General Conditions dealt with administration of the contract. It authorized the architect, as the owner's representative, to review and certify amounts due to the contractor, interpret and decide matters concerning performance, make initial decisions on all claims, disputes, or other matters in question, reject work that did not conform to the contract documents, and review and take action on submittals by the contractor. Although the contract identified Good Architecture as the architect, it appears that, at some point, the Brendsels also employed Gipe Associates, Inc., consulting engineers, as an additional owner's agent.

Section 15.8 of the General Conditions called for all claims or disputes between the contractor and the owner arising out of or relating to the contract documents or the breach thereof to be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association (AAA) currently in effect, unless the parties agreed otherwise, subject to initial presentation of the claim or dispute to the architect. The provision required that notice of a demand for arbitration be filed with the other party and with the AAA "within a reasonable time after the dispute has arisen."

The renovation work proceeded from September, 1999 through June 3, 2003. On August 1, 2002, Winchester and Ms. Brendsel signed a Memorandum of Understanding (MOU) that made a number of changes in the contract. Most of the MOU dealt with procedures respecting applications for payment. In that regard, ¶ 6 provided:

"Prior to making the final payment under the Contract, Winchester will submit its final accounting of all costs and fee charged to Brendsel under the Contract so that Brendsel's accountants can review the information. This review will be made in 45 days, and Brendsel will pay either the requested amount or the lesser amount substantiated by the accountants within seven days after the accountants' review. If Winchester disagrees with the amount that Brendsel has paid, the matter can be resolved by negotiation or arbitration."

Paragraph 9 deleted ¶¶ 15.1 through 15.7 of the General Conditions, dealing with the duties of the architect, to reflect the fact that the architect had not, in fact, been involved in contract administration. That role, apparently, had been assumed by Gipe Associates. Paragraph 12 of the MOU permitted Brendsel to terminate the contract at any time for her convenience and without cause but specified that, upon such termination, Winchester would be paid for work done to the date of termination subject to appropriate offsets.

The MOU expressed the intent of the parties to execute a formal amendment to the contract reflecting the terms of the MOU and charged Ms. Brendsel with preparing such an agreement. It does not appear that any such agreement was ever prepared or signed. Both sides have treated the MOU as an effective agreement, however.

Disputes continued to surface. On January 28, 2003, an agreement was reached with respect to pending claims. Winchester was advised that Gipe had been designated as construction manager and owner's agent on the project. The parties agreed that Winchester's fee would be reduced from 20% (10% overhead and 10% profit) to 10%, and that the retainage would be reduced from 10% to 5%.

On May 23, 2003, Ms. Brendsel terminated the agreement and directed Winchester to remove its personnel and equipment from the jobsite by May 30. Winchester regarded the termination as one for convenience pursuant to ¶ 12 of the MOU. In her brief, Ms. Brendsel notes that the term "convenience" does not appear in the letter of termination, which is true, but she does not contend that the termination was for any other reason. The letter stated that payment of a final invoice would be made after review of the final accounting, as provided by ¶ 6 of the MOU.

Winchester submitted applications for payment in June and July and a final application on August 13, 2003, showing a gross balance due of $815,877. Brendsel's initial response was to obtain new counsel who, in September, wrote to counsel for Winchester asking for certain additional information and documents and suggesting a meeting to resolve any matters in dispute. At that point, it was not clear that there was any dispute; counsel was collecting information and presumably Brendsel's accountants were reviewing the pending applications for payment. In his letter of September 30, 2003, counsel enclosed a Tolling Agreement that tolled and suspended "[a]ll deadlines provided in either the Agreement or the MOU, as well as any statutory or common law limitation and common law laches ... until five (5) business days after written notice of either party's withdrawal from this Tolling Agreement is delivered to the other party." Through counsel, Winchester signed the Tolling Agreement.

RP § 9-105 requires that a petition to establish a mechanics' lien be filed within 180 days "after the work has been finished or the materials furnished." The work was completed, at the latest, by June 3, 2003. Discussions continued throughout the Fall of 2003, without resulting in either an acceptance of Winchester's claim and payment or a rejection of the claim. Concerned that the statutory time for filing a petition for mechanics' lien was (1) getting close, and (2) might be regarded as jurisdictional or preclusive in nature, rather than as a mere statute of limitations that could be waived or tolled by agreement of the parties, counsel for Winchester, on November 14, 2003, filed a petition in the Circuit Court for Queen Anne's County to establish a mechanic's lien. The petition alleged that Winchester furnished work, labor, and materials from September, 1999, through June 3, 2003, and that $815,877 remained due and payable.

Winchester obviously regarded the petition as a protective measure; counsel continued to send both provisional lien releases and additional documents to counsel for Brendsel, and negotiations continued. At that point, Brendsel was still seeking additional information and it was as yet unclear whether, or to what extent, the application for final payment would ultimately be rejected. Not until December 10, 2003, did Brendsel, through a letter from counsel, reject in full Winchester's claim. The letter acknowledged a net balance owing under the contract of $604,565 but claimed credits against that balance of $871,872 for overcharges and construction defects, leaving a net balance due to Brendsel. Rather than "initiating an action on behalf of Ms. Brendsel," however, counsel suggested a meeting to resolve the matter. Counsel for Winchester responded, questioning some assertions, denying others, and indicating that he needed more time to respond in full.

In the meanwhile, on December 11, the court filed a memorandum requesting that Winchester supplement its petition with, or explain the absence of, an allegation that the improvement of Brendsel's property represented at least 15% of the value of the property and that it furnish statements of the nature and kind of work done or materials provided. Where the work involves improvements to a building (as opposed to the erection of a new building), RP § 9-102 permits a mechanics' lien only if the building is improved to the extent of 15% of its value, and RP § 9-105(a) and Md. Rule 12-302(b) require the petition to allege the kind of work done or the kind and amount of materials furnished.

Faced with the court's request and Brendsel's clear rejection of Winchester's claim, Winchester, on January 9, 2004, filed an amended petition to...