A.C.I. Constr. v. Elevated Prop. Invs.
| Decision Date | 28 September 2021 |
| Docket Number | DA 20-0482 |
| Parties | A.C.I. CONSTRUCTION, LLC, Plaintiff and Appellant, v. ELEVATED PROPERTY INVESTMENTS, LLC, LEASE OPTION SOLUTIONS, LLC, WESTERN BUILDING CENTER, JUSTIN NORBERG, NORBERG ELECTRIC, LLC, and MONTANA DIRT WORKS, Defendants and Appellees. |
| Court | Montana Supreme Court |
For Appellant: Donald C. St, Peter, Michael O'Brien, St Peter Law Office, P.C., Missoula, Montana
For Appellee Lease Option Solutions, LLC: Sean Morris, Worden Thane, P.C., Missoula, Montana
¶1 A.C.I. Construction, LLC (ACI) appeals the March 13, 2020 Order and Rationale on Motions for Summary Judgment (Order) entered by the Eleventh Judicial District Court, Flathead County, granting Lease Option Solutions, LLC's (LOS) motion for summary judgment on lien priority. LOS cross-appeals the District Court's September 21, 2020 Findings of Fact, Conclusions of Law, and Order entering judgment in favor of ACI on its unjust enrichment claim. We affirm.
¶2 There are two issues on appeal:
1. Did the District Court err in its determination of lien priority?
2. Did the District Court err by determining ACI was entitled to recover under the theory LOS was unjustly enriched?
¶3 Pursuant to a Trust Indenture and Promissory Note, both dated September 15, 2017, LOS loaned $252, 000 to Elevated Property Investments, LLC (EPI), for the purchase of a house in Kalispell (the Properly). While most of the loan was for purchase of the Property, $88, 860 was designated for construction improvements of the Properly. This construction loan amount, which is undisputed, was designated based upon a construction budget EPI had submitted to LOS, which amount the District Court later found to be "deficient in that it failed to include a number of ordinary and typical construction costs."
¶4 In January 2018, ACI and EPI entered a real estate improvement contract, [1] under which ACI would act as a general contractor to complete real estate improvements on the Property. The parties' contract followed EPI's termination of its previous contractor, who the District Court found had committed construction errors, including "framing over existing windows, pouring a garage slab over the top of the existing septic tank, paving over the existing drain field, and mis-locating the stairs to the upper floor," which required corrective work and associated costs beyond the construction budget approved by LOS. Further, with EPI's approval, ACI contracted for other professional services not included within the construction loan, including an engineer tasked with assessing the structural integrity of the house, and an architect who drafted alteration plans after the engineer found the structure was unsound.
¶5 EPI's payments to contractors on the ballooning project stopped and, in July 2018, ACI recorded a construction lien on the Property. ACI recorded an amended lien to correct the amount of claimed interest, and, in October 2018, filed a second lien for additional services and materials. Three other construction liens were filed by Western Building Center, Justin Norberg/Norberg Electric, LLC, and Montana Dirt Works.
¶6 Though issuing payments from the construction loan, LOS did not deal directly with any of the project's contractors or subcontractors. Incorporated in the loan agreement between LOS and EPI was a "Rehabilitation/Construction Loan Rider," which outlined the process for release of construction loan proceeds, and provided that "[t]o the extent the Note calls for installment advances and/or disbursements, no such advances and/or disbursements shall be made unless and until the Work for which the advance and/or disbursements is to be made have been approved by Lender in Lender's sole and absolute discretion." Appended was a document titled "Renovation/Construction Holdback Draw Requests," which detailed a specific process to be followed prior to release of funds by LOS to EPI. Among the prerequisites for receiving payments were the submission of detailed progress reports, including pictures evidencing completed work for which the funds were requested, signed receipts of payments made to suppliers and laborers, copies of applicable permits and government inspections, and procurement of lien waivers from contractors and subcontractors. Upon approval, LOS would make payments directly to EPI, upon whom it relied to pay contractors and subcontractors. EPI submitted three draw requests to LOS. After receiving each of the three draw requests, LOS reviewed progress reports and inspected the Property prior to releasing any construction funds. LOS dispersed $82, 181.80 in response to the requested draws against the construction loan, while initially withholding $6, 678.20. Included were two payments to ACI, the first in January 2018 for $6, 200, and the second in February 2018 for $9, 197, a total of $15, 397. ACI signed unconditional lien releases for both payments.
¶7 Receiving no further payments for services and materials it rendered, ACI filed this action for lien foreclosure in February 2019, naming as defendants all parties with liens or interest in the Property. Inter alia, ACI alleged breach of contract against EPI and unjust enrichment against LOS. Western Building Center subsequently settled its claims and was dismissed from the litigation. Justin Norberg/Norberg Electric, LLC, and Montana Dirt Works were served but did not appear.
¶8 EPI, with no other known assets, defaulted on the LOS loan and, after initially appearing, defaulted in the action as well. LOS conducted a nonjudicial trustee's foreclosure sale on July 1, 2019. LOS was the only bidder and submitted a credit bid in the amount EPI then owed, $309, 914.02. Thereafter, LOS maintained the Property, including paying for utilities, insurance, and other property-related costs in an amount later found by the District Court to be $24, 425.23 in its Findings of Fact, Conclusions of Law, and Order.[2]
¶9 LOS sought summary judgment regarding priority of the liens on the Property, and filed a second summary judgment motion challenging ACI's unjust enrichment claim. The District Court granted summary judgment to LOS on the issue of lien priority, reasoning that:
In this situation LOS could not know that the owners EPI would contract for work with ACI that was outside the projects/work listed in the loan agreement. However, ACI could find the recorded trust indenture, know that that encumbrance existed and know that what it was being hired to do was not part of the work specified to be paid for by the construction portion of the loan. LOS took appropriate action to protect the construction portion of the loan and i[n] doing so took specific and affirmative action to secure and protect its lien position. LOS in disbursing construction funds, required lien releases and receipts prior to making any payment.
The District Court thus concluded ACI's construction lien had priority over LOS's mortgage, but only up to $88, 860, the portion of LOS's loan that had been allocated for construction work, and granted summary judgment to LOS. However, the District Court denied LOS's motion for summary judgment on ACI's unjust enrichment claim, reasoning ACI's legal remedy, as such, was against EPI, who no longer owned the property that held the benefit of ACI's labor, while ACI had no legal remedy against LOS, who owned the Properly and retained the benefits of ACI's improvements in a potential windfall should the Property be sold for a value exceeding the loan cost.
¶10 The unjust enrichment claim proceeded to bench trial. The District Court found that LOS's construction loan budget included demolition, electrical wiring, flooring, windows and doors, two bathrooms, cabinets, drywall, plumbing, siding, painting, HVAC, and framing. ACI, either itself, through its subcontractors, or through supervising another contractor, oversaw each of these projects. ACI rendered additional services not within the budget, including installing a third bathroom and insulation. The District Court found that additional costs were incurred in consulting a structural engineer, an architect, and correcting the previous general contractor's mistakes, increasing ACI's bill far beyond the amount of the construction loan agreed between EPI and LOS. Testimony on behalf of LOS indicated that, while the budget did not include certain improvements, it was the expectation the Properly would be insulated, structurally sound, have proper electric, HVAC, and plumbing systems, have proper flooring, windows, drywall, and doors, and have fresh interior and exterior paint. Upon unjust enrichment, the District Court entered a judgment in favor of ACI against LOS in the amount of $93, 650, to be paid upon the sale of the Property, which was then valued at $475, 000, reasoning the property would not be worth this amount "[w]ithout [ACIJ's labor and materials," and that LOS has "passively received and accepted the benefit of [ACIJ's unpaid labor and materials." The judgment amount was derived from the District Court's finding that ACI had performed $141, 000 of work, inclusive of labor and materials, and was paid $47, 350, leaving a total owed of $93, 650. The District Court also entered judgment in favor of ACI against EPI for $137, 519.10, though by this time EPI had dissolved and been proven judgment proof. LOS listed the Property for $499, 000, and received a purchase offer for $475, 000.
¶11 We review a district court's grant of summary judgment de novo,...
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