Dbm v. U.S. Fidelity & Guar.

Decision Date29 October 2007
Docket NumberNo. 58767-6-I.,58767-6-I.
Citation170 P.3d 592,142 Wn. App. 35
PartiesDBM CONSULTING ENGINEERS, INC., a Washington corporation, Respondent, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, a foreign corporation doing business as St. Paul Fire and Marine Insurance Company, now doing business as St. Paul/Travelers Insurance Company, a foreign corporation, Appellant.
CourtWashington Court of Appeals

Arthur Hutchings McKean, Attorney at Law, Bellevue, WA, for Respondent.

William Allen Linton, Inslee, Best, Doezie & Ryder PS, Bellevue, WA, for Appellant.

COLEMAN, J.

¶ 1 When an owner of property subject to a lien records a lien bond, the bond becomes security for the lien and guarantees payment of a judgment upon the lien. In this case, DBM Consulting Engineers recorded a lien against a client to secure a debt DBM asserted it was owed under a contract. The client obtained a lien bond to allow it to sell the property. DBM sued the client for breach of contract and prevailed at trial. DBM then sued the bond surety to compel it to pay DBM the amount of the bond, and the trial court granted DBM's motion for summary judgment. But because DBM failed to obtain a judgment upon the lien, only obtaining a judgment on the breach of contract claim, the surety was not obligated to pay on the lien bond. Accordingly, we reverse and dismiss.

FACTS

¶ 2 Joseph Sanders hired DBM to provide engineering consulting services to the company he owned and managed, Soos Creek Vista, which owned property in King County. DBM claimed that it was owed money under this contract and filed a mechanic's lien for $62,836.89 against the Soos Creek property. A few weeks later, DBM filed a complaint against Soos Creek1 for breach of contract, unjust enrichment, and foreclosure of the mechanic's lien.

¶ 3 Shortly thereafter, Sanders recorded a "bond in lieu of claim" in the amount of $94,255. The surety for this bond was United States Fidelity and Guaranty Company, and the successor in interest to this company is St. Paul/Travelers Insurance Company ("Travelers"). Soos Creek proceeded to sell parcels of its property. DBM's lawsuit went to a jury trial, and the jury found that Soos Creek had breached its contract with DBM and that the amount of damage caused by that breach was $38,070.22. DBM did not ask the court to enter judgment as to the unjust enrichment or lien foreclosure claims. In addition to the contract damages amount, the trial court awarded DBM $85,000 in attorney fees under a contract provision and $10,955 in prejudgment interest.

¶ 4 After this judgment was entered and Soos Creek failed to pay, DBM demanded that Travelers pay the full amount of the bond to partially satisfy the judgment. Travelers refused to do so, contending that the judgment did not foreclose on DBM's lien and that foreclosure of the lien was required to entitle DBM to the bond amount. DBM then sued Travelers for payment on the bond. The trial court entered summary judgment against Travelers in the amount of the bond, plus $27,882 in prejudgment interest and $16,175 in attorney fees. Travelers timely appealed.

ANALYSIS
Condition of the Lien Bond

¶ 5 Travelers contends that because DBM obtained a judgment only on the breach of contract claim but did not actually litigate the validity of the lien, Travelers is not obligated to pay on the bond. DBM requested foreclosure of the lien in the complaint, but never pursued the claim or obtained a ruling on it. DBM argues that because Travelers had posted a bond in lieu of claim, the Soos Creek property was released from the lien — so there was no lien upon which DBM could have foreclosed, and the judgment it obtained on the professional services contract entitles it to payment on the bond.

¶ 6 This dispute over which events trigger the obligation of the bond depends on the interpretation of RCW 60.04.161, the lien bond statute. The interpretation of this statute is an issue of first impression. The statute reads:

Any owner of real property subject to a recorded claim of lien under this chapter ... who disputes the correctness or validity of the claim of lien may record, either before or after the commencement of an action to enforce the lien ... a bond issued by a surety company authorized to issue surety bonds in the state.... The condition of the bond shall be to guarantee payment of any judgment upon the lien in favor of the lien claimant entered in any action to recover the amount claimed in a claim of lien, or on the claim asserted in the claim of lien. The effect of recording a bond shall be to release the real property described in the notice of claim of lien from the lien and any action brought to recover the amount claimed.... If an action is timely commenced, then on payment of any judgment entered in the action or on payment of the full amount of the bond to the holder of the judgment, whichever is less, the surety shall be discharged from liability under the bond.

RCW 60.04.161 (emphasis added). Travelers contends that the underlined sentence clearly states that the bond only guarantees payment of a judgment upon the lien and asserts that both types of actions listed in this sentence — an action to recover the amount claimed in a claim of lien or an action on the claim asserted in the claim of lien — require a judgment upon the lien. DBM argues that the sentence presents two scenarios where the bond guarantees payment: (1) where there is a judgment upon the lien in favor of the lien claimant or (2) where there is a judgment on the claim asserted in the claim of lien. DBM claims that this case is an example of the second situation and that this sentence means that its judgment only on the underlying contract action (the claim asserted in the claim of lien) obligates Travelers to pay on the lien bond.

¶ 7 RCW 60.04.161 is certainly not a model of clarity, and it may warrant legislative attention to clarify the meaning of the statute. But we conclude that Travelers' interpretation is the correct one because it is consistent with the grammatical construction of the sentence. The sentence lists two types of actions after the word "entered," but the prerequisite event is a judgment upon the lien: "The condition of the bond shall be to guarantee payment of any judgment upon the lien in favor of the lien claimant entered in any action to recover the amount claimed in a claim of lien, or on the claim asserted in the claim of lien." RCW 60.04.161. The two alternatives listed in the second half of the sentence are then two types of actions that can result in judgments on a lien. It is not entirely clear why the legislature identified these two alternatives, but either alternative requires that the validity of the lien be adjudicated.

¶ 8 This result is required by the sentence structure within RCW 60.04.161 and is furthermore consistent with the purpose of mechanic's liens and lien bonds. While parties may contract with property owners for work related to the property and sue upon the breach of those service contracts, the legislature has identified only particular types of services that may support a mechanic's lien on the improvement to the property. See RCW 60.04.011, .021. Not all services that relate to property qualify for a lien, and a lien statute is strictly construed to determine whether the lien attaches. Pac. Indus., Inc. v. Singh, 120 Wash.App. 1, 6, 86...

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