Department of Community Affairs and Economic Development v. M. Davis & Sons, Inc.

• Decision Date: 12 February 1980
• Citation: 412 A.2d 939
• Court: United States State Supreme Court of Delaware
• Parties: DEPARTMENT OF COMMUNITY AFFAIRS AND ECONOMIC DEVELOPMENT of the State of Delaware, Defendant Below, Appellant, v. M. DAVIS & SONS, INC., a Delaware Corporation, Plaintiff Below, Appellee.

Page 939

412 A.2d 939

DEPARTMENT OF COMMUNITY AFFAIRS AND ECONOMIC DEVELOPMENT of the State of Delaware, Defendant Below, Appellant, v. M. DAVIS & SONS, INC., a Delaware Corporation, Plaintiff Below, Appellee.

Supreme Court of Delaware.

Submitted Oct. 31, 1979.

Decided Feb. 12, 1980.

Upon appeal from Superior Court. Affirmed.

Peter J. Nolan, Dover, and Marvin Forman, Deputy Atty. Gen., Wilmington, for defendant below, appellant.

John Edward Lindros of David Nicol Williams, Wilmington, for plaintiff below, appellee.

Before DUFFY, McNEILLY and QUILLEN, JJ.

McNEILLY, Justice:

This is an appeal from the Superior Court's grant of summary judgment in favor of the plaintiff in its action to assert a mechanic's lien against a fee interest of the State of Delaware in certain real property owned of record by the Department of Community Affairs and Economic Development.

I

The Department, in an effort to alleviate conditions of cyclical employment, ^* entered into an arrangement with Omega Chemical Corporation, whereby the Department agreed to finance construction of Omega's chemical manufacturing facilities. The agreement entered into between the Department and Omega is generally referred to as the sale-leaseback method of financing, and it provided that Omega would sell to the Department certain real property upon which the Department would construct the chemical manufacturing facilities, and in turn the Department would lease back the property to Omega. On October 1, 1973, Omega executed a deed passing title of the property to the Department, and on that same date, the parties executed a lease agreement which provided that the Department would complete the project and that Omega would lease the property from the Department at a specified rental for a term of twenty years, at the end of which term Omega would be permitted to repurchase the property at nominal cost.

The Department raised the money for the project from the sale of industrial development revenue bonds pursuant to 6 Del.C. Ch. 70, and Omega's rental payments under the lease were in a sum equal to the amount payable as principal and interest on the bonds. The Department in turn, through an indenture of trust with the Farmers Bank of the State of Delaware, pledged its interest in the project as security for the bondholders in exchange for the Bank's administration of the bond funds and collection of the rental payments due under the lease.

On February 8, 1975, fire destroyed the Omega project which was insured against the loss. Omega subsequently used the fire insurance proceeds to begin reconstruction of its facilities, and in so doing, Omega contracted with the plaintiff for labor and material used in the reconstruction. Thereafter Omega filed for bankruptcy and defaulted on its obligations to the plaintiff and to the Department.

The Department exercised its fee interest in the property by reclaiming it, completing reconstruction of the facilities, and subsequently leasing the project to another chemical company.

On January 12, 1976, plaintiff filed a combined in personam and mechanic's lien action against Omega, the Department, and the Farmers Bank, in its capacity as indenture trustee, seeking payment for $29,432.19 worth of sheet metal duct and fabrication work in connection with reconstruction of the project.

Plaintiff and the Department filed cross motions for summary judgment. In granting summary judgment in favor of the plaintiff as to its claim for a mechanic's lien, and in correspondingly denying the Department's motion, the Superior Court held:

(1) That the doctrine of sovereign immunity was unavailable to the Department in this case to bar plaintiff's action; and

(2) That the lease agreement constituted prior written consent of the Department to the work in question, permitting attachment of the lien;

Because of the foregoing disposition, the Court did not address plaintiff's in personam claim against the Department.

The Department appeals from the Superior Court's order, contending that: (1) Plaintiff's action for a mechanic's lien is barred by the doctrine of sovereign immunity and that the State has not waived such defense; (2) A mechanic's lien cannot attach to the State's property which is being used to carry out the public purpose of 6 Del.C. Ch. 70; and (3) The lease between the Department and Omega did not constitute "prior written consent" within the meaning of 25 Del.C. § 2722.

II

Sovereign immunity places a general bar on nonconsensual suits against the state. Donovan v. Delaware Water and Air Resources Comm'n, Del.Supr., 358 A.2d 717 (1976); Shellhorn & Hill, Inc. v. State, Del.Supr., 187 A.2d 71 (1962). Sovereign immunity applies to state agencies. Varity Builders, Inc. v. Polikoff, Del.Supr., 305 A.2d 618 (1973); Wilmington Housing Authority v. Williamson, Del.Supr., 228 A.2d 782 (1967). However, this immunity is not absolute. See e. g., City of Wilmington v. Spencer, Del.Supr., 391 A.2d 199 (1978); Pajewski v. Perry, Del.Supr., 363 A.2d 429 (1976). We also find the general rule in most jurisdictions to be that absent specific statutory provisions to the contrary, a mechanic's lien will not attach to state owned property used for the benefit the public. Druml Co., Inc. v. City of New Berlin, Wis.Supr., 78 Wis.2d 305, 254 N.W.2d 265 (1977); Repp and Mundt, Inc. v. Hitzelberger Supply Co., Ind.App., 353 N.E.2d 547 (1976); Union Reddi-Mix Co. v. Specialty Concrete Contractor, Mo.App., 476 S.W.2d 160 (1972); 3 Powell, The Law of Real Property P 486(1) (1979). Some authorities have found the basis for the rule not in sovereign immunity, but in the public interest which precludes the satisfaction of private debts out of public property. See Repp and Mundt, Inc., supra; Union Reddi-Mix Co., supra; Powell, supra. The public interest served by the rule is in preventing the disruption of essential public services or functions. American Seating Co. v. City of Philadelphia, Pa.Supr., 434 Pa. 370, 256 A.2d 599 (1969); see Mayor and Council of Wilmington v. Recony Sales & Engineering Corp., Del.Supr., 185 A.2d 68 (1962). We think both rationale provide a sound basis for the rule.

In our present Mechanics' Liens Statute, 25 Del.C. Ch. 27, the only provision which affirmatively designates those parties who may be bound by such a lien is 25 Del.C. § 2704 which provides, "liens may be filed for or against corporations or individuals." The State and state agencies generally are regarded as not included within statutes using such words as "corporations or individuals", except where a contrary intent is manifest. Harden v. Mass Transit Administration, Md.Spec.App., 27 Md.App. 590 342 A.2d 310 (1975), aff'd, Md.App., 277 Md. 399, 354 A.2d 817 (1976); Cocco v. Maryland Commission on Medical Discipline, Md.App., 39 Md.App. 170, 384 A.2d 766 (1978). We find no other provisions of the Mechanics' Liens Statute which reveal the clear intent necessary to bring the state and state owned property within the ambit of 25 Del.C. Ch. 27.

The Mechanics' Liens Statute being in derogation of the common law, it must be strictly construed, especially as to the obtaining and existence of a lien. Iannotti v. Kalmbacher, Del.Super., 156 A. 366 (1931). This rule of construction is particularly pertinent where, as in the instant case, plaintiff seeks to establish an incumbrance on state owned property for a debt incurred by the State's lessee. See Rubino v. Tranor, N.J.Cir., 8 N.J.Misc. 815, 152 A. 647 (1930). Moreover, where a party seeks to hold the State or a state agency liable under a statute, any reasonable doubts as to the proper construction of the statute should be resolved in favor of the State. See Rogan v. Baltimore & Ohio Ry. Co., Md.App., 188 Md. 44, 52 A.2d 261 (1947); Sarges v. State, Conn.Super., 26 Conn.Sup. 24, 209 A.2d 886 (1965); 3 Sands, Sutherland Statutory Construction § 64.01, P.106 (4th ed. 1974).

With these principles in mind, we must conclude that, in failing to manifest a clear intent that mechanics' liens attach to state owned property, absent any statutory or contractual authority apart from 25 Del.C. Ch. 27 to the contrary, a mechanic's lien will not attach to state owned property used for the benefit of the public.

III

At this point we turn our analysis to 6 Del.C. Ch. 70, entitled Economic Development and Environmental Facilities, to see if any language in that statute would constitute a waiver under the present circumstances of the general prohibition against the attachment of mechanics' liens against state owned property.

6 Del.C. § 7001 contains certain legislative findings and declarations of policy including, among other things, the public interest in alleviating conditions of cyclical employment. It is clear that financing arrangements, such as the sale-leaseback agreement in the present case, were within the contemplation of the General Assembly when it enacted 6 Del.C. Ch. 70.

"Cyclical employment may be eliminated, under certain circumstances, by the modernization of a particular facility. Such modernization may be impossible within the capital resources of the establishment. Under such circumstances, participation by the Department of Community Affairs and Economic Development in refinancing or modernization of facilities will strengthen the position of the establishment in its industry, and eliminate cyclical employment, as hereinbefore defined. It is determined and declared that the elimination of cyclical employment is a public purpose, and that participation by the Department of Community Affairs and Economic Development in refinancing or modernization of facilities, under the criteria hereinafter set forth, will alleviate cyclical employment and thereby promote the public health, welfare, and order.

Therefore, it is declared to be the policy of this State to promote the health, welfare and the good order of the inhabitants thereof by authorizing the Department of Community Affairs and Economic...