Donohoe Const. Co., Inc. v. Mount Vernon Associates

• Decision Date: 10 June 1988
• Docket Number: No. 850154,850154
• Parties: DONOHOE CONSTRUCTION CO., INC. v. MOUNT VERNON ASSOCIATES. Record
• Court: Virginia Supreme Court

Page 857

369 S.E.2d 857

235 Va. 531

DONOHOE CONSTRUCTION CO., INC. v. MOUNT VERNON ASSOCIATES.

Record No. 850154.

Supreme Court of Virginia.

June 10, 1988.

Gary W. Brown (Bromley, Brown & Walsh, Washington, D.C., on briefs), for appellant.

John P. Rowley, III (Marc E. Bettius, Bettius, Connor, Duff & Sanderson, Fairfax, on brief), for appellee.

Present: CARRICO, C.J., POFF, COMPTON, STEPHENSON, THOMAS and WHITING, JJ., and COCHRAN, Retired Justice.

STEPHENSON, Justice.

The dispositive issues in this appeal are whether (1) the filing of a memorandum of mechanic's lien is a "judicial proceeding" entitling the claimant to the defense of absolute privilege in a suit for slander of title, and (2) the evidence is sufficient to support a jury's finding of abuse of process.

Mount Vernon Associates (Mount Vernon) sued Donohoe Construction Co., Inc. (Donohoe), alleging slander of title and abuse of process arising from Donohoe's filing of an invalid mechanic's lien against Mount Vernon's property. A jury returned a verdict for Mount Vernon, assessing compensatory damages of $190,000 and punitive damages of $600,000. The trial court entered judgment on the verdict, and this appeal ensued.

I

Because Mount Vernon prevailed at trial, we must state the evidence in the light most favorable to it. Mount Vernon is a limited partnership formed for the purpose of operating a nursing home. Its general partner is Samuel L. Hinson, Jr. In the mid-1970's, Mount Vernon became interested in developing a nursing home facility in Fairfax County. Mount Vernon obtained a commitment for a construction loan from the United States Department of Housing and Urban Development (HUD). The HUD loan commitment provided a reduced financing rate and an enhanced loan term.

After Mount Vernon's architect had completed the plans and specifications for the facility, Mount Vernon requested bids on the project from four construction companies. Donohoe was the low bidder, and Mount Vernon accepted Donohoe's bid.

Thereafter, Donohoe's representatives met with Hinson and Mount Vernon's architect to review the plans and specifications. Upon learning that HUD required a liquidated damages clause in the contract, Donohoe requested and Mount Vernon agreed to an additional 100 days for completion of the project. On July 28, 1977, Mount Vernon and Donohoe executed a contract for construction of the facility at a cost of $1,867,776. The contract provided for a completion date of July 16, 1978. It also provided that HUD had the ultimate authority to decide all questions involving construction and payment.

Following execution of the contract, construction progressed slowly. In fact, by December 1977, no "substantial improvements" had been made at the site. At that time, a dispute arose between Mount Vernon and Donohoe over who should pay certain charges, including a water availability fee charged by Fairfax County. When Hinson suggested to Donohoe's president, James Donohoe, that they look to the contract for the answer, James Donohoe stated that he did not care what the contract provided and unless the issue was resolved in Donohoe's favor, Donohoe "would have or ... might have difficulty delivering the [nursing home]."

Because construction was well behind schedule, Donohoe was advised in June 1978 that if the project was not completed by July 16, 1978, HUD would assess liquidated damages in the amount of $997.64 per day in accordance with the terms of the contract. On July 6, 1978, Donohoe advised Mount Vernon that it would strive to have the main floor of the building substantially completed by August 15, 1978, and to have the ground floor substantially completed 1-1/2 weeks thereafter. Donohoe stated, however, that it could meet that schedule only if Mount Vernon and Donohoe resolved two issues that were the subject of arbitration between the parties: (1) the water availability fee, and (2) Donohoe's request for a time extension to complete the project.

On August 8, 1978, Hinson asked Frank Donohoe, Donohoe's executive vice-president, "why don't you get a crew out here and finish this building?" Frank Donohoe responded, "I've got 17 projects going. This is the least profitable. Unless you concede on these items in controversy, ... I cannot motivate my people to get out here and finish your building without your concessions on these items."

The items in controversy were (1) reduction of retention (the amount retained from requisitions to insure completion of construction) from 10% to 5%, (2) an extension of time for completing the project, and (3) payment of the water availability fee. Hinson told Donohoe that HUD had approval authority over the first two items and that the architect had already ruled on the third item.

Donohoe failed to complete construction by August 1978. Consequently, Mount Vernon was forced to cancel commitments to patients and staff.

In mid-November 1978, Donohoe asked Hinson to move his temporary office into the unfinished building so that Mount Vernon's trailer, which was being used as an office, could be removed from the construction site. Hinson honored the request. In late December 1978, however, Donohoe's project manager informed Hinson that he was occupying the building illegally, and unless Hinson agreed to reduce the retainage from 10% to 5%, he would be evicted. Hinson again informed Donohoe that HUD, not Mount Vernon, had the authority to approve reductions in retainage. Although Hinson was agreeable to the reduction, HUD would not approve it. In January 1979, HUD advised Donohoe that liquidated damages would be assessed for its delay in completing the project.

The project was substantially completed on March 12, 1979. On that date, Mount Vernon received a HUD permit to occupy the building.

On March 16, 1979, Donohoe filed a memorandum of mechanic's lien in the clerk's office of the court below, claiming an indebtedness of $389,576.11. The statements set forth in the memorandum were sworn to before a notary public by one of Donohoe's officers. Donohoe's lien claim was based in part upon 452 days of claimed delay on the job and extra costs associated therewith. On April 26, 1979, Donohoe filed a bill of complaint to enforce the lien.

Three days after Donohoe filed the lien, it submitted a requisition, claiming only $190,148 was owing. Three months later, Donohoe submitted a revised requisition, claiming it was due only $100,899.

At the time the lien was filed, Mount Vernon had paid all bills presented and was aware of no outstanding requisitions from Donohoe. Although several change orders had not been paid when the lien was filed, Mount Vernon never questioned that they were owing and had deposited funds with its lender for processing according to HUD procedure.

In the suit to enforce, the court concluded that the lien was invalid. The court determined that Donohoe had filed the lien prematurely. The court also found that the lien included claims not compensable under the contract, as well as claims not yet owing. After crediting Donohoe for work performed, the court awarded Mount Vernon judgment on its cross bill for $19,723.20, the balance due Mount Vernon for delay and corrective work.

By a two-count motion for judgment, Mount Vernon subsequently instituted the present action, alleging that Donohoe's filing of the invalid mechanic's lien (1) slandered Mount Vernon's title, and (2) constituted an abuse of process. At trial, Mount Vernon relied upon the chancery court's prior determination that "Donohoe knew or should have known that it was filing its lien improperly." Consequently, the trial court limited the presentation of evidence to matters relevant to determining Donohoe's intention when it filed the lien. ^*

Mount Vernon introduced several letters and memoranda written by Donohoe after it knew HUD definitely would assess liquidated damages for delay, but before Donohoe filed its mechanic's lien. These documents showed that Donohoe had considered filing a lien to prevent closing on permanent financing and to "force [Mount Vernon] into a final settlement and avoid arbitration and litigation if at all possible."

The only evidence relating to Donohoe's actions after it filed the lien was an internal memorandum prepared by Donohoe's director of field operations. The memorandum, dated six days after the lien had been filed, instructed Donohoe's project manager for the Mount Vernon nursing home to contact Mount Vernon's architect to check on the date he had received a change order. If the architect had not acted on the change order within ten days, the period provided by the contract, the project manager was to

call [the architect] and get him down to the Nursing Home for some ambiguous reason or else tie him up in the office looking up information....

Immediately upon the lapse of this time, send out the letter citing past references of delays and that this is a typical occurence [sic] in the course of this job. This is one of the major faults of this job.

Also, call [Donohoe's attorneys] and tell them to release the lien, or file it.

The evidence does not indicate that Donohoe's project manager ever acted on this memorandum or that Donohoe took any other action after it filed its mechanic's lien.

II

We first consider Donohoe's contention that the filing of the memorandum of mechanic's lien constituted a judicial proceeding and, therefore, entitled Donohoe to the defense of absolute privilege in the slander of title suit. It is well settled that "words spoken or written in a judicial proceeding that are relevant and pertinent to the matter under inquiry are absolutely privileged." Darnell v. Davis, 190 Va. 701, 707, 58 S.E.2d 68, 70 (1950).

The reason for the rule of absolute privilege in judicial proceedings is to encourage unrestricted speech in litigation. Watt v. McKelvie, 219 Va. 645, 649, 651, 248 S.E.2d 826, 828, 829 (1978). "[T]he public interest is best served when individuals who...