Glasser v. Jack Bays, Inc.

Decision Date28 February 2013
Docket Number120289.,Record Nos. 120287,120288
Citation285 Va. 358,741 S.E.2d 599
CourtVirginia Supreme Court
PartiesGLASSER & GLASSER, PLC, Trustee for First Mortgage Bondholder, 2006 Series v. JACK BAYS, INC., et al. Citizens Business Bank v. Jack Bays, Inc., et al. Celtic Bank v. Jack Bays, Inc., et al.

OPINION TEXT STARTS HERE

Jerry William Boykin (Juanita F. Ferguson; Bean, Kinney & Korman, Arlington, on briefs), for appellant Glasser & Glasser, PLC.

Robert H.J. Loftus (Eric J. Berghold; McCandlish & Lillard, Fairfax, on briefs), for appellant Citizens Business Bank.

P.J. Meitl (Rodney F. Page; Bryan Cave LLP, on briefs), for appellant Celtic Bank.

Monica Taylor Monday (Edward W. Cameron; Gentry Locke Rakes & Moore, Roanoke; Cameron McEvoy, on brief), for appellee Jack Bays, Inc.

Ralph D. Rinaldi (James C. Judkins; Cowles, Rinaldi, Judkins & Korjus, Fairfax, on brief), for appellees Adrian L. Merton, Inc.; Century Contracting Corporation; Clover Contracting, Inc. and General Glass Corporation.

Ralph D. Rinaldi (Cowles, Rinaldi, Judkins & Korjus, Fairfax, on brief) for appellees Becker Electric Company, Inc.

M. Joseph Pierce, Falls Church; Turkessa B. Rollins (Andrew N. Cook; Davild Hilton Wise; Aileen Kilgore; Kasimer & Annino; Fullerton & Knowles; K&L Gates; Wise & Donahue, on brief), for appellees Structural steel, LLC, United Sprinkler Company, Inc., Virginia Paving Company, a Division of Lane Construction Corp., Sparkle Painting Company Inc., Scaffold Resource LLC, and Miller Construction, Inc.

No brief filed on behalf of appellee New Life Anointed Ministries International, Inc.

No brief filed on behalf of appellee Stewart Title Guaranty Company.

No brief filed on behalf of Glasser & Glasser, PLC, in its capacity as an appellee in Record Nos. 120288 and 120289.

No brief filed on behalf of Citizen Business Bank, in its capacity as an appellee in Record No. 120289.

No brief filed on behalf of Celtic Bank, in its capacity as an appellee in Record No. 120288.

Present: All the Justices.

Opinion by Justice DONALD W. LEMONS.

In this appeal, we consider the validity of various mechanics' liens filed under Code § 43–4.

I. Facts and Proceedings
A. New Life's Construction Project, Contractors, and Financing

Jack Bays, Inc. (Jack Bays) is a commercial general contracting firm with expertise in new church construction. In 2004, the company's President, Lynn Bays Fuechsel (“Fuechsel”), met the Senior Pastor and Founder of New Life Anointed Ministries International (“New Life”), Bishop Eugene Reeves (Bishop Reeves). At the time, New Life was beginning the process of building a church in Woodbridge, Virginia. Jack Bays ultimately became the general contractor on the project.

On August 22, 2005, Jack Bays submitted a proposal for the site work portion of the project. Site work included excavation and grading, utility installation, concrete and asphalt paving, landscaping, and fencing. New Life accepted the proposal either contemporaneously or shortly thereafter by signing an owner/contractor agreement form (“August '05 Agreement”). The agreement form stated that New Life would pay Jack Bays a stipulated sum of $4,209,532 for initial work at the project site.

On September 29, 2005, Jack Bays began site work. On April 26, 2006, a new Agreement (“April '06 Agreement”) provided that New Life would pay Jack Bays a stipulated sum of $12,016,000. The April '06 Agreement incorporated the sum and scope of work from the August '05 Agreement.

On December 5, 2006, the parties increased the value of the contract for the final time. Change Order 13 required construction on a preschool, sanctuary, lobby and corridors. The cost of this project was $5,858,732, which brought the total cost of the project to $17,874,732. The contract provided for payment of requisitions from Jack Bays based upon percentage completion of the project.

To perform work at the site, Jack Bays contracted with several subcontractors, the following eleven of which are parties to this action: Structural Steel, LLC (“Structural Steel”), United Sprinkler Company, Inc. (“United Sprinkler”), Virginia Paving Company (Virginia Paving), Sparkle Painting Company, Inc. (“Sparkle Painting”), Scaffold Resource, LLC (“Scaffold Resource”), Miller Construction, Inc. (“Miller Construction”), Adrian L. Merton, Inc. (Adrian Merton), Century Contracting Corporation (“Century Contracting”), Clover Contracting, Inc. (“Clover Contracting”), General Glass Corporation (“General Glass”), and Becker Electric Company.*

After briefly working with Branch Banking and Trust, New Life sought additional funds for the project. To obtain these funds, New Life worked with Strongtower, a bonding company for church financing. This collaboration led New Life to obtain additional financing, specifically in the amount of $13.6 million. San Joaquin Bank (the predecessor to and hereinafter “Citizens Business Bank”), 1st Centennial Bank (the predecessor to and hereinafter “Celtic Bank”), and Glasser & Glasser, PLC (Glasser & Glasser) (collectively, “Lenders”) were listed as “Lenders” on the Deed of Trust for the new financing, while Stewart Title Guaranty Company (Stewart Title) was designated Trustee.” Glasser & Glasser was also designated Trustee for “First Mortgage Bondholders, 2006 Series” (“Bondholders”). Citizens Business Bank obtained a note evidencing the debt in the principal amount of $8,962,000. Celtic Bank obtained a note in the principal amount of $4,491,000. Additionally, the Deed of Trust incorporated a $13,453,000 Trust Indenture “for the benefit of certain Bondholders,” with Glasser & Glasser as Trustee, and Reliance Trust Company as the trust company and disbursement agent. The Lenders recorded their Deed of Trust on June 27, 2006.

On September 29, 2005, Jack Bays issued its first requisition for payment to New Life. New Life paid in full, and continued to pay its requisitions in full each month through March 2007. New Life paid part of Jack Bays' April 2007 requisition, falling $141,498.70 short of total payment. Thereafter, New Life made no payments to Jack Bays from May through October 2007, because funding for the project was exhausted.

Throughout the May–October 2007 period, New Life attempted to obtain additional financing. Jack Bays understood from Bishop Reeves that new funding would be obtained to cover the cost of the project. On July 27, 2007, Monika Taylor, an underwriter for Quest Capital Funding, wrote to Fuechsel to “inform [Fuechsel] that we are going through final approval for a $20,000,000.00 (Twenty Million Dollar) loan for New Life Anointed Church.” From her conversations with Bishop Reeves, Fuechsel expected to be paid for Jack Bays' prior, ongoing, and future work on or around August 3, 2007. After the anticipated loan from Quest Capital Funding did not close, Fuechsel was told that financing would instead be in place by the end of August. However, no further financing was obtained. Jack Bays continued construction work at the site from May through September 28, 2007.

B. Contract Work and Demobilization, Mechanics' Liens, and Termination

On September 28, 2007, Jack Bays sent a memorandum to its subcontractors. The memorandum detailed New Life's efforts to obtain financing, and informed the subcontractors that delays in the approval process caused Jack Bays to immediately “stop[ ] active work on the site until all payments are current.” The letter asked the subcontractors to consider waiting until November 2007 to file a mechanics' lien so that title could remain clear and enable New Life to “have the best opportunity to obtain financing.”

After September 28, 2007, Jack Bays began to shut down active work on the project by collecting equipment and rectifying unsafe conditions on the premises. Jack Bays maintained a log of site work during this time and issued a requisition for October 2007 work it classified as “demobilization.”

According to Jack Bays, subcontractors continued work at the site through October 11, 2007. However, United Sprinkler performed “normal course of business” work through at least October 18, 2007. Sparkle Painting had an employee working on site through at least October 1, 2007, and possibly through October 9, although information supporting the latter date was inconclusive. Scaffold Resource entered the premises on October 1 to remove scaffolding provided, completing this work—which was provided for in its contract with Jack Bays—on October 16. Becker Electric continued contract completion work on the project by performing wiring work related to pulls and terminations at electrical panel locations and rooftop units through October 16, although this was primarily in an effort to address safety concerns associated with exposed live electrical wires.

Jack Bays alleged that its activity at the project site between October 1 and November 16, 2007, was a necessary part of its demobilization efforts, and that any contract work performed by subcontractors during that time was at the subcontractors' own risk. However, Jack Bays increased the percentage by which it evaluated the completeness of the project's work between its September and October 2007 requisitions by 2%, from 92% to 94%. Whether Jack Bays' actions and the actions of the subcontractors in October and November 2007 constitute continuing contract work or demobilization is disputed by the parties to this action.

On December 28, 2007, Jack Bays recorded its Memorandum of Mechanic[s'] Lien against New Life in the amount of $5,942,487.48 in the Circuit Court of Prince William County. The following table summarizes the dates on which subcontractors recorded their memoranda of mechanics' liens, and the value of those liens:

+----------------------------------------------------------------+
                ¦       ¦Subcontractor         ¦Date       ¦Value      ¦         ¦
                +-------+----------------------+-----------+-----------+---------¦
                ¦       ¦Clover Contracting    ¦12/20/07   ¦$ 60,814.37¦         ¦
...

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