In re Harris

• Decision Date: 07 May 2002
• Docket Number: No. 97,286.,97,286.
• Citation: 2002 OK 35,49 P.3d 710
• Parties: In re Matthew Wayne HARRIS, Debtor, Paul Stevens and Latricha Stevens, Plaintiffs, v. Matthew Wayne Harris, Defendant.
• Court: Oklahoma Supreme Court

49 P.3d 710

2002 OK 35

In re Matthew Wayne HARRIS, Debtor,

Paul Stevens and Latricha Stevens, Plaintiffs, v. Matthew Wayne Harris, Defendant.

No. 97,286.

Supreme Court of Oklahoma.

May 7, 2002.

James L. Bentley, Del City, OK, for Plaintiffs.

D. David Sisson, Norman, OK, Elaine M. Dowling, Oklahoma City, OK, for Defendant/Debtor.

KAUGER, J.

¶ 1 We are asked to answer two questions:¹ 1) whether an owner of real property who places trust funds with a general contractor pursuant to the Oklahoma construction trust fund statutes, 42 O.S.2001 §§ 152² and 153,³ is a beneficiary of the statutory construction lien scheme to the extent of any lienable claims arising from the contract between the owner and the general contractor; and 2) whether the Oklahoma construction trust fund statutes, 42 O.S.2001 §§ 152 and 153, create a fiduciary relationship between the owner of real property and a general contractor to the extent that there are lienable claims arising from a construction contract? We answer both questions in the affirmative.

¶ 2 Our determination that an owner of real property placing trust funds with a general contractor pursuant to the Oklahoma construction trust fund statutes, 42 O.S.2001 §§ 152 and 153, is a beneficiary of the statutory construction lien scheme to the extent of any lienable claims arising from the contract between the owner and the general contractor is supported by: 1) our decisions in Manley v. Brown, 1999 OK 79, 989 P.2d 448; Sandpiper North Apartments, Ltd. v. American Nat'l Bank & Trust Co. of Shawnee, 1979 OK 124, 600 P.2d 332 and Roofing & Sheet Metal Supply Co. of Tulsa, Inc. v. Golzar-Nejad Khalil, Inc., 1996 OK 101, 925 P.2d 55; 2) federal jurisprudence construing Oklahoma's construction trust fund statutes; and 3) the majority of extant jurisprudence addressing the issue of the beneficiary status of owners under similar statutory schemes.

¶ 3 We hold that 42 O.S.2001 §§ 152 and 153⁴ create a fiduciary relationship between the owner of real property depositing construction funds with a general contractor and the contractor to the extent that there are lienable claims arising from a construction contract. In so doing, we align ourselves with the jurisdictions recognizing that statutes utilizing trust fund language like that of 42 O.S.2001 §§ 152 and 153 create a confidential affinity and with those federal decisions construing the Oklahoma statutes and acknowledging the statutorily created fiduciary relationship.

FACTS

¶ 4 The debtor/defendant, Matthew Wayne Harris (Harris/debtor/contractor), is the sole proprietor of Harris Construction (the construction company). On July 29, 1999, the plaintiffs, Paul and Latricha Stevens (Stevens/owners), contracted with the construction company to repair and enlarge their Del City home.⁵ Initially, the contract price totaled $90,000.00 and required three $30,000.00 disbursals—a first payment, a second payment once the home was "dried in", and a final payment. By agreement of the parties, the contract was modified subsequently to include additional work by the construction company and to boost the price to $100,000.00.

¶ 5 The owners paid Harris Construction $30,000.00 on August 6, 1999, and construction began in October. After the foundation was poured in November, the owners made additional payments totaling $40,000.00. Because construction was never completed, the Stevens did not disburse the final $30,000.00.

¶ 6 Northwest Roofing Company (roofer/subcontractor) filed a mechanics's and materialmen's lien against Harris Construction and the Stevens' home on February 3, 2000. In response, the Stevens filed a breach of contract suit in district court against the construction company on June 7, 2000. Five months later, the contractor d/b/a Harris Construction filed a voluntary petition in bankruptcy.

¶ 7 On February 12, 2001, the Stevens filed an adversary pleading in the bankruptcy court seeking $70,000 for breach of contract and a determination that the damages are nondischargeable pursuant to 11 U.S.C.1998 § 523(a)(4)⁶ for fraud or defalcation while acting in a fiduciary capacity.⁷ A finding in favor of the owners under § 523(a)(4) requires that they demonstrate a fiduciary relationship with the debtor and the commission of a defalcation within the confines of the relationship.⁸ Recognizing that state law is important in determining the existence of a fiduciary relationship,⁹ the bankruptcy court certified questions to this Court pursuant to the Uniform Certification of Questions of Law Act, 20 O.S.2001 § 1601 et seq., on January 22, 2002. We set a briefing cycle which was completed on March 5, 2002.

I.

¶ 8 AN OWNER OF REAL PROPERTY PLACING TRUST FUNDS WITH A GENERAL CONTRACTOR PURSUANT TO THE OKLAHOMA CONSTRUCTION TRUST FUND STATUTES, 42 O.S.2001 §§ 152 AND 153, IS A BENEFICIARY OF THE STATUTORY CONSTRUCTION LIEN SCHEME TO THE EXTENT OF ANY LIENABLE CLAIMS ARISING FROM THE CONTRACT BETWEEN THE OWNER AND THE GENERAL CONTRACTOR.

¶ 9 Both Stevens and Harris recognize that the Oklahoma lien construction statutes protect subcontractors and suppliers performing work under a contract between an owner of real property and a contractor.¹⁰ The parties differ in that the homeowners assert that the same statutory scheme — 42 O.S.2001 §§ 152 and 153,¹¹ benefits owners placing funds in trust with contractors for the payment of lienable claims. In contrast, Harris contends that the clear language of the statutes requiring that funds be held for the payment of "lienable claims" requires a construction of the statute limiting protection to those entitled to payment for work completed or supplies furnished, i.e. subcontractors and suppliers. Essentially, the contractor argues that owners simply have no standing to assert a claim arising under the lien construction statutes.¹² We disagree.

¶ 10 We have not addressed the precise issue of whether owners enjoy beneficiary status under 42 O.S.2001 §§ 152 and 153. Nevertheless, we have promulgated opinions instructive on the issue.

¶ 11 The primary issues presented in Manley v. Brown, 1999 OK 79, 989 P.2d 448 involved the right of clients to proceed in a malpractice action against attorneys and a law firm for allegedly substandard performance in rendering trial and appellate service in defending against a subcontractor's lien claim. In discussing cases demonstrating that a subcontractor must take affirmative steps to perfect a claim against a contractor for misapplied trust funds, we considered these same teachings as they related to owners' claims against contractors. The opinion provides at ¶ 19:

". . . [The cases] do not teach that the merits of an owner's claim against its contractor depend on a subcontractor's compliance with the notice requirements of the lien statute. Whether a subcontractor must give the § 142.1 notice (when it is due) for an owner to recover against its contractor who is alleged to have misapplied construction trust funds is a question unanswered by case law extant at the critical time here . . . In sum, even if notice was the owner's due, the legal impact of a subcontractor's failure to give that notice upon a contractor's liability to the owner was then (and is now) far from clearly settled." [Emphasis in original.]

The need for the subcontractor's statutorily required lien notification was left undecided in Manley to the extent that it affected the owner's rights against a contractor. Nevertheless, the opinion recognizes that an owner may benefit, as against a contractor, from the statutory protections of Oklahoma's construction trust fund lien statutory scheme.

¶ 12 In Sandpiper North Apartments, Ltd. v. American Nat'l Bank & Trust Co. of Shawnee, 1979 OK 124, 600 P.2d 332, owners of real property and a contractor (collectively, owners) entered into three agreements with a subcontractor. The subcontractor assigned the proceeds of progress payments to its banker as security for financing the sub-contracts. The owners made progress payments on the subcontractor's work jointly to the subcontractor and to the bank. A portion of the payments were diverted when the bank applied monies to debts unassociated with the construction projects. Claiming protection under 42 O.S.1971 §§ 152 and 153,¹³ the owners sued to recover the amounts paid to the subcontractor. We held in favor of the owners in Sandpiper determining that the proceeds of the construction project were subject to the statutory trust provisions, 42 O.S.1971 §§ 152 and 153, to the extent of the valid lienable claims. In Sandpiper, both the owner of the real property and the contractor benefitted under the construction trust fund statutes.

¶ 13 We considered the position of owners of real property under other provisions of Oklahoma's mechanics and materialmen's lien laws in Roofing & Sheet Metal Supply Co. of Tulsa, Inc. v. Golzar-Nejad Khalil, Inc., 1996 OK 101, 925 P.2d 55. The issue presented was whether the subcontractor/supplier of roofing materials was entitled to a lien against the owners' property pursuant to 42 O.S.1991 §§ 141 and 143.¹⁴ Recognizing that materialmen's liens are purely statutory, we stated in Golzar-Nejad that such statutes work together "to provide protection from financial loss to contractors, subcontractors and materialmen, as well as to the owners of real property." [Emphasis supplied.] Determining that owners were entitled to protection under the statutory scheme, we held that the owner could only be billed for the supplies actually utilized in the roofing job. In so doing, we acknowledged the principle that: "[e]venhanded application of a statute requires that we not construe it one way for the benefit of an affected party, and then construe it the other way when the same affected party would suffer." [Emphasis in original.] The mechanic's and materialmen's statutes guaranteed the sub-contractor a lien for all materials utilized in the roofing job. However, the owner of real...