In re Regan

• Decision Date: 05 February 2007
• Docket Number: No. 06SA286.,06SA286.
• Citation: 151 P.3d 1281
• Parties: In re Jeffrey Shawn REGAN and Kerrie Marie Regan, Debtors. Fowler & Peth, Inc., a Wyoming corporation, Plaintiff-Appellant, v. Jeffrey Shawn Regan and Kerrie Marie Regan, Defendants-Appellees.
• Court: Colorado Supreme Court

151 P.3d 1281

In re Jeffrey Shawn REGAN and Kerrie Marie Regan, Debtors Fowler & Peth, Inc., a Wyoming corporation, Plaintiff-Appellant, v. Jeffrey Shawn Regan and Kerrie Marie Regan, Defendants-Appellees.

No. 06SA286.

Supreme Court of Colorado, En Banc.

February 5, 2007.

As Modified on Denial of Rehearing February 26, 2007.^*

Law Offices of Stephen Berken, Stephen E. Berken, Jennifer O. Pielsticker, Denver, Colorado, Attorneys for Jeffrey Shawn Regan and Kerrie Marie Regan.

Brown, Berardini & Dunning, P.C., Brian J. Berardini, Harvey L. Kramer, Denver, Colorado, Attorneys for Fowler & Peth, Inc., a Wyoming corporation.

Lichtenfels, Pansing & Miller, P.C., Robert H. Miller, David B. Law, W. Andrew Figel, Denver, Colorado, Attorneys for Amici Curiae Crescent Electric Supply Company; Hercules Industries, Inc.; K & W Metal Fabricators, Inc., d/b/a Weather Guard Building Products, Inc.; Shelter Products, Inc.; and White Cap Construction Supply, Inc.

Preeo, Silverman, Green & Egle, P.C., Gilbert R. Egle, Denver, Colorado, Attorneys for Amici Curiae American Subcontractors Association, Inc.; and American Subcontractors Association of Colorado.

Justice MARTINEZ delivered the Opinion of the Court.

We agreed to answer a certified question from the Tenth Circuit Court of Appeals determining whether a claimant must have a properly perfected lien or still be able to file such a lien under the time limitations provided by the Colorado mechanics' lien statutes, sections 38-22-109 and 110, to seek access to moneys held in trust under section 38-22-127 of the Colorado Revised Statutes. We hold that the procedural requirements for perfecting a lien contained in sections 38-22-109 and 110 do not apply to claims against money held in trust under section 38-22-127.

The General Mechanics' Lien laws¹ provide three methods to protect persons who add value to property. One method of statutory protection is to allow claims against a trust fund, held by contractors, for the benefit of subcontractors, laborers, or material suppliers under the Trust Fund Statute.² Another method created by the General Assembly to ensure payment to contractors, laborers, or material suppliers is through the process of attaching and perfecting a lien against the property they have improved. Finally, the General Assembly created a process through which a contractor can post a bond against which claims can be made.

These three separate methods achieve one overall purpose; they ensure that laborers and material suppliers are paid for the value they add to property. We therefore construe the plain meaning of the Trust Fund Statute in a manner consistent with the statutory scheme of the General Mechanics' Lien laws. We conclude that the Trust Fund Statute protects subcontractors, laborers, and material suppliers who add value to property but are unable to recover monies owed to them through the lien claim process.

I. Facts and Procedural History

According to the findings of the Bankruptcy Court and the District Court, Jeffrey and Kerrie Regan were the sole owners and principals of Eagle Roofing Systems, Inc. ("Eagle"). Eagle installed and repaired roofs for several home developers in the Denver metro area. Fowler & Peth, Inc. ("Fowler") supplied roofing materials to Eagle according to the terms of a credit agreement between the parties. Fowler's materials were incorporated into various separate properties (at issue in the bankruptcy proceeding), giving Fowler the potential right to file mechanics' liens against those properties. Fowler chose not to file any liens, though it was not fully paid by Eagle for those materials. Eagle, however, was fully paid by the owner or builder of each of the properties.

During its relationship with Fowler, Eagle began to experience financial difficulties. To improve cash flow, rather than pay Fowler's invoices with the money received from each project, Eagle began to pay their oldest invoices first. In addition, Eagle did not maintain separate records of account for each project. Finally, the Regans, as sole owners and principals, caused Eagle to pay some of their own personal expenses from monies received by Eagle in payment for completed roofing projects. As a result, Eagle was fully compensated for all the construction projects it worked on, but Fowler was not. The Regans then filed for Chapter 7 bankruptcy relief in the United States Bankruptcy Court for the District of Colorado. As of the date of the bankruptcy petition, the Regans owed Fowler $48,185.03.

The bankruptcy court judge held that the debt owed to Fowler was nondischargeable because the Regans failed to hold project funds in trust under Colorado's Mechanics' Lien Trust Fund Statute. In re Regan, 311 B.R. 271 (Bankr.D.Colo.2004). On appeal, the United States District Court for the District of Colorado reversed, ruling that, because Fowler had not actually filed or perfected any liens against each of the various properties in which its materials were incorporated by Eagle, it was not entitled to the protection of the Trust Fund Statute. In re Regan, 326 B.R. 175, 178-79 (D.Colo.2005). The District Court, relying principally on an Oklahoma case, held that in order to invoke the protection of the Trust Fund Statute, a material supplier must have a perfected lien, or presently be able to perfect a lien. Id. Because the time limitations placed by Colorado law on lien claims had expired, Fowler had no present ability to perfect liens against the properties where its materials had been used, and for which it had not been fully compensated. Fowler appealed to the Tenth Circuit Court of Appeals and this certified question followed.

II. Analysis

We look to the plain language of a statute to effectuate the chosen statutory scheme as intended by the General Assembly. Denver Pub. Co. v. Bd. of County Comm'rs of County of Arapahoe, 121 P.3d 190, 195 (Colo.2005) (citing Sooper Credit Union v. Sholar Group Architects, P.C., 113 P.3d 768, 771 (Colo.2005)). The intent of the General Assembly, as expressed in the language of the statute, is effectuated by considering the statutory scheme as a whole and giving a consistent, harmonious, and sensible effect to each individual section. See Zab, Inc. v. Berenergy Corp., 136 P.3d 252, 255 (Colo.2006) (citing Charnes v. Boom, 766 P.2d 665, 667 (Colo.1988)). When determining the intent of a statute, we must presume that "[a] just and reasonable result is intended." § 2-4-201(1)(c), C.R.S. (2006). Finally, "[w]ords and phrases that have acquired a technical or particular meaning . . . shall be construed accordingly." § 2-4-101, C.R.S. (2006). Thus, the placement of the Trust Fund Statute within the framework of the General Mechanics' Lien laws plays an important role in our determination that the lien claim procedures should not be imported into trust fund claims.

The Trust Fund Statute, by its plain language, offers a separate method of protection from contractors who are paid by homeowners, but do not fully compensate their creditor subcontractors, laborers, and material suppliers. However, if lien claim procedures were imported into trust fund claims, homeowners would face a flurry of liens encumbering their property from subcontractors, laborers, and material suppliers waiting to be paid by principal contractors. Importantly, those same subcontractors, laborers, and material suppliers would, under certain common circumstances, be left without any remedy under the mechanics' lien laws to recover the value they have added to property.³ Finally, the Regans, as well as many other contractors, would be unjustly enriched by their own malfeasance. We therefore conclude that the plain language of the Trust Fund Statute and the General Mechanics' Lien statutory scheme prevent lien claim procedures from being imported into trust fund claims.

In reaching our conclusion, we first examine the General Mechanics' Lien laws. Next, we examine the Trust Fund Statute in particular. Third, we explain how our holding is consistent with the entire statutory scheme. Finally, we will briefly address the Oklahoma case law on which the District Court based its decision. This examination reveals that, in order to give effect to the language and intent of the General Mechanics' Lien laws, trust fund claims must be separate from, though related to, lien claims.

A. The General Mechanics' Lien Laws

A mechanics' lien is a statutorily-created right to file a claim against property, available to a broad category of persons who furnish labor or materials adding value to that property. § 38-22-101(1), C.R.S. (2006). Section 38-22-101 is titled in part: "liens in favor of whom." It states that liens are created only in favor of those persons who furnish supplies or labor for value to property:

[E]very person who furnishes or supplies laborers . . . materialmen, contractors, subcontractors, builders . . . shall have a lien upon the property upon which they have furnished laborers or supplied machinery, tools, or equipment or rendered service . . . for the value of such laborers, machinery, tools, or equipment supplied . . . .

§ 38-22-101(1) (emphasis added).

The General Assembly has, by this language, defined a lien and identified who may have a lien. A lien is a security interest in property; those who have a lien are laborers and material suppliers who have added value to that property. See Barnard v. McKenzie, 4 Colo. 251, 253 (1878) (stating that "[t]he leading idea [of Colorado's mechanics' lien laws is] to secure the mechanic and materialmen upon values they have directly contributed to create"). Furthermore, a lien is created at the commencement of the work, not at the time of enforcement of the lien. See § 38-22-106, C.R.S. (2006) (requiring that all liens relate back to the time of the commencement of the work); Sontag v. Abbott, 140 Colo. 351, 358, 344 P.2d 961, 964 (1959) (liens begin at the commencement of the work); cf. 1C Cathy...