Inland Empire Dry Wall Supply Co. v. W. Sur. Co.

Decision Date10 January 2017
Docket NumberNo. 34022-8-III,34022-8-III
Citation197 Wash.App. 510,389 P.3d 717
CourtWashington Court of Appeals
Parties INLAND EMPIRE DRY WALL SUPPLY CO., a Washington corporation, Appellant, v. WESTERN SURETY COMPANY (Bond No. 58717161), Respondent.

Richard Duncan Campbell, William Michael Hughbanks, Campbell & Bissell, PLLC, 820 W. 7th Ave., Spokane, WA, 99204-2809, for Appellant.

Timothy Gary Klashke, Kuffel, Hultgrenn, Klashke, Shea & Ellerd, LLP, 1915 Sun Willows Blvd., P.O. Box 2368, Pasco, WA, 99302-2368, for Respondent.

Pennell, J.¶1 Washington law allows for the recording of a bond to free up property encumbered by a construction lien. When this happens, the bond is substituted for the property and a lien claimant can take legal action against the bond. The question we confront here is who must be sued when a claim is filed against a lien release bond. The procedural statute governing lien release bonds unambiguously identifies only the bond surety as an interested party. This is consistent with general suretyship principles, which allow a claimant to seek relief directly against a surety. Because the trial court erroneously ruled that a claim against a lien release bond could not be made solely against a surety, the judgment in this matter is reversed.

FACTS1

¶2 Inland Empire Dry Wall Supply Company (Inland) entered into a credit and sales agreement with Eastern Washington Drywall & Paint (EWD & P) for a construction project. EWD & P had been subcontracted by Fowler General Construction (Fowler), the project's general contractor, to provide labor and materials for the project. Over the course of the construction project, Inland purportedly supplied $124,653.05 in drywall materials to EWD & P.

¶3 Fowler provided EWD & P with funds to pay Inland, but EWD & P never paid Inland and eventually ceased working on the project. Inland ultimately initiated a lien against the project for money owed. It filed a preclaim lien notice against the owner of the project, Western States Development Corporation, as required by RCW 60.04.031. Inland then timely recorded the lien as required by RCW 60.04.091.

¶4 In order to release the project from Inland's lien, Fowler obtained a release of lien bond in the amount of $186,979.57 from Western Surety Company (Western). The bond identifies Fowler as the "Principal," Western as the "Surety," and Inland as the "Obligee." Clerk's Papers at 84-85.

¶5 After the lien release bond was recorded, Inland filed an action against Western in Spokane County Superior Court to recover on its lien. Fowler was not named a party to the suit. Western answered Inland's complaint and raised several affirmative defenses, including that by failing to name and include Fowler as a necessary and indispensable party, Inland had not satisfied the statute of limitations requirements in chapter 60.04 RCW. Both parties filed motions for summary judgment.

¶6 Relying on our decision in CalPortland Co. v. LevelOne Concrete, LLC, 180 Wash.App. 379, 321 P.3d 1261 (2014), the trial court granted summary judgment in favor of Western. The trial court reasoned that under CalPortland, when legal action is taken to foreclose on a lien release bond, the statute of limitations under RCW 60.04.141 for service of the lawsuit on a property owner is replaced by an analogous statute of limitations requiring service on a bond's principal and surety. The court ruled that because Inland only named Western as a party and served it as the bond's surety, the statute of limitations was not met and Western was discharged from liability and entitled to judgment in its favor. Inland filed a motion for reconsideration, but the motion was denied. Inland appeals.

BACKGROUND

¶7 This case concerns chapter 60.04 RCW, also known as the "mechanics' lien" or "construction lien" statute. See CalPortland, 180 Wash.App. at 385–86, 321 P.3d 1261. This statute sets forth a lien procedure to protect the financial interests of persons contributing labor, materials or equipment to a construction project. If construction costs are not paid, the statute allows a lien to be placed against the construction project property as a method for financial recovery. Given the burdens on property imposed by construction liens, the statute sets forth strict time limits. One asserting a claim of lien must bring an action to foreclose the lien within eight months of recording the claim. RCW 60.04.141. The property owner must be served with notice of the suit within 90 days. Id. A lien claimant who fails to comply with these time constraints loses all rights to recover on the lien. See Bob Pearson Constr. Inc. v. First Cmty. Bank of Wash., 111 Wash.App. 174, 178, 43 P.3d 1261 (2002).

¶8 Apart from protecting the rights of property owners by requiring strict time compliance, the statute also sets forth a bond procedure that can be used to free up construction project property from a lien prior to resolution of claims. RCW 60.04.161. Under the lien release bond statute, a variety of persons disputing the validity of a lien can obtain and record a bond, including a property owner, a contractor or a lender. Id. While the statute allows for flexibility with respect to who can initiate a bond, it has strict requirements for bond sureties. A surety must be authorized to issue bonds in the state and must comply with federal bonding requirements. The statute also states a bond "surety shall be discharged from liability under the bond" if "no action is commenced to recover on a lien within the time specified in RCW 60.04.141." Id. In other words, strict time frames for filing suit apply in the lien release bond context, not just the regular lien context.

¶9 The procedure for obtaining relief against a lien release bond under RCW 60.04.161 has been the source of considerable confusion. Relevant here, questions have arisen with respect to who the necessary parties are when a bond has been obtained to release property from a lien. Without a bond, the statute is fairly straightforward. The owner of the real property must be made a party to the suit, along with any person who, prior to commencement of the action, has a recorded interest in the property which the lien claimant seeks to have affected. RCW 60.04.141, .171. But who must be served when a bond releases a piece of property? This is the source of the parties' dispute.

¶10 We attempted to resolve this confusion in CalPortland. In that case, like this one, a general contractor recorded a lien release bond prior to the filing of suit. Unlike this case, the lien claimant served both the general contractor as lien principal and the surety company. However, the owner of the underlying real property was not sued. Initially, the trial court dismissed the lien claim, holding the real property owner was a necessary party. We reversed. As we explained, because a bond operates to release real property from being encumbered by a lien, once the bond is recorded, the real property owner is no longer an interested party. Instead, the bond replaces the property and suit is sufficient so long as it is against the bond. CalPortland, 180 Wash.App. at 387–88, 321 P.3d 1261. Given this context, the property owner need not be included as a party for a claimant's case to go forward.

¶11 In CalPortland, we stated a real property owner is not a necessary party to a suit against a lien release bond; instead, inclusion of the bond principal and surety is "sufficient." Id. at 388, 321 P.3d 1261. This statement forms the basis of Western's current position. According to Western, the foregoing statement means Inland was required to sue both Western (as the surety) and Fowler (as the bond principal) in order to proceed on its lien. We disagree. All we said in CalPortland was that a suit against both a bond principal and bond surety is sufficient for compliance with the lien release bond statute. The ruling did not address whether suit against both is necessary.

ANALYSIS

¶12 Resolution of this case turns on statutory construction, which we review de novo. Dep't of Ecology v. Campbell & Gwinn, LLC, 146 Wash.2d 1, 9, 43 P.3d 4 (2002). Our "fundamental objective" in this analysis "is to ascertain and carry out the Legislature's intent." Id. Where a statute's meaning is plain on its face, construction aids such as legislative history are unnecessary to determine the legislature's intent. While the current statute is not a model of clarity, its terms are sufficiently plain to resolve the parties' dispute without resorting to aids of construction. CalPortland, 180 Wash.App. at 388, 321 P.3d 1261.

¶13 As previously noted, we are asked to resolve the statutory question of who is a necessary party when a bond has been recorded to replace a construction lien. For initial guidance, we look to RCW 60.04.141, which sets procedures to be followed when a bond has not been filed. In this context, service of a lawsuit to enforce a lien must be made on "the owner of the subject property" within a tight statutory timeframe. RCW 60.04.141 (suit must be filed within eight months and served within ninety days). By designating the "owner of the subject property" as the entity that must be served, the construction lien statute clearly contemplates that the "owner of the subject property" is a necessary party to a lien foreclosure claim. See Bob Pearson, 111 Wash.App. at 178, 43 P.3d 1261.

¶14 Once a lien release bond is recorded, the procedural statute shifts from RCW 60.04.141 to RCW 60.04.161. This change alters the governing legal landscape. With a bond, real property is no longer encumbered. CalPortland, 180 Wash.App. at 386–87, 321 P.3d 1261 ; DBM Consulting Eng'rs, Inc. v. U.S. Fid. & Guar. Co., 142 Wash.App. 35, 40, 170 P.3d 592 (2007). The lien release bond operates as a substitute for the property. Id. at 41, 170 P.3d 592. As a result, the parties interested in a foreclosure action are different. Unlike RCW 60.04.141, RCW 60.04.161 makes no mention of the "owner of the subject property" as an...

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  • Inland Empire Dry Wall Supply Co. v. W. Sur. Co.
    • United States
    • Washington Supreme Court
    • January 18, 2018
    ...was only required to name Western, the bond surety, as the defendant to its bond foreclosure action. Inland Empire Dry Wall Supply Co. v. W. Sur. Co. , 197 Wash.App. 510, 519, 389 P.3d 717, review granted , 188 Wash.2d 1002, 393 P.3d 785 (2017). Chief Judge Fearing dissented. ANALYSIS ¶ 6 T......

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