Lane Myers Constr., LLC v. Nat'l City Bank

• Citation: 2014 UT 58,342 P.3d 749
• Decision Date: 19 December 2014
• Docket Number: No. 20121004.,20121004.
• Court: Utah Supreme Court
• Parties: LANE MYERS CONSTRUCTION, LLC, Respondent, v. NATIONAL CITY BANK, National City Bank of Indiana, Petitioners.

342 P.3d 749

2014 UT 58

LANE MYERS CONSTRUCTION, LLC, Respondent

v.NATIONAL CITY BANK, National City Bank of Indiana, Petitioners.

No. 20121004.

Supreme Court of Utah.

Dec. 19, 2014.

Rick L. Sorensen, Salt Lake City, for respondent.

Lincoln Harris, Zachary E. Peterson, Paul P. Burghardt, Salt Lake City, for petitioners.

Justice LEE authored the opinion of the Court, in which Justice PARRISH joined and in which Chief Justice DURRANT and Justice DURHAM each joined in part.

Opinion

Justice LEE, opinion of the Court:

¶ 1 Dick and Kim Kyker hired Lane Myers Construction to build two separate homes. The Kykers secured a construction loan through National City Bank, and the bank periodically paid Lane Myers on draw request forms that included language stating that Lane Myers had no lien on the property. The question presented is whether the draw request forms effected an enforceable lien waiver under the Utah Mechanics' Lien Act.¹

¶ 2 The district court entered summary judgment for the Kykers and National City, holding that the draw requests were in substantial compliance with the Act and thus effected a waiver foreclosing Lane Myers's lien claim. The court of appeals reversed. It held that the forms were not in substantial compliance with the Act because they failed to incorporate the essential elements of the “forms” included in the Act. Utah Code § 38–1–39(4)(b) (2010).

¶ 3 We reverse and remand. In the circumstances of this case, we interpret the Act to require only “a waiver and release that is signed by the lien claimant or the lien claimant's authorized agent.”

Id. § 38–1–39(2)(a)(i). And we interpret that requirement to incorporate the established, term-of-art understanding of the elements of a “waiver.” Thus, we view the forms set forth in the statute as only a safe harbor, and not a requirement. Under the standard as clarified below, however, we decline to affirm entry of summary judgment for the Kykers and National City. Instead, finding genuine issues of material fact on the current record, we remand to the district court for further proceedings.

I

¶ 4 In 2006, Lane Myers agreed to build two homes for Kim and Dick Kyker, one in Park City and the other in Oakley. Although Lane Myers also asserted a lien against the Oakley property, only the facts concerning the Park City home are relevant to this appeal.

¶ 5 The Kykers obtained a construction loan from National City in order to pay Lane Myers for the construction of the Park City home. Lane Myers commenced construction that year, and between June 14, 2006, and August 22, 2008, it submitted a total of sixteen draw requests to National City. Although Lane Myers submitted these draw requests directly to National City, it alleges that it did not know the total amount of the construction loan. But despite this fact, when it signed each of these draw requests Lane Myers certified that the “available proceeds of the loan are sufficient to finally and fully complete and pay for completion of improvements” and that “no suppliers, subcontractors, laborers, or other persons are claiming or are entitled to claim a lien against the property securing the loan.”

¶ 6 Although Lane Myers submitted sixteen draw requests, National City fully funded only five of them. Lane Myers repeatedly asked National City why its requests were being only partially funded, and each time National City responded by stating that there were either unauthorized cost overages in the requests or that, based on an inspection of the property, a full disbursement was not warranted. Lane Myers also informed the Kykers of the shortages, and the Kykers repeatedly assured Lane Myers that they would “take care of it.” In fact, at one point the Kykers even sent Lane Myers funds from a different account to cover the shortages, but then requested that those funds be applied to the Oakley property.

¶ 7 At the time, Lane Myers submitted its fifteenth draw request it was owed a balance of $357,560.98. When it received a disbursement of just $21,140.60 from National City, it again called National City to inquire about the discrepancy. This time, National City informed Lane Myers that the only funds left in the account were “retainage that National City was holding until a certificate of occupancy was issued by the city.” According to Lane Myers, this was the first time it realized that the Kykers' construction loan would not cover all of the construction costs for the Park City home.

¶ 8 Nevertheless, despite being owed over $300,000, Lane Myers submitted its sixteenth and final draw request to National City on August 22, 2008, for just $105,702.99. National City instructed Lane Myers to use the same form for the final draw request as it had for the prior requests, but to handwrite “Final Draw” at the top of the form, presumably to make the following language operative:

IF THIS IS THE FINAL DRAW I/WE FURTHER CERTIFY THAT:

1. The General Contractor has to date been paid in full for all work performed and for all labor, materials furnished by the General Contractor and all sub-contractors, materialmen, suppliers and laborers and that no such sub-contractors, suppliers, or materialmen, laborers or other persons providing goods and services used in the improvements to the property have unpaid claims....

2. That no liens or claims that may result in liens exist against the above-described property other than as set forth herein.

3. That the General Contractor has received payments for all stages of construction/rehabilitation of the property other than the final disbursement.

4. That the borrower(s) has/have requested, from the Lender, final disbursement of the construction/rehab funds in order to make final payment to the General contractor and that upon said disbursement by Lender the General Contractor will be paid in full under the Construction Contract.

¶ 9 Lane Myers alleges that it had reservations about submitting a “final” draw request that would not cover the total amount it was owed, but asserts that it did so because (a) the Kykers had informed it that they would pay any remaining balance after the final draw personally, (b) the Kykers were working with a mortgage broker in order to secure the funds to do so, and (c) National City explained to Lane Myers that the handwritten words “final draw” only referred to “the ‘final draw’ of the amounts available for reimbursement from the loan and not to a final payment of any amounts that may still be owed by the homeowner ... for costs in excess of the amounts available for reimbursement from the loan.” Allegedly in reliance on these assurances, Lane Myers signed the request on August 30, 2007, and received $105,702.99.

¶ 10 The Kykers failed to repay Lane Myers as promised, however, which resulted in Lane Myers recording a mechanic's lien against the property on November 15, 2007, for $576,366.93. Lane Myers then filed suit against the Kykers on December 12, 2007, seeking both to enforce its lien by foreclosing on the Park City home and to recover over $890,000 in damages. Lane Myers subsequently amended its complaint to include National City in order to establish priority over National City's trust deed.

¶ 11 The Kykers moved for summary judgment, arguing that the draw requests constituted “lien waivers” and that by signing them and accepting the funds from the construction loan, Lane Myers had waived its right to file a mechanic's lien. The motion was later amended and asserted on behalf of both the Kykers and National City. In opposition, Lane Myers did not contest that it had signed the draw requests or that it had received funds from the loan; instead, it argued that the draw requests were not “lien waivers” because they did not “substantially comply” with the portion of the Act governing waivers of the right to file a mechanic's lien.

¶ 12 The district court agreed with the Kykers and National City and granted their motion, concluding that the draw requests “compl[ied] substantially with Utah law” in “effectively and clearly, on their face, releas[ing] any claims for work done prior to the date of execution.” Accordingly, the district court dismissed Lane Myers's mechanic's lien claim with prejudice. Lane Myers filed a timely appeal.

¶ 13 On appeal, the court of appeals reversed. It interpreted the Act to require a lien waiver to be “substantially” in the form provided in section 38–1–39(4). Lane Myers Constr., LLC v. Countrywide Home Loans, Inc., 2012 UT App 269, ¶¶ 16–17, 287 P.3d 479. Thus, although the court viewed the statutory form as a “safe harbor for lenders” and not a hard-and-fast requirement of the Act, id. ¶ 16, it concluded that “the legislature has indicated its intent that a valid waiver and release at least contain each of the component parts the form includes, in substance and effect if not in the identical language.” Id. ¶ 17.

¶ 14 Ultimately, the court of appeals identified “four distinct components” of the statutory form that it deemed “important ... to effectively waive and release lien rights for the benefit of a lender” and “to ensure that the contractor is clearly on notice that as a consequence of signing the form, he or she is relinquishing core protections of the mechanics' lien act in connection with a particular project on specific property.” Id. ¶¶ 18, 19. Those elements were (1) “a statement that the document is intended to be a waiver and release in accordance with Utah law”; (2) “specific information pertinent to the particular lien rights subject to waiver and release, including ‘Property Name,’ ‘Property Location,’ the identity of the ‘[Contractor]'s Customer,’ ‘Invoice/Payment Application Number,’ and ‘Payment Amount’ ”; (3) “explicit notice to the contractor of the effect that signing the release will have on rights otherwise available to it under the mechanics' lien act and the conditions upon which the waiver of those rights becomes effective”; and (4) the contractor either “represent[s] that all those who might have subordinate lien...