Lighting Fair Inc. v. Christie

• Decision Date: 24 November 2010
• Docket Number: 1091077 and 1091105.
• Citation: 63 So.3d 1256
• Parties: LIGHTING FAIR, INC., et al.v.Michael L. ROSENBERG et al.Heidi M. Christie and Michael L. Rosenbergv.Regions Bank d/b/a Regions Mortgage, et al.
• Court: Alabama Supreme Court

63 So.3d 1256

LIGHTING FAIR, INC., et al.

v.Michael L. ROSENBERG et al.Heidi M. Christie and Michael L. Rosenberg

v.Regions Bank d/b/a Regions Mortgage, et al.

1091077 and 1091105.

Supreme Court of Alabama.

Nov. 24, 2010.

Nicholas Cole Hughes, Montgomery, for appellants Lighting Fair, Inc., and Cherry Marble Group, LLC; and Jackson Brett Harrison, Montgomery, for appellant Texture Crete, Inc.Jim L. DeBardelaben, Montgomery, for appellees/cross-appellants Heidi M. Christie and Michael L. Rosenberg.Jack Owen of Ball, Ball, Matthews & Novak, P.A., Montgomery, for appellees T.H. Taylor, Inc., and Terry H. Taylor.Dennis R. Bailey and J. Evans Bailey of Rushton, Stakely, Johnston & Garrett, P.A., Montgomery, for appellee Regions Bank d/b/a Regions Mortgage.LYONS, Justice.

The dispute in the action in the Montgomery Circuit Court underlying this appeal and cross-appeal involves the construction of a residence. In appeal no. 1091077, Lighting Fair, Inc. (“Lighting Fair”), Cherry Marble Group, LLC (“Cherry Marble”), and Texture Crete, Inc. (“Texture Crete”), the plaintiffs below, appeal from the summary judgment against them and in favor of Michael L. Rosenberg, Heidi M. Christie, and Regions Bank d/b/a Regions Mortgage (“Regions”). In appeal no. 1091105, Rosenberg and Christie cross-appeal from the trial court's order compelling arbitration of their cross-claims asserted against Terry H. Taylor and T.H. Taylor, Inc., d/b/a T.H. Taylor Homes (“Taylor Homes”). Rosenberg and Christie also appeal from the summary judgment against them and in favor of Regions on their cross-claims against Regions.

Factual Background

In December 2007, Rosenberg and Christie, who are married (hereinafter referred to as “the Rosenbergs”), executed an agreement with Taylor Homes (“the construction contract”). The construction contract provided that Taylor Homes would construct a house for the Rosenbergs for approximately $756,000. Under the construction contract, Taylor Homes was to be paid “based on the value of work in place as defined by the percentage of completion of each work item on the disbursement schedule.” ¹ Specifically, Taylor Homes was to “present [the Rosenbergs] with a pay request every Monday for payment on Thursday of the same week.” The construction contract also included an arbitration provision, which stated:

“[Taylor Homes] and [the Rosenbergs] acknowledge and agree that this transaction substantially affects interstate commerce by virtue of the materials and components contained in the dwelling. Any controversy, claim, or dispute arising out of or relating to this agreement, or the breach thereof, or the transaction contemplated hereby, shall be settled by binding arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. § 1, et seq., and shall be administered in accordance with the applicable rules of the Federal Arbitration Act. Judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.”

The Rosenbergs obtained a loan from Regions to finance the construction. On January 2, 2008, they executed an agreement with Regions (“the loan contract”) whereby they borrowed approximately $800,000 from Regions. Taylor Homes, by its president and sole shareholder, Terry H. Taylor, also executed the loan contract which, as discussed below, contained certain duties and guaranties with respect to Taylor Homes.

The loan contract provided that “construction advances” to Taylor Homes, which it also referred to as “disbursements,” would be “made in installments as the work on the construction progress[ed].” Rosenberg stated in an affidavit that Regions represented to him and Christie at the closing on the loan contract “that Regions would make all the construction advancements/disbursements pursuant to Regions' standard disbursement schedule and procedures.” The loan contract in fact granted Regions authority to make advances: “(a) to [the Rosenbergs], (b) as authorized by [the Rosenbergs] in writing, or (c) as otherwise provided in the agreement.” The loan contract further stated that advancements would be made “in accordance with this agreement and [Regions'] standard disbursement schedule and procedures.”

Dottie Moore, the Regions employee who worked on the loan contract, stated in an affidavit that the Rosenbergs' “entire transaction” with Regions “was handled on an arm's-length basis.” Additionally, the loan contract stated that Regions was not acting as the Rosenbergs' agent and that its relationship with the Rosenbergs was “solely that of borrower and lender.” In the loan contract, Regions also disclaimed responsibility for inspecting the Rosenbergs' property or informing the Rosenbergs of the quality of Taylor Homes' construction or of “the progress or course of construction and its conformance with the plans and specifications.”

At the time the loan contract was executed, Regions' Consumer Loan Policy Manual stated: “Physical inspections are required to verify and document construction progress.” The loan contract provided:

“All inspection services, if any, rendered by [Regions] or [Regions'] officers, agents or employees, are or shall be rendered solely for the benefit of [Regions], and said inspections are not made for the benefit of, and shall not be construed to have been made for the benefit of, [the Rosenbergs], any subsequent purchasers, laborers, materialmen, contracting parties, the general public, or any other person, firm or corporation, whether known or unknown....”

The loan contract also expressly limited Regions' liability to materialmen and subcontractors and further stated that the loan contract “shall not be construed to be[ ] a third-party beneficiary contract in any respect or to any extent.” Finally, the loan contract contained the following guaranty by Taylor Homes: “[Taylor Homes] hereby guarantees completion of all improvements in full accordance with the plans and specifications ... and further agrees that all bills, invoices, and other charges incurred by [Taylor Homes] for labor and materials used in the construction of the improvements will be paid in full.”

Taylor Homes began work on the Rosenbergs' house in January 2008 and promptly began requesting disbursements under the loan contract. Moore stated in her affidavit that Regions “received from [the Rosenbergs] requests for disbursement of loan proceeds which they had received from their contractor and which contained statements regarding the percentages of completion.” In response to discovery in this action, Regions stated that disbursements “were paid per the instructions of [the Rosenbergs]” and that “[e]ach request for advance on the construction loan was accompanied by a signed warranty that all subcontractors and other persons furnishing labor, material and equipment on the construction ... had been paid in full.”

In his affidavit, Rosenberg stated that Taylor periodically presented him with requests for disbursement that Taylor “was going to present to Regions” and that he “signed the request acknowledging [that he] had seen the request.” Rosenberg explained: “I was under the impression that Regions was following [its] standard disbursement schedule and procedures when advancing funds to [Taylor Homes;] otherwise, I would not have signed the document. It was my understanding that Regions controlled when and how the disbursement of funds would be made to [Taylor Homes].”

By October 15, 2008, approximately $728,000, or 90% of the principal of the loan, had been disbursed to Taylor Homes. However, according to Regions' inspection reports, the Rosenbergs' house was only 78.5% complete. No further disbursements were requested or made after October 15, 2008. Construction on the Rosenbergs' house, however, continued, and, in November and December 2008, Lighting Fair, Cherry Marble, and Texture Crete (hereinafter referred to collectively as “the materialmen”) provided materials used in the construction. Taylor Homes did not pay the materialmen for the materials they provided.

In January and February 2009, the materialmen separately notified Taylor Homes, Regions, and the Rosenbergs of their intent to file liens on the Rosenbergs' property. On January 20, 2009, Lighting Fair filed a lien with the Montgomery Probate Court against the Rosenbergs' property in the amount of $8,565. On February 9, 2009, Texture Crete filed a lien against the Rosenbergs' property in the amount of $19,850. And on March 6, 2009, Cherry Marble filed a lien against the Rosenbergs' property in the amount of $3,113.

Procedural History

On March 13, 2009, Lighting Fair sued Taylor, Taylor Homes, the Rosenbergs, and Regions seeking a judgment on its lien and possession of the Rosenbergs' property. Lighting Fair also asserted claims of breach of contract and account stated against Taylor and Taylor Homes; a civil-conspiracy claim against Taylor, Taylor Homes, and Regions; and, against all the defendants, claims alleging unjust enrichment and violations of § 8–29–1 et seq., Ala.Code 1975, (“the Prompt Pay Act”). Lighting Fair also stated claims seeking recovery of amounts it alleged it was owed for materials it had supplied to Taylor Homes on construction projects unrelated to the Rosenbergs' residence. Lighting Fair named as defendants to those claims: Taylor; Taylor Homes; a homeowner, George Vogt; and two lenders, Compass Bank and Whitney National Bank.

The Rosenbergs answered Lighting Fair's complaint and stated cross-claims against Taylor, Taylor Homes, and Regions. Specifically, the Rosenbergs stated claims of fraud and civil conspiracy against Taylor and Taylor Homes. They alleged that, in requesting disbursements, Taylor and Taylor Homes had misrepresented the amount of work done on the house and had conspired with Regions to obtain disbursements to which Taylor and Taylor Homes were not entitled. Against Regions, the Rosenbergs stated claims of suppression, civil conspiracy, and negligent, willful, or...