LRS Electric Controls, Inc. v. Hamre Const., Inc.

• Decision Date: 03 March 2005
• Docket Number: No. 75096-3.,75096-3.
• Citation: 153 Wash.2d 731,107 P.3d 721
• Parties: LRS ELECTRIC CONTROLS, INC., a Washington corporation; and Tyko Mechanical, LLC, an Idaho limited liability company, Respondents, v. HAMRE CONSTRUCTION, INC., a Washington corporation, Petitioner, Public Hospital District No. 1 of Pend Oreille County, Respondent, and First National Insurance Company of America, Petitioner.
• Court: Washington Supreme Court

107 P.3d 721

153 Wash.2d 731

LRS ELECTRIC CONTROLS, INC., a Washington corporation; and Tyko Mechanical, LLC, an Idaho limited liability company, Respondents, v. HAMRE CONSTRUCTION, INC., a Washington corporation, Petitioner,

Public Hospital District No. 1 of Pend Oreille County, Respondent, and

First National Insurance Company of America, Petitioner.

No. 75096-3.

Supreme Court of Washington, En Banc.

Argued January 19, 2005.

Decided March 3, 2005.

Dianne K. Rudman, Rudman Law Office, Scott Randall Smith, Spokane, for Petitioner.

Teresa Ann Sherman, Paukert & Sherman PLLC, Spokane, for Respondent.

Jerret E. Sale, Deborah Lynn Carstens, Bullivant Houser Bailey PC, Seattle, for Amicus Curiae Surety Ass'n of America.

OWENS, J.

¶ 1 The central question presented is whether preclaim notice requirements, generally necessary to recover on a materials claim against either a contractor's bond (RCW 39.08.065) or a retained percentage (RCW 60.28.015), apply to second-tier subcontractors supplying both materials and labor to a public works project. We are also asked to determine whether payments received by a second-tier subcontractor are deemed to apply pro rata between the labor and the materials portions of a contract where the materials portion is barred. Upon motions for summary judgment, the superior court concluded that (1) the preclaim notice requirements apply to second-tier subcontractors, (2) the second-tier subcontractor's materials claim is barred in this case for failure to provide notice, and (3) there can be no pro rata application of payments to a barred materials claim. The Court of Appeals reversed, holding that second-tier subcontractors providing both materials and labor are exempt from the preclaim notice requirements in RCW 39.08.065 and RCW 60.28.015. We reverse the Court of Appeals.

FACTS

¶ 2 The public works construction project at issue involves a hierarchy of four levels. At the top is the owner, Public Hospital District No. 1 (Hospital), which set out to make improvements to Newport Community Hospital. The second level is represented by petitioner Hamre Construction, Inc. (Hamre), the primary contractor hired by the Hospital. Third, there is the now-defunct C & R Plumbing and Heating, Inc. (C & R), subcontracted by Hamre to complete the mechanical systems work on the project. Finally, there is respondent Tyko Mechanical, LLC (Tyko), which was sub-subcontracted by C & R to install the project's heating, ventilation, and air-conditioning (HVAC) system.¹

¶ 3 Tyko was hired by C & R to provide "all supervision, materials, labor, supplies and equipment" for the HVAC system for a sum of $16,500. Clerk's Papers at 25. During performance, Tyko sent invoices to C & R setting out a schedule of values for the HVAC work. These invoices state that, of the $16,500 contract price, materials represented $9,017 (54.6 percent) and labor represented $7,483 (45.4 percent). There is no dispute that Tyko adequately performed all duties required under its contract with C & R.

¶ 4 Initially, Hamre made incremental payments to C & R alone as work on the project progressed, including the HVAC work done by Tyko as a second-tier subcontractor. However, Hamre eventually learned of C & R's financial difficulties and made its final $7,000 check due under the Hamre/C & R contract jointly payable to C & R and Tyko. Having received no payment from C & R, Tyko requested, and C & R agreed, that Tyko would receive the $7,000 jointly payable check issued by Hamre. The status of the parties at this point was as follows: (1) Hamre had completely fulfilled its contract with C & R, (2) Tyko had completely fulfilled its contract with C & R but had received only $7,000 from C & R (via Hamre's final payment) and was still owed $9,500, and (3) C & R was entering bankruptcy.

¶ 5 In an effort to recover the $9,500 it was owed for the HVAC work, Tyko filed a notice of claim against Hamre's contractor's bond and the Hospital's retained percentage in an attempt to establish liens. Tyko then endeavored to foreclose on the lien claims by filing a complaint in Pend Oreille Superior Court. Early in the litigation, Hamre attempted to settle this dispute by paying Tyko $2,628.22, representing the sum Hamre mistakenly believed was still owing to Tyko. Hamre misread its own records and concluded that Tyko had been paid two installments of $7,000, rather than only one. Thus, Hamre believed that Tyko was owed only an additional $2,500 out of the total beginning balance of $16,500. To that effect, Hamre paid Tyko the $2,628.22 (the principal sum of $2,500 plus interest) with the expectation that the matter was fully resolved. Understandably, Tyko clarified the situation for Hamre and proceeded with efforts to foreclose on the lien claims.

¶ 6 Rather than make any further settlement payments, Hamre moved for summary judgment on the grounds that Tyko failed to comply with certain preclaim notice provisions required in both the contractor's bond and retained percentage statutes.² While there was no dispute that Tyko did not provide the written notice described in RCW 39.08.065 and RCW 60.28.015, the summary judgment motion turned on the question of whether those notice requirements were even applicable. Hamre argued that notice requirements were broad, as they apply to every person, firm, or corporation furnishing materials, supplies, or provisions/equipment to be used in the construction. RCW 39.08.065; RCW 60.28.015. Tyko responded that the notice requirements should be read narrowly to apply only in cases where the claimant is a true "materialman"; that is, a third party who delivers materials to a subcontractor for incorporation, but does not contribute labor to the construction project itself. The trial court accepted Hamre's interpretation and granted the motion for summary judgment, which barred the materials portion of Tyko's claim.

¶ 7 The parties, having not yet begun to fight, filed cross-motions for summary judgment. Hamre moved to have the case dismissed, reasoning that the $9,628 it paid Tyko more than covered the labor portion of Tyko's claim ($7,483), which was all that remained after the previous summary judgment motion. In response, Tyko noted that only the materials portion of its claim was barred after the first summary judgment motion. Because a lien for the value of a second-tier subcontractor's labor requires no preclaim notice, Tyko moved for judgment that the $9,628 it received from Hamre must be applied on a pro rata basis to the entire $16,500 (not just labor) and, therefore, a portion of the labor claim remained unsatisfied.³ The trial court accepted Hamre's contention that one cannot divide payments on a pro rata basis between a valid claim (labor) and a barred claim (materials). Thus, the case was dismissed.

¶ 8 On appeal, Tyko assigned error to the trial court's interpretation of the preclaim notice statutes and, alternatively, to the ruling that the $9,628.22 could not be applied on a pro rata basis. Division Three of the Court of Appeals reversed as to the statutory interpretation question but, as a result, did not reach the pro rata application issue. LRS Elec. Controls, Inc. v. Hamre Constr., Inc., 119 Wash.App. 606, 612-14, 82 P.3d 248 (2004). The court reasoned that because the purpose of the preclaim notice statutes is to protect primary contractors from unknown obligations incurred by subcontractors, second-tier subcontractors who provide labor to the construction (and thereby provide actual notice of their existence) are exempt. Id. at 611-12, 82 P.3d 248. The appeal also included a request by Hamre for attorney fees and costs under RAP 18.1 and RCW 4.84.250-.290. Tyko made no such request. As the losing party, Hamre's request for attorney fees and costs was summarily denied. Id. at 614, 82 P.3d 248.

ISSUES

¶ 9 1. Are second-tier subcontractors who supply both materials and labor to a public works project exempt from the preclaim notice requirements in RCW 39.08.065 and RCW 60.28.015?

¶ 10 2. If a second-tier subcontractor is not exempt and its materials claim is barred, does that second-tier subcontractor apply payments received on a pro rata basis between the labor and materials portions of its contract?

¶ 11 3. Is Hamre entitled to attorney fees and costs under RAP 18.1 and RCW 4.84.250-.290?

ANALYSIS

¶ 12 Standard of Review. The parties agree that the facts described above are not in dispute and the questions presented were appropriate for summary judgment disposition. "The standard of review of an order of summary judgment is de novo, and the appellate court performs the same inquiry as the trial court." Jones v. Allstate Ins. Co., 146 Wash.2d 291, 300, 45 P.3d 1068 (2002). Summary judgment is appropriate only if the pleadings, affidavits, depositions, and admissions on file demonstrate the absence of any genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. See CR 56(c). "Additionally, statutory interpretation is a question of law, which we review de novo." W. Telepage, Inc. v. City of Tacoma Dep't of Fin., 140 Wash.2d 599, 607, 998 P.2d 884 (2000). Where statutory language is "`plain, free from ambiguity and devoid of uncertainty, there is no room for construction because the legislative intention derives solely from the language of the statute.'" Bravo v. Dolsen Cos., 125 Wash.2d 745, 752, 888 P.2d 147 (1995) (quoting Krystad v. Lau, 65 Wash.2d 827, 844, 400 P.2d 72 (1965)).

¶ 13 Preclaim Notice Requirements for Materials Claims in RCW 39.08.065. The first question presented is whether a party who supplies both materials and labor, but is not in privity of contract with the prime contractor, must provide written notice of the materials furnished to the project under RCW 39.08.065. The contractor's bond preclaim notice requirement states in full as follows:

Notice to contractor condition to suit on bond when supplies are furnished to

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