Markham Contracting Co. v. First Am. Title Ins. Co.

• Decision Date: 18 July 2013
• Docket Number: 1 CA-CV 12-0195
• Parties: MARKHAM CONTRACTING CO. INC., an Arizona corporation, Plaintiff/Appellee/Cross-Appellant, v. FIRST AMERICAN TITLE INSURANCE COMPANY, a California Corporation, Defendant/Appellant/Cross-Appellee.
• Court: Arizona Court of Appeals

MARKHAM CONTRACTING CO. INC., an Arizona corporation, Plaintiff/Appellee/Cross-Appellant, v. FIRST AMERICAN TITLE INSURANCE COMPANY,

a California Corporation, Defendant/Appellant/Cross-Appellee.

1 CA-CV 12-0195

COURT OF APPEALS STATE OF ARIZONA DIVISION ONE DEPARTMENT B

FILED: July 18, 2013

NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED

EXCEPT AS AUTHORIZED BY APPLICABLE RULES.

See Ariz. R. Supreme Court 111(c); ARCAP 28(c);

Ariz. R. Crim. P. 31.24

MEMORANDUM DECISION

(Not for Publication - Rule 28, Arizona Rules of Civil Appellate Procedure)

Appeal from the Superior Court in Maricopa County

Cause No. CV2008-015602

The Honorable Jose S. Padilla, Judge

AFFIRMED IN PART, VACATED IN PART AND REMANDED

Osborn Maledon PA

By Thomas L. Hudson

And Eric M. Fraser

Phoenix

And

Palecek & Palecek PLLC

By Karen A. Palecek

Attorneys for Plaintiff/Appellee/Cross-Appellant

Scottsdale

Lewis and Roca LLP

By Robert G. Schaffer

And William G. Voit

Attorneys for Defendant/Appellant/Cross-Appellee

Phoenix

KESSLER, Judge

¶1 These appeals arise out of a mechanics' lien foreclosure action between the construction lender, New South Federal Savings Bank¹ ("New South") and a general contractor, Markham Contracting Company ("Markham"). The critical issue is one of fact: whether Markham performed work prior to June 20, 2005 (meaning it has priority) or on or after that date (meaning New South has priority). The superior court entered a final judgment granting Markham's mechanics' lien priority over New South's deed of trust and awarded Markham prejudgment interest and attorneys' fees. For the reasons stated below, we affirm the priority ruling and most of the attorneys' fees award, but vacate the prejudgment interest award and remand for adjustment consistent with this decision.

FACTUAL AND PROCEDURAL HISTORY²

¶2 The construction project at issue is the building of a townhouse development called the Lindsay Park Townhome Project ("Project"). In 2003, Rodney Morris, through his entity Lindsay Park Townhomes, LLC ("Townhomes"), contracted to buy a 21-acrelot in Mesa for the Project. In 2004, Townhomes sought a bid from Markham, to do grading and paving work on the Project. Markham submitted its first bid in November 2004, and then submitted four revised bids in 2005. The July 2005 bid was incorporated into a contract dated June 28, 2005 and signed August 4, 2005.

¶3 Starting in March 2005, Markham performed construction on the Project. Markham undertook to "blue stake" and "pothole" the property to identify utility locations with paint on the property. Markham first requested Arizona Blue Stake, Inc. to mark utilities on March 18, 2005, and then requested subsequent visits every fourteen days pursuant to Arizona law. Markham did not have to pay Arizona Blue Stake for its services; rather Markham charged Morris for its own labor related to the blue staking process, which included mapping out the area for blue staking and sending out Markham employees to meet with and supervise Arizona Blue Stake employees. After the utilities were marked, Markham contacted a company called TBE in late March 2005 to dig the potholes on the property, and Markham supervised the digging. The potholes were completed on the property on March 29, 2005. Witnesses testified that the potholing was done pursuant to the bid, which was ultimately incorporated into the contract, but that Markham was paid for that work separately.

¶4 Although there was conflicting testimony presented at trial, there was evidence that Markham performed other construction activities during April, May, and in June, prior to June 20, 2005. In either March or April 2005, Markham arranged for the preparation of a barricade plan to be approved by the city and then installed by Markham. At least three witnesses testified that barricades were required before potholing could begin, which documents establish occurred in late March 2005. Although conflicting at times, evidence also indicated that the following activities occurred in April, May, or June: trash removal, installation of job trailers, pad clearing for the job trailers, installation of an access ramp, creation of a "V ditch" to prevent additional trash build-up, issuance of permits, and the installation of a temporary water system. Although one of Markham's project managers testified that no construction activities, except blue staking and potholing, occurred before June 20, 2005, he "ha[d] no reason to disagree with" the testimony of Markham's project estimator, who testified that the staking and potholing occurred prior to June 20, 2005. He also testified that he struggled to recall the specific times construction activities occurred. In addition, even though the original owner of the Project testified that no construction commenced before June 30, 2005, he testified that potholing occurred in late March 2005.

¶5 Townhomes decided to sell the Project, and in June 2005, Townhomes closed on the sale of the property with Lindsay Park Development, LLC ("Development"). Development obtained construction financing through New South, and New South recorded a deed of trust on the Project on June 30, 2005. In August 2005, Development's related entity, OWCP17, LLC (later Leadermark, LLC) ("OWCP17") signed a contract with Markham that was dated June 28, 2005 and incorporated Markham's July 2005 bid.

¶6 Although there was some testimony to the contrary, evidence established the construction work performed in March through June was "rolled into" Markham's June 28, 2005 contract with OWCP17. The June 28, 2005 contract referenced construction activities that occurred prior to the contract, including the March 2005 engineering plan, blue staking, and trash haul-off. Markham's head of project management testified that all of the work Markham performed as part of the Project was ultimately incorporated into the written executed contract with OWCP17. Several witnesses testified that it was not uncommon during that time for contractors to begin performing work before the written contract was signed. Even though the contract itself stated, "The date of commencement of the Work shall be the date of this Agreement [June 28, 2005] unless a different date is stated below," evidence established work commenced as early as March2005. A witness for Markham testified that he didn't specify a different commencement date on the contract because his long-standing relationship with the client led him to believe it was irrelevant. There was also evidence that Markham's various bids, the last of which was incorporated into the June 28, 2005 contract, were "updated proposal[s]" that were similar in scope, and "pretty much the same."

¶7 On July 26, 2005, Markham asserted a lien against the Project by filing the preliminary twenty-day notice required by Arizona Revised Statutes ("A.R.S.") section 33-992.01 (2001).³ After not being fully paid, Markham recorded and served a notice of lien on April 1, 2008, stating under oath that Markham "first supplied labor and materials on or about the 7th day of July, 2005." At trial, a witness for Markham testified that the notice erroneously stated the commencement date as July 7, 2005 because the person who created the notice mistakenly calculated commencement by looking only at the time cards of Markham's hourly employees rather than including the work performed by Markham's subcontractors or salaried personnel.

¶8 Development defaulted on New South's construction loan, and New South foreclosed its deed of trust and took titleto the property at a trustee sale. Markham filed a complaint to foreclose on its mechanics' lien, claiming priority over New South's deed of trust. After a four-day trial, an advisory jury returned answers to seven interrogatories, including findings that 1) Markham's mechanics' lien had priority over New South's deed of trust; 2) Markham performed fifteen different construction activities prior to June 20, 2005, which were part of the Project and included in Markham's July 2005 bid; 3) the work Markham performed prior to June 20, 2005 was performed pursuant to the contract with OWCP17; and 4) OWCP17 affirmed the actions of Morris, the original owner. The superior court affirmed and adopted the findings of the jury, entered judgment in favor of Markham, and awarded Markham prejudgment interest at 18 percent per annum and attorneys' fees and costs.

¶9 Both New South timely appealed and Markham timely cross-appealed. We have jurisdiction pursuant to A.R.S. § 12-2101(A)(1) (Supp. 2012).

DISCUSSION

¶10 New South argues the superior court erred by adopting the findings of the advisory jury when the evidence, including Markham's own binding admissions, contradicted the jury's findings. New South also argues that the court erred in granting Markham prejudgment interest and attorneys' fees. On cross-appeal, Markham argues the court erred in the post-judgment interest rate and, alternatively, that post-judgment interest should have applied to the prejudgment interest award as well as all other monetary awards in the judgment.

I. Evidence supports the superior court's priority ruling.

A. Reasonable evidence supports the court's finding that labor commenced prior to June 20, 2005.

¶11 New South argues that the superior court erred in adopting the advisory jury's findings and ignored evidence which established that the construction activities performed by Markham occurred after June 20, 2005.

¶12 A.R.S. § 33-992 (2007) governs the priority of mechanics' liens. Subsection A provides:

The liens provided for in this article . . . are preferred to all liens, mortgages or other encumbrances upon the property attaching subsequent to the time the labor was commenced or the materials were commenced to be furnished except any mortgage or deed of trust that is given as security for a loan made by a construction lender . . . if the mortgage or deed of trust is recorded within ten days after labor was commenced or the materials were commenced

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