Moorefield Constr., Inc. v. Intervest-Mortgage Inv. Co.
| Decision Date | 12 September 2014 |
| Docket Number | D065464 |
| Citation | 178 Cal.Rptr.3d 709,230 Cal.App.4th 146 |
| Court | California Court of Appeals Court of Appeals |
| Parties | MOOREFIELD CONSTRUCTION, INC., Plaintiff, Cross-Defendant, and Respondent, v. INTERVEST-MORTGAGE INVESTMENT COMPANY et al., Defendants, Cross-Complainants, and Appellants. |
Early Sullivan Wright Gizer & McRae, Los Angeles, Eric P. Early and Bryan M. Sullivan for Defendants, Cross–Complainants and Appellants.
Mahoney & Soll, Claremont, Paul M. Mahoney and Richard A. Soll for Plaintiff, Cross–Defendant and Respondent.
Defendants and cross-complainants Intervest-Mortgage Investment Company and Sterling Savings Bank (together Intervest) appeal a judgment in favor of plaintiff and cross-defendant Moorefield Construction, Inc. (Moorefield). The parties' dispute arises from an uncompleted medical office building development in San Jacinto, California. Moorefield was the general contractor for the development, and Intervest was the construction lender. The developer, DBN Parkside, LLC (DBN), encountered financial difficulties toward the end of the project. As a result, DBN did not fully pay Moorefield for its construction services and defaulted on its construction loan from Intervest. Moorefield filed a mechanic's lien against the development property, and Intervest took title to the property in a trustee's sale under the construction loan.
Moorefield's complaint against Intervest sought foreclosure of its mechanic's lien on the property. Intervest's cross-complaint against Moorefield sought a declaration of the relative priority of the lien, equitable subrogation to a priority position over the lien, quiet title, and judicial foreclosure. Following a bench trial, the court entered judgment in favor of Moorefield on the complaint and cross-complaint, declared Moorefield's mechanic's lien was superior in priority to Intervest's construction loan deed of trust, and ordered foreclosure and sale of the property to satisfy Moorefield's mechanic's lien.
Intervest appeals, contending (1) the court erred in finding Moorefield's agreement to subordinate its mechanic's lien to the construction loan deed of trust was unenforceable; (2) the court should have applied the doctrine of equitable subrogation to give Intervest partial priority over Moorefield's mechanic's lien; (3) substantial evidence does not support the court's finding that Moorefield commenced work prior to the recording of Intervest's deed of trust; and (4) substantial evidence does not support the court's finding that Moorefield's mechanic's lien was timely filed following completion of construction. We conclude Moorefield's agreement to subordinate its mechanic's lien to the construction loan deed of trust is enforceable and therefore reverse the judgment.
In 2006, DBN purchased the San Jacinto property with a $4.7 million loan from BankFirst. DBN planned to construct on the property a medical office complex, known as Parkside Medical Center (Parkside), consisting of two buildings, a parking lot, and related infrastructure. DBN and its principal, Steve Delson, had worked with Moorefield on prior construction projects, including a retail center in San Jacinto. Moorefield understood it had a good chance of working on the Parkside development as well. At Delson's request, Moorefield erected a temporary chain-link fence on the property.
The next year, in anticipation of construction beginning in earnest, a DBN construction manager asked Moorefield to "clear and grub" the Parkside project site, then vacant land with heavy vegetation. Clearing and grubbing consists of methodically "scarifying" or tilling the soil on a construction site to remove vegetation, roots, and other undesirable material. Holes and indentations in the land are smoothed out. Later that month, DBN and Moorefield entered into a construction contract for the Parkside project on the property. Two weeks later, Moorefield cleared and grubbed the Parkside site again.
DBN sought funding for the Parkside project from Intervest. Intervest agreed to provide a construction loan secured by a deed of trust on the property associated with the project. The construction loan agreement was concluded, and the deed of trust recorded, approximately a month after Moorefield's construction contract was signed. As part of the loan, Intervest paid off DBN's earlier debt to BankFirst. Intervest intended its deed of trust to be first in priority on the property and would not have made the construction loan to DBN otherwise.
In connection with the construction loan agreement, Intervest required DBN to assign its rights and remedies under the construction contract (but not its obligations) to Intervest. Moorefield was required to consent to the assignment. Both DBN and Moorefield did so. Moorefield's consent provides:
A Moorefield executive testified at trial that he was familiar with similar consent agreements and had signed them in connection with past construction projects. He had "no issues" with the consent at the time it was executed.
Before Intervest's deed of trust was recorded, Intervest's title insurance company sent an inspector to the Parkside project site to determine whether any construction had begun. The inspector took photographs of the site from multiple perspectives. The inspector noted Moorefield's temporary fence but did not identify any other evidence of construction. He described the property as vacant land with no signs of construction. At trial, however, Moorefield personnel testified that the inspector's photographs showed dirt patterns, called "windrows," indicative of a clearing and grubbing operation. Intervest's deed of trust was recorded the same day as the title insurance company inspection.
The next month, in anticipation of a groundbreaking ceremony for the Parkside project, Moorefield cleared and grubbed the site a third time. Later, the site was cleared and grubbed an additional time by Moorefield's grading subcontractor.
During construction of the project, Moorefield submitted pay applications to DBN to request payment. The pay applications included an itemization of the work performed, the percent of work completed in various categories, and a certification from Moorefield. DBN provided the pay applications to Intervest, which approved and funded the payments pursuant to DBN's construction loan agreement. Moorefield did not communicate directly with Intervest. Each pay application included a conditional waiver and release from Moorefield, on a statutory form, regarding its mechanic's lien rights up to the date of that application. (See Civ.Code, former § 3262, subd. (d)(1), Stats. 2006, ch. 538, § 52, p. 3940; see now § 8132.)1
After Intervest funded a payment, Moorefield submitted an unconditional waiver and release, also on a statutory form. (See former § 3262, subd. (d)(2).)
The first 16 pay applications were submitted and funded. Moorefield received approximately $7.2 million for these pay applications. Moorefield submitted two additional pay applications, totaling approximately $2.2 million, for its work on the project. Around the time of the last two pay applications, however, DBN defaulted on its construction loan agreement with Intervest. Moorefield did not receive payment for its final two pay applications.
DBN recorded a statutory notice of completion, although Moorefield was not aware of its filing at the time. Moorefield continued to work on the project. This work included landscaping, painting, concrete patching, traffic signal installation, street improvement, and miscellaneous punch list work. Some punch list work was identified by the City of San Jacinto. Delson, DBN's principal, testified at trial that some of Moorefield's work, particularly offsite work, was not complete at the time DBN filed its notice of completion.
Three weeks after completing the punch list work, Moorefield filed a mechanic's lien against the Parkside property for $2.2 million, consisting of the two unpaid pay applications. Soon afterwards, Moorefield filed the instant lawsuit. Moorefield initially sued DBN and a number of fictitiously named defendants for breach of contract, foreclosure of its mechanic's lien, and other claims. Intervest-Mortgage Investment Company and Sterling Savings Bank were added as defendants, although Moorefield pursued only foreclosure of its mechanic's lien against them.
Intervest denied Moorefield's claims and filed a cross-complaint seeking a declaration that its deed of trust was superior to...
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