Mountain W. Bank, N.A. v. And

• Decision Date: 11 June 2013
• Docket Number: No. DA 12–0281.,DA 12–0281.
• Citation: 369 Mont. 492,301 P.3d 796
• Parties: MOUNTAIN WEST BANK, N.A., Plaintiff and Appellee, v. CHERRAD, LLC, Merritt & Marie, LLC, Max & V, LLC, Conrad M. Hale, Cheryl Hale, Mark Olson, The Estate of Craig Kinnaman, and John Does 1 through 10, Defendants and Appellees. Cherrad, LLC, Merritt & Marie, LLC, Max & V, LLC, Conrad M. Hale, and Cheryl M. Hale, Cross–Claimants and Appellees, v. Estate of Craig Kinnaman, Cross–Claimant and Appellant.
• Court: Montana Supreme Court

369 Mont. 492

301 P.3d 796

MOUNTAIN WEST BANK, N.A., Plaintiff and Appellee,

v.CHERRAD, LLC, Merritt & Marie, LLC, Max & V, LLC, Conrad M. Hale, Cheryl Hale, Mark Olson, The Estate of Craig Kinnaman, and John Does 1 through 10, Defendants and Appellees.

Cherrad, LLC, Merritt & Marie, LLC, Max & V, LLC, Conrad M. Hale, and Cheryl M. Hale, Cross–Claimants and Appellees,

v.Estate of Craig Kinnaman, Cross–Claimant and Appellant.

No. DA 12–0281.

Supreme Court of Montana.

Submitted on Briefs Feb. 20, 2013.

Decided April 16, 2013.

Rehearing Denied June 11, 2013.

For Appellant: James Kommers, Kommers Law Firm, Bozeman, Montana.

For Appellee Mountain West Bank: Amy Randall, Mountain West Bank, N.A.; Helena, Montana.

For Appellees Cherrad, LLC, Merritt & Marie, LLC, Max & V, LLC, Conrad and Cheryl Hale: Candace Payne, Luxan & Murfitt; Helena, Montana.

Justice MICHAEL E. WHEAT delivered the Opinion of the Court.

[369 Mont. 493]¶ 1 The Estate of Craig Kinnaman (the Estate) appeals from an order of the First Judicial District Court, Lewis and Clark County, granting summary judgment to Cherrad, LLC (Cherrad), Merritt & Marie, LLC (Merritt & Marie), Max & V, LLC (Max & V), and Conrad and Cheryl Hale (the Hales) (collectively “the Hale interests”) and Mountain West Bank (MWB) and declaring the Estate's construction lien invalid. The Estate also appeals from the final judgment of the First Judicial District Court, Lewis and Clark County, determining Cherrad owes the Estate the sum of $76,278 for work that Craig Kinnaman (Kinnaman), dba CK Design and Construction (CK Design), performed on a condominium construction project. We affirm.

¶ 2 We review the following issues on appeal:

[369 Mont. 494]¶ 3 Issue One: Did the District Court err when it granted summary judgment to the Hale interests and MWB, determining that the Estate's construction lien was invalid due to its failure to comply with § 71–3–535, MCA?

¶ 4 Issue Two: Did the District Court err when it calculated the amount of money Cherrad owed the Estate for costs related to the condominium construction project?

FACTUAL AND PROCEDURAL BACKGROUND

¶ 5 This case arises out of several business transactions entered into by parties involved in the development of condominiums at Lakeside Village on Hauser Lake, Lewis and Clark County, Montana. Cherrad, Merritt & Marie, and Max & V are Montana limited liability companies owned by the Hales. Kinnaman was sole proprietor of a business called CK Design. In 2003, Merritt & Marie purchased the Hauser Lake property. The following year, the Hales and Kinnaman discussed plans to develop a portion of the property. The plans involved construction of twelve condominiums—the Lakeside Village Condominiums—in six buildings, a full-service marina, a road and sewer system. Cherrad was to be the developer.

¶ 6 MWB was Cherrad's lender for purposes of developing the condominium project. MWB made three loans to Cherrad. The first loan was made on April 20, 2006 in the principal amount of $1,385,215. The second loan, a letter of credit, was made on July 26, 2006 for the maximum principal amount of $78,602.22. The third loan was made on May 18, 2007 in the principal amount of $152,319. All three loans were secured by the Hauser Lake property and guaranteed by Merritt & Marie, Max & V, and the Hales.

¶ 7 Before making any of these loans to Cherrad, MWB required Cherrad and CK Design to execute a formal construction contract to secure financing. Accordingly, Cherrad and CK Design entered into two contracts—“AIA contracts”—in the spring of 2006. The first contract governed the construction of the condominium buildings. It provided that CK Design would build two condominium buildings for $650,000 each, for a total of $1.3 million, plus a 10% management fee. The buildings were to be substantially completed within 180 days of execution of the contract. The second contract governed the construction of the condominium infrastructure and the marina. It provided that Cherrad would pay CK Design $1,323,600 plus a 10% management fee. The contract required substantial completion of the work within 365 days of the date of the contract.

[369 Mont. 495]¶ 8 The AIA contracts provided multiple provisions that were not followed by the parties, including those describing the method of payment from Cherrad to CK Design. Specifically, the AIA contracts provided that CK Design would submit bi-weekly invoices to Cherrad, through the project's architect, which would detail the costs incurred by CK Design. Cherrad would then make progress payments to CK Design within a specified period of time. The contracts also provided that with each invoice CK Design would submit a partial release of liens.

¶ 9 CK Design began construction on the infrastructure project in late 2004 and on the condominiums in late summer 2005. Rather than Cherrad paying CK Design as invoices were submitted, as agreed to in the AIA contracts, the parties engaged in a practice where CK Design was paid as the units sold. Unit 1 was sold in October 2006 for $625,000, and CK Design was paid $350,000 from these proceeds. Unit 4 was sold in March 2007 for $630,512, and CK Design was paid $300,000 from these proceeds. The reason CK Design was not paid the $350,000 for unit 4 that it was paid for unit 1 was because CK Design was behind schedule and the marina was not complete at the time of sale—it was only approximately two-thirds complete.

¶ 10 CK Design continued to suffer delays in the project, and several subcontractors and suppliers began filing liens on the property claiming they had not yet been paid for their work. As a result, MWB refused to further finance the project unless CK Design and Cherrad entered into an agreement shielding MWB's first security position from the liens of subcontractors and suppliers. Accordingly, on May 18, 2007, MWB, CK Design, Cherrad and the Hales, individually, entered into a “Subordination Agreement” in which CK Design agreed to subordinate its interest in the condominium project, including its right to file a construction lien, to MWB.

¶ 11 Prior to completion of building two, CK Design began construction of building three, containing units 5 and 6. This work was not covered by a written contract. Not long after, on July 28, 2007, Conrad Hale told Kinnaman that CK Design could no longer proceed on the condominium project; CK Design left the project at that time.

¶ 12 The parties entered into another agreement on September 6, 2007, entitled “Agreement Regarding Outstanding Debts.” The agreement provided that any construction liens on unit 2 would either be paid in full before the closing of the sale of unit 2 or paid from the proceeds of the sale of unit 2 before any funds were dispersed to CK Design or Cherrad. In the agreement, Kinnaman provided a list of all outstanding debts on the construction project—not just on unit 2. Kinnaman warranted that the total amount owed to subcontractors and suppliers was approximately $180,731.

¶ 13 Unit 2 was sold to a third party in September 2007 for $700,000. Pursuant to the Agreement Regarding Outstanding Debts, all of the unpaid subcontractors, suppliers, and creditors were paid first. The amount owed to unpaid subcontractors and suppliers was actually $223,898, approximately $50,000 more than the figure Kinnaman warranted on the agreement. Out of the remaining funds, Cherrad was paid $63,739.18 and the Estate was paid the leftover funds of approximately $57,360.

¶ 14 Unit 5 was sold to a third party “as is” in October 2008 for $225,635. Unit 6 was sold to a third party “as is” in October 2008 for $212,132. Unit 3 was sold to a third party in February 2010 for $325,000. CK Design never completed construction on any of these units. CK Design received nothing from the sale of units 3, 5, and 6.

¶ 15 Kinnaman committed suicide in September 2007. On November 29, 2007, the Estate recorded with the Lewis and Clark County Clerk and Recorder a $3.3 million construction lien on the Lakeside Village Condominiums. This was done through Nancy Kinnaman (Nancy), Kinnaman's widow and the personal representative of the Estate. The $3.3 million lien was supported by an attached summary of invoices prepared by CK Design that alleged unpaid costs of labor and materials due to CK Design for the condominium project. The amount of the lien made it impossible for Cherrad to borrow money to continue the development of the condominium project.

¶ 16 MWB brought this action on January 14, 2008, against the Hale interests and the Estate.¹ MWB sought foreclosure on the three secured loans that MWB made to Cherrad that were guaranteed by Merritt & Marie, Max & V, and the Hales. Although Cherrad was not behind on any payments of its loan to MWB, MWB alleged it was adversely affected and insecure because of the Estate's $3.3 million construction lien against the real property that secured the loans that were the subject of the action. MWB also requested that the District Court declare the Estate's construction lien inferior to the secured interests of MWB.

¶ 17 The Hale interests filed an answer and cross-claim against the Estate for slander of title and intentional interference with contract.² THE ESTATE FILED An ANswer, counter-claim, and cross-claim against the Hale interests alleging various claims including breach of contract and unjust enrichment. MWB and the Hale interests each moved for summary judgment against the Estate. They argued the Estate's construction lien was invalid because it failed to comply with the statutory requirements of § 71–3–535, MCA, and was not based on the personal knowledge of Kinnaman because Nancy filed the lien.

¶ 18 On September 17, 2008, the District Court granted the motions for summary judgment and declared the construction lien invalid. The court determined that because the Estate failed to include all the requisite information under § 71–3–535(3), MCA, the Estate did not comply with the procedural...