Premier Investments v. Suites of America, Inc.

• Decision Date: 15 March 1994
• Docket Number: No. 49A02-9210-CV-490,49A02-9210-CV-490
• Citation: 630 N.E.2d 232
• Parties: PREMIER INVESTMENTS, Appellant-Cross-Claimant, v. SUITES OF AMERICA, INC., Appellee-Cross-Claim Defendant.
• Court: Indiana Appellate Court

Page 232

630 N.E.2d 232

PREMIER INVESTMENTS, Appellant-Cross-Claimant, v. SUITES OF AMERICA, INC., Appellee-Cross-Claim Defendant.

No. 49A02-9210-CV-490.

Court of Appeals of Indiana Second District.

March 15, 1994.

Rehearing Denied April 26, 1994.

Bradley W. Skolnik, Robert M. Messick, Freihofer, Minton, Keeler & McClamroch, Indianapolis, for appellant.

Mark R. Wenzel, Richard E. Shevitz, Hopper, Wenzel & Galliher, Indianapolis, for appellee.

SULLIVAN, Judge.

Premier Investments appeals a grant of summary judgment in favor of Suites of America, Inc. (Suites). Upon appeal, Premier asserts the trial court erred in ruling that its mechanic's lien against Suites was invalid. We reverse.

The facts are not in dispute. On February 6, 1989, Premier entered into a comprehensive contract entitled "Hotel Development Agreement" with Howard Johnson Franchise Systems, Inc., the purpose of which was set out in the Preamble of the contract. For the sake of clarity, it should be noted that in the Preamble, reproduced below, Premier is referred to as "Developer" and Howard Johnson as "Owner".

"The purpose of this Agreement is to set forth the terms and conditions for the development of hotels of the style defined as 'Howard Johnson Amerisuites' and other Howard Johnson hotel facilities by Owner and Developer. The Developer will be responsible for the location of desirable sites; the development of plans, specifications and construction budgets; and the construction, equipping, staffing, and opening of a 'turn-key hotel' ('Hotel Development'). In this Agreement a hotel shall be understood to include all its components such as land, buildings, furniture, fixtures, equipment and other items ('Hotel' or 'Hotels'). The Owner will be responsible for financing a Hotel Development in accordance with this Agreement." Record at 273.

Pursuant to the aforementioned contract, Premier began work on an Amerisuite project located at Keystone at the Crossing in Indianapolis.

In its capacity as developer, Premier hired a general contractor and participated in the hiring of an architect, subcontractors, and other parties necessary for development and construction of the hotel. Premier was also responsible for procuring the real estate upon which the hotel was to be built and supervising construction. Alan Hux, one of three shareholders of Premier, succinctly described Premier's role, relative to Suites, thus:

"Well, [the hotel project at Keystone at the Crossing] was not ours because we had no money in it, we had no control over it, we couldn't do anything with the property. The only thing that--you know, [Suites of America was] in total control. They'd call up and say do this, I mean, we did that. We had nothing in it.

The only reason we were there was to develop the property, develop the hotel, provide those services necessary to get it from a raw piece of ground to a functioning hotel." Record at 184.

On July 10, 1990, the property was conveyed to Fairfield Development IV, Inc. In August of 1990, the owner informed Premier that the owner was "out of money" and instructed Premier to cease work on the hotel project. Premier instructed the general contractor to "button up" the site, which consisted of such activities as placing plywood over doors and windows.

On September 18, 1990, Fairfield and numerous affiliated entities filed for reorganization in the Southern District of Florida under Chapter 11 of the Bankruptcy Code. The Bankruptcy Court authorized Fairfield's conveyance of the real estate to appellee Suites, subject to liens existing under state law. Prior to Fairfield's conveyance to Suites, Premier filed its Sworn Statement and Notice of Intention to Hold Mechanic's Lien.

On August 5, 1991, Doster Construction, the general contractor, filed a Complaint to Foreclose Mechanic's Lien, naming, among others, both Premier Investments and Suites as party defendants. Premier answered and asserted as a cross-claim against Suites that it (Premier) retained a valid mechanic's lien against the real estate. Suites filed a Motion for Partial Summary Judgment asserting that Premier's mechanic's lien was invalid. On July 13, 1992, the trial court granted Suites's motion, ruling that Premier's mechanic's lien was "invalid, null and void as a matter of law." Record at 386.

The issue presented herein requires an evaluation of how the law applies to undisputed facts. Specifically, we are asked to decide whether the statute in effect at the times in question, I.C. 32-8-3-1 (Burns Code Ed.1980), authorizes mechanic's liens in favor of parties operating in the role occupied here by Premier, i.e., developer. When the only allegation of error is that the trial court misapplied the law, our task is to correctly apply the law to the undisputed facts. Lee v. Estate of Cain (1985) 3d Dist. Ind.App., 476 N.E.2d 922.

The relevant portion of I.C. 32-8-3-1 states:

"Persons entitled to liens--Contractors and laborers--No-lien contracts--Notice to owner--Innocent purchasers.--(That) contractors, subcontractors, mechanics, lessors leasing construction and other equipment and tools, whether or not an operator is also provided by the lessor, journeymen, laborers and all other persons performing labor or furnishing materials or machinery, including the leasing of equipment or tools used, for the erection, altering, repairing or removing any house, mill, manufactory or other building ... may have a lien separately or jointly upon the house, mill, manufactory or other building ... which they may have erected, altered, repaired, moved or removed or for which they may have furnished materials or machinery of any description, and, on the interest of the owner of the lot or parcel of land on which it stands or with which it is connected to the extent of the value of any labor done, material furnished, or either...." ¹

Premier claims that the activities it engaged in as developer of the hotel project constitute "labor" as that term is used in the statute, and that therefore it is entitled to a mechanic's lien.

No Indiana court has considered whether a developer's activities constitute "labor" in this context. In determining whether a party is entitled to a lien under the statute, our approach is well settled:

"With regard to the first issue concerning strict or liberal construction of Indiana's mechanic's lien statutes in determining whether a certain group may acquire and enforce a mechanic's lien, the law is clear.... In Indiana the mechanic's lien statutes are in derogation of the common law and the provisions of such statutes which relate to the creation, existence or class of individuals entitled to such a lien are to be strictly construed." Edwards v. Bethlehem Steel Corp. (1988) 3d Dist. Ind.App., 517 N.E.2d 430, 432.

The type of work one performs determines whether the party may assert a mechanic's lien. The exact nature of the duties performed by Premier in the instant case, as set forth, are not in question. Premier characterizes its work as supervisory in nature and asserts that "supervisory labor has long been permitted by the courts under our mechanic's lien statute." Brief of Appellant at 11. We agree that much of Premier's work as developer included work which might accurately be described as supervisory in nature. The term "supervisory", however, is subject to different interpretations. Many cases discussing this question involve a general contractor whose duties include a combination of physical labor and supervisory responsibilities. Supervisory responsibilities in this context generally consist of oversight of the day-to-day physical construction activities of the project in question.

For example, in Marcisz v. Osborne (1954) 124 Ind.App. 574, 118 N.E.2d 378, 380, a husband and wife (owners) entered into a contract with a builder to construct a house. The owners ordered the builder to cease working upon the house prior to its completion. The builders claimed that the owners had not paid the entire amount due for work completed at the time construction ceased and filed suit, seeking to foreclose their mechanic's lien for the amount that they claimed remained unpaid. The builders prevailed at trial and the owners appealed, in part upon grounds that a portion of the damage award represented fees for supervisory labor and that such was not recoverable under the mechanic's lien law. The appellate court rejected this argument, stating:

"It is generally held that enforcement of a claim for supervisory labor in the construction of property is permitted under mechanic's lien statutes in most jurisdictions ... and Indiana follows the majority rule in this regard. [Citation omitted.] The reasoning of the court in the foregoing case is that 'one who labors with body or mind, or both, is a laborer' and held that an architect who drew plans and specifications and did supervision of the construction was a laborer under the lien statute." Marcisz, supra, 118 N.E.2d at 380.

Although at first glance the above language seems to support Premier's contention in this regard, it must be remembered that the builder provided physical labor, which is clearly lienable under the statute, in addition to supervisory labor. Viewed in that light, the above may mean nothing more than that a general contractor, a party explicitly named in the statute as entitled to a lien, may file a mechanic's lien for all types of work it performs, including supervisory labor. This does not necessarily address the question of whether one may hold a mechanic's lien for performing only supervisory labor, especially when that party's functional capacity, i.e., developer, is not named in the statute.

The two views upon this question have been thoroughly explored and discussed in other jurisdictions. According to one view, the sort of labor done by a developer, i.e., supervisory labor, while not physical labor in the common sense of the word, is nevertheless labor within the meaning of...