Premier Investments v. Suites of America, Inc.

• Decision Date: 15 December 1994
• Docket Number: No. 49S02-9412-CV-1217,49S02-9412-CV-1217
• Parties: PREMIER INVESTMENTS, Appellant (Cross-claimant Below), v. SUITES OF AMERICA, INC., Appellee. (Cross-claim Defendant Below).
• Court: Indiana Supreme Court

Page 124

644 N.E.2d 124

PREMIER INVESTMENTS, Appellant (Cross-claimant Below), v. SUITES OF AMERICA, INC., Appellee. (Cross-claim Defendant Below).

No. 49S02-9412-CV-1217.

Supreme Court of Indiana.

Dec. 15, 1994.

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

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

ON PETITION TO TRANSFER

SULLIVAN, Justice.

We hold that the benefits of Indiana's mechanic's lien statutes cannot be invoked by a real estate developer performing supervisory services but not physical labor, particularly a developer who is an equity participant in the project. We therefore vacate the holding of the Court of Appeals, Premier Investments v. Suites of America (1994), Ind.App., 630 N.E.2d 232, and affirm the decision of the trial court in this case.

Facts

On February 6, 1989, developer Premier Investments, a general partnership, and Howard Johnson Franchise Systems, Inc., entered into a contract entitled "Hotel Development Agreement." Pursuant to the contract, developer agreed to develop certain real estate in the Keystone at the Crossing area of Indianapolis into an "AmeriSuite Hotel." The contract required developer to develop plans, specifications and construction budgets, and otherwise to be responsible for the construction, equipping, staffing, and opening of the hotel. It was, in the vernacular, a "turn-key" arrangement where developer, using financing provided by the owner, would deliver to the owner a completed hotel ready to turn the key and begin business.

The contract provided that the developer was entitled to a development fee equal to 5% of the hard construction costs of the project plus certain out-of-pocket expenses. In addition to the development fee, the contract provided that the developer was entitled to receive 25% of the profits derived from the operation of the hotel or from its sale or refinancing.

In connection with its responsibilities to supervise construction of the hotel, the contract required that each construction contract with a general contractor or sub-contractor contain a provision prohibiting the contractor or sub-contractor from filing mechanic's liens, that the developer have any mechanic's lien filings discharged as soon as practicable, that the developer make no payments to any contractor or sub-contractor maintaining a mechanic's lien filing, and that each request for payment submitted to the owner contain a certification from each contractor and sub-contractor that there were no known mechanic's liens outstanding.

Developer began developing the property in 1989. Developer describes its efforts under the contract as follows:

[Developer] Premier proceeded to get the Real Estate under Contract so it could be purchased. It designed the building that was to be built on the Real Estate. It obtained the necessary zoning and building approvals. It bid the project and hired the general contractor. It monitored the construction on a day-to-day basis. It handled the construction draws to make sure the owner was not paying for any materials that were not on site and that the materials on site were to be used in construction of the hotel. It coordinated with the architects, recommended and authorized design and construction changes.

Brief of Appellant in the Court of Appeals at 6.

On July 10, 1990, ownership of the property was conveyed from Howard Johnson Franchise Systems, Inc., to Fairfield Development IV, Inc. Developer continued to perform its responsibilities under the contract until August 10, 1990, when Fairfield directed developer to suspend construction at the hotel site.

On September 18, 1990, Fairfield filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of Florida. On October 8, 1990, developer filed a Sworn Statement and Notice of Intention to Hold Mechanic's Lien. On January 25, 1991, the Bankruptcy Court conveyed ownership of the property to Suites of America, Inc., "free and clear of all liens and encumbrances except all liens existing by operation of state statutory law."

On August 5, 1991, the general contractor, filed a Complaint to Foreclose Mechanic's Lien that named developer and the new owner of the property, Suites of America, Inc., as defendants. Along with its answer, developer filed a cross-claim against the new owner in which it claimed to have a valid mechanic's lien against the property pursuant to Indiana Code Annotated § 32-8-3-1 (West 1979). In response, owner filed a Motion for Partial Summary Judgment contending that developer did not have a valid mechanic's lien.

The trial court granted owner's motion, finding that developer's mechanic's lien was void as a matter of law. The Court of Appeals reversed the trial court, Premier Investments, 630 N.E.2d at 233, holding that: (1) the activities that developer engaged in were "labor" within the meaning of the mechanic's lien statute and were lienable under the statute, concluding that there was no meaningful distinction between the supervisory services performed by developer and the physical labor performed by contractors and subcontractors, id. at 238; and (2) developer's agreement to use no lien contracts with third party contractors did not estop it from later seeking to use a mechanic's lien on its own behalf because developer's agreement regarding no lien contracts applied only to contracts between itself and third party contractors and not to the contract between developer and owner. Id. at 239.

Owner, Suites of America, Inc., seeks transfer asserting that: (1) the Court of Appeals' extension of the coverage of the Indiana mechanic's lien statute to apply to developers like Premier violates fundamental rules of statutory construction and allows entities in developer's position to reduce significantly the proceeds available to contractors, subcontractors and other persons specifically covered by the mechanic's lien statute, and (2) the Court of Appeals erred in holding that developer is not estopped from asserting a mechanic's lien. Because we agree with owner that developer in this case is not entitled to a mechanic's lien for its services, we grant transfer, vacate the decision of the Court of Appeals, and affirm the decision of the trial court granting partial summary judgment for owner, Suites of America, Inc. Ind.Appellate Rule 11(B)(3).

Discussion

I

This case is an appeal from a grant of a motion for partial summary judgment on the issue of whether developer holds a valid mechanic's lien. On review, this Court faces the same issues that were before the trial court and follows the same process as the trial court. Greathouse v. Armstrong (1993), Ind., 616 N.E.2d 364, 365. Thus, summary judgment is appropriate only where there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. Ind.Trial Rule 56(C). No material facts appear to be at issue here and so we proceed to resolve the issue of law presented. As the Court of Appeals concluded, "The issue presented herein requires an evaluation of how the law applies to undisputed facts." Premier Investments, 630 N.E.2d at 234.

II

A mechanic's lien was a remedy unknown at common law ¹ and is purely a statutory creation. Potter Mfg. Co. v. A.B. Meyer & Co. (1909), 171 Ind. 513, 516, 86 N.E. 837, 838. Provisions relating to the creation, existence or persons entitled to claim a mechanic's lien are to be narrowly construed since the lien rights created are in derogation of common law. Puritan Eng'g Corp. v. Robinson (1934), 207 Ind. 58, 60, 191 N.E. 141, 142. Because the mechanic's lien is purely a creature of statute, the burden is on the party asserting the lien to bring itself clearly within the strictures of the statute. Id. Thus, developer must show that under a proper construction of the Indiana mechanic's lien statute a real estate developer acting as developer did in this case, to wit, employed solely to supervise the construction of a building, may acquire a mechanic's lien.

In Indiana Code Annotated §§ 32-8-3-1 ² and 32-8-25-1 ³ (West 1979), the legislature expressly sets forth those persons entitled to mechanic's liens. These persons are: contractors; subcontractors; mechanics; lessors leasing construction equipment; journeymen; laborers and all other persons performing labor or furnishing materials or machinery, including the leasing of equipment or tools; registered professional engineers; registered land surveyors; and registered architects. We conclude, and developer does not dispute, that the lists in these two statutes are exclusive, i.e., unless developer falls within one or more of these listed categories, it is not entitled to the benefits of the mechanic's lien statute.

Developer contends that it falls within the statutory meaning of "contractor" and, apparently, within the meanining of "laborer" by virtue of its responsibilities to supervise labor.

Developer's contention that it is a "contractor" is based simply on the fact that it has a contract with the owner. This argument was not made in the Court of Appeals and we reject it here. It has long been the law in Indiana that a "contractor" as the term is used in the mechanic's lien statute is a person who contracts to erect or construct a building, structure or other improvement. Wood v. Isgrigg Lumber Co. (1919), 71 Ind.App. 64, 68, 123 N.E. 702, 703. Indeed, the statute so provides. Ind.Code § 32-8-3-1. While there is a paucity of Indiana case law about what "to erect" means for purposes of the mechanic's lien statute, the law from other jurisdictions is replete with instances in which "to erect" has been found to connote some physical act of labor which improves land. See, e.g., Albert Gall Co. v. Dowagiac Gas Co., 160 Mich. 255, 125 N.W. 283, 284 (1910) (paper hanging and decoration of wall); Reid v. Berry, 178 Mass. 260, 59 N.E. 760 (1...