Riverview Muir Doran LLC. v. Jadt Dev. Group LLC., No. A09-312.

• Citation: 790 N.W.2d 167
• Decision Date: 04 November 2010
• Docket Number: No. A09-312.
• Parties: RIVERVIEW MUIR DORAN, LLC, Respondent, v. JADT DEVELOPMENT GROUP, LLC, et al., Respondents, First Choice Bank, Respondent, Darg, Bolgrean, Menk, Inc., et al., Defendants, and First Choice Bank, Respondent, v. JADT Development Company, LLC, et al., Respondents, Riverview Muir Doran, LLC, Respondent, Darg, Bolgrean, Menk, Inc., Defendant, KKE Architects, Inc., Appellant, and KKE Architects, Inc., Appellant, v. JADT Development Company, LLC, Respondent, First Choice Bank, et al., Respondents, Darg, Bolgrean, Menk, Inc., et al., Defendants.
• Court: Supreme Court of Minnesota (US)

790 N.W.2d 167

RIVERVIEW MUIR DORAN, LLC, Respondent,

v.JADT DEVELOPMENT GROUP, LLC, et al., Respondents,First Choice Bank, Respondent,Darg, Bolgrean, Menk, Inc., et al., Defendants,

and

First Choice Bank, Respondent,

v.JADT Development Company, LLC, et al., Respondents,Riverview Muir Doran, LLC, Respondent,Darg, Bolgrean, Menk, Inc., Defendant,KKE Architects, Inc., Appellant,

and

KKE Architects, Inc., Appellant,

v.JADT Development Company, LLC, Respondent,First Choice Bank, et al., Respondents,Darg, Bolgrean, Menk, Inc., et al., Defendants.

No. A09-312.

Supreme Court of Minnesota.

Nov. 4, 2010.

Syllabus by the Court

A bona fide mortgagee that has paid all known, outstanding invoices of a lien claimant at the time the mortgage was recorded does not have actual notice of an existing lien under Minn.Stat. § 514.05, subd. 1 (2008). Pursuant to the statute, when the mortgagee “is without actual or record notice,” a lien does not attach against the mortgagee “prior to the actual and visible beginning of the improvement on the ground.” Id.

Ryan R. Dreyer, Kathleen M. Ghreichi, Morrison, Fenske & Sund, P.A., Minnetonka, MN, for respondents Riverview Muir Doran, LLC, and First Choice Bank.

Larry D. Espel, John M. Baker, Robin M. Wolpert, Greene Espel, P.L.L.P., Minneapolis, MN, for appellant KKE Architects, Inc.

Bradley N. Beisel, David J. Krco, Beisel & Dunlevy, P.A., Minneapolis, MN, for amicus curiae Minnesota Land Title Association.

Mark A. Bloomquist, Meagher & Geer, P.L.L.P., Minneapolis, MN, for amici curiae American Council of Engineering Companies of Minnesota and Minnesota Society of Professional Surveyors.

Michael B. Lapicola, Faegre & Benson LLP, Minneapolis, MN, for amicus curiae American Institute of Architects Minnesota.

Amanda M. Daeges, Eden Prairie, MN, for amicus curiae Minnesota Bankers Association.

OPINION

DIETZEN, Justice.

In this consolidated action, appellant KKE Architects, Inc. (KKE), seeks to foreclose its mechanic's lien, and respondents First Choice Bank and Riverview Muir Doran, LLC, seek to foreclose their mortgages on property that is part of a housing project located in Hennepin County. Respondents moved for partial summary judgment, seeking a determination on the validity of the mechanic's lien as well as the priority of their mortgages. The district court entered judgment in favor of KKE, concluding that respondents had actual notice of KKE's mechanic's lien under Minn.Stat. § 514.05 (2008), and therefore the lien has priority over the mortgages. The court of appeals reversed, and we granted review. We conclude that respondents' mortgages have priority over KKE's mechanic's lien, because respondents did not have actual notice of an existing lien that was unpaid at the time they recorded their mortgages, and therefore the lien did not attach against respondents. Thus, we affirm the court of appeals.

The material facts are undisputed. JADT Development Group, LLC (JADT), acquired property, Parcels I, II, and III, in Hennepin County to construct condominium units known as River View Homes (Project). At the request of JADT, KKE performed architectural services consisting of design development services and construction document services for the Project. On January 17, 2003, KKE made its first item of contribution to the improvement of Parcel I. KKE did not file notice of its mechanic's lien and performed the work for JADT without a written contract.

On March 22, 2005, JADT granted respondents separate mortgages for the total amount of $20,358,550 against Parcels I, II, and III. The mortgages were recorded on March 23, 2005.

Before the closing, JADT had provided respondents and respondents' closing agent, Chicago Title Insurance Co., with 27 invoices issued between June 30, 2003, and January 31, 2005, from KKE to JADT for architectural services totaling $97,139.33 for the Project. Some of the invoices identified the percentage of work that had been completed to date for the Project. ¹ Respondents and Chicago Title also had a copy of a private placement memorandum for the Project that identified, among other things, KKE as the architect for the Project.

Chicago Title used some of the loan proceeds to pay KKE for its work. On March 23, 2005, Chicago Title issued a check payable to KKE for $97,139.33, which was the total amount of the invoices furnished by JADT. According to the closer's affidavit, Chicago Title took these actions to ensure “the first priority position of First Choice Bank's mortgage and the second priority position of Riverview Muir Doran, LLC.” Along with the check, Chicago Title mailed to KKE a Receipt and Waiver of Mechanic's Lien Rights (waiver document). On the waiver document, Chicago Title indicated that the payment was partial. Although the check amount was consistent with the total amount of the invoices presented at the closing, the check amount was less than the total value of services rendered by KKE up to the date the mortgages were recorded. There is nothing in the record to indicate, however, that respondents were aware of any other unpaid work performed by KKE for the Project. KKE signed the waiver document and returned it to Chicago Title on April 4, 2005. KKE endorsed and cashed the check.

On November 27, 2006, KKE recorded and served upon JADT a mechanic's lien for $235,996.34 for KKE's work on the Project. ² On December 29, 2006, KKE recorded and served upon JADT an amended mechanic's lien for $358,028.34. ³

JADT defaulted on its mortgages to respondents and did not satisfy the unpaid balance owed to KKE. ⁴ Ground was never broken for construction of the planned condominiums. All work appears to have ceased when JADT defaulted on the mortgages. Accordingly, there was no actual and visible beginning of the improvement on the ground.

Riverview and First Choice commenced actions to foreclose their mortgages, and KKE commenced an action to foreclose its mechanic's lien. All three actions were consolidated by the district court. Subsequently, the parties filed a trial stipulation setting forth the facts admitted by the parties.

Based upon the trial stipulation, respondents moved for partial summary judgment, seeking a determination that their mortgages had priority over the mechanic's lien. Respondents argued that they were bona fide mortgagees without actual notice of KKE's mechanic's lien within the meaning of Minn.Stat. § 514.05, and therefore their mortgages had priority over the mechanic's lien. The district court filed Amended Findings of Fact and Conclusions of Law and Order for Judgment, ⁵ which denied respondents' motion for summary judgment and granted partial summary judgment to KKE. The district court directed entry of judgment in favor of KKE pursuant to Minn. R. Civ. P. 54.02, ruling that respondents had actual notice of KKE's mechanic's lien within the meaning of Minn.Stat. § 514.05, and therefore KKE's mechanic's lien has priority over respondents' mortgages. The district court ordered that Parcel I be sold to satisfy KKE's lien.

In an unpublished opinion, the court of appeals reversed, concluding that Minn.Stat. § 514.05 requires that respondents have actual notice of an unpaid lien prior to the recording of their mortgages for the mechanic's lien to take priority. Riverview Muir Doran, LLC v. JADT Dev. Grp., LLC, No. A09-312, 2009 WL 2928770, at *5 (Minn.App. Sept. 15, 2009). Because respondents had paid the outstanding KKE invoices in full at the time of the closing, the court of appeals concluded that they did not have actual notice of an unpaid lien prior to recording their mortgages, and therefore the mortgages had priority over KKE's mechanic's lien. Id. Subsequently, we granted review.

I.

KKE argues that respondents had actual notice of KKE's architectural work within the meaning of Minn.Stat. § 514.05, subd. 1, and therefore the mechanic's lien has priority. Section 514.05, subdivision 1, provides that as against a bona fide mortgagee “without actual or record notice, no lien shall attach prior to the actual and visible beginning of the improvement on the ground.” The parties dispute whether the statute refers to actual notice of lienable work, or actual notice of an existing lien that was unpaid.

We review a district court's summary judgment decision de novo. See Kratzer v. Welsh Cos., 771 N.W.2d 14, 18 (Minn.2009). In doing so, we determine whether the district court properly applied the law and whether there are genuine issues of material fact that preclude summary judgment. Id. Here, the material facts are undisputed, ⁶ and the question presented turns on the meaning of section 514.05, which is a question of law that we review de novo. See Eischen Cabinet Co. v. Hildebrandt, 683 N.W.2d 813, 815 (Minn.2004).

“Mechanics liens are purely creatures of statutes and the rights of the parties are governed by the language of the statutes.” M.E. Kraft Excavating & Grading Co. v. Barac Constr. Co., 279 Minn. 278, 283, 156 N.W.2d 748, 751 (1968). The mechanic's lien statutes are set forth in Minn.Stat. ch. 514 (2008). Section 514.01 provides that whoever “contributes to the improvement of real estate by performing labor, or furnishing skill ... shall have a lien upon the improvement, and upon the land on which it is situated.” It is undisputed that architectural work constitutes a lienable service as defined in section 514.01. See Korsunsky Krank Erickson Architects, Inc. v. Walsh, 370 N.W.2d 29, 31 (Minn.1985); see also Lamoreaux v. Andersch, 128 Minn. 261, 268, 150 N.W. 908, 911 (1915); Gardner v. Leck, 52 Minn. 522, 531, 54 N.W. 746, 750 (1893); Knight v. Norris, 13 Minn. 473 (Gil.438) (1868).

Section 514.05 governs when a mechanic's lien attaches and provides for potentially different dates of attachment depending upon whether the person is the owner of the property, or a purchaser, mortgagee, or encumbrancer. The first sentence of section 514.05 provides that a mechanic's lien generally attaches and takes effect...