Wang Elec., Inc. v. Smoke Tree Resort, LLC

• Citation: 230 Ariz. 314,283 P.3d 45,640 Ariz. Adv. Rep. 15
• Decision Date: 31 July 2012
• Docket Number: Nos. 1 CA–CV 11–0387,1 CA–CV 11–0494.,s. 1 CA–CV 11–0387
• Parties: WANG ELECTRIC, INC., an Arizona corporation, Plaintiff/Appellee/Cross–Appellant, and Aero Automatic Sprinkler Company, a Delaware corporation, Defendant/Appellee/Cross–Appellant, v. SMOKE TREE RESORT, LLC, an Arizona limited liability corporation, Defendant/Appellant/Cross–Appellee. Beecroft, LLC, an Arizona Limited Liability Company; Adobe Paint, LLC, an Arizona Limited Liability Company; Adobe Drywall, LLC, an Arizona Limited Liability Company; Allied Acoustics, Inc., an Arizona Corporation, Defendants/Appellees, v. Smoke Tree Resort, LLC, an Arizona limited liability corporation, Defendant/Appellant. Wang Electric, Inc., Plaintiff/Appellee, v. Adobe Drywall, LLC; Adobe Paint, LLC, Defendants/Appellants. Beecroft, LLC; Adobe Paint, LLC; Adobe Drywall, LLC; K.A.I. Designs, Inc.; Smoke Tree Resort, LLC; Aero Automatic Sprinkler Co., Defendants/Cross–Appellees, v. Allied Acoustics, Inc., an Arizona corporation, Defendant/Cross–Appellant.
• Court: Court of Appeals of Arizona

230 Ariz. 314

283 P.3d 45

640 Ariz. Adv. Rep. 15

WANG ELECTRIC, INC., an Arizona corporation, Plaintiff/Appellee/Cross–Appellant,

and

Aero Automatic Sprinkler Company, a Delaware corporation, Defendant/Appellee/Cross–Appellant,

v.SMOKE TREE RESORT, LLC, an Arizona limited liability corporation, Defendant/Appellant/Cross–Appellee.

Beecroft, LLC, an Arizona Limited Liability Company; Adobe Paint, LLC, an Arizona Limited Liability Company; Adobe Drywall, LLC, an Arizona Limited Liability Company; Allied Acoustics, Inc., an Arizona Corporation, Defendants/Appellees,

v.Smoke Tree Resort, LLC, an Arizona limited liability corporation, Defendant/Appellant.

Wang Electric, Inc., Plaintiff/Appellee,

v.Adobe Drywall, LLC; Adobe Paint, LLC, Defendants/Appellants.

Beecroft, LLC; Adobe Paint, LLC; Adobe Drywall, LLC; K.A.I. Designs, Inc.; Smoke Tree Resort, LLC; Aero Automatic Sprinkler Co., Defendants/Cross–Appellees,

v.Allied Acoustics, Inc., an Arizona corporation, Defendant/Cross–Appellant.

Nos. 1 CA–CV 11–0387, 1 CA–CV 11–0494.

Court of Appeals of Arizona,

Division 1, Department A.

July 31, 2012.

Mariscal Weeks McIntyre & Friedlander, PA By Scott A. Holcomb, Paul S. Ruderman, Phoenix, Attorneys for Wang Electric, Inc.

Jennings Haug & Cunningham, LLP By Edward Rubacha, Phoenix, Attorneys for Aero Automatic Sprinkler Company.

Gust Rosenfeld, PLC By Frank S. Tomkins, Scott A. Malm, Phoenix, Attorneys for Smoke Tree Resort, LLC.

Raymond Greer & Sassaman, PC By Randy L. Sassaman, Phoenix, Attorneys for Beecroft, LLC.

Wong Fujii Carter, PC By Jim Y. Wong, Ben J. Himmelstein, Matthew Klopp, Phoenix, Attorneys for Adobe Drywall, LLC; Adobe Paint, LLC.

Curtis Ensign, PLLC By Curtis D. Ensign, Phoenix, Attorneys for Allied Acoustics, Inc.

OPINION

TIMMER, Judge.

¶ 1 These consolidated appeals stem from three consolidated lawsuits concerning a construction dispute among a property owner, a tenant, a general contractor, and six subcontractors involved in improving restaurant space at a Paradise Valley, Arizona resort. Smoke Tree Resort, LLC (“Smoke Tree”), the owner of the property, appeals from superior court judgments awarding damages to six subcontractors on their claims for unjust enrichment. Subcontractors Wang Electric, Inc. (“Wang”), Aero Automatic Sprinkler Company (“Aero”), and Allied Acoustics, Inc. (“Allied”) cross-appeal from the superior court's judgment invalidating their mechanic's liens on Smoke Tree's property and dismissing their lien foreclosure actions. Subcontractors Adobe Drywall, LLC and Adobe Paint, LLC (collectively “Adobe”) appeal from the court's judgment invalidating their mechanic's liens on the leasehold interest in the restaurant and dismissing their lien foreclosure actions. For the reasons that follow, we reverse and remand for further proceedings.

BACKGROUND

¶ 2 Smoke Tree entered a lease agreement in October 2007 with REM on Lincoln, LLC (“REM”) for rental of restaurant space at Smoke Tree's resort property. The leasehold term was for ten years, and REM had the option to extend the term for an additional five years. The lease required REM to remodel the restaurant in accordance with plans approved by Smoke Tree. Although REM was charged with organizing the remodel, the lease required Smoke Tree to reimburse REM up to $840,000 in remodeling expenses. REM was required to pay all costs and expenses greater than $840,000.

¶ 3 In January 2008, REM hired K.A.I. Designs Inc. (“KAI”) to serve as general contractor on the restaurant remodel. Their agreement called for total construction costs of approximately $2,000,000 to be paid in monthly progress payments. KAI then entered in subcontract agreements with, among others, (1) Wang, to provide electric and lighting fixtures and installation for $240,140, (2) Aero, to provide fire suppression systems for $48,554, (3) Allied, to install an acoustical ceiling for $11,267.94, (4) Beecroft, LLC (“Beecroft”), to provide excavation services for $26,710, and (5) Adobe, to provide drywall and paint material and services for $62,127 (drywall) and $22,426 (paint). The subcontracts required KAI to pay the subcontractors and did not refer to REM or Smoke Tree.

¶ 4 As the work progressed, the subcontractors submitted periodic invoices to KAI. KAI then submitted these payment applications for approval first to REM and then to Smoke Tree. Once Smoke Tree approved the invoices, Smoke Tree issued payments directly to KAI for disbursement to the subcontractors, despite the lease language calling only for reimbursement of REM's costs. A declaration from David Aboud, the president of KAI, reflects Smoke Tree paid approximately $790,000 to KAI.¹

¶ 5 Near the end of April 2008, progress payments stopped. Wang, Aero, Beecroft, and Allied then filed mechanic's liens on Smoke Tree's property for the billed value of the work performed but not compensated (the “Uncompensated Work”). Adobe filed mechanic's liens on REM's leasehold interest in Smoke Tree's property for the billed value of Adobe's Uncompensated Work.

¶ 6 In December 2008 and February 2009, respectively, Wang and Adobe filed separate, later-consolidated lawsuits against REM, KAI, Smoke Tree, and the other subcontractors, among others. Each of the other subcontractors filed a cross-claim against REM, KAI, and Smoke Tree. Although the details of the claims varied, all six subcontractors sought damages for breach of contract against KAI, sought to foreclose their mechanic's liens, and in the alternative sought a money judgment against REM and Smoke Tree for unjust enrichment.

¶ 7 All subcontractors except Allied eventually moved for summary judgment against KAI on the contract claim and against Smoke Tree on the mechanic's lien foreclosure and unjust enrichment claims. KAI did not oppose the motions, but Smoke Tree responded and filed cross-motions for summary judgment. After briefing and argument, the court granted summary judgment in favor of Smoke Tree on each mechanic's lien claim, reasoning “that because the requirements for a mechanic lien were not strictly followed, there is no valid lien.” But the court granted summary judgment in favor of each subcontractor and against Smoke Tree on the unjust enrichment claims, ruling “[i]t would be unjust for Smoke Tree to retain the benefits of improvements to its property without compensating the subcontractors for their work.” ²

¶ 8 After denying Smoke Tree's motion for reconsideration, the court entered judgment invalidating each mechanic's lien at issue and awarding each subcontractor a money judgment on the unjust enrichment claims for the billed value of the Uncompensated Work. The court also awarded prejudgment interest beginning as of December 22, 2009, the date the court entered its order granting summary judgment against Smoke Tree for unjust enrichment. Although the subcontractors requested attorneys' fees pursuant to Arizona Revised Statutes (“A.R.S.”) section 12–341.01 (West 2012),³ the court found that no party had prevailed and, “in [its] discretion,” declined to award fees or costs. Smoke Tree then moved for a new trial or modification of judgment to eliminate the prejudgment interest award, which the court denied. These timely appeals and cross-appeals followed.

DISCUSSION

I. Smoke Tree's Appeal

¶ 9 Smoke Tree first argues the superior court erred by entering summary judgment in favor of the subcontractors on their unjust enrichment claims rather than entering judgment for Smoke Tree. We review de novo the court's grant of summary judgment and affirm only if, viewing the facts in the light most favorable to the party against whom judgment was entered, no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Orme Sch. v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990); Ariz. R. Civ. P. 56(c)(1). Smoke Tree does not contend any genuine issues of material fact exist to preclude summary judgment. Instead, it argues it is entitled to judgment as a matter of law.

¶ 10 An unjust enrichment claim requires proof of five elements: “(1) an enrichment, (2) an impoverishment, (3) a connection between the enrichment and impoverishment, (4) the absence of justification for the enrichment and impoverishment, and (5) the absence of a remedy provided by law.” Freeman v. Sorchych, 226 Ariz. 242, 251, ¶ 27, 245 P.3d 927, 936 (App.2011). In short, unjust enrichment provides a remedy when a party has received a benefit at another's expense and, in good conscience, the benefitted party should compensate the other. Murdock–Bryant Constr., Inc. v. Pearson, 146 Ariz. 48, 53, 703 P.2d 1197, 1202 (1985) (quoting Pyeatte v. Pyeatte, 135 Ariz. 346, 352, 661 P.2d 196, 202 (App.1983)). The remedy is flexible and available when equity demands compensation for benefits received, “even though [the party] has committed no tort and is not contractually obligated to the [other].” Id. Because consideration of the fourth element described above is dispositive, we turn to that element.

¶ 11 Smoke Tree argues that any enrichment was justified because the benefits received were specified under the lease with REM, and Smoke Tree did not act improperly. The subcontractors respond the enrichment was unjustified because Smoke Tree retained the benefit of unpaid labor and materials for tenant improvements it required, knowing the subcontractors expected payment. The superior court reasoned the enrichment was unjustified because “Smoke Tree approved the construction plans for the restaurant which was an integral part of Smoke Tree's Resort.”

¶ 12 The subcontractors rely on authority addressing situations in which a subcontractor is not paid for labor and materials by a general contractor, and payment is sought from the owner under a theory of unjust enrichment. These cases fall into two categories: ones in which the owner has fully paid the general contractor and ones in which the owner has not fully paid the general contractor. Our courts have held...