Court: Indiana Court of Appeals; November 6, 2012; Indiana; State Appellate Court
In mid-2010, Fred and Mary Anna Feitler, sole beneficiaries of a land trust owning real estate in DeKalb County, contracted Cedar Creek Homes (CCH) to build a house, agreeing that no mechanic’s lien would attach in case of nonpayment. CCH hired subcontractors, including J. Laurie Commercial Floors, LLC, and JM Woodworking Company. In February 2011, CCH ceased operations before completing the house, leading to litigation with unpaid subcontractors J. Laurie and JM. They sought mechanic’s liens and money judgments against the Feitlers. The trial court granted summary judgment favoring the subcontractors. On appeal, the Feitlers claimed that J. Laurie and JM should not hold mechanic’s liens and that personal liability should be reconsidered. The appellate court agreed that J. Laurie and JM could not maintain mechanic’s liens and determined the issue of the Feitlers’ personal liability required a trial.
The Feitlers established the Feitler Family Trust in 2007, transferring the property into it. They entered a no-lien agreement with CCH in July 2009, recorded in DeKalb County, and executed a mortgage on the property in favor of Three Rivers Federal Credit Union. The property was conveyed back to the Feitlers and then back to the Trust in late 2009. After CCH's business closure in February 2010, J. Laurie provided flooring services and executed a pre-lien notice and a notice of mechanic’s lien in February and March 2010, respectively. The trial court assessed the value of J. Laurie’s services at $21,318.30.
On April 7, 2010, the Feitlers authorized Three Rivers to pay J. Laurie $4,213.62 for flooring materials that were not installed by February 2, 2010. Springfield had subcontracted CCH to provide $27,103.36 in materials and services for siding, soffits, and gutters before that date. On February 2, 2010, Springfield warned the Feitlers that non-payment could lead to a mechanic’s lien. The next day, Springfield filed a notice of mechanic’s lien, recorded on February 5, and subsequently notified the Feitlers of personal liability under the PLN statute on February 10.
JM, subcontracting with CCH for cabinet installation, provided $21,318.30 in materials and services, with partial installation completed by February 2, 2010. After a discussion on that date, Fred Feitler guaranteed payment to JM, which completed the installation soon after. However, the Feitlers later informed JM that payment would not be made. JM issued an invoice for $22,774.95 on February 5, and sent a notice of personal liability on February 22, followed by a mechanic’s lien on February 26.
Procedurally, Springfield filed a complaint on March 4, 2010, to foreclose its mechanic’s lien and claim damages against the Feitlers, Trust, CCH, and Three Rivers. The Feitlers and Trust filed a cross-claim against Three Rivers on April 30, 2010. Subsequent interventions and cross-claims were made by J. Laurie and JM throughout 2010. By May 14, 2012, the trial court granted partial summary judgment favoring J. Laurie, Springfield, and JM, confirming the validity of their mechanic’s liens and establishing personal liability for the Feitlers: $19,756.46 to J. Laurie, $31,053.46 to Springfield, and $22,774.95 to JM, with applicable interest.
The summary judgment standard requires that the evidence shows no genuine issue of material fact, allowing judgment as a matter of law, with all facts favoring the nonmoving party.
To succeed in a motion for summary judgment, a party must show that undisputed material facts negate at least one element of the opposing party's claim. Once this initial burden is met, the burden shifts to the nonmoving party to demonstrate that a genuine issue exists. The party appealing a summary judgment must persuade the court that the trial court made an error.
Regarding the validity of mechanic’s liens held by J. Laurie and JM, appellants argue that neither can hold such liens on the property. JM claims it entered a separate agreement with the Feitlers and thus can hold a mechanic’s lien independently, while appellants assert that JM's failure to file a pre-lien notice disqualifies it from doing so. J. Laurie contends that the agreement should not be enforced because the Feitlers signed it as individuals, whereas the Trust was the actual legal owner of the property at that time. Appellants maintain that the Feitlers qualify as owners under the mechanic’s lien statute, making the agreement binding on J. Laurie.
The resolution of these issues necessitates an examination of the Indiana mechanic’s lien statute, which requires judicial interpretation. Statutory interpretation aims to reflect the legislature's intent, considering the statute's purpose and the implications of various interpretations. The court must ascertain whether the statute is clear and unambiguous; ambiguity prompts further construction. JM has provided uncontradicted evidence of a separate agreement with the Feitlers to complete the work, arguing this status change allows it to claim a mechanic’s lien as a contractor. However, appellants contest that JM's lack of a pre-lien notice under Indiana Code section 32-28-3-1(i) invalidates its claim to a mechanic’s lien. Indiana Code section 32-28-3-1 states that contractors are entitled to a lien for the value of labor done or materials furnished.
Indiana Code section 32-28-3-1(i) stipulates that any entity selling or providing labor, materials, or machinery for the construction of single or double family dwellings must provide written notice to the property owner and file a copy with the county recorder within 60 days of the first delivery or labor. This notice is a prerequisite for establishing a lien on the property or improvements. The statute does not differentiate between contractors and subcontractors regarding this requirement, and there are no exceptions outlined in the law. The trial court's ruling that JM could hold a lien on the property was deemed erroneous.
Additionally, Indiana Code section 32-28-3-1(a)(1)(b) allows subcontractors to claim a lien for the value of labor or materials provided. However, a no-lien agreement between the property owner and principal contractor can be valid under subsection (e), preventing any lien from attaching to the property. For such agreements to be valid against subcontractors, they must be written, specifically describe the property, be acknowledged similarly to deeds, and be filed with the county recorder within five days of execution. The purpose of this statute is to provide notice of the no-lien agreement to those who might otherwise claim a mechanic's lien. The Agreement in question was executed and recorded by the Feitlers during the period when legal title was held by the Trust.
The document addresses two primary legal questions: whether J. Laurie had sufficient notice of the Agreement and whether the Feitlers qualify as "owners" under Indiana's mechanic’s lien statute.
1. **Record Notice**: The Agreement, while not fully compliant with Indiana Code section 32-28-3-1, was adequate to provide potential subcontractors with record notice of its existence. Evidence indicates that a basic search of the DeKalb County Recorder’s computerized database, active since June 25, 2009, revealed the Agreement recorded on July 9, 2009. A search conducted by Deborah A. Rafine on July 23, 2011, using various terms related to the Feitlers and the property confirmed the Agreement's existence. Additionally, a title insurance commitment dated September 9, 2009, acknowledged the Agreement, further supporting the conclusion that potential subcontractors were on notice.
2. **Feitlers as 'Owners'**: The Feitlers' status as "owners" under the mechanic’s lien statute is affirmed despite their lack of legal title at the time of the Agreement's execution. Appellants argue that "owner" is not limited to legal title holders, as they are the sole beneficiaries of the Trust that held legal title. The document references previous case law and statutory language indicating that "owner" should be interpreted broadly, encompassing those who benefit from the property. Indiana Code section 32-28-3-2(a) clarifies that liens apply to the extent of the owner's right, title, and interest, suggesting that the term "owner" includes those benefiting from the labor or materials provided. Thus, the Feitlers are deemed "owners" under the statute, making the Agreement enforceable against J. Laurie.
The Feitlers commissioned the construction of a new home and will occupy it, establishing their status as the primary beneficiaries of the property despite any legal distinctions. They qualify as owners under Indiana’s mechanic’s lien statute due to their equitable interest in the property, a principle supported by precedent cases such as Hines v. Hollingsworth-Young Hardware Co. and Roberts. Consequently, the agreement with contractor J. Laurie is deemed valid, preventing J. Laurie from asserting a mechanic’s lien on the property. Additionally, the trial court's ruling on the Feitlers' personal liability to J. Laurie is contested, highlighting a lack of evidence for any owed amounts at the time personal liability notices were issued, which could negate such liability under the PLN statute. Indiana Code section 32-28-3-9 applies to various parties involved in construction, allowing subcontractors to seek payment through mechanics’ liens or personal liability from owners, with these remedies being distinct yet complementary.
The PLN statute establishes that a subcontractor can claim against an owner only to the extent that the owner owes the contractor. If the owner has fully paid the contractor, they cannot be liable for the subcontractor's claim. The court noted conflicting evidence regarding whether Cedar Creek Homes, Inc. (CCH) had been paid at the time personal liability notices were issued to the Feitlers. Appellants argued that CCH was paid off, while Appellees contended otherwise. The court found a genuine issue of material fact, thus remanding the case for trial instead of granting summary judgment.
The Feitlers’ contract with CCH was for $478,225.00, and evidence indicated that only $366,580.00 had been paid before CCH ceased operations, suggesting the contract was not fully paid. The court rejected Springfield's request to disregard Fred’s affidavit, asserting it was a factual claim rather than a conclusory statement.
The court concluded that JM could not enforce mechanic’s liens due to a failure to issue a pre-lien notice and that J. Laurie was bound by an agreement. Therefore, it ordered summary judgment in favor of Appellants on these matters while also reversing the trial court's summary judgment in favor of all Appellees regarding personal liability under the PLN statute, instructing a trial to resolve the payment issue.
ROBB, C.J., and BAKER, J. concur with J. Laurie, who reported that a title search conducted on February 3, 2010, did not reveal the No-Lien Agreement, nor the transfers of the Property between the Trust and the Feitlers in 2009. J. Laurie argues that this indicates the No-Lien Agreement was not properly recorded or indexed under the Trust's name. However, this assertion is undermined by the lack of clarity regarding the title search parameters, leading to the assumption that CCH, which was properly indexed, was not included in the search. Additionally, discrepancies between the Westlaw version and the official Indiana Appellate Court Reports are noted, including numerous alterations in the wording and punctuation. The passage references a Kentucky Court of Appeals case regarding the applicability of mechanic's and materialmen's liens to equitable interests in property, emphasizing caution in citing non-official sources due to these discrepancies.
