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Jordan Construction, Inc. v. Federal National Mortgage Association

Supreme Court of Utah

May 22, 2017

Jordan Construction, Inc., Appellant,
v.
Federal National Mortgage Association, Appellee.

         On Direct Appeal Fourth District, American Fork The Honorable Christine S. Johnson No. 080104364

          Attorneys: Darrel J. Bostwick, Jeffery J. Owens, Salt Lake City, for appellant

          Alexander Dushku, Peter C. Schofield, Justin W. Starr, Adam D. Wahlquist, Salt Lake City, for appellees

          Chief Justice Durrant authored the opinion of the Court, in which Associate Chief Justice Lee, Justice Durham, Justice Himonas, and Justice Pearce joined.

          OPINION

          Durrant Chief Justice.

         Introduction

         ¶ 1 This case concerns a general contractor's attempt to recover on a mechanic's lien. Scott Bell, an employee of Jordan Construction, Inc., hired Jordan Construction as the general contractor to build a new home on property that he owned (the Property). Several months after the start of construction, Mr. Bell secured long-term financing and executed a trust deed on the Property. Mr. Bell then failed to pay Jordan Construction the full amount due for its work. When the home was nearly finished, Jordan Construction discovered that Mr.Bell had been misusing company funds and terminated him. Mr. Bell responded by suing Jordan Construction. Jordan Construction in turn recorded a mechanic's lien and lis pendens on the Property and counterclaimed for breach of contract, embezzlement, and foreclosure of the mechanic's lien. Jordan Construction chose not to name the holder of the trust deed at that time.

         ¶ 2 While the suit was pending, Jordan Construction discovered that some subcontractors had not been paid for their work on the Property. Nearly nine months after the completion of construction, Jordan Construction filed an amendment to its notice of mechanic's lien to include the additional amounts owed to the subcontractors. Jordan Construction then obtained summary judgment on its counterclaims against Mr. Bell, applied for a writ of execution, and took steps to initiate a sheriff's sale of the Property.

         ¶ 3 Meanwhile, Mr. Bell had defaulted on his mortgage. The trust deed holder conducted a non-judicial foreclosure sale, and Federal National Mortgage Association (FNMA)[1] purchased the trustee's deed. FNMA then filed a motion asking the district court to quash the writ of execution and halt the sheriff's sale because neither it, nor its predecessor in interest, had been named in this action. Over Jordan Construction's objection, the district court quashed the writ and halted the sale. Jordan Construction then filed a third-party complaint against FNMA, asserting that its mechanic's lien had priority over FNMA's trustee's deed.

         ¶ 4 Having been brought in as a party to this action, FNMA then prevailed on a series of motions before the district court. Jordan Construction asserts on appeal that the district court erred in those decisions. First, the district court concluded that FNMA is not bound by the judgment rendered against Mr. Bell earlier in the case under either the lis pendens or the doctrine of res judicata. Second, the court ruled that Jordan Construction's amended notice of lien-which nearly doubled the amount claimed-was untimely. Third, it ruled that, under the 2008 Utah Code, Jordan Construction was not entitled to recover prejudgment interest on its mechanic's lien claim. In all, FNMA, by obtaining these rulings, whittled down the amount that Jordan Construction had sought in its third-party complaint- $336, 568.66-to $126, 956.92, the amount listed on the face of the original lien. FNMA then stipulated to the payment of $126, 956.92. The district court concluded that FNMA was the successful party and awarded it attorney fees under the mechanic's lien statute, a decision which Jordan Construction also challenges on appeal.

         ¶ 5 We affirm the district court's ruling as to each issue.

         Background

         ¶ 6 This case evolved in two phases. We first discuss the procedural facts involved in the first phase, where Jordan Construction asserted and prevailed on its counterclaims against Mr. Bell. We then discuss the second phase, where FNMA was brought into this action as a third-party defendant.

         ¶ 7 In 2006, Jordan Construction was hired by its employee, Mr. Bell, to be the general contractor on the construction of his new home. Construction on the home began in October 2006. Mr. Bell obtained long-term financing on January 31, 2008, executing a trust deed that encumbered the Property with the trustee's right to sell the property in case of default.

         ¶ 8 Near the end of construction, in October 2008, Jordan Construction discovered that Mr. Bell had been embezzling from the company and terminated his employment. The next month, Mr. Bell and his brother, Todd Bell, brought suit against Jordan Construction alleging, among other things, breach of contract. In December 2008, Jordan Construction recorded a Notice of Mechanic's Lien in the amount of $126, 956.92 for its work on Mr. Bell's home.[2] It then counter-claimed for breach of contract, unjust enrichment, promissory estoppel, conversion, and foreclosure of its mechanic's lien, simultaneously recording a lis pendens on the Property. It did not, however, name the holder of the trust deed as a party to the action.

         ¶ 9 In the months after the suit was filed, Jordan Construction continued to investigate Mr. Bell's activities, discovering that he "kept few receipts and records demonstrating how many of the subcontractors were paid." Jordan Construction's principal, Wesley Lewis, had to perform a detailed accounting to determine how much Jordan Construction owed to subcontractors for work done on the Property, a task that was complicated by Mr. Bell's failure to keep accurate records. This accounting revealed a total of $232, 976.81. In July 2009, Jordan Construction amended its notice of mechanic's lien to reflect its newly calculated amount.

         ¶ 10 Several months after the amendment, in January 2010, Jordan Construction moved for partial summary judgment on all of its claims against Mr. Bell. Mr. Bell did not oppose the motion, and the court granted it in February 2010. Although Jordan Construction had requested summary judgment on the mechanic's lien claim in its motion, the court's February 2010 order did not mention that claim, an oversight the court did not correct until nearly eighteen months later.

         ¶ 11 In June 2010, the court entered an order containing its findings of fact and conclusions of law regarding Jordan Construction's counterclaims against Mr. Bell, but this order again made no mention of the mechanic's lien claim. Additionally, Jordan Construction still had not joined the holder of the trust deed to this action. Two months later, Jordan Construction sought permission from the district court to file a third-party complaint against the trust deed holder, but it did not serve that complaint.

         ¶ 12 Meanwhile, Mr. Bell had defaulted on the promissory note that was secured by the trust deed on the Property. FNMA purchased the trustee's deed at a non-judicial foreclosure sale on October 1, 2010. Jordan Construction later applied for a writ of execution in January 2011. As part of the application for this writ, Jordan Construction served on FNMA a "Checklist for Writ of Execution for Judgment Debtor and Persons with an Interest in the Property, " "Notice of Execution and Exemptions, " and a "Reply and Request for Hearing form." FNMA did not file a reply or request a hearing.

         ¶ 13 Jordan Construction did not immediately act on the writ, but instead moved in June 2011 to amend the court's order granting partial summary judgment against Mr. Bell to include the mechanic's lien foreclosure claim. The court, recognizing that its original order should have included the mechanic's lien claim, granted the motion in July 2011 and modified its findings of fact and conclusions of law in August 2011 to include that claim. Jordan Construction then requested that the Utah County Sheriff notice a proposed foreclosure sale of the Property, which was set for September 14, 2011.

         ¶ 14 FNMA then took its first action in this proceeding-it filed a motion to quash the writ and halt the sale. The court granted this request, and Jordan Construction then sought and was granted permission to file a third-party complaint against FNMA. This complaint against FNMA, the beginning of the second phase of this case, contained only a single claim for declaratory relief. That claim sought a declaration that FNMA was bound by the findings of fact and conclusions of law entered against Mr. Bell earlier in the case. The district court granted FNMA's motion to dismiss the complaint because it concluded FNMA was not bound by its earlier ruling. Jordan Construction then amended its complaint, this time asserting the same declaratory relief claim and a mechanic's lien claim against FNMA. The district court again dismissed the declaratory relief claim, but it allowed the mechanic's lien claim to go forward.

         ¶ 15 After fact discovery, FNMA filed a number of motions for partial summary judgment. We discuss these motions, and the district court's rulings on them, in some detail because Jordan Construction challenges the district court's resolution of these motions on this appeal, and also because they are relevant for determining which party was "successful" in this action for attorney fee purposes.

         ¶ 16 FNMA first sought a ruling that it was not liable for attorney fees incurred in connection with the judgment rendered against Mr. Bell. Second, it argued that it was not bound by the judgment rendered against Mr. Bell earlier in the action. Third, it contended that Jordan Construction's second amended notice of lien, filed in July 2009 to add the amounts it paid to subcontractors, was untimely because it was filed more than 180 days after the certificate of occupancy was issued in October 2008. Finally, it sought a ruling that Jordan Construction was not entitled to prejudgment interest on its mechanic's lien claim brought under the 2008 Utah Code. Jordan Construction filed its own motion for summary judgment, arguing that FNMA was bound by the rulings entered against Mr. Bell and that its lien had priority over FNMA's interest.

         ¶ 17 The district court denied Jordan Construction's motion seeking a declaration that FNMA was bound by rulings entered against Mr. Bell, and it granted all of FNMA's motions except the one regarding the timeliness of the lien amendment. The court denied summary judgment on the timeliness of the lien because Jordan Construction had raised a new argument at oral argument- that a newly discovered certificate of occupancy was issued in June 2011. This newly discovered certificate contradicted an admission that Jordan Construction had made earlier in the litigation, which stated

Request No. 2: Admit that Scott Bell began occupying the Property in October 2007.
Response: Admit that Scott Bell occupied the property pursuant to a temporary occupancy permit beginning in October 2007. However, construction on his home was not yet finished, no final inspection had been completed and no permanent occupancy permit had been issued until October 2008.

         ¶ 18 Based on this newly discovered certificate, Jordan Construction brought a motion for partial summary judgment arguing that the timeliness of the lien should be decided based on the certificate issued in 2011. FNMA filed its own motion arguing that summary judgment should be granted on the basis of Jordan Construction's admission that a certificate of occupancy was issued in October 2008. Jordan Construction then moved to withdraw the admission. The court denied Jordan Construction's motions to withdraw the admission and for summary judgment, and granted FNMA's motion, ruling that the second amendment to the lien was untimely.

         ¶ 19 The court also denied Jordan Construction's motion for summary judgment regarding the validity and priority of the original lien, because it found that there were genuine issues of material fact as to whether Jordan Construction materially abandoned construction for a time, which would sever the relation back of its lien. Rather than go through the expense of a trial on the priority issue, FNMA stipulated to the entry of judgment in the amount of the original mechanic's lien, $126, 956.92.

         ¶ 20 FNMA then sought its attorney fees as the "successful" party in an action to enforce a mechanic's lien.[3] Jordan Construction also argued that it was the "successful" party and requested its attorney fees. The district court concluded that FNMA was the successful party because it prevailed on virtually every disputed issue and successfully reduced Jordan Construction's recovery to approximately 38% of the amount it originally sought in the third-party complaint.

         ¶ 21 Jordan Construction now appeals. It asserts that the district court erred in 1) quashing the writ of execution and halting the sheriff's sale; 2) concluding that FNMA is not bound by the partial summary judgment rendered against Mr. Bell in the first phase of this case; 3) concluding that Jordan Construction's second amended notice of lien was untimely; 4) concluding that prejudgment interest is not available on a mechanic's lien claim under the 2008 Utah Code; and 5) concluding that FNMA was the "successful" party below. We have jurisdiction under Utah Code section 78A-3-102(3)(j).

         Issues and Standards of Review

         ¶ 22 This case presents five issues for our review. The first issue is whether the district court erred in quashing the writ of execution and halting the sheriff's sale. We review a district court's decision to reconsider an earlier decision for an abuse of discretion.[4]

         ¶ 23 The second issue is whether the district court erred in concluding that neither the lis pendens nor the doctrine of res judicata require that FNMA be bound by the partial summary judgment entered against Mr. Bell. This issue presents a question of law, which we review for correctness.[5]

         ¶ 24 The third issue is whether the district court erred in concluding that Jordan Construction's second amended notice of mechanic's lien was untimely. "An appellate court reviews a trial court's 'legal conclusions and ultimate grant or denial of summary judgment' for correctness, and views 'the facts and all reasonable inferences drawn therefrom in the light most favorable to the nonmoving party.'"[6]

         ¶ 25 One component of the third issue is whether the district court erred in refusing to permit Jordan Construction to withdraw its admission that a certificate of occupancy was issued for the Property in October 2008. The standard of review for amendment or withdrawal of admissions is a two-step, "'conditional' discretionary standard."[7] Rule 36(c) of the Utah Rules of Civil Procedure provides that a district court "may permit withdrawal or amendment" if two requirements are met: 1) "presentation of the merits of the action will be promoted, " and 2) "withdrawal or amendment will not prejudice" the party who requested the admission. We review the question of whether these two threshold requirements have been satisfied under "a somewhat more exacting standard of review" than simple abuse of discretion.[8] If the threshold requirements are met, we then review the court's decision to grant the motion to withdraw or amend and will "reverse[] only upon a finding of abuse of discretion, i.e., if there is no reasonable basis for the decision."[9]

         ¶ 26 The fourth issue is whether the district court erred in concluding that prejudgment interest is unavailable under the 2008 version of the mechanic's lien statute. "A trial court's decision to grant or deny prejudgment interest presents a question of law which we review for correctness."[10]

         ¶ 27 The fifth issue is whether the district court erred in concluding that FNMA was the "successful" party in this action for attorney fee purposes. We review the district court's determination of who is successful in these circumstances for an abuse of discretion.[11]

         Analysis

         ¶ 28 The first question we must address is whether the district court erred in quashing the writ of execution and halting the sheriff's sale. Jordan Construction argues that FNMA waived its right to challenge the writ of execution by failing to file a request for hearing as provided in Utah Rule of Civil Procedure 64E. We reject this argument because the district court had discretion, under Utah Rule of Civil Procedure 54(b) and the law of the case doctrine, to revisit its earlier decision to issue the writ of execution. FNMA's decision not to file a request for hearing on the issuance of the writ did not deprive the district court of that discretion. The district court therefore did not abuse its discretion in quashing the writ and halting the sale.

         ¶ 29 We next explain that FNMA is not bound by the order entered against Mr. Bell under either the doctrine of res judicata or the lis pendens. Jordan Construction argues that FNMA, which had notice of-but chose not to intervene in-the litigation against Mr. Bell, is bound by the interlocutory order granting partial summary judgment entered against him. This argument is based on Jordan Construction's assertion that FNMA is Mr. Bell's successor-in-interest to the Property because FNMA purchased the Property that Mr. Bell previously owned. In Jordan Construction's view, FNMA and Mr. Bell are in privity, and, as a result, FNMA took the property subject to the existing judgment that had been entered against Mr. Bell. But even assuming that FNMA was Mr. Bell's successor, which FNMA disputes, neither res judicata nor the recording of the lis pendens requires that FNMA be bound by the ruling entered against Mr. Bell, because that order was interlocutory. Under our precedent regarding the "law of the case" doctrine, a district court has broad discretion to revisit earlier rulings before a case has proceeded to a final judgment. The district court thus properly concluded that FNMA is not bound by the order granting partial summary judgment against Mr. Bell.

         ¶ 30 We then turn to Jordan Construction's second amended notice of lien, and we affirm the district court's judgment that the notice was untimely. In reaching this conclusion, we reject Jordan Construction's three arguments on this point. First, Jordan Construction argues that the district court erred in denying its request to withdraw its admission that a certificate of occupancy was issued in October 2008. We conclude that the district court had discretion to deny this request because FNMA would have been prejudiced by the long delay between the admission and the request to withdraw. Second, Jordan Construction argues that the doctrine of equitable tolling should be applied to toll the time for filing an amended notice of lien. We reject this argument as unpreserved. Finally, Jordan Construction argues that the relation back doctrine should apply to its second amended notice of lien, such that the amended notice should be treated as though filed on the date of its original notice of lien. We reject this argument because the legislature, through the mechanic's lien statute, has crafted a careful scheme that balances multiple interests, and for us to apply the relation back doctrine where the legislature has not provided for it would frustrate that scheme.

         ¶ 31 We then turn to the question of whether prejudgment interest is available on a mechanic's lien claim under the 2008 version of the Utah Code, which did not specifically provide for prejudgment interest. We affirm the district court's conclusion that prejudgment interest is unavailable. Because mechanic's liens are creatures of statute, we have held that the value of items the legislature did not provide in those statutes cannot be claimed on the face of a mechanic's lien. As a logical extension of that conclusion, the overall recovery available in a mechanic's lien action, like the amount claimable in a notice of lien, is limited to the items expressly provided by the statute. We thus presume the legislature's omission of prejudgment interest was intentional and conclude that it is not available in a mechanic's lien action under the 2008 Utah Code.

         ¶ 32 Finally, we assess whether the district court abused its discretion in concluding that FNMA was the successful party for attorney fee purposes. We find no abuse of discretion because Jordan Construction sought an amount almost three times greater than what it ultimately recovered, and FNMA prevailed on virtually every motion throughout this litigation. We agree with the district court that it would be contrary to common sense to conclude that Jordan Construction was "successful" given these circumstances. The district court thus did not abuse its discretion. We address each issue in turn.

         I. The District Court Did Not Err in Quashing the Writ of Execution and Halting the Sheriff's Sale

         ¶ 33 Jordan Construction argues that the district court erred in quashing the writ of execution. The Utah Rules of Civil Procedure provide the process for obtaining and challenging writs. Under rule 64(e)(1), "[a]ny person claiming an interest in the property [that is the subject of a writ] has the same rights and obligations as the [party against whom judgment has been entered] with respect to the writ." If a person claiming an interest in the property is "named by the plaintiff and served with the writ and accompanying papers, " then that person "shall exercise those rights and obligations within the same time allowed" the party against whom judgment has been entered.[12] For writs of execution, one such right is the right to "reply to [a] writ and request a hearing, " which "shall be filed and served within 14 days after service of the writ and accompanying papers."[13]Reading these two rules together, a person claiming an interest in property that is the subject of a writ of execution who wishes to exercise the right to reply and request a hearing on the writ must file and serve such a reply and request for hearing "within 14 days after" being served with "the writ and accompanying papers."

         ¶ 34 Jordan Construction argues that FNMA, as a "person claiming an interest" in the Property, had an obligation to "exercise [its] rights . . . within the same time allowed" Mr. Bell, the party against whom judgment had been entered in the first phase of this case. Jordan Construction asserts that, under these procedural rules, FNMA had only 14 days from the date it was served with the writ during which it could object to the writ. The parties do not dispute that FNMA did not file or serve a reply or request for hearing within that time. Jordan Construction argues that this ...


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