Opinion
No. CV07 5009617
July 16, 2009
MEMORANDUM OF DECISION
The plaintiff filed the subject action by way of a complaint dated July 9, 2007, bearing a return date of August 7, 2007. The original action consisted of one count and sought a foreclosure of a mechanics lien. The named defendants were Mark Vanschaick, Kristi L. Olds and the Bank of America, N.A. At the time the foreclosure of the mechanics lien was commenced Vanschaick and Olds owned the subject property against which the mechanics lien had been filed. At the time of the filing of the mechanics lien at the Stratford Town Clerk's Office, the property was owned by Elm Stratford Avenue, LLC. ("Elm Stratford").
The action was withdrawn as to Bank of America, N.A. on November 13, 2007.
On August 8, 2007, the defendants Vanschaick and Olds moved to substitute a cash bond in the amount of $15,000, to be held by the plaintiff's attorney. That motion was granted by the court (Maiocco, J.T.R.) on September 18, 2007. Vanschaick and Olds posted a $15,000 cash bond pursuant to a written stipulation which provided that payment of said bond would be made to the plaintiff if the plaintiff prevailed on its claim of lien. The stipulation also provided that Associated Development and Construction, LLC ("Associated") could be made a party defendant to this action and that thereafter, the action would be withdrawn as to the defendants Vanschaick and Olds.
The subject stipulation entered into by the defendants Olds and Vanschaick and the plaintiff is dated August 7, 2007 and provides, in total, as follows:
1. Pursuant to Connecticut General Statutes § 49-37, the defendant shall post a cash bond of $15,000.00 such that the plaintiff's attorney shall hold the funds in trust. In the event the plaintiff prevails on its claim of lien, the plaintiff's attorney shall pay the plaintiff after an unappealable judgment and return the balance to Daniel Shepro, Trustee. If the plaintiff does not prevail, plaintiff's attorney shall return the funds to Daniel Shepro, Trustee.
2. The plaintiff may add Associated Development and Construction, LLC as a defendant in another count and Shepro and Blake agrees to appear for it without service.
3. Upon receipt of the funds, plaintiff shall withdraw against the present defendants and substitute the cash bond.
The stipulation is signed by the plaintiff's attorney and Shepro, in behalf of the defendants Vanschaick and Olds.
On August 13, 2007, the plaintiff filed a motion to cite in an additional defendant along with a proposed amended complaint. On September 9, 2007, the court (Maiocco, J.T.R.), granted said motions and ordered that Associated Development and Construction, LLC. ("Associated"), be cited in as an additional defendant. The amended complaint consisted of two counts. The first count continued to seek a foreclosure of a mechanics lien as to the defendants Vanschaick and Olds. The second count against Associated Development, alleges a breach of contract and seeks monetary damages for a claimed balance due on a contract in the amount of $9,799.50, plus interest and an attorneys fee. Attorney Shepro, acting in behalf of Associated, filed Associated's answer and several special defenses, including a special defense pursuant to General Statutes § 49-36, claiming that the plaintiff's mechanics lien "shall not be effective if the general contractor was paid in full."
The first count of the complaint and all matters as to the defendants Vanschaick and Olds were subsequently withdrawn by the plaintiff on November 13, 2007, pursuant to the terms of the stipulation regarding the posting of the $15,000.00 cash bond. The matter was, thereafter, tried to the court on September 12, 2008 on the remaining count of breach of contract as to the defendant Associated. On September 17, 2008, the plaintiff filed a motion to amend the complaint to conform to the proof of facts elicited at the trial. That motion was granted by this court without objection from the remaining defendant, Associated, on October 6, 2008. Thereafter, each party filed its respective post-trial memorandum of law.
Following the close of evidence, the plaintiff filed a motion to amend the complaint to conform to the proof of facts. The motion to amend was granted on Oct. 6, 2008 by the court (Arnold, J.), without objection by Associated. The only substantive additions to the complaint against Associated are the allegations that describe the property where the services and improvements were rendered by the plaintiff and that at the time the services were rendered, Elm Stratford, LLC owned the subject property.
I Facts
The plaintiff, pursuant to a written contract with Associated, which was signed and accepted by Gus Curcio, Jr. in behalf of Associated, provided services and materials for excavation, water, sewer and drains in the construction of a new house on property located at the corner of Elm and Stratford Avenue, Stratford, Connecticut known as Lot 2. (Exhibit 1.) Associated was represented by Gus Curcio, Jr. in the defendant's dealings with the plaintiff. The balance owed to the plaintiff for the work is $9,789.50, in accordance with the terms of the contract. (Exhibit 2.) In order to secure payment, the plaintiff filed a mechanics lien against the property. (Exhibit 4.) At the time of the filing, Elm and Stratford Avenue, LLC., held title to said property. The actual filing of the lien or the timeliness in commencing a foreclosure of said lien, has not been contested by the defendant Associated. Elm Stratford's managing partner and sole member was Attorney Daniel Shepro. Shepro dealt directly with Curcio, Jr. in formulating an oral contract with Associated to build the house on Elm and Stratford's properties. The court received no evidence from Shepro regarding the terms of any oral contract between Associated and Elm Stratford Ave., LLC., including the price of the contract for the construction of the two homes. Only evidence of the construction mortgage was entered before the court.
Elm Stratford, LLC owned Lots 1 2 and was in the process of constructing houses on each lot.
To finance the construction, Elm Stratford obtained a construction mortgage from First Connecticut Capital, LLC., in the principal amount of $550,000.00. (Exhibit 5.) The promissory note for this loan was signed by Gus Curcio, Jr., individually, and Shepro, in his individual capacity and in his capacity as manager and member of Elm Stratford. Curcio, Jr. represented to the lender's representative that his partner in the project was "an attorney." No witness appeared at trial from Associated to contest any of the plaintiff's claims regarding the breach of contract allegations.
The plaintiff presented testimony from William Scheck, supervisor of the plaintiff corporation. Attorney Daniel Shepro, the sole member of Elm Stratford, LLC, which owned the property at the time the mechanics lien was filed, testified for the defense, as did Lawrence Yurdin, who was employed by First Connecticut Capital, LLC., the lender for the construction loan. Again, it is noted that no representative of the defendant Associated Development appeared as a witness to contest the plaintiff's underlying claim of a breach of contract. Associated, in its post-trial memorandum of law, has, in fact conceded that the plaintiff has proven its allegations that Associated breached the contract between the parties.
The plaintiff's representative, Scheck, testified as to the signing of the contract with Associated and reviewed the plaintiff's invoices for the work completed pursuant to the plaintiff's agreement with Associated. (Exhibits. 2 and 3.) These invoices evidence the balance of $9,789.50, which is the balance claimed to be due and owing from the defendant, Associated. Scheck testified that a demand for payment was made to Associated, but this balance remains due and owing. The plaintiff completed work for Associated at the subject property in late July or early August 2006. The Mechanics Lien is dated August 31, 2006, and was filed in the Stratford Town Clerk's Office on September 13, 2006. The court finds this evidence on behalf of the plaintiff credible. The plaintiff has sustained its burden of proof as to its claims that Associated breached its contract with the plaintiff and owes the plaintiff the sum of $9,789.50. The validity of the filing of the mechanics lien or its timeliness has not been contested, by Associated.
The Mechanics Lien (Ex. 4) recites that the work commenced April 12, 2006 and was ended on June 22, 2006.
In contesting whether or not the plaintiff should be entitled to collect the sum of $9,789.50 from the $15,000.00 cash bond posted by Vanschaick and Olds, Shepro testified that Elm Stratford Ave., LLC made no decisions as to which subcontractors were hired by Associated in the construction of the home on Elm Stratford's property. Elm Stratford claims it paid Associated for all work performed on its property, and that payments from the advances on the construction loan at First Connecticut Capital were distributed by the lender directly to Associated. However, Shepro had no copies of any lien waivers signed by the plaintiff and no copies of any checks evidencing payments by First Connecticut Capital to Associated from the proceeds of the construction loan. As previously noted, no evidence was presented by Elm Stratford or Associated as to the financial terms of the oral contract between those parties.
Yurdin testified that First Connecticut Capital, LLC is a private mortgage company dealing in construction loans and short-term lending. He confirmed that First Connecticut Capital made a construction loan to Elm Stratford, LLC for $550,000.00 on January 31, 2006. The construction mortgage deed was signed by Shepro, as member and manager of Elm Stratford, LLC. Attached to the construction mortgage deed was a conformed copy of the Construction Mortgage Promissory Note, which indicates that the original promissory note was signed by Shepro, individually and in his capacity as member and manager of Elm Stratford, LLC. and by Gus Curcio, Jr., individually.
The sum of $210,000.00 was advanced by the lender on the signing of the promissory note and mortgage deed. The balance of the advances totaling an additional $340,000.00 were paid in additional partial payments between March 1, 2006 and August 2006. The initial $210,000.00 advance was for the purchase of the two lots by Elm Stratford, and the $340,000.00 balance was for the construction of two homes on those lots, which were located side-by-side. A ledger card produced at trial bears a notation regarding "deposit advances to Assoc. Development Construction" followed in different handwriting by the notation "Elm Stfd." Yurdin testified that he assumed the checks from the lender were made payable to Elm Stratford, LLC. However, he was unable to present copies of any of the lender's checks for this construction loan. He also testified that he did not recall Shepro, in his individual capacity or in his capacity as member and manger of Elm Stratford, authorizing any direct payments by the lender to Associated Development. He was also unable to recall whether they received signed lien waivers from the plaintiff for all of the plaintiff's work in behalf of the borrowers and or Associated. No lien waivers were presented for the court's review.
II Discussion
Elm Stratford, who is not a defendant in this action, and Associated have both failed to sustain the burden of proof that Elm Stratford made good faith payments to Associated, the contractor prior to receiving notice of the lien. The issue of whether the plaintiff's original lien is valid in that Elm Stratford claims to have made payments to Associated, implicates General Statutes § 49-36(c), which provides in relevant part: "In determining the amount to which any lien or liens may attach upon any land . . . the owner of the land . . . shall be allowed whatever payments he has made, in good faith, to the original contractor or contractors, before receiving notice of the lien or liens." See also General Statutes § 49-33(f). These statutes are pieces of mechanic's lien legislation and "[t]he guidelines for interpreting mechanic's lien legislation are well established. Although the mechanic's lien statute creates a statutory right in derogation of the common law . . . its provisions should be liberally construed in order to implement its remedial purpose of furnishing security for one who provides services or materials . . . [The court's] interpretation, however, may not depart from reasonable compliance with the specific terms of the statute under the guise of a liberal construction." (Citations omitted; internal quotation marks omitted.) Ceci Bros., Inc. v. Five Twenty-One Corp., 51 Conn.App. 773, 777 (1999). In addition, our Supreme Court has stated: "No mechanic's lien may exceed the price which the owner has agreed to pay for the building being erected or improved, and the owner is entitled, furthermore, to credit for payments made in good faith to the original contractor before receipt of notice of such a lien or liens." Seaman v. Climate Control Corp., 181 Conn. 592, 596 (1980).
General Statutes 49-36 reads as follows
(a) No mechanics lien may attach to any building or its appurtenances, or to the land on which the same stands, or any lot, or any plot of land, in favor of any person, to a greater amount in the whole than the price which the owner agreed to pay for the building and its appurtenances or the development of any such lot, or the development of any such plot of land.
(b) When there are several claimants and the amount of their united claims exceeds that price, the claimants, other than the original contractor, shall be first paid in full, if the amount of that price is sufficient for that purpose; but, if not, it shall be apportioned among the claimants having the liens, other than the original contractor, in proportion to the amount of the debts due them respectively; and the court having jurisdiction thereof, on application of any person interested, may direct the manner in which the claims shall be paid.
(c) In determining the amount to which any lien or liens may attach upon any land or building, or lot or plot of land, the owner of the land or building or lot or plot of land shall be allowed whatever payments he has made, in good faith, to the original contractor or contractors, before receiving notice of the lien or liens. No payments made in advance of the time stipulated in the original contract may be considered as made in good faith, unless notice of intention to make the payment has been given in writing to each person known to have furnished materials or rendered services at least five days before the payment is made.
Under § 49-33(f), the total of such subcontractor mechanic's liens shall not attach to any building or its appurtenances, or to the land . . . to an amount by which the contract price between the owner and the person through whom the subcontractor claims exceeds the . . . all bona fide payments, as defined in section 49-36, made by the owner before receiving notice of such lien or liens.
The mechanic's lien statutes expressly limit the right of subcontractors to recover on a mechanic's lien. "Once the amount claimed to be due on the subcontractor's contract with the general contractor has been secured by a mechanic's lien, the amount allegedly due the subcontractor may be diminished . . . by . . . any bona fide payments that were made by the owner before it received notice of the lien." Chris Construction Co. v. May Centers, Inc., 23 Conn.App. 453, 457, 581 A.2d 748 (1990). In Rene Dry Wall Co. v. Strawberry Hill Associates, 182 Conn. 568 (1980), our Supreme Court concluded: "If . . . a general contractor receives progress payments that are not turned over to those who have done the work represented by the progress payments, and ultimately defaults entirely, the owner making such payments and completing such a job is protected as long as the owner acts in good faith and reasonably, as defined by the statutes. In determining whether the owner has met the statutory requirements of good faith and reasonableness, the trial court is making a finding of fact." Id., 573. "Bad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive . . . Bad faith means more than mere negligence; it involves a dishonest purpose." (Citation omitted; internal quotation marks omitted.) Habetz v. Condon, 224 Conn. 231, 237 (1992).
The issue in this case is not about bad faith payments made to the general contractor Associated by the landowner Elm Stratford, but rather the lack of evidence regarding any bona fide good faith payments made by Elm Stratford to Associated. While the court believes that the proceeds of the construction mortgage were advanced by the lender, there is a complete lack of documentation as to whom the advance payments were made and what amounts may have been received by the general contractor, Associated from Elm Stratford. There are no check copies from Elm Stratford or the lender; no acknowledgment of receipt of any payments from the lender by Associated; and no terms of any contract between Elm Stratford and Associated to indicate how much Elm Stratford was to pay Associated for the construction of the two homes on Elm Stratford's lots.
The court finds that the plaintiff has met its burden of proof on its claim for a breach of contract, which is conceded by Associated. In doing so, the plaintiff has established probable cause for the validity of the lien that has since been substituted by the cash bond. The defendant Associated and the non-party, Elm Stratford have failed to establish the invalidity of the lien by clear and convincing evidence. Pursuant to the written stipulation of the parties, the plaintiff may recover the sum of $9,789.50 from the $15,000.00 cash bond, which was substituted for the mechanics lien.
The defendant, Associated Development, in its post-trial legal memorandum of law for a second time, raises the issue that the plaintiff has not alleged a count against the bond as General Statutes § 49-37 permits it to do. This matter was the subject of a motion for non-suit which Associated Development filed on December 6, 2007. The stated grounds for the motion for non-suit were: (1) that the plaintiff had filed a separate count alleging an action against the bond; and (2) that the plaintiff had not moved to add Elm Stratford Ave., LLC as a defendant. The plaintiff objected, stating that the stipulation to substitute the $15,000 cash bond for the mechanics lien did not provide for either of these amendments. On January 9, 2008, the court (Blawie, J.), sustained the plaintiff's objection and denied Associated Development's motion for non-suit. The Defendant again argues, pursuant to General Statutes § 49-37 that the plaintiff cannot recover its claim against the bond that was substituted for the mechanics lien as the plaintiff has not alleged a count against the bond.
Sec. 49-37. Dissolution of mechanic's lien by substitution of bond. Joinder of actions on claim and bond.
(a) Whenever any mechanic's lien has been placed upon any real estate pursuant to sections 49-33, 49-34 and 49-35, the owner of that real estate, or any person interested in it, may make an application to any judge of the Superior Court that the lien be dissolved upon the substitution of a bond with surety, and the judge shall order reasonable notice to be given to the lienor of the application . . . If the judge is satisfied that the applicant in good faith intends to contest the lien, he shall, if the applicant offers a bond, with sufficient surety, conditioned to pay to the lienor or his assigns such amount as a court of competent jurisdiction may adjudge to have been secured by the lien, with interest and costs, order the lien to be dissolved and such bond substituted for the lien . . . Whenever a bond is substituted for any lien after an action for the foreclosure of a lien has been commenced, the plaintiff in the foreclosure may amend his complaint, without costs, so as to make the action one upon the bond with which the plaintiff may join an action to recover upon his claim. Whenever a bond is substituted for any lien before an action for the foreclosure of the lien has been commenced, the plaintiff may join the action upon the bond with an action to recover upon his claim. Whenever a bond has been substituted for any lien, pursuant to this section, unless an action is brought to recover upon the bond within one year from the date of recording the certificate of lien, the bond shall be void.
(b) Whenever a bond has been substituted for any lien pursuant to this section:
(1) The principal or surety on the bond, if no action to recover on the bond is then pending before any court, may make application, together with a proposed order and summons, to the superior court for the judicial district in which the action may be brought, or to any judge of the court, that a hearing be held to determine whether the lien for which the bond was substituted should be declared invalid or reduced in amount . . .
(3) If an action on the bond is pending before any court, any party to that action may at any time prior to trial, unless an application under subdivision (1) of this subsection has previously been ruled upon, move that the lien for which the bond was substituted be declared invalid or reduced in amount . . .
(5) Upon the hearing held on the application or motion set forth in this subsection, the obligee on the bond shall first be required to establish that there is probable cause to sustain the validity of the lien. Any person entitled to notice under subdivision (1) of this section may appear, be heard and prove by clear and convincing evidence that the validity of the lien should not be sustained or that the amount of the lien claimed is excessive and should be reduced. Upon consideration of the facts before it, the court or judge may: (A) Deny the application or motion if probable cause to sustain the validity of the lien is established; or (B) order that the bond is void if (I) probable cause to sustain the validity of the lien is not established, or (ii) by clear and convincing evidence, the invalidity of the lien is established; or (C) order the amount of the bond reduced if the amount of the lien is found to be excessive by clear and convincing evidence.
(6) Any order entered upon an application set forth in subdivision (1) of this subsection shall be deemed a final judgment for the purpose of appeal.
"When a bond has been substituted for a mechanic's lien pursuant to General Statutes § 49-37, the effect is to shift the lien from the real property to the bond." Shepard St. v Bank of Scotland, Superior Court, judicial district of Waterbury, Complex Litigation Docket at Waterbury, No. X10-UWY-CV-08-5010234 S (Apr. 7, 2009, Scholl, J.). The statutory provisions are designed to enable the owner of the real property to facilitate the transfer of that property by dissolution of the encumbrance of the lien. Six Carpenters, Inc. v. Beach Carpenters Corporation, 172 Conn. 1, 6 (1976).
Furthermore, the legislative intent in enacting General Statutes § 49-37 "was to enable the owner or other person having an interest in the property to obtain release of the mechanic's lien so long as the lienor's rights are not thereby prejudiced. The lienor's rights are considered adequately protected if the landowner demonstrates a good-faith intention to contest the lien and substitutes a bond with surety in its place. Thus, while the statutory provisions are designed to facilitate the transfer of the property by dissolution of the lien, they are also intended to ensure the continued existence of assets out of which the lienor may satisfy his claim if he should later prevail and obtain a judgment on the merits of the mechanic's lien." Id. "The statutory procedure requires, however, that, on a dissolution, the lienor have a viable fund to look to for the payment of his claim." Henry F. Raab Connecticut, Inc. v. J.W. Fisher Co., 183 Conn. 108, 116 (1981). "As a result, the lienor's action on the bond is an action to recover what is owed the lienor for its work on the liened property, the payment of which was sought to be secured by the lien." Shepard St. v Bank of Scotland, supra.
The court rejects the defendant's argument that the cash bond cannot be utilized to satisfy the defendant's debt to the plaintiff. The written stipulation dated August 7, 2007, whereby the cash bond was substituted for the mechanics lien clearly states that if the plaintiff prevails in its claim of lien, the plaintiff can be paid from the bond funds, with any excess monies being returned to Attorney Shepro, Trustee. It is also noted that the bond was not posted by Associated, but rather, by Olds and Vanschaick. Olds and Vanschaick have not raised any objection to the proceeds of the bond being used to pay the plaintiff. The clear purpose of the posting of the bond and the written stipulation in this matter, was to provide a viable fund for the satisfaction of the plaintiff's claim, in the event the plaintiff prevailed in its action against Associated for a breach of contract.
The final issue to be resolved is whether the plaintiff is entitled to costs and attorneys fees to be paid from the bond. The plaintiff claims an amount of $4,805.93 for an attorneys fee and interest in the amount of $4,118.03. The contract between the plaintiff and Associated provides that the plaintiff, upon default by the defendant, is entitled to interest at 1.5% per month and costs of collection, including an attorneys fee. Neither party has addressed this issue in their post-trial briefs, as it relates to payment from the cash bond, although the plaintiff has presented an itemized accounting of the attorneys fee it claims.
General Statutes § 52-249, which applies after a party has obtained a judgment of foreclosure or judgment upon a bond, permits a party to recover costs including attorneys fees. General Statutes § 52-249(a) reads as follows:
(a) The plaintiff in any action of foreclosure of a mortgage or lien, upon obtaining judgment of foreclosure, when there has been a hearing as to the form of judgment or the limitation of time for redemption, shall be allowed the same costs, including a reasonable attorneys fee, as if there had been a hearing on an issue of fact. The same costs and fees shall be recoverable as part of the judgment in any action upon a bond which has been substituted for a mechanic's lien.
Again, the court confronts the issue of what purpose the cash bond was established for when the plaintiff entered into the written stipulation with Olds and Vanschaick. The stipulation states that if the plaintiff prevails in its claim of lien, the plaintiff can be paid from the bond funds, with any excess monies being returned to Attorney Shepro, Trustee. The bond was established to dissolve the lien that was being foreclosed and to allow the foreclosure of the mechanics lien action to be withdrawn as to Olds and Vanschaick. Thus, the parties were aware that the action was no longer a claim on the mechanics lien.
The stipulation also called for Associated to be added as a defendant, and the plaintiff was to file an additional account to its complaint regarding Associated. It is clear that the bond was to be used as viable fund to pay the plaintiff's claim, if the plaintiff prevailed. The plaintiff filed a claim for a breach of contract, which was contemplated by the written stipulation and has prevailed. The contract calls for costs of collection, including an attorneys fee and interest. The court is aware that this action was not a judgment against the bond, as contemplated by General Statutes § 52-249, where costs and an attorneys fee would be allowed. The judgment is for a breach of the contract between the plaintiff and Associated. Nonetheless, the terms of the cash bond in this matter, as evidenced by the written stipulation, contemplates the possibility of an outcome such as the eventual outcome in this ease, and that the plaintiff would be paid from the bond posted by Olds and Vanschaick. The court finds no reason to prevent the plaintiff from recovering its costs of collection, attorneys fee and interest from the $15,000.00 currently held by the plaintiff's attorney. It is again noted that the bond was posted by Vanschaick and Olds, who do not appear to object. Associated, which does object, is not a party to the written stipulation and nor has the bond been posted by Associated.
Accordingly, the court finds the issues in behalf of the plaintiff, Butterworth and Scheck, Inc., as against the defendant Associated Development and Construction, LLC, as follows:
TBTABLE 1. Damages: $ 9,789.50 2. Attorneys fee: $ 4,805.93 3. Interest: $ 4,118.03 4. Total: $ 18,713.46 TB/TABLE