Opinion
HHDCV186091015S
02-25-2019
SANFORD AND HAWLEY, INC. v. Brook SEELEY et al.
UNPUBLISHED OPINION
OPINION
JOSEPH H. PELLEGRINO, JTR
The plaintiff, Sanford and Hawley, Inc., a building supply company, has filed a mechanic’s lien dated March 31, 2017, in the amount of $ 55, 414.42, against the property known as 71 Oakengates in Avon Connecticut, which is owned by the defendants Brook and Michelle Seeley (owners). See Exhibit 2. In August of 2016, the owners entered into an agreement with a general contractor, Chase Design/Build, LLC (Chase), to remodel and construct additions onto their existing home at 71 Oakengates (construction project). See Exhibit A. Per the contract, Chase agreed to "furnish all labor and materials, and perform all Work as indicated in the Contract Documents." Exhibit A. The plaintiff, which is a subcontractor of Chase, claims that it furnished material and services for the construction project, between September 2015 and March 2017, for which it has not been paid. See Exhibit 2. The plaintiff now seeks to collect from the owners on this outstanding debt, pursuant to the mechanic’s lien statutes General Statutes § § 49-33 and 49-36. There are no issues as to the filing and service of the mechanic’s lien or whether the materials supplied by the plaintiff were used in the construction project. The issue presented here is whether the owners made "good faith" payments to Chase, prior to the filling of the mechanic’s lien, in accordance with § 49-36(c). If the payments were in good faith, it would defeat the plaintiff’s claim and support the owners’ motion to discharge the mechanic’s lien pursuant to General Statutes § 49-35a(c), which is presently before the court.
Credible evidence was presented at the two-day hearing that supports the following facts. Subsequent to the signing of the contract in August of 2015, Chase began to perform the work required under the contract. See Exhibit A. The court finds that the contract makes no provisions for the specific time of payments due to Chase. See Exhibit A. Instead, Schedule C, which is referenced under paragraph five of the contract, merely sets out installments to be paid as the project progresses. See Exhibit A. Monies were paid to Chase, as shown in Exhibit C. Work commenced on September 3, 2015, and was to be completed seven months from the date of commencement. See Exhibit A. On April 3, 2016, however, the work was far from completion. Chase and the owners had a number of disagreements in connection with the work performed and the delays. In an effort to settle their differences, on January 25, 2017, they entered into an amendment to the contract. See Exhibit B. Under that amendment, Chase acknowledged that it owed its subcontractors, other than the plaintiff, $ 24, 000. The owners agreed to pay that amount directly to the subcontractors, in exchange for lien waivers and assurances about the completion date. In addition, Chase agreed to reimburse the owners $ 25, 000 for cost overruns. See Exhibit B. The amendment also acknowledged that Chase owed the plaintiff an unspecified amount of money that it would pay to the plaintiff directly, at its own expense. After Chase and the owners executed the amendment, the owners attempted to negotiate with the plaintiff to pay it the amount that Chase owed, but they were unable to come to an agreement. The plaintiff then filed its mechanic’s lien and served a copy on the owners on April 11, 2017. From that point forward, the owners paid all of the subcontractors directly. Thereafter, the owners and Chase attempted to work together to complete the project, but they were unable to do so and ultimately terminated their relationship in or around July of 2017.
At that point, the project was not completed and Chase testified that it would cost $ 200, 000 to $ 250, 000 to complete the work. After Chase was terminated, it was hired to do work for the plaintiff. The payment arrangement between Chase and the plaintiff is such that a sum of money is deducted from Chase’s weekly pay, in order to pay down the debt that Chase owes the plaintiff for services and materials it used for the construction project at the owners’ home. By virtue of this arrangement, Chase has already reduced the amount of the mechanic’s lien to $ 40, 000 and the plaintiff acknowledges this reduction.
DISCUSSION
When an application for the reduction or discharge of a mechanic’s lien is filed under General Statutes § 49-35a, General Statutes § 49-35b(a) requires that the lienor first establish that there is probable cause to sustain the validity of the mechanic’s lien. If there is, the burden shifts to the applicant to "prove by clear and convincing evidence that the validity of the lien should not be sustained or the amount of the lien claimed is excessive and should be reduced."
"Under Connecticut law, a subcontractor’s right to enforce a mechanic’s lien against a property owner is based on the doctrine of subrogation ... The theory of subrogation allows the plaintiff to recover only to the extent the general contractor could recover from the defendants." (Citation omitted.) W.G. Glenney Co. v. Bianco, 27 Conn.App. 199, 201, 604 A.2d 1345 (1992). As such, "a subcontractor only can enforce a mechanic’s lien to the extent that there is unpaid contract debt owed to the general contractor by the owner." ProBuild East, LLC v. Poffenberger, 136 Conn.App. 184, 192, 45 A.3d 654 (2012); see also Baxter v. Quoka, Superior Court, judicial district of Ansonia-Milford, Docket No. CV-90-031911 (July 3, 1990, Fuller, J.) (1 Conn.L.Rptr. 817, 818) ("It has always been the law that the subcontractor is not entitled to a lien where the general contractor was paid the full contract price. Kelly v. Alling, 84 Conn. 487, 491").
In the present case, the credible evidence shows that at the time the mechanic’s lien was filed and served on the owners, on April 11, 2017, they did not owe Chase any unpaid contract debt. To illustrate, the original contract price was $ 600, 000. See Exhibit A, Schedule C. The evidence reflects that the owners spent approximately $ 497, 588 on project expenses before the amendment to the contract was executed. See Exhibit J. In the amendment, Chase acknowledged that it owed the owners $ 25, 000 for cost overruns. See Exhibit B. Subsequently, before the owners received notice of the plaintiff’s lien, they paid an additional $ 125, 393 for the project. Therefore, at the time the lien was filed and served, the owners had already paid nearly $ 23, 000 more for the project than the contract price, Chase owed them another $ 25, 000, and there was still considerable work left to be done under the contract. Additionally, both the owner, Brook Seeley, and Chase’s principal, Loren Chase, credibly testified that the owners had made all payments and nothing was due to Chase at the time the plaintiff’s lien was filed and served. Cf. ProBuild East, LLC v. Poffenberger, supra, 136 Conn.App. 192-93 (holding that even though the defendant paid the general contractor the original contract price, he still owed it money because, based on the general contractor’s uncontroverted testimony, the contract price had increased due to modifications to the plans made along the way). Because the owners did not owe Chase any unpaid contract debt, the plaintiff’s lien is invalid for lack of a lienable fund. See id., 193 ("The lienable fund is limited to the unpaid contract debt owed by the owner to the general contractor" [internal quotation marks omitted]).
This conclusion is further supported by the fact that, in the amendment to the contract, Chase acknowledged that it owed the plaintiff an unspecified amount of money, and it agreed to pay that money to the plaintiff "directly at Contractor’s expense." See Exhibit B. In addition, Chase credibly testified that at the time the lien was filed it was behind in making payments to the plaintiff and that, as per the amendment, it would pay the amount owed to the plaintiff at its own expense. In effect, this promise prohibited Chase from being able to recover such funds from the owners. Therefore, since the theory of subrogation allows the plaintiff to recover only to the extent the general contractor could recover from the owners, the plaintiff cannot recover here. See W.G. Glenney Co. v. Bianco, supra, 27 Conn.App. 201. Furthermore, the work arrangement between the plaintiff and Chase, which was established after Chase ceased work on the owners’ project, demonstrates that all parties acknowledge that Chase is responsible for paying the money owed to the plaintiff in connection with the owners’ project. Accordingly, the validity of the lien should not be sustained.
To the extent that the plaintiff argues that the owners made "bad faith" payments to Chase and thus they are not entitled to be credited for those payments in ascertaining whether there is a lienable fund, this argument is unavailing. General Statutes § 49-36 provides, inter alia, that "liens of subcontractors shall not attach to any building or land to a greater amount than the cost of the building as agreed between the owner and the general contractor; [and] that in determining the amount to which such liens may attach, the owner shall be allowed whatever payments he shall have made in good faith to the general contractor before receiving notice of such liens ... Hubbell, Hall & Randall Co. v. Pentecost, 89 Conn. 262, 264, 93 A. 672 (1915). The effect of § 49-36(c) "is simply that the subcontractors are entitled to treat payments not within the statutory definition of good faith as if they had not been made at all." Purcell, Inc. v. Libbey, 111 Conn. 132, 139, 149 A. 225 (1930). What constitutes a payment in good faith is largely left to judicial determination, with the exception that the statute specifies that payments made prior to the time stipulated in the original contract are considered bad faith, unless a written notice of intention to make such payments has been given to the appropriate parties. See § 49-36(c); see also Purcell, Inc. v. Libbey, supra, 139. The specification, however, "was not intended as a limitation to this single form." Purcell, Inc. v. Libbey, supra, 139. Moreover, "the burden of proof is on the plaintiff and the other lienors, who claim that the payment was not made in good faith ..." Hubbell, Hall & Randall Co. v. Pentecost, supra, 268; accord M. Silva Construction, LLC v. Young Men’s Christian Assn. of Greenwich, Superior Court, judicial district of Stamford-Norwalk, Docket No. CV-17-6030620 (October 29, 2018, Lee, J.); Waterbury Landfill Associates v. Eastern Co., Superior Court, judicial district of Waterbury, Docket No. 0122318 (March 4, 1996, Sullivan, J.), aff’d, 44 Conn.App. 917, 690 A.2d 434 (1997).
Here, the owners did not make any bad faith payments to Chase. The testimony of both of the owners as well as Loren Chase was honest and credible, and establishes that all of the payments made to Chase, other than the first deposit payment, were for work performed. Accordingly, this court finds that none of the owners’ payments were premature, but instead were made as work progressed, as per the contract. See Hubbell, Hall & Randall Co. v. Pentecost, supra, 89 Conn. 266 ("When, as in this case, the installments are made payable as the building progresses, the subcontractors are sufficiently advised by the progress of the work as to the time when the next installment will become payable, and may act accordingly").
In addition, there is no evidence that the owners colluded with Chase to defeat the rights of the plaintiff, nor is there any indication that they made misrepresentations to the plaintiff "to induce further performance than was financially warranted." Rene Dry Wall Co, Inc. v. Strawberry Hill Associates, 182 Conn. 568, 574, 438 A.2d 774 (1980). The owners’ conduct is "readily distinguishable from the egregious misconduct which ... [the Connecticut Supreme Court] characterized as constituting bad faith in Purcell, Inc. v. Libbey, 111 Conn. 132, 139-41, 149 A. 225 (1930)." Rene Dry Wall Co., Inc. v. Strawberry Hill Associates, supra, 574-75. At most, the owners were aware that Chase was delinquent in making payments to its subcontractors. This alone is insufficient to demonstrate a lack of good faith. See Rene Dry Wall Co., Inc. v. Strawberry Hill Associates, supra, 574 (holding that the defendant’s payments were in good faith where "it had information that the general contractor had been delinquent in making some payments to subcontractors, that the general contractor had requested that some checks be pre-endorsed to designated subcontractors, and that the plaintiff had executed one, only partial, lien waiver"). Accordingly, the plaintiff has failed to meet its burden of proving that the payments were not made in good faith. Thus, the owners are entitled to credit for those payments, and the fact remains that the plaintiff’s lien is invalid for lack of a lienable fund.
Furthermore, even assuming arguendo that in light of the foregoing analysis there was a lienable fund, pursuant to General Statutes § 49-33(f), that amount would "be diminished to the extent that it exceeds the reasonable cost ... of satisfactory completion of the contract plus any damages resulting from ... default for which [the general contractor] might be held liable to the owner." (Internal quotation marks omitted). Rene Dry Wall Co., Inc. v. Strawberry Hill Associates, supra, 182 Conn. 572. This provision governs the rights of second tier subcontractors, such as the plaintiff, "where, as here, the general contractor leaves the job before completing the contract with the owner." Baxter v. Quoka, supra, 1 Conn.L.Rptr. 819. In the present case, at the time that Chase ceased performance of the contract, in July of 2017, Chase estimated that it would cost the owners approximately $ 200, 000 to $ 250, 000 to complete the work under the contract. By July 11, 2018, the owners had paid approximately $ 172, 661 to complete some of this remaining work. As of November 1, 2018, by Chase’s estimate, there was still $ 70, 000 worth of work left. Therefore, the owners have already incurred reasonable costs of completion that greatly exceed the plaintiff’s claim, thus there is no balance for the plaintiff’s lien to attach to. See Hubbell, Hall & Randall Co. v. Pentecost, supra, 89 Conn. 267 (stating that the subcontractors’ liens cannot exceed the balance of the contract price due to the general contractor after deducting the amount of the good faith payments made by the owner before receiving notice of the mechanic’s lien and the cost of completing the construction according to the contract); see also Baxter v. Quoka, supra, 819.
The owners have established by clear and convincing evidence that the mechanic’s lien is invalid for lack of a lienable fund and the motion to discharge the lien is granted.