Opinion
HHDCV166065840S
08-16-2016
McCallum Properties, LLC v. Chase Design/Build, LLC et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION RE APPLICATION TO DISCHARGE MECHANIC'S LIENS
Sheila A. Huddleston, Judge.
The applicant, McCallum Properties, LLC (McCallum LLC), brought this application to discharge seven mechanic's liens that were filed with respect to the renovation and addition to a property the applicant owns at 136 Dowd Avenue (136 Dowd) in Canton, Connecticut. The liens were filed by the general contractor, Chase Design/Build, LLC (Chase LLC), and six subcontractors or suppliers. Chase LLC and three of the lienors--Sanford and Hawley, Inc. (Sanford), Phillip M. Rouquie, LLC (Rouquie), and Dalene Hardwood Flooring Co., Inc. (Dalene)--appeared and presented evidence in support of their liens. Another subcontractor, D. Brent Carnelli, appeared but offered no evidence to support his claim. Two subcontractors--Peter Baril and Ken Stanwicks Heating & Cooling, LLC (Stanwicks) did not appear. The court heard evidence on March 21, 23, 30, and April 6 and 7, 2016. A motion to correct the record was filed on April 11, 2016, seeking to include in the record an exhibit that had previously been marked for identification only. Post-hearing briefs with proposed findings of fact and conclusions of law were filed on April 18 and 19, 2016. A response to the motion to correct the record was filed on April 20, 2016, and the motion to correct was granted on April 25, 2016, completing the trial record.
" McCallum LLC" is used to distinguish the applicant, a limited liability company, from its principal, David McCallum (McCallum). Similarly, " Chase LLC" is used to distinguish the respondent lienor, Chase Design/Build, LLC, from its principal, Loren Chase (Chase). Loren Chase is also known as Larry Chase.
After considering all the evidence and the arguments of the parties, the court finds that the respondents Sanford and Rouquie met their burden of establishing that there is probable cause to believe that their claims are valid in full. The respondent Dalene met its burden of proof with respect to part of its claim, but its lien must be reduced for certain work that was not completed. The respondent Chase LLC met its burden of establishing that there is probable cause to believe that its claims are valid in part, but its lien was overstated both because it was based on estimates of final bills and because it included amounts owed to the subcontractors who had filed separate liens. In addition, McCallum LLC established that it is entitled to a setoff for work that was not properly done. Chase LLC's lien must therefore be reduced as set out below. The liens of the respondents Baril and Stanwicks, who failed to appear in the case, are discharged. The lien of respondent Carnelli, who appeared but did not offer evidence, is also discharged. The claims of Baril, Stanwicks, and Carnelli, however, are subsumed within the Chase LLC lien as modified by the court.
The applicant argued that the mechanic's lien statute is unconstitutional because it imposes different burdens of proof on the applicant and the respondents. The respondent lienors are required to prove that there is probable cause to believe that their claims are valid, while the applicant property owner must prove by clear and convincing evidence that the liens are not valid or are excessive and should be reduced. The court concludes that it need not decide this issue, however, because it has no bearing on the principal issues in this case, which are: (1) whether the parties' agreement was a " fixed price" contract or a " cost plus" arrangement, and (2) whether the maximum contract price was fixed at a meeting of the parties' principals and certain other individuals on July 19, 2015 (July 19 meeting). The applicant's principal, David McCallum (McCallum), claimed that it was a fixed price contract, that the price was fixed by a spreadsheet presented at the July 19 meeting, and that he had in fact paid more than the contract required. Chase LLC's principal, Larry Chase (Chase), admitted that the parties initially entered into an agreement with a fixed price, but claimed that the nature of the agreement changed in the first week of work on the project and " morphed" into a cost plus arrangement. He further claimed that the spreadsheet he presented at the July 19 meeting was only a snapshot of the costs to date and an estimate of probable costs to the end of the project. He also claimed that McCallum continued to expand the scope of work after the July 19 meeting, leading to additional costs. The documentary evidence and the credible testimonial evidence strongly supports Chase's version of the parties' agreement. As to these critical questions, even if the statutory standards of proof were a preponderance of the evidence for both parties, the court would find that Chase LLC met its burden of proof and McCallum LLC did not.
I
Facts
In the autumn of 2014, McCallum, an acupuncturist, wanted to buy a building for his acupuncture practice. Lee Pollock, a commercial real estate broker who was one of McCallum's patients, suggested that McCallum consult with Chase, a licensed architect and home improvement contractor. McCallum and Chase looked at 136 Dowd to evaluate its potential for offices for McCallum and a tenant who would provide physical therapy.
The 136 Dowd property was improved by a two-story historic house, built in the early 1800s, and a rear wing that had been added to the original house. McCallum was interested in buying the property and building an addition to the house for a physical therapy suite that he planned to lease to a tenant. The property seller allowed very limited access to McCallum and Chase to inspect and measure the premises. Based on limited information about the existing structure, Chase prepared drawings of the proposed renovation and assisted McCallum in obtaining approval from Canton building officials for the addition before McCallum purchased the building. Under considerable time pressure from McCallum and with limited information about the property, Chase also prepared an estimate of the cost of the addition and renovation for McCallum's use in applying for a construction loan from Webster Bank. On October 1, 2014, McCallum texted a request for pricing information for the loan application. Chase responded that " [i]t would be creative writing at this point." (Ex. GG, p. 14.) On October 7, 2014, McCallum again pressured Chase to supply the pricing numbers for the loan application, saying, " [e]stimate as well as you can, I guess we can sacrifice accuracy for speed." (Ex. GG, p. 17.) Later the same day, McCallum again texted Chase, stating that " I'm starting to sweat about the final numbers. Hoping I get full project costs covered." (Ex. GG, p. 19.) When Chase asked whether there was a " magic number" for the bank, McCallum replied that " underwriting gets much more difficult on a total project over $500,000. I may have a cat and mouse game of raising equity to get the financing nut below the magic ceiling. [$320k property cost + project cost(s)--equity < $500k." (Id. ) Soon after that text message, Chase replied by text that the " final number" was $255,000, but he cautioned " [r]emember... lots of guessing." (Ex. GG, p. 19.)
On November 6, 2014, Webster Bank approved a commercial mortgage of $531,000 to provide ninety percent of the financing for the purchase of and renovation and addition to 136 Dowd, which was projected to have a total cost of $590,000, including the cost of buying the property. The loan was $9,000 less than McCallum LLC had requested. Under the terms of the loan commitment, McCallum LLC was to supply ten percent of the total cost, Webster Bank was to provide fifty percent, and the United States Small Business Administration (SBA) would provide forty percent of the funding. The commitment letter required McCallum to submit a signed construction contract before the loan closing, which was required to take place within sixty days. (Ex. P.)
Over the two months between the commitment letter and the closing, it became apparent that the project would be more costly than the $255,000 estimate that contained " lots of guessing." Even before a contract was signed, Chase and McCallum were discussing ways that various costs could be covered directly by McCallum, such as paying an electrician directly or charging lumber on his credit card rather than having Chase buy it. (Ex. GG, pp. 29, 34.) On December 19, 2014, McCallum texted Chase that the loan application had been approved at " the old numbers." Chase inquired, " [h]ow did you do that? I thought we were 39, 000 apart." (Ex. GG, pp. 34-35.) McCallum replied, " I am rolling the dice and assuming we will find a way... Either way the bank will only lend based on the old number... It's up to us to make up the difference. So yes we are still 39, 000 apart." (Ex. GG, p. 35.)
It appears that the revised estimate of construction costs was about $285,000 at that time, or approximately $30,000 greater than contemplated in the loan application.
On December 26, 2014, McCallum texted Chase: " I won't be able to give the initial payment per the contract until the closing date. If that's ok then I'll sign it today. If you would prefer to have a check in hand then the 6th at 1 p.m. will have to do." (Ex. GG, p. 39.) Chase responded that they could sign the agreement without the payment. (Id. )
By January 6, 2015, the cost estimate had increased to $285,825. On that date, Chase provided a two-page construction contract to McCallum. (Ex. A.) The " Scope of Work" was described as " [m]inor renovations, per plan, to existing main building, including interior painting and new gas fired boiler. Construction of a 1250 SF addition, per plan and specifications." The agreement imposed upon the contractor the responsibility for pricing the project, obtaining all necessary permits, selecting and managing subcontractors and material suppliers, paying all subcontractor and supplier invoices using funds from the owner's deposits to the general contractor, and obtaining the town's certificate of completion. The agreement imposed upon the property owner responsibility for supplying a site plan, paying all permit fees from the owner's deposit, timely selecting the finishes, and paying an initial deposit of $42,874, due upon the signing of the contract, with four progress payments of $60,738 to follow at specified points during the construction. The agreement contained the following note: " The General Contractor shall not be responsible for the cost of work made necessary due to conditions not observable before demolition of existing walls, ceilings, etc. This may include the replacement of parts of the existing structure which are determined to need replacement." The agreement projected a start date of January 12, 2015, and a completion date of June 30, 2015. (Ex. A.)
On January 8, 2015, McCallum texted Chase that the bank was going to delay the closing unless it received a liability insurance certificate for Chase LLC before noon. In a series of tense text exchanges over several hours, Chase informed McCallum that liability insurance was going to cost $2500, which he said was twice what he paid for workers' compensation insurance. (Ex. GG, p. 42.) McCallum responded, " Ouch, we will work it in the costs." (Ex. GG, pp. 42-43.) A liability certificate was finally obtained late in the afternoon. (Ex. GG, p. 45.) The closing took place the next day, January 9, 2015. (Id. )
On January 11, 2015, Chase inquired by text whether the initial deposit was funded. McCallum replied: " Nope, they refused to front money until some work is done. They will however pay promptly when an invoice is presented and some work is completed." (Ex. GG, p. 48.) Chase was plainly worried by this unexpected development. He inquired whether the bank would need to have the Miner's lumber bill paid before it would issue payment. (Ex. GG, p. 49.) McCallum replied that he could put that cost on a credit card, if needed. At the same time, he raised the issue of sound isolation flooring, noting that it would be an " additional expense that I will bear." (Ex. GG, pp. 49-50.) Chase responded: " I thought that, per our past conversation, I would be getting the deposit per the contract. This is going to be a struggle all the way through." (Ex. GG, p. 50.) McCallum assured him that they could work it out. Chase responded: " Okay... We can work together on this. Hope you have good credit limits on your cards." McCallum assured him that " [w]e should be fine." (Id. ) In a text message sent a few minutes later, he volunteered to enlist the help of a patient of his, a construction worker, who owed him money and was willing to " work off his debt." (Ex. GG, pp. 51-52.)
The project was scheduled to begin the week after the closing. A major problem emerged immediately. The rear wing had a stone foundation. Chase and McCallum had believed that there was a four-foot deep crawl space under the rear wing. The contract pricing had been based on the belief that a four-foot concrete foundation for the addition could be tied in to the crawl space under the rear wing of the building. The prior owner, however, had not given McCallum or Chase access to evaluate the condition of the foundation. When excavation began, they discovered that the foundation under the rear wing was only about a foot deep, and worse, the entire structure supporting the rear wing was rotted. Chase recommended that they demolish the rear wing, excavate a proper foundation for it, and rebuild it. McCallum agreed. The need to demolish and rebuild the rear wing delayed the project, as did a number of snow storms and other weather issues in the winter of 2015.
From the earliest days of the project, McCallum scrambled to find ways to pay for--or avoid paying for--the growing costs of the project. On January 16, 2015, he suggested that he would find additional funding for the project, texting Chase that " I don't want finances to slow down the project, and if need be, I can look for alternatives to keep the pace." (Ex. GG, p. 58.) McCallum personally performed a substantial amount of labor on the project; he recruited patients who would barter labor to pay for their treatment as well as family members and friends who helped with labor.
At the same time, McCallum enthusiastically pursued plans that expanded the scope of the work. For instance, after it became clear that the rear wing had to be demolished and rebuilt, Chase suggested putting a full basement under the addition, since they were no longer confined to the four-foot crawl space originally planned. This significantly increased the cost but also increased space for future expansion. McCallum decided it would be " foolish" not to put in a full basement and offered to " beat the bushes and generate enthusiasm for the project and see if I can get some donors." (Ex. GG, pp. 112-13.)
The expansion from a crawl space to a foundation for a full basement led to further unanticipated costs. The deeper foundation ran into the water table, requiring the construction of a sump pit and additional costs for waterproofing the basement. (Ex. GG, pp. 135-41.)
In addition, the " minor renovations" to the existing main building soon blossomed into major renovations. These included new walls, flooring, siding, soundproofing, and rebuilding of a staircase, among other items.
While costs were increasing rapidly, payments from the bank were not. McCallum apparently had believed that the bank would reimburse Chase LLC for items McCallum had charged on his personal credit cards, but the bank declined to do so. In March, Chase advised McCallum that they would soon be receiving a $35,000 invoice for the foundation work. McCallum believed that the bank would pay for the full amount, not merely the $9,500 in the contract that was submitted to the bank for the closing, but he observed that " the money will run out sooner." (Ex. GG, p. 133.) McCallum suggested that Chase should try to " float" the bill for the foundation and pay it over two to three months. Chase rejected that suggestion, observing that " [t]hese small contractors expect to get paid PDQ." (Ex. GG, p. 134.) McCallum responded, " Ok, solves that then. I have to make up some $ with material costs. Perhaps I can purchase on credit the HVAC system or some framing materials. Some not all. I have about 20k I can absorb on Credit. We can sit down and work a price sheet and see where we are so the funds are there when we need them." (Ex. GG, p. 134.)
Early in the project, McCallum decided to make substantial renovations to the main historic portion of the structure. These renovations had not been included in the original contract. He began to remove interior drywall and plaster. Chase was concerned when he realized McCallum was removing walls because Chase suspected, in light of the age of the structure, that lead paint was present. He testified that a contractor who is not licensed to remove lead paint is subject to a fine of $37,500 by the Environmental Protection Agency, but a property owner is not subject to such a fine, and is not subject to the same disposal requirements as a licensed contractor. At some point in April, McCallum also began to remove exterior siding that was not part of the original agreement. McCallum's removal of exterior siding raised the same concern for Chase and, in his view, increased his exposure to a potential fine. At that point, he drafted an amendment to the agreement that put the responsibility for removing and disposing of interior walls and exterior siding on the owner, McCallum LLC. McCallum and Chase both signed the amendment and backdated it January 30, 2015. (Ex. 1.)
On May 7, 2015, McCallum texted Chase that McCallum's friend, Lee Pollock, had " graciously agreed" to pay for Bill Carnelli's labor on the project. (Ex. HH, p. 31.) McCallum advised Chase to " put him to work and know that he is being paid fairly for his time." (Id. )
Also in early May 2015, McCallum apparently talked with his loan officer at Webster Bank about borrowing more money from the SBA. On May 13, he texted Chase that the loan officer had " said no more funding with the SBA... We are capped unless we get another appraisal and then reinventing the wheel with more fees and expense. Not worth the $6,000 to ask to borrow more." (Ex. HH, p. 43.) He elaborated: " So, we are in the same boat about being creative and getting the $$ to stretch. I'll work other angles to make it work." (Ex. GG, p. 44.) On May 27, he emailed Chase that he was meeting with a " prospective investor" and asked Chase for an expense list and timeline, saying " [i]f I present the necessity of the charges, and aggressive timetable I shouldn't have trouble." (Ex. M.) On May 28, McCallum texted Chase that he had a " financial meeting" planned for that evening and requested a spreadsheet with costs, which Chase provided. (Ex. HH, pp. 73-74.) On May 29, McCallum texted Chase: " Thanks for the pricing, it went a long way at my meeting." (Ex. HH, p. 75.) He noted that the pricing omitted gutters and paving. In response to a text from Chase asking how the meeting had gone, McCallum responded: " Went well, we should be on track with no worries." (Ex. HH, p. 76.)
By July, McCallum was concerned about the timing of the project, and Chase was concerned about the cost overruns. McCallum invited Chase to a meeting on Sunday, July 19, 2015, at the home of Lee Pollock, the real estate broker who had recommended Chase to McCallum. In addition to Pollock, McCallum, and Chase, two other men were present at the meeting--McCallum's accountant, Larry Marziale, and a financial advisor named Sheptoff. Chase believed that the purpose of the meeting was to discuss the project with a prospective investor. Marziale, who testified at the hearing, believed that the purpose of the meeting was to address McCallum's concerns about whether the project would be completed in time for him to move his practice to 136 Dowd as planned.
At the July 19 meeting, Chase presented a spreadsheet which attempted to reconcile the original budgeted costs of $254,250, shown in the estimate presented to Webster Bank, with the actual costs to that date and the estimated costs to the end of the project, which at that time appeared to be $330,356. (Ex. N; Ex. 12.) In addition to the discussion of the out-of-pocket costs, there was discussion of a fee of $20,000 to Chase LLC for its role as general contractor.
Two days after the July 19 meeting, on July 21, 2015, Chase presented a summary of the budgeted expenses, the actual expenses, and the projected shortfall. Considering disbursements received or expected from Webster Bank and line items that McCallum had paid, Chase projected a need for additional funding of $71,773, as of that date. (Ex. 4.)
A few days later, McCallum produced his own revised version of Chase's summary, adding the $20,000 fee for Chase but crediting McCallum for various other items for which he had paid. (Ex. 5.) According to McCallum's revised summary, McCallum had overpaid by $4,492. According to McCallum, Chase agreed with McCallum's revised summary. Chase denied that he agreed with it and further denied that he was given a copy of McCallum's revised summary or an opportunity to study it. This revised summary was apparently discussed in an informal meeting in the parking lot of 136 Dowd, where McCallum also presented Chase with a check for $59,183.29 from Webster Bank. (Ex. E.) This turned out to be the last disbursement to Chase LLC from the Webster Bank construction loan. For the 136 Dowd project in its entirety, Chase LLC received five payments totaling $212,024.29 from Webster Bank. (Ex. E.)
Text messages exchanged between McCallum and Chase in the days following the July 19 meeting suggest that they had discussed some proposals for cost savings, either at that meeting or elsewhere. McCallum's texts indicate, however, that in the following days, he decided to proceed with more costly alternatives and additional features not included in the original scope of work. These included, but were not necessarily limited to, siding the entire exterior with Hardie siding, cladding the concrete stoops and handicap access ramps with bluestone, replacing some flooring in the original building and refinishing other flooring on the second floor of that building, and using sod rather than seed for landscaping. (Ex. HH, pp. 143, 144, 153, 157.)
Although a temporary certificate of occupancy was issued on August 4, 2015, much work remained to be done before the final certificate of occupancy was issued on August 28, 2015. (Ex. T.) During August, the financial issues became more acute. On August 14, Chase texted McCallum: " I'm preparing a request for $. Is there something in place? I haven't gotten all invoices, but subs are looking to get paid ASAP." (Ex. HH, pp. 175-76.) McCallum's first response was a protest: " Didn't you get the check for $59,000 that covered the estimated finishes?" (Ex. HH, p. 176.) Chase responded: " Yes, got the last check from the bank, but there is a long list of expenses since. I'll send you the list to date. There are more to come after these, notably the site work. Tim [Wheeler Construction] has been paid for his first invoice ($29,099), but hasn't issued his final invoice." (Id. ) McCallum replied: " OK send it over and we can figure it out." (Id. ) On August 20, McCallum asked Chase to send over the " whole invoice file" because McCallum was to meet with his accountant. (Ex. HH, pp. 181-82.) On August 26, Chase sent McCallum a text, indicating that he needed to pay a Miner's Lumber invoice of $1,162 and a Sanford invoice of $15,054. McCallum did not text a response, a departure from their earlier pattern of communications. (Ex. HH, pp. 182-83.) On September 1, Chase texted McCallum: " Are we meeting with Lee today?" McCallum responded: " Larry Marziale is out of town until the end of the week, how is your Friday looking?" (Ex. HH, pp. 183-84.) On September 2, Chase texted an inquiry as to whether their meeting would go forward on Friday. McCallum responded that Larry Marziale was still unavailable. Chase responded: " I wouldn't be surprised to see some liens being filed soon. State law gives subs and suppliers 90 days from their last day on the job to file. Some will not wait until the last day. I've never had one filed, but we may start to see them... That Smartsheet was a snapshot at that time. Six weeks ago? The numbers are real." (Ex. HH, pp. 182-84.) There was no response from McCallum.
The following liens were filed in the months that followed: On or about October 6, 2015, Dalene filed a mechanic's lien in the amount of $19,744.25 for flooring supplies and labor. (Ex. PP.) On October 21, 2015, Phillip M. Rouquie, LLC, filed a mechanic's lien in the amount of $8,750 for masonry work, including the bluestone cladding. (Ex. OO.) On or about October 26, 2015, Sanford filed a mechanic's lien in the amount of $18,001.86 for building supplies. (Ex. V.) On November 18, 2015, Chase LLC filed a mechanic's lien in the amount of $140,503, which was intended to include all outstanding sums owed to subcontractors and sums owed to Chase LLC itself. (Ex. L.)
According to the application for discharge of liens, liens were also filed by Brent Carnelli, Baril, and Stanwicks. Carnelli appeared but did not introduce a copy of his lien. Baril and Stanwicks did not appear in the proceeding.
II
Undisputed and Disputed Issues
Several issues are not in dispute. McCallum LLC stipulated that all liens were timely filed, and it did not claim that any lien suffered from technical deficiencies. With relatively minor exceptions, such as Dalene's failure to finish the sanding and finishing for which it sent invoices, McCallum LLC did not dispute that the charges itemized in Exhibit F represented work done at, or supplies provided for, 136 Dowd. Those charges, as summarized on Exhibit G, totaled $321,016.63. McCallum testified that all work done at 136 Dowd was done at his request or with his consent. He further testified that he was on the site almost daily and was aware of all the work that was done there. He also agreed that Chase LLC received a total of $212,024.29 from Webster Bank for work performed at 136 Dowd.
The principal issues in dispute are: (1) whether the agreement was a fixed price or a cost plus agreement; (2) whether the maximum price McCallum LLC agreed to pay was reflected in the July 19 spreadsheet; and (3) whether McCallum is entitled to credits for payments that he made, or others made on his behalf, and offsets for expenses he incurred in repairing certain defects he discovered after the work was complete. As discussed below, the court resolves these issues, in the main, for the respondents.
III
Applicable Legal Standards
" A mechanic's lien is a creature of statute." (Internal quotation marks omitted.) Newtown Associates v. Northeast Structures, Inc., 15 Conn.App. 633, 636, 546 A.2d 310 (1988). It is created by General Statutes § 49-33. Although the mechanic's lien statute creates a 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." (Internal quotation marks omitted.) Rollar Construction & Demolition, Inc. v. Granite Rock Associates, LLC, 94 Conn.App. 125, 129, 891 A.2d 133 (2006). The court may not, however, " depart from reasonable compliance with the specific terms of the statute under the guise of a liberal construction." (Internal quotation marks omitted.) Id.
General Statutes § 49-33 provides in pertinent part:
(a) If any person has a claim for more than ten dollars for materials furnished or services rendered in the construction, raising, removal or repairs of any building or any of its appurtenances or in the improvement of any lot or in the site development or subdivision of any plot of land, and the claim is by virtue of an agreement with or by consent of the owner of the land upon which the building is being erected or has been erected or has been moved, or by consent of the owner of the lot being improved or by consent of the owner of the plot of land being improved or subdivided, or of some person having authority from or rightfully acting for the owner in procuring the labor or materials, the building, with the land on which it stands or the lot or in the event that the materials were furnished or services were rendered in the site development or subdivision of any plot of land, then the plot of land, is subject to the payment of the claim. (b) The claim is a lien on the land, building and appurtenances or lot...
General Statutes § 49-34 provides that a mechanic's lien is not valid unless the lienor files, within ninety days of ceasing to supply labor or materials, a certificate of lien that must include specific information, including but not limited to, the amount of the claimed lien.
General Statutes § 49-34 provides as follows: " A mechanic's lien is not valid unless the person performing the services or furnishing the materials (1) within ninety days after he has ceased to do so, lodges with the town clerk of the town in which the building, lot or plot of land is situated a certificate in writing, which shall be recorded by the town clerk with deeds of land, (A) describing the premises, the amount claimed as a lien thereon, the name or names of the person against whom the lien is being filed and the date of the commencement of the performances of services or furnishing of materials, (B) stating that the amount claimed is justly due, as nearly as the same can be ascertained, and (C) subscribed and sworn to by the claimant, and (2) not later than thirty days after lodging the certificate, serves a true and attested copy of the certificate upon the owner of the building, lot or plot of land in the same manner as is provided for the service of the notice in section 49-35."
In an application to discharge a lien under General Statutes § 49-35b(a), the lienor has the burden of establishing probable cause to sustain the validity of the lien. This necessarily includes proof of the amount claimed to be a lien on the land, as stated in the certificate filed pursuant to § 49-34. " Proof of probable cause is not as demanding as proof by a fair preponderance of the evidence... The legal idea of probable cause is a bona fide belief in the existence of facts essential under the law for the action and such as would warrant a man of ordinary caution, prudence and judgment, under the circumstances, in entertaining it." (Citation omitted; internal quotation marks omitted.) Newtown Associates v. Northeast Structures, Inc., supra, 15 Conn.App. 636-37.
General Statutes § 49-35b(a) provides: " Upon the hearing held on the application or motion set forth in section 49-35a, the lienor shall first be required to establish that there is probable cause to sustain the validity of his lien. Any person entitled to notice under section 49-35a may appear, be heard and prove by clear and convincing evidence that the validity of the lien should not be sustained or the amount of the lien is excessive and should be reduced."
To establish probable cause to support a mechanic's lien, a person must first show that he is entitled to claim a lien. " Those who provide services or materials in connection with the construction of a building are entitled to claim a lien on the land that they have improved if they fall into one of two categories. Lienors are protected if they have a claim either (1) by virtue of an agreement with or the consent of the owner of the land, or (2) by the consent of some person having authority from or rightfully acting for such owner in procuring labor or materials." Seaman v. Climate Control Corporation, 181 Conn. 592, 595, 436 A.2d 271 (1980).
Under § 49-33, " the consent required from the owner... is more than the mere granting of permission for work to be conducted on one's property... or the mere knowledge that work was being performed on one's land... The consent meant by the statute must be a consent that indicates an agreement that the owner of at least the land shall be, or may be, liable for the materials or labor." (Internal quotation marks omitted.) Waterview Site Services, Inc. v. Pay Day, Inc., 125 Conn.App. 561, 566, 11 A.3d 692 (2010), cert. denied, 300 Conn. 910, 12 A.3d 1005 (2011). Consent may be inferred from the owner's conduct. For instance, in Foskett & Bishop Co. v. Swayne, 70 Conn. 74, 75-76, 38 A. 893 (1897), the Supreme Court affirmed a verdict for a lienor where the owner of the land not only knew that improvements were being made to her house by the plaintiff, and knew that the improvements would increase its value, but also took part in selecting materials, giving directions concerning the work, countermanding instructions given by her husband, deciding whether particular work should or should not be done for reasons of cost, and evincing an expectation to pay for the work and materials.
If a lienor meets its burden of establishing probable cause to believe that its lien is valid, § 49-35b(a) then requires that the person whose property is subject to the lien may establish, by clear and convincing evidence, that the lien is invalid or excessive. In this case, the applicant challenges the constitutionality of § 49-35b(a), arguing that the disparity in burdens of proof violates an owner's right to due process. As discussed below, the court does not reach the constitutional question because it concludes that there is a nonconstitutional basis upon which to decide the issue. See In re Jacklyn H., 162 Conn.App. 811, 834 n.20, 131 A.3d 784 (2016) (courts " do not engage in constitutional analysis if a nonconstitutional basis upon which to resolve an issue exists" [internal quotation marks omitted]).
IV
Analysis
The first and most fundamental issue is the nature of the parties' agreement. McCallum LLC contends that the agreement was for a fixed price, as shown in Exhibit A, although the price was adjusted as a result of changes in the project. McCallum LLC further contends that the maximum costs it agreed to pay were those reflected on the July 19 spreadsheet and that it was entitled to credits for amounts paid on its behalf by McCallum or others. Chase LLC disagrees. Chase LLC acknowledges that the parties originally intended to enter a fixed price contract, but argues that two things happened that completely changed the nature of the agreement. First, McCallum LLC failed to pay the initial deposit required by the contract. Second, the scope of work expanded dramatically both as a result of the need to demolish and rebuild the rear wing and as a result of continual changes to the scope of work, as McCallum embraced opportunities to expand the size or improve the aesthetics of the project.
Chase testified that he discussed a cost plus arrangement with McCallum within a few days after they entered the original agreement and that McCallum agreed to be responsible for the costs of the project plus some undetermined fee for Chase LLC's services as general contractor. McCallum denied that they had ever had such discussions, but his conduct contradicts his testimony. He provided his own labor and bartered for the labor of his patients; he paid for some materials on his credit cards; and he persuaded Pollock to pay for the labor of at least two of the laborers--Bill Carnelli and Linbert Griffiths--on the project.
Exhibit 14 contains copies of checks from The Pollock Company to Linbert Griffiths, totaling $2,000, and to Bill Carnelli, totaling $6,000.
The evidence overwhelmingly supports Chase LLC's claims regarding the nature of the agreement. First, it is undisputed that McCallum LLC failed to pay the initial deposit. Second, the original agreement states that the general contractor " shall not be responsible for the cost of work made necessary due to conditions not observable before demolition of existing walls, ceilings, etc." (Ex. A.) It was undisputed that the need to demolish and rebuild the rear wing, discovered almost immediately after the contract was signed, caused the expenditure of sums that were not included in the original contract. Finally, McCallum repeatedly assured Chase that he would find a way to pay for the increasing costs of the project.
McCallum's attitude toward costs was extremely casual. In the fall of 2014, he pressured Chase for estimated costs to include in McCallum LLC's loan application, saying that he was willing to " sacrifice accuracy for speed, " even though Chase warned him that the estimates would include " lots of guessing." By the time the construction loan was approved in December 2014, McCallum knew that the revised estimate of construction costs was almost $30,000 greater than the approximately $255,000 that would be covered by the loan. He was nevertheless willing to " roll the dice."
When McCallum signed the agreement on January 6, 2015, he knew that McCallum LLC did not have the funds to pay the deposit of $42,874 required on signing. Although he had apparently hoped that he could get the bank to advance the deposit, he was unable to do so, and McCallum LLC was therefore in breach of the agreement almost before the ink was dry. The underfunding of the project was compounded when excavation revealed that the rear wing was structurally unsound and had to be demolished. Although the parties to the agreement did not formally revoke their written agreement, and although the only written amendment to the agreement was intended to protect Chase LLC from potential liability for demolition of walls or siding containing lead paint, it is clear from McCallum's conduct and assurances that the terms of the agreement changed from a fixed cost contract to a cost plus arrangement.
Throughout the project, McCallum repeatedly told Chase that he would somehow find the money to cover the gap between the bank loan and the project's actual costs. Chase testified that McCallum told him that he had a prospective investor in the project. McCallum denied having discussed a prospective investor, but the documentary evidence supports Chase's testimony. More specifically, over the period from May 27 through May 29, McCallum sent Chase an email and several text messages about a meeting with a " prospective investor" and led Chase to believe that additional funding would soon be secured. McCallum's statements demonstrate the change from a fixed price agreement to a cost plus agreement.
Considering all the evidence, both testimonial and documentary, and specifically weighing the credibility of the witnesses, the court finds that the agreement between McCallum LLC and Chase LLC was converted from a fixed price agreement to a cost plus agreement in which McCallum LLC agreed to pay all the costs of the project and a separate fee for Chase LLC's services as general contractor.
The next question, then, is whether the costs McCallum LLC agreed to pay were capped by the spreadsheet that Chase prepared for the July 19 meeting. The parties dispute the purpose and outcome of that meeting. Having considered all of the evidence about the circumstances and discussions at that meeting, the court finds that Chase's account is more credible. The court finds that the meeting was convened to address the rising costs of the project. Chase prepared the spreadsheet reflected in Exhibit N to attempt to explain how costs had increased since the project's start and to present a snapshot of invoices that were either due or anticipated at that point in time. He believed that McCallum was convening the meeting for the purpose of presenting information about the project to a prospective investor. Although no prospective investor came forward, the persons present at the meeting discussed how the existing and anticipated costs would be addressed. They also discussed a fee for Chase's services as general contractor. Although McCallum had previously told Chase he would pay off an undetermined fee to Chase LLC over a period of years, at or after the July 19 meeting he agreed to pay a $20,000 fee for Chase LLC's services.
The next question is whether McCallum LLC is entitled to a credit for various payments he made, or others made on its behalf, against the costs reflected on the July 19 spreadsheet. In support of its arguments that it is entitled to such credits, McCallum LLC points to Exhibits 4 and 5. Exhibit 4 was an attempt by Chase to summarize the July 19 discussion and to show how much remained available from Webster Bank funds. Chase's summary reflects $36,681 in invoices that were then due and estimated future invoices of $75,781 for work that was underway, for a total of $112,462 in outstanding costs as of that date. Chase's summary recognized that some $71,773 was not funded by the Webster Bank loan, including sums that McCallum had paid. (Ex. 4.) A few days later, McCallum presented a revised version of the summary to Chase. (Ex. 5.) Consistent with his understanding that McCallum was seeking an investor to cover the additional costs, Chase's summary had included McCallum's direct expenditures as items to be included in the funding shortfall. McCallum's revised summary, in contrast, treated the amounts he had paid as credits against the total project costs. (Ex. 5.) McCallum's revised summary included " items not accounted for, " including Larry Chase's fee of $20,000, but the upshot was that McCallum was claiming that he had already paid $4,492 more than the estimated costs to completion of the project. The court concludes that McCallum's revised summary was an exercise in wishful thinking. Having been far too casual about spending freely throughout the project, McCallum revised the summary in an attempt to avoid responsibility for costs that had already been incurred. Whether the costs were to be paid by disbursements from Webster Bank, or by McCallum personally, or by McCallum's friends and " prospective investors, " nevertheless, they remained the responsibility of McCallum LLC.
Chase testified that he was shown McCallum's revised summary only briefly, in an encounter in the parking lot at 136 Dowd, and did not receive a copy of it until the mechanic's lien proceeding was underway. The court credits that testimony and finds that McCallum's revised summary did not represent McCallum LLC's true liability under the cost plus agreement it had undertaken with Chase LLC.
Despite the discussion of unfunded costs at the July 19 meeting, McCallum continued to insist on elements to the project that were not within its original scope. For instance, McCallum could have avoided the costs of additional bluestone stoops that had not yet been installed and were not included in the original scope of work. Nevertheless, on July 20, just one day after the July 19 meeting, he told Chase to go ahead with the more expensive bluestone option. On the same day, he told Chase that he wanted to side the entire exterior, not merely the new addition, with Hardie siding. McCallum LLC cannot now fairly disclaim responsibility for the costs of Rouquie's work on the stoops and Sanford's materials for the siding.
At the hearing and in its post-hearing brief, McCallum LLC challenged the respondents' claims concerning outstanding invoices by pointing to evidence indicating that Chase LLC made certain payments after the end of the 136 Dowd project that were not credited to that project. For instance, Exhibit 10 contains records of three checks from Chase LLC to Sanford, dated between October 9, 2015, and December 17, 2015, totaling $41,730.56, that were not credited to the 136 Dowd project. Similarly, Exhibit F reflects that Dalene charged Chase's credit card $10,383 on October 22, 2015, which charge was not credited as a payment for the work at 136 Dowd. When initially questioned about payments to Dalene, moreover, Chase at first testified that he had paid $10,000 to Dalene. Under further questioning, and after reviewing his summary of charges and payments in Exhibit G, Chase retracted that statement and testified that Dalene's invoices remain unpaid.
The court has given considerable thought to McCallum LLC's arguments regarding these payments. It concludes that these payments, considered in light of the evidence as a whole, do not refute the evidence showing that substantial amounts for the labor and supplies provided by Dalene and Sanford remain unpaid by McCallum LLC. It was undisputed that, except for the sanding and finishing that Dalene failed to complete, the invoices presented by Dalene and Sanford represented labor and supplies that were incorporated into 136 Dowd, with a resulting increase in its value, without payments by or on behalf of McCallum LLC that were sufficient to cover the costs. There was evidence that Chase LLC had multiple contracts that were ongoing while the 136 Dowd project was underway. It was not obligated to attribute its payments on open accounts to the 136 Dowd project when it had not received sufficient funds from McCallum LLC to cover those costs.
The costs that Chase LLC incurred for the 136 Dowd project exceeded the payments it received from or on behalf of McCallum LLC. The fact that McCallum and others on his behalf paid some subcontractors and suppliers directly does not mean that McCallum LLC can avoid responsibility for the costs that Chase LLC incurred on the 136 Dowd project. It simply means that the total costs of the project were even higher than the costs claimed by Chase LLC. Indeed, it appears that the project that was originally estimated to cost $255,000 ultimately cost more than $450,000--which is unsurprising in light of the continual expansion of the scope of work throughout the project.
Although the court does not agree in all particulars with the " Scope of Work" analysis attached as Schedule A to Sanford's post-hearing brief (docket entry no. 119), that analysis is the most comprehensive attempt by any party to account for the overall cost of the project. That analysis indicates that the total costs incurred--including those already paid and those that are outstanding--exceeded $458,000.
McCallum LLC's argument that Chase LLC could not meet its burden of proving probable cause without an analysis of its source and use of funds is unavailing. While such an analysis might have been helpful, it is not the only way in which a lienor can establish the value of its lien. Chase LLC produced invoices for almost all of the costs it claims in its lien. It claims that it was charged $321,016.63 by subcontractors or suppliers for goods or services supplied for the 136 Dowd project. It is undisputed that Chase LLC received only $212,024.29 in disbursements from the Webster Bank construction loan and no other payments from or on behalf of McCallum LLC. Although, as discussed below, some of the claimed costs must be disallowed, and duplicative claims must be eliminated, the respondents Chase, Dalene, Rouquie, and Sanford have satisfied their burden of proof as to the validity of their liens in whole or in part.
In a few instances, Chase LLC claims costs for which it did not present invoices. For instance, although its Exhibit G itemizes invoices from TK Dumpsters (TK), its Exhibit F does not include invoices from TK for the first three dates claimed (January 9, February 6, or March 3, 2015). Invoices for subsequent dates claimed are included in Exhibit F. Nevertheless, the evidence is sufficient to support the claim for all the dumpster rentals because Chase LLC presented cancelled checks showing its payments for the dumpsters, and the text messages exchanged by McCallum and Chase early in the project make it clear that a dumpster was continually on the premises during the construction. Indeed, the demolition of the rear wing was the earliest activity on the project and clearly required a dumpster.
Except as discussed below, the court finds that McCallum LLC did not meet its burden of proving that the liens are invalid or excessive. McCallum LLC asserts that the mechanic's lien statute is unconstitutional in requiring a property owner to satisfy a higher burden of proof to establish the invalidity of a lien than the lienor is required to meet to establish the validity of the lien. It further argues that the standard of proof should be no greater than a preponderance of the evidence, the standard that would apply at a full trial on the merits of the claimed debts.
The court does not address McCallum's argument that the standard of proof is unconstitutional because, in this case, it is not the standard of proof that is determinative of the outcome. As to the principal issues--whether McCallum LLC agreed to be responsible for all costs of the project and whether it was entitled to credits for direct payments to some suppliers and subcontractors--the court ultimately had to decide which witness, Chase or McCallum, was more credible. Although there were some inconsistencies in Chase's testimony, his was far more credible than McCallum's, especially when considered in light of the documentary evidence supporting or contradicting the testimony. For instance, McCallum denied that he ever talked with Chase about a prospective investor for the project, but he sent at least one e-mail directly stating that he was meeting with a prospective investor and several text messages suggesting that he was doing so. Many of McCallum's text messages and emails, moreover, indicate his willingness to make " creative" claims that are not entirely tethered to the truth but advance his agenda. Given the lack of credibility of the testimony offered to support McCallum LLC's claims, the court would not have found that McCallum LLC met even the lower standard of proof by a fair preponderance of the evidence. Courts do not decide constitutional issues when there is a nonconstitutional basis for resolving the issue in dispute. See In re Jacklyn H., supra, 162 Conn.App. 834 n.20.
See, for example, Exhibit H, p. 2; Exhibit GG, pp. 24, 25, 26, 56, 59, 140.
The court's rejection of most of McCallum's claims, however, does not mean that all the liens are sustained as filed. It is undisputed that Chase LLC's lien must be reduced to the extent that it duplicates amounts claimed by individual subcontractors and suppliers. In addition, there was undisputed evidence that certain work was not completed. Finally, there was clear and convincing photographic evidence that certain work was defective. The court now turns to the specific findings as to each claimed lien.
V
Specific Findings Regarding Liens Carnelli, Baril, and Stanwicks
McCallum LLC seeks to discharge mechanic's liens filed on 136 Dowd by D. Brent Carnelli on or about October 13, 2015, by Peter Baril on or about October 13, 2015, and by Ken Stanwicks Heating & Cooling, Inc., on or about October 30, 2015. D. Brent Carnelli filed an appearance on his own behalf but did not testify or otherwise offer evidence, and the record does not include a copy of the mechanic's lien he filed. Neither Baril nor Stanwicks appeared in the mechanic's lien proceeding. The mechanic's liens of Carnelli, Baril, and Stanwicks are therefore discharged. The mechanic's lien filed by Chase LLC, however, includes amounts for invoices sent to Chase LLC by these parties.
Dalene
McCallum LLC also seeks to discharge the mechanic's lien filed by Dalene on or about October 6, 2015. Dalene appeared and presented credible evidence that it had invoiced Chase LLC $19,744.25 for labor and materials for 136 Dowd for which it has not been paid. One invoice included charges for sanding and finishing work even though the invoice includes the notation: " Final coat not completed as of yet." It appeared to be undisputed that Dalene left one area unfinished and never applied a final coat to another area. The invoice shows two charges, totaling $1,677.38, for sanding and finishing. Because the court cannot determine what portion of the $1,677.38 was attributable to the unfinished work, the court concludes that Dalene did not satisfy its burden with respect to those charges. The application to discharge Dalene's mechanic's lien is denied, but the lien is reduced by $1,677.38. As reduced, the credible evidence is sufficient to establish probable cause to believe that a lien of $18,066.87 in favor of Dalene is valid.
Rouquie
McCallum LLC also seeks to discharge a mechanic's lien recorded by Rouquie on October 21, 2015. Rouquie presented sufficient credible evidence to establish probable cause to believe that its mechanic's lien of $8,750 is valid. More particularly, there was evidence that Rouquie performed work at 136 Dowd on three occasions: on or before April 7, 2015, it removed portions of the old stone foundation and filled in with stone to meet the new concrete foundation, charging $2,700 for that work. On or July 14, 2015, it installed bluestone cladding on the two front door entryways, charging $3,700 for that work. On or before August 5, 2015, it installed bluestone on the front and side door steps, removed bluestone treads at the two main entryways to rebuild the walks with bluestone ramps, and built bluestone planters at the main entrance, for $5,050. Notably, its last invoice was for work that McCallum expressly authorized after the July 19 meeting, even though concrete ramps had already been poured and would have been sufficient. For its services, Rouquie has been paid only $2,700. The application to discharge Rouquie's mechanic's lien of $8,750 is denied.
Sanford
McCallum LLC seeks to discharge a mechanic's lien filed by Sanford on or about October 26, 2015. Sanford presented sufficient credible evidence to establish probable cause to believe that its mechanic's lien of $18,001.86 is valid. The evidence included the testimony of its president, Robert Sanford, who testified concerning Sanford's invoicing methods and receipt of payments. It included copies of invoices, delivery tickets, and photographs of product delivered to 136 Dowd.
McCallum admitted that Sanford supplied the materials for which it invoiced Chase LLC. The only challenge to Sanford's lien was McCallum's argument that Sanford had received sufficient checks from Chase LLC that were sufficient to cover all of Sanford's invoices. Sanford's president testified that the checks in question had been applied to other Chase LLC projects that were ongoing at the time. Based on the credibility of Sanford's president and the totality of the evidence offered in support of Sanford's lien, the court finds that Sanford established probable cause to believe that its entire lien of $18,001.86 is valid. The application to discharge the Sanford lien is therefore denied.
Chase LLC
McCallum seeks to discharge the mechanic's lien filed by Chase LLC on the property at 136 Dowd on or about November 18, 2015, in the amount of $140,503. Chase testified that the lien as filed was based in part on estimates of invoices that had not been received when the lien was filed. The number Chase LLC claims to have proved to be a valid lien is $134,697.63.
Chase LLC presented evidence that it has been charged $321,016.63 for labor and materials supplied by third parties for the work at 136 Dowd. It further claims that McCallum LLC, through McCallum, agreed to pay all costs of construction, plus a $20,000 fee for Chase LLC's general contractor services, plus a fee of $2,850 for CAD drawings, plus $2,855 to cover the cost of the liability insurance that Webster Bank required Chase LLC to obtain. Chase LLC received a total $212,024.29 from the Webster Bank construction loan, resulting in an amount owed to Chase LLC of $134,697.34. Based on all the evidence presented, the court finds that Chase LLC met its burden of proving that there is probable cause to believe that its lien is valid except as follows:
Chase LLC's lien includes $19,063.35 for charges owed to Dalene, $8,750 for charges owed to Rouquie, and $18,001.86 for charges owed to Sanford, for a total of $45,815.21. Because the court has addressed the liens separately filed by Dalene, Rouquie, and Sanford, Chase LLC's lien must be reduced by $45,815.21, the amount it claimed for charges by those parties.
The evidence indicates that McCallum agreed to pay $2,500, not $2,855, for the cost of liability insurance Chase LLC was required to obtain. (Ex. GG, pp. 42-43.) McCallum LLC is entitled to a reduction of $355 from the amount claimed by Chase LLC.
The unpaid invoice from Tim Wheeler Construction, Inc., included in Exhibit F, dated November 12, 2015, includes a $450 charge for " line striping" of the parking lot. Both Chase and McCallum testified that the line striping was not completed. Although McCallum also testified that curbing was not done, the invoice does not reflect a charge for curbing. The Chase LLC lien is reduced by $450 for the unfinished line striping.
McCallum LLC also claimed that it was entitled to offsets for sums it expended to repair various defects in the property after Chase LLC completed work on September 2, 2015. These included a sink that detached from a wall in a restroom; improper trim along sink cabinets; a faulty vent pipe; improperly hung doors; flooding in the basement; pipes that froze twice because of inadequate insulation; and other claims. The photographic evidence of certain of these defects was clear and convincing, although evidence of the cost of repairs was limited. Taking into account all the credible evidence, the court finds that Chase LLC's lien should be further reduced by $2,956 as an offset for the cost of repairs of defective work. The court finds that other claimed reductions to Chase LLC are not supported by credible evidence.
Taking into account all the reductions discussed above, the court finds that Chase LLC's mechanic's lien should be reduced from $140,503 to $82,121.13. The application to discharge the Chase LLC lien is denied but the lien is reduced to $82,121.13.
VI
Conclusion
For the reasons stated above, the application to discharge the mechanic's liens filed by D. Brent Carnelli, Peter Baril, and Ken Stanwicks Heating & Cooling LLC is granted, and those liens are discharged. The application to discharge the mechanic's liens filed by Phillip M. Rouquie, LLC and Sanford & Hawley, Inc. is denied. The application to discharge the mechanic's lien filed by Dalene Hardwood Flooring Co., Inc., is denied but the lien is reduced to $18,066.87. The application to discharge the mechanic's lien filed by Chase Design/Build, LLC is denied, but the lien is reduced to $82,121.13.
Counsel may submit, on notice to all parties, an appropriate order, suitable for filing on the land records, reflecting the disposition of these liens.