Opinion
No. A04-156.
Filed September 21, 2004.
Appeal from the District Court, St. Louis County, File No. C4-02-602837.
John H. Bray, Kanuit Bray, Ltd., (for appellant)
William D. Paul, (for respondent)
Considered and decided by Harten, Presiding Judge; Kalitowski, Judge; and Anderson, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
Appellant brought an action against respondent to declare that the lien filed by respondent against appellant's property was invalid and to remove the lien. Respondent sought to foreclose on the lien and also made additional claims against appellant for breach of contract, quantum meruit, account stated, and unjust enrichment. The district court, following a bench trial, concluded that the lien was valid, and we affirm.
FACTS
This is a dispute concerning the validity of a mechanic's lien. Appellant Kevin Owens is the owner of real property located in Duluth. Appellant sought to develop the property into condominiums. The construction was to happen in three phases, with four condominiums constructed in each phase. Respondent Lakehead Electric was hired by Owens to perform all of the necessary electrical work for both phases I and II.
Owens hired a project manager to assist him with phase I of the project, but Owens personally hired nearly all of the contractors and did not hire a general contractor. Owens, however, has no training as a general contractor. The building permits signed by Owens typically describe him as both the owner and general contractor.
Lakehead submitted a flat-fee bid to perform the work on phase I, and Owens paid Lakehead as agreed. Lakehead then submitted a flat-fee bid to perform the work for phase II; this bid was essentially conditioned on the premise that the phase II work was the same as the phase I work in character, although the bid was higher in amount than phase I. The bid in phase II notes that items installed in a different location "may require price adjustment."
Owens resides in one of the condominiums constructed during phase II. As a result, Owens instructed Lakehead to wire two of the condominiums such that the two units could be used as one unit (for his personal residence) but could also be divided later if necessary. Owens also instructed Lakehead to install many additional recessed lights, a steam room, and a Jacuzzi, among other modifications to the bid. At the time, Lakehead did not inform Owens that this would significantly increase the cost of the project, but at least one of Lakehead's employees did inform Owens before the completion of the work, "you are adding to this job." Lakehead was, however, keeping track of its hours and materials and it calculated costs for the additional work.
In January 2002, Lakehead submitted a bill to Owens for approximately $84,000 instead of the $51,600 originally bid; Lakehead had billed the work as a time-and-materials contract instead of the agreed-on flat fee. Owens paid only $5,000 and disputed the bill. Lakehead walked off the job.
At some point the parties met, although there was conflicting evidence whether the meeting happened before or after Lakehead returned to the site, to resolve the dispute. On May 6, 2002, a Lakehead employee went to the property to complete the unfinished work, which was in the units designated as the personal residence of Owens. Owens refused to allow the employee to enter or perform any work until Lakehead agreed to sign a letter that said, "this job is outside the scope of the original work performed on this building and will be billed separately on a time and materials basis." The reason Owens insisted on this provision was that he was aware that Lakehead had 120 days to file a lien and that allowing Lakehead to perform additional work could extend the time to file the lien. The bill for this work was approximately $1,500.
On May 20, 2002, a certificate of occupancy was issued. The city inspector who issued the permit testified that he had first viewed the property at the end of November and that some work was necessary in order to issue a certificate. The district court eventually found that the work performed in May 2002 was necessary to get the certificate. Lakehead filed a mechanic's lien against Owens's property on August 28, 2002.
Owens brought an action against Lakehead to remove the mechanic's lien, and Lakehead counterclaimed to foreclose on the lien and for unjust enrichment. After a bench trial, the district court found that the May 6, 2002, work was a continuation of earlier work; Owens acted as his own general contractor; the parties had an oral contract (reached in April 2002 or later) that Owens would pay Lakehead $46,600 and hire Lakehead for phase III; Owens knew or should have known that his modifications were significant and would increase the cost; Lakehead should have informed Owens earlier of the increased costs; and Lakehead was entitled to a lien of $77,450.56, which was, essentially, Lakehead's costs without profit on the materials and a deduction for Owens's future time in obtaining electrical materials he desired. This appeal followed.
DECISION
1. Damages
Appellant argues that quantum meruit was inappropriate in this case because the project was completed. In the alternative, appellant argues that the district court improperly calculated the amount of the award because it calculated damages based on time and materials for the entire project but should have only calculated the time and materials that were in addition to the flat-rate bid.
Owens cites E.C.I. Corp. v. G.G.C. Co. for the proposition that Lakehead can only recover the amount of the contract. 306 Minn. 433, 237 N.W.2d 627 (1976). E.C.I. says no such thing; it merely dealt with a situation where there had been partial performance. Id. at 434, 237 N.W.2d at 629. E.C.I. concluded that, if the contract had been completed, the recovery would have been for the amount "agreed upon," id. at 436, 237 N.W.2d at 630, but E.C.I. was not faced with a situation where additional work was performed nor does the opinion contemplate such a scenario.
If there is a valid contract, the amount of a lien "shall be for the sum agreed upon." Minn. Stat. § 514.03, subd. 1(a) (2002). If there is not a contract, the lien "shall be for the reasonable value of the work done, and of the skill, material, and machinery furnished." Minn. Stat. § 514.03, subd. 1(b). Section 514.03, subdivision 1, applies only if the contractor is not required to give the owner notice of the lien.
The calculation changes somewhat if the contractor is required to give notice and there is no contract. If notice is required and there is no contract, the measure of damages is "the reasonable value of the work done, and of the skill, material, and machinery furnished," but the sum "shall not exceed the total of" any contract that was made plus the reasonable value of "additional work ordered by the owner" less payments made by the owner. Minn. Stat. § 514.03, subd. 2(b), (c).
In Standard Construction Co. v. National Tea Co., the parties entered into a contract, but "[p]lan changes, confusion, and delays" significantly increased the cost of the project. 240 Minn. 422, 424-25, 62 N.W.2d 201, 203 (1953). The district court awarded the contractor "the original price, plus allowable change orders," and the supreme court affirmed that award. Id. at 425, 432, 62 N.W.2d at 203, 207.
Section 514.03 determines the measure of damages. See Enviro-Fab, Inc. v. Blandin Paper Co., 349 N.W.2d 842, 848 (Minn.App. 1984) (quoting Minn. Stat. § 514.03 to establish the calculation of damages) review denied (Minn. Sept. 12, 1984). The standard of review is whether the award is reasonably supported by the evidence. See id. (stating that the district court's damages award was "reasonably supported by the evidence").
Owens's argument that the recovery can only be for the amount of the contract is not supported by Minnesota law. The supreme court, in Standard Construction, allowed an award higher than the contract amount because changes to the work ordered after the contract was entered into significantly increased the cost to the contractor. 240 Minn. at 424-26, 62 N.W.2d at 203-04. Thus, when the owner orders changes that significantly increase the cost of the project after the contract is entered into, the contractor is not bound by the contract price. See id. (refusing to hold the contractor to merely the contract price).
Owens also argues that the proper measure of damages is the contract price plus the amount for the additional work, as was awarded in Standard Construction. But Lakehead was not required to give notice to Owens, as discussed elsewhere in this opinion, and thus the proper calculation of damages is found in Minn. Stat. § 514.03, subd. 1, and that calculation does not provide for the contract price plus the amount of the additional work.
Here, Owens ordered numerous, substantial changes, and thus the original contract no longer applied. The measure of damages is no longer as provided in subdivision 1(a) because the contract no longer represents the agreed-on terms. Instead, the proper measure of damages is subdivision 1(b), which provides for an award of the "reasonable value" of Lakehead's work, precisely the analysis performed by the district court. Because Owens ordered substantial changes to the work to be performed and thus vitiated the contract, the district court properly applied the "reasonable value" standard in calculating damages stated under the mechanic's lien statute. Therefore, the district court applied the proper standard in determining damages. The district court reviewed the costs and determined that some costs were reasonable and other charges were not, as Minn. Stat. § 514.03, subd. 1(b), requires. We see no reason to disturb the district court's findings in reaching these conclusions.
2. Timeliness of filing the lien
The parties agree that, if the last item of work was performed in May 2002, then the lien was timely filed; they also agree that if the last item of work was performed in December 2001 then the lien was not timely filed. Thus, the question is whether the work performed in May was part of the earlier work.
"Whoever . . . contributes to the improvement of real estate by performing labor, or furnishing skill, material or machinery . . . shall have a lien upon the improvement, and upon the land on which it is situated. . . ." Minn. Stat. § 514.01 (2002). "The lien ceases at the end of 120 days after doing the last of the work, or furnishing the last item of skill, material, or machinery, unless within this period: (1) a statement of the claim is filed. . . ." Minn. Stat. § 514.08, subd. 1 (2002). When the last item of work is performed is a question of fact and is only reviewed to determine whether the record reasonably supports the district court's determination. Kahle v. McClary, 255 Minn. 239, 242, 96 N.W.2d 243, 246 (1959).
If the disputed work is part of a continuous operation with the earlier work, then it constitutes the last item of work, but if the disputed work is independent of the earlier work, the disputed work does not constitute the last item of work. Id. In other words, courts "consider construction work to be one single improvement if it serves the same general purpose or if all the parts form one single improvement," but "[t]he court considers construction projects separate improvements if `little or no relationship' exists between the underlying contracts." Poured Concrete Found., Inc. v. Andron, Inc., 529 N.W.2d 506, 510 (Minn.App. 1995), review denied (Minn. May 31, 1995). Factors in determining whether work is continuous or separate are (1) the length of time between the work, (2) the amount of the subsequent work, and (3) "the general circumstances under which the work was done." Kahle, 255 Minn. at 241-42, 96 N.W.2d at 246. Small amounts of work done solely to extend the time for filing the lien notice will not extend the time. Andron, 529 N.W.2d at 511.
In Andron, two years elapsed before the final work was performed on a contractor's job. 529 N.W.2d at 512. Despite the long delay, this court concluded that it was not so long to conclude that it was a separate project. Id. Further, the disputed work took three days to perform, which this court concluded was not "nominal or insignificant." Id.
Here, Lakehead quit working in late December 2001 and performed additional work in early May 2002. That is little more than four months between periods of work. It is considerably less than the two years held permissible in Andron. The work at issue here is not minimal; it took three days to complete.
But most importantly, and the district court so found, the work was necessary to complete the project and to obtain a certificate of occupancy. Owens now argues that this is a separate project because it was for his personal residence, but the separate project analysis is a distinction he has not previously made.
In any event, Owens's testimony makes it clear that he believed that Lakehead had not finished the project in December when it left. Owens testified that the work performed in May was needed to finish the work on his residence, which was part of phase II. There was testimony, mostly by implication, that the work was necessary in order to get a certificate of occupancy. Further, the district court explicitly found that the work was necessary to obtain the certificate. Thus, the general character of the work is as a continuation of the earlier work.
Owens cites the fact that, prior to being allowed to perform the work, Lakehead agreed to Owens's demand to sign a statement that the work at issue was outside the scope of the earlier work. Owens demanded this provision because he was aware that the May work had the potential to extend the time to file a mechanic's lien. But because the standard of review is whether the evidence reasonably supports the district court's finding that the May work was part of a continuous project, we affirm the district court's ruling because there was evidence in the record that the May work was a single project with the earlier work.
3. Pre-lien notice
Minn. Stat. § 514.011 requires contractors to give real property owners written notice of the possibility of a lien prior to beginning work on the property. Minn. Stat. § 514.011, subd. 1 (2002). But if the owner acts as his own general contractor, the owner is not entitled to pre-lien notice. Minn. Stat. § 514.011, subd. 4a. "This exception to pre[-]lien notice is consistent with the general purpose of pre[-]lien notice; the exception applies in cases where the owner is not unsuspecting." Pelletier Corp. v. Chas. M. Freidheim Co., 383 N.W.2d 318, 321 (Minn.App. 1986), review denied (Minn. May 16, 1986). The district court's finding that an owner is also the general contractor is only reversed if it is clearly erroneous. See id. (stating "[t]he issue before us is whether the trial court clearly erred in finding Pelletier was a `contractor'").
The district court here found that Owens did act as his own general contractor and therefore was not entitled to pre-lien notice that Lakehead was permitted to file a lien on Owens's property. Both parties agree that Lakehead never gave Owens a pre-lien notice.
Pelletier provides some guidance in our analysis. In Pelletier, the real estate owner was a closely held corporation solely owned by its president and was "a real estate development and investment business" separately contracting with builders to provide the necessary services but characterized its role as "coordinating" rather than "supervisory." Id. at 319. The owner applied for the building permits, and the permits identified the owner as both the owner and the general contractor. Id. The district court found that the owner was the general contractor because "(1) [the owner] entered into separate contracts for the different jobs necessary to complete the projects, (2) [the owner] supervised and controlled the work at the project sites, and (3) [the owner] applied for building permits and indicated it was the contractor." Id. at 321-22. This court affirmed the district court because the owner "obtained building permits indicating [it] was the contractor, and began to build three different housing units for resale at a profit" and "contracted with numerous suppliers," which are "duties and obligations a contractor would ordinarily undertake." Id. at 322.
This case is factually indistinguishable from Pelletier. Here, Owens applied for most of the necessary permits, which identified him as the contractor. Owens separately hired each of the necessary contractors himself. Owens was doing the project so that he could resell most of the units at a profit. Pelletier supports the district court's finding that Owens was a general contractor, and we do not disturb that finding.
As part of his argument that he was not serving as a general contractor, Owens points to the presence of a project manager. But the project manager only assisted in phase I, not phase II, the phase in dispute, and the project manager was hired to help Owens, and was never described as, or given the duties of, a general contractor. The record reasonably supports the district court's finding that Owens acted as his own general contractor.