Compass Bank v. Brickman Group, Ltd.

107 P.3d 955, 2005 WL 517749

• Court: Supreme Court of Colorado
• Decided: March 7, 2005
• Docket: 03SC632
• Status: Published

Opinions

COATS, Justice.

Compass Bank, the defendant in an action brought by the Brickman Group to foreclose on a mechanics’ lien, sought review of the court of appeals reversal of a judgment invalidating the lien. See Brickman Group, Ltd. v. Compass Bank, 83 P.3d 1167 (Colo.App.2003). The district court had found Brick-man’s blanket lien invalid because it included fewer than all of the properties that benefited under the same contract. The court of appeals reversed, holding that the lien could be enforced against Compass Bank’s properties, despite some of the benefiting properties never having been included in the lien statement and others having been released in settlements with Brickman; and it remanded with directions for an equitable apportionment of the amount of the debt outstanding on the contract.

Because Colorado law permits a mechanics’ lien to include and be enforced against more than one but fewer than all of the properties benefiting under the same contract, as long as a proper apportionment of the debt can be made, the judgment of the court of appeals is affirmed in part. To the extent, however, that the court of appeals’ directions for apportionment fail to account for all of the benefiting properties, its judgment is reversed.

I.

In August 2000, The Brickman Group, Ltd. recorded a mechanics’ lien, describing the common areas of a residential community project and nine contiguous housing units. Two months later, it filed suit against the developer, Anthem Communities/R.G.B., LLC. Some three or four years earlier, Brickman and its predecessor in interest had entered into contracts with Anthem and had begun providing labor and materials in the common areas of the first phase of the project, which included the main entrance and 48 town and manor homes. At the time Brickman filed its lien, 21 of the 48 units remained unsold, and by agreement, Anthem continued to make partial payments on the contract as each unit was sold.

In May 2001, Compass Bank was appointed receiver for 11 units, for which its predecessor in interest had made construction loans, secured by deeds of trust; and Compass began foreclosing on those units. Four of those units were among the nine described in Brickman’s lien. All foreclosure proceedings were temporarily stayed when Anthem filed a voluntary petition in Bankruptcy; but in February 2002, pursuant to an agreement with Anthem, Compass was relieved of the stay and proceeded with foreclosure sales. One of the four units was sold and released from Brickman’s lien in exchange for a portion of the outstanding debt remaining on Anthem’s contract. Of the remaining three Compass Bank/Brickman units, Compass was the only bidder at foreclosure sales and took title to two of the units when the redemption periods expired, subject only to the claims of senior lienors. The third unit remained under negotiation for purchase at the time of trial in this case.

Brickman too was relieved of the Bankruptcy stay, and it also proceeded with its foreclosure action. Because some of the units listed in its lien were units in which Compass had an interest, Brickman amended its pleadings to join Compass as a defendant. Before trial, the five Anthem units in which Compass had no interest were released by Brickman, as they were sold, in exchange for some portion of the outstanding obligation on the contract. Therefore, at the time of trial, the only units encumbered by Brickman’s lien were the three units owned (or in foreclosure) by Compass Bank.

At the time of filing its lien, Brickman claimed an unpaid balance of $182,659. By the time of trial, in July 2002, Brickman had recovered an additional $102,448. By its own calculations, including interest on the unpaid amount, Brickman claimed $158,891 against the remaining three Compass properties. At trial, Compass' conceded that Brickman’s mechanics’ lien was senior to its own deeds of trust, and contested only the validity and enforceability of a single mechanics’ lien claim against more than one, but fewer than all, of the properties benefiting under the contract.

The district court accepted the factual assertions of the parties and entered judgment for Compass Bank. It declared Brickman’s lien invalid, reasoning that even though a person supplying labor or materials is sometimes entitled to file a single lien describing all of the properties benefiting under a single contract, he cannot file a lien, for the entire balance of the contract, against fewer than all of the benefiting properties. Briekman appealed. The court of appeals reversed, holding that the Colorado statutory scheme has been construed to permit a mechanics’ lien describing more than one but fewer than all of the properties benefiting from work done pursuant to a single contract, as long as the value of the work can be equitably apportioned; and further, that equitable apportionment was possible in this case.

II.

The right to a mechanics’ lien is wholly a creature of statute. Independent Trust Corp. v. Stan Miller, Inc., 796 P.2d 483, 487 (Colo.1990) (“ITC ”). For more than a century, Colorado statutes have permitted the filing of separate lien claims on each of several buildings, structures, or other improvements for which labor and materials were provided under a single contract, in proportion to the value of the labor and materials furnished for the particular structure or improvement. See Mechanics Liens, 1899-1901 Colo. Sess. Laws 261, 321 (currently section 38-22-103, C.R.S. (2004)).¹ Our statutes have also permitted, however, a single lien claim against all such buildings, structures, or other improvements (together with the ground upon which they are situated), if the cost or value of the labor or materials cannot be readily and definitely apportioned; and in that case, all of the improvements are deemed one improvement, and the land on which they are situated, one tract of land. Id. Although the statute does not define or use the term, such liens that purport to cover several pieces of property in one statement have been referred to as “blanket liens.” See Buerger Inv. Co. v. B.F. Salzer Lumber Co., 77 Colo. 401, 403, 237 P. 162, 163 (1925).

Unlike a number of other jurisdictions, see ITC, 796 P.2d at 487, we have long construed our mechanics’ lien statutes (and this section in particular) liberally, according to equitable principles, see Buerger, 77 Colo. at 406-07, 237 P. at 164-65, for the benefit and protection of mechanics and material-men. See Darien v. Hudson, 134 Colo. 213, 302 P.2d 519 (1956). We have held that when construed reasonably, liberally, and equitably, section 38-22-103(4) provides a claimant various options, based on his ability to apportion the value of his work. The statute was not intended, however, to force a claimant to choose whether to apportion or file a blanket lien, and later pay for even a harmless mistake of fact or law by losing his whole lien. Buerger, 77 Colo. at 407, 237 P. at 165.²

Consistent with this understanding, we have always sought to avoid a needless and inequitable loss of a mechanic’s or mate-rialman’s security interest. Although a lien clearly cannot attach to property other than that mentioned in the lien statement, see Perkins v. Boyd, 37 Colo. 265, 86 P. 1045 (1906); see also First National Bank in Fort Collins v. Sam McClure & Son, Inc., 163 Colo. 473, 431 P.2d 460 (1967), where a claimant has chosen to file against a single property, even though multiple properties were benefited under the same contract and the value of the work cannot be apportioned among them, we have held that the entire debt on the contract can nevertheless be recovered from the single encumbered property, as long as the debtor holds the sole interest in all of the properties benefiting under the contract. Id.

Similarly, where a claimant has chosen to file a blanket lien, we have held that the failure to show that the claim cannot be apportioned is not a defect in the action itself but merely goes to the availability of relief. See Buerger, 77 Colo. at 405-07, 237 P. at 164-65. As long as there is support for any kind of lien, the court is not barred from allowing a segregated lien or liens against each property. Id. If a claimant chooses in good faith to file a blanket lien on more than one structure or improvement, and it turns out that an apportionment is possible after all, the court may therefore equitably apportion the debt in its decree. Id.

Naturally enough, it follows that a blanket lien is not rendered invalid merely because some of the covered properties, benefiting under the same contract, are released from the lien. See id. The lien may still be enforced against the remaining properties by crediting an equitable portion of the value of labor and materials provided under the contract to the released properties. Id. For the same reasons, describing in a blanket lien (from the moment of its filing) fewer than all of the properties benefiting under the same contract does not render the lien invalid; it simply affects the availability of relief.

The district court therefore erred in declaring invalid Brickman’s lien solely because it claimed the entire unpaid balance of the contract and described more than one but fewer than all of the properties benefiting under the contract. While the court of appeals clearly reached this same conclusion, it erroneously rejected as dictum our statement in ITC that “a blanket mechanics’ lien upon several properties for materials and labor benefiting the properties may not be enforced against less than all of the properties in the absence of some showing of proper apportionment.” That court’s confusion appears to have arisen both from its misreading of Buerger to endorse a position that it actually rejected, and from its treatment of the segregated, single-property liens in Perkins and McClure as “blanket liens.”

With regard to the former, the court of appeals attributed to Buerger the conclusion that “where a blanket lien is permitted, each part is liable for the whole lien even against subsequent purchasers.” Brickman, 83 P.3d at 1170 (quoting Buerger, 77 Colo. at 405, 237 P. at 164). Although we found such a solution to the problem of releasing some properties from a blanket lien preferable to holding that “a release of part releases all,” we ultimately rejected both approaches in favor of allowing a blanket lien against the remaining properties, “after crediting an equitable portion” to any released properties. Buerger, 77 Colo. at 405, 237 P. at 164.

And with regard to the latter, the court of appeals misunderstood the quoted proposition from ITC to conflict with our rulings of Perkins and McClure, describing a circumstance in which the entire contract debt could be recovered from a single, encumbered property, despite the fact that other properties also benefited under the contract. While it may have been clearer to expressly limit the general rule articulated in ITC — that a blanket mechanics’ lien may not be enforced against less than all of the benefiting properties in the absence of some showing of proper apportionment — to blanket liens involving properties other than those owned by the debtor himself, free of any other interests (as was actually the case in ITC), in no event could the quoted proposition conflict with our holdings in Perkins and McClure, because they addressed the recoverability of the unpaid balance of a contract in the absence of, rather than upon, a blanket lien.

To the extent that the general rule, as restated in ITC, necessarily implies that blanket liens are enforceable upon a showing of proper apportionment against fewer than all of the benefiting properties, it is not only an accurate statement of the law, but actually controls the outcome of this case.

III.

The mere fact that labor was not performed on, and materials were not provided to, specific buildings, structures, or other improvements does not, of course, mean that they were not benefited by the contract or that the value of the labor and materials provided under the contract cannot be apportioned among them. Perhaps the quintessential example of such apportionable value exists in a contract for improvements to the common elements of a condominium. Where the common elements are areas of land and improvements comprising the condominium, as defined in the Condominium Ownership Declaration, in which each unit owner owns an undivided fractional interest and shares non-exclusive, joint possession with all other unit owners,³ the proportion in which each unit benefits by improvements to the common elements is clear. See Plateau Supply Co. v. Bison Meadows Corp., 31 Colo.App. 205, 500 P.2d 162 (1972). Even in planned communities or subdivisions in which individual property owners do not own an undivided fractional interest in common elements,⁴ however, the value of improvements that benefit the community as a whole may still be apportionable among the units comprising the community, under some circumstances. See, e.g., CS & W Contractors, Inc. v. Southwest Sav. & Loan Assoc., 180 Ariz. 167, 883 P.2d 404 (1994) (basic infrastructure, such as roads, sewers and water lines, equally benefit the individual lots of a subdivision).

Equity in apportioning the value of work done under a single contract (and therefore equity in apportioning the debt remaining on the contract) necessarily depends upon the proportion in which each of the structures or properties benefited from the work done under the contract. Although mechanics’ liens are created and maintained for the protection and benefit of mechanics and materialmen, the value of work done under a single contract cannot be apportioned according to the capacity of the lienor, in law or in fact, to recover his entire debt. While the lienor’s good faith decision to include some but not all of the properties benefiting under a contract, or to release certain properties, does not invalidate a blanket lien, it clearly may affect the extent to which the remaining debt can be recovered from the remaining encumbered properties. See, e.g., CS & W Contractors (lienor could extract only 4/52nds of value of original contract for work on roads, sewers, and water lines benefiting 52-unit subdivision, unless he could show that more value was received by the four units included in his blanket lien).

Similarly, while later sales or encumbrances may recast the interested parties or alter the nature and priority of their interests, they cannot change the proportion in which the properties benefited from performance of the contract. See, e.g., Brunzell v. Lawyers Title Ins. Corp., 101 Nev. 395, 705 P.2d 642 (1985) (where lienor attempted to collect entirety of lien against unsold 36 units of 72-unit condominium, it could enforce only 1/72nd of contract against each); Stevens Constr. Corp. v. Draper Hall, Inc., 73 Wis.2d 104, 242 N.W.2d 893 (1976) (allocating l/35th of total contract amount to each of eight units already sold in 35-unit condominium). Statutory provisions relating mechanics’ liens back to the time of the commencement of work under a contract between the owner and first contractor, see section 38-22-106(1), C.R.S. (2004), are clearly designed to preserve the priority of the mechanic’s interest, notwithstanding subsequent sales and encumbrances; but a failure, including even a legal inability, to collect an appropriate portion of the unpaid debt from sold or otherwise encumbered properties cannot increase the benefit enjoyed by the remaining properties.

On remand, the district court must determine whether and, if so, precisely how an equitable apportionment can be made of the value of the work performed under the contract, consistent with the principles outlined in this opinion. Because the district court erroneously found Brickman’s lien invalid and dismissed Brickman’s action, the record before this court is inadequate for such a determination.⁵ To the extent that the court of appeals directions for apportionment on remand, however, suggest that the unpaid amount of the contract claimed by Brickman in its lien must be apportioned among the 21 units that remained unsold at the time of filing, those directions are inconsistent with this opinion and are therefore rejected. Instead, the remaining debt can be recovered from the remaining encumbered properties, if at all, only to the extent that each actually benefited from the work performed under the contract.

IV.

The judgment of the court of appeals is therefore affirmed in part and reversed in part, and the case is remanded to attempt an equitable apportionment of the outstanding debt.

1 . Section 38-22-103(4) provides:

Whenever any person furnishes any laborers or materials or performs any labor, for the erection, construction, addition to, alteration, or repair of two or more buildings, structures, or other improvements, when they are built and constructed by the same person and under the same contract, it is lawful for the person so furnishing such laborers or materials or performing such labor to divide and apportion the same among the buildings, structures, or other improvements in proportion to the value of the laborers or materials furnished for and the labor performed upon or for each of said buildings, structures, or other improvements and to file with his or her lien claim therefor a statement of the amount so apportioned to each building, structure, or other improvement. This lien claim when so filed may be enforced under the provisions of this article in the same manner as if said laborers or materials had been furnished and labor performed for each of said buildings, structures, or other improvements separately; but if the cost or value of such labor, laborers, or materials cannot be readily and definitely divided and apportioned among the several buildings, structures, or other improvements, then one lien claim may be made, established, and enforced against all such buildings, structures, or other improvements, together with the ground upon which the same may be situated, and in such case for the purposes of the article, all such buildings, structures, and improvements shall be deemed one building, structure, or improvement, and the land on which the same are situated as one tract of land.

2 . "The construction asked for by plaintiff in error would make the transaction like a game of cards where a misplay brings disaster merely because it is a misplay. There has been too much of that sort of construction of the Meehanic’s Lien Law, and it ought to go no farther.” Buerger, 77 Colo. at 407, 237 P. at 165.

3 . Condominium ownership is recognized and governed by statute in Colorado. See Condominium Ownership Act, §§ 38-33-101 to -113, C.R.S. (2004). As we have pointed out before, the “very definition of a condominium requires the existence of an undivided interest in common elements." Trailside Townhome Assoc., Inc. v. Acierno, 880 P.2d 1197, 1200 (Colo.1994) (citing Cheiry Hills Resort Dev. v. Cherry Hills, 790 P.2d 827, 830 (Colo.1990)).

4 . The parties in this case now agree that the unit owners do not own the common areas, although the court of appeals apparently believed otherwise. See Brickman, 83 P.3d at 1171.

5 . In light of apparent change orders, even the contract price for all of the work performed remains unclear.