Ridge Heating, Air Conditioning and Plumbing, Inc. v. Brennen

783 A.2d 691, 366 Md. 336, 2001 Md. LEXIS 788

• Court: Court of Appeals of Maryland
• Decided: October 19, 2001
• Docket: 135, Sept. Term, 2000
• Status: Published

Opinions

RAKER, Judge.

The question in this case is whether a subcontractor who works on an addition to an existing home can impose a mechanic’s lien on the home when the homeowner has already paid the general contractor for the subcontractor’s services. The Circuit Court for Baltimore County granted summary judgment to respondents, Robert and Elizabeth Brennen, based on Maryland Code (1974, 1999 RepLVoL, 2001 Supp.) § 9-104(f)(3) of the Real Property Article, which limits the right of a subcontractor to obtain a mechanic’s hen on a single family dwelling.¹ The Court of Special Appeals affirmed. Ridge Heating, Air Conditioning & Plumbing, Inc. v. Bren-nen, 135 Md.App. 247, 762 A.2d 161 (2000). We shall hold that § 9 — 104(f)(3) applies to improved homes as well as new homes and therefore affirm.

In December 1997, Ridge Heating, Air Conditioning, and Plumbing, Inc. (“Ridge”), a subcontractor, contracted with Timberwood Construction, Inc. (“Timberwood”), a general contractor, to provide and install heating, air conditioning and plumbing for an addition to the home of Mr. and Mrs. Bren-nen (the “Brennens”). Ridge’s contract was pursuant to a general contract that required Timberwood to complete construction on the addition to the Brennens’ home by April 25, 1998, and the Brennens to pay progress payments totaling $153,085.

Due to financial difficulties, Timberwood abandoned the project on August 3, 1998, breaching its contracts with the Brennens and Ridge. The Brennens found another contractor to finish the job at an additional cost. After the breach, the Brennens were not indebted to Timberwood for any of the work done prior to the breach, including the labor and materials supplied by Ridge. Ridge, however, had not been paid by Timberwood, and on September 30, 1998, Ridge filed a two-count Complaint to Establish and Enforce a Mechanic’s Lien against the Brennens in the Circuit Court for Baltimore County. On October 5, 1998, the Circuit Court issued an Order to Show Cause, commanding the Brennens to show cause why the hen should not attach to their property. The Brennens filed a Verified Answer on October 22,1998, denying liability on the grounds that they were not indebted to Tim-berwood.

At the show cause hearing on November 12, 1998, the parties agreed, by Consent Order, that the matter should be set for trial in the normal course and that no final lien would be entered at that stage of the proceedings. Following discovery, the Brennens filed a Motion for Summary Judgment on May 9, 1999. On December 29, 1999, Judge Robert E. Cadigan granted summary judgment in favor of the Brennens on the basis that § 9 — 104(f)(3) applied to the Brennens’ home and that Ridge failed to show that the Brennens were indebted to Timberwood.

Ridge noted a timely appeal to the Court of Special Appeals, presenting the following question:

“Did the trial court err in applying Real Property § 9-104(f)(8) of the Maryland Annotated Code, limiting an owner’s liability to a subcontractor who performs work on the owner’s single family dwelling?”

The Court of Special Appeals affirmed the judgment of the Circuit Court on three grounds: (1) that the Court of Special Appeals’ decisions and the decisions of this Court have consistently construed § 9 — 104(f)(3) in favor of homeowners; (2) that, in crafting § 9 — 104(f)(3), the Legislature did not intend to distinguish between new and existing homes; and (3) that Ridge bore the risk of breach by Timberwood because, as a subcontractor, Ridge was in a better position to know the general contractor’s financial condition.

We granted Ridge’s petition for writ of certiorari to consider the issue of whether § 9-104(f)(3) applies to an addition to an existing single family dwelling. Ridge Heating v. Brennen, 362 Md. 624, 766 A.2d 147 (2001).

Before delving into the meaning of the statutory language of § 9-104(f)(3), it is helpful to understand the structure of Maryland’s mechanic’s lien law. In Winkler Const. Co., v. Jerome, 355 Md. 231, 734 A.2d 212 (1999), we explained how the mechanic’s lien law protects subcontractors:

“Maryland Code, § 9-102' of the Real Property Article provides, in relevant part, that every budding that is either newly erected or repaired to the extent of 15% of its value is subject to a lien — a mechanic’s lien — for the payment of all debts contracted for work done and materials supplied for or about the building. That includes debts owing to subcontractors who have no privity with the owner of the property and whom the owner may not even know worked on or supplied materials for the building.”

Id. at 235, 734 A.2d at 214-15. We also found that the mechanic’s lien law historically has been construed in the most liberal and comprehensive manner in favor of mechanics and materialmen. Id. at 246, 734 A.2d at 221 (quoting T. Dan Kolker, Inc. v. Shure, 209 Md. 290, 296, 121 A.2d 223, 226 (1956)). This liberal construction is essential to subcontractors, who enhance the value of the homeowner’s property but have no direct contractual relationship with the owner and therefore cannot otherwise subject the owner’s property or assets to a mechanic’s lien. Id.

In 1982, Chapter 251 of the Real Property Article, also known as the “residential exception,” was enacted. In contrast to the general purpose of the mechanic’s lien law, discussed above, the goal of the residential exception is:

“to ‘limit[ ] the liability of an owner to a subcontractor for work performed and materials rendered by the subcontractor on a single family dwelling erected on the owner’s land for his own residence, to the extent that the owner has rendered payment to the contractor.’ The expressed intent of the Legislature was clearly remedial, but remedial, in this instance, in favor of the owner, rather than the claimant. The ability under the existing law of an owner, upon receipt of a subcontractor’s notice, to withhold the amount of the claim from the prime contractor was obviously not regarded as sufficient protection in the case of a single family residence being built for the owner’s own residential use. By the time the notice is received, the owner may already have paid the prime contractor or have accumulated set-offs or credits exceeding what is owed on the contract.”

Winkler Const., 355 Md. at 248, 734 A.2d at 222. The statute we are here concerned with, Real Property § 9-104(f)(3), is part of Chapter 251 and reads as follows:

“(f) Payments by owner to contractor after notice, limitation on lien against certain single family dwellings.—

(3) Notwithstanding any other provision of this section to the contrary, the lien of the subcontractor against a single family dwelling being erected on the land of the owner for his own residence shall not exceed the amount by which the owner is indebted under the contract at the time the notice is given.”

Ridge argues that, although the Brennens have paid for the work done on their home, § 9 — 104(f)(3) does not protect them against a lien because the phrase “dwelling being erected” means new homes, not homes repaired, rebuilt or improved. Ridge’s argument is based on the statutory language, case law, and policy.

In interpreting § 9 — 104(f)(3), Ridge relies heavily on other sections of the residential exception that refer to “buildings erected” and buildings “repaired, rebuilt, or improved.” For example, § 9-102(a) reads as follows:

“Every building erected and every building repaired, rebuilt or improved to the extent of 15 percent of its value is subject to establishment of a lien in accordance with this subtitle for the payment of all debts, without regard to the amount, contracted for work done for or about the building and for materials furnished for or about the building, including. ...”

According to Ridge, the opening sentence of § 9-102(a) clearly differentiates between a building erected, meaning a newly-constructed home, and every building repaired, rebuilt or improved. It follows, Ridge reasons, that, if the Legislature intended § 9 — 104(f)(3) to apply to new and existing homes, it would have said as much, as it did in § 9-102(a).

As for case law, Ridge correctly observes that no Maryland court has considered the meaning of the phrase “being erected.” Nevertheless, Ridge draws three points from a single case, Ridge Sheet Metal Co., Inc. v. Morrell, 69 Md.App. 364, 517 A.2d 1133 (1986). Ridge argues that: (1) although a significant change occurred in the mechanic’s lien law in 1982, it is still to be interpreted in favor of mechanics and suppliers; (2) the Legislature intended to limit the protection of § 9 — 104(f)(3) to owners of new homes; and (3) the residential exception was designed to jumpstart the housing market during an economic downturn by protecting owners of new homes from mechanics’ liens.

We do not find Ridge’s arguments persuasive. The statutory language is anything but clear as to the distinction between new and improved homes. The phrase “being erected” may reasonably be applied to many types of construction, including new homes, an addition to an existing home, or a home erected on an existing foundation after a disaster such as a fire. In Tucker v. Fireman’s Fund Insurance Co., 308 Md. 69, 517 A.2d 730 (1986), we recognized the rule that:

[WJhere a statute is plainly susceptible of more than one meaning and thus contains an ambiguity, courts consider not only the literal or usual meaning of the words, but their meaning and effect in light of the setting, the objectives and purpose of the enactment. In such circumstances, the court, in seeking to ascertain legislative intent, may consider the consequences resulting from one meaning rather than another, and adopt that construction which avoids an illogical or unreasonable result, or one which is inconsistent with common sense.

Id. at 75, 517 A.2d at 732-33 (citations omitted).

The Legislature has not indicated, nor has any court suggested, that other sections of the statute draw the distinction Ridge seeks. We find that, in enacting § 9-102(a), the Legislature likely intended to establish that, for the purposes of the mechanic’s lien laws, a building that is “erected” is the equivalent to one that is “repaired, rebuilt, or improved to the extent of 15% of its value.” The crucial distinction is between homes improved to the extent of 15% of their value and homes improved to less than 15% of their value, not merely between new and improved homes.

The holdings of this Court and the courts below reinforce our reading of the Legislature’s intent. The language of Ridge Sheet Metal Co., Inc. v. Morrell, 69 Md.App. 364, 517 A.2d 1133, cited by Ridge for the proposition that the Legislature intended to limit § 9-104(f)(3) to construction of new homes, reads as follows:

“Turning to the legislative intent, we glean from the preamble to chapter 251 quoted previously that the Legislature intended in limited situations to shift the risk of loss from the owner of a single family dwelling to the subcontractor. The enactment of § 9-114 under chapter 251 in 1982 further evidences the Legislature’s intent to ameliorate owner liability.”

Id. at 374, 517 A.2d at 1138 (emphasis added). At no point does the Court of Special Appeals state or imply that “limited situations” means only those situations where a homeowner builds a new home. Moreover, the relevant case law has evolved since Ridge Sheet Metal. See Winkler Const. Co., v. Jerome, 355 Md. 231, 734 A.2d 212 (1999); Reisterstown Lumber Co. v. Tsao, 319 Md. 623, 574 A.2d 307 (1990); Best Drywall, Inc. v. Berry, 108 Md.App. 381, 672 A.2d 116 (1996); F. Scott Jay & Co., Inc. v. Vargo, 112 Md.App. 354, 685 A.2d 799 (1996); Grubb Contractors v. Abbott, 84 Md.App. 384, 579 A.2d 1185 (1990).

Generally, courts have hesitated to construe the statute against homeowners. For example, in Best Drywall, Inc. v. Berry, the court decided whether a vacation home is a single family dwelling being erected on the land of the owner for his own residence within the meaning of § 9-104(f)(3). Best Drywall, 108 Md.App. at 383, 672 A.2d at 117. In so doing, the court applied from Grubb Contractors and Ridge Sheet Metal the principle that,

“contrary to the general purpose of the overall mechanic’s lien statute to protect subcontractors and materialmen, § 9-104(f)(3) clearly has as its purpose an intent to shift responsibility for insuring payment of a subcontractor from the owner of the dwelling to the prime contractor, i.e., to limit the subcontractor’s ability to lien the single family residence. Consistent with the reasoning in Ridge Sheet Metal that the subcontractor’s broad reading of “indebted” in § 9-104(f)(3) was inimicable [sic] to the intended limiting effect of that particular section of the statute, we conclude here that Best Drywall is better able than appellees to bear the risk of loss in this type of situation also.”

Id. at 394, 672 A.2d at 123.

This Court has dealt with § 9 — 104(f)(3) twice since Ridge Sheet Metal. In Reisterstown. Lumber Co. v. Tsao, 319 Md. 623, 574 A.2d 307 (1990), we held that whether a new home is intended as the owner’s “own residence” is determined as of the time when the subcontractor commences work. Id. at 631, 574 A.2d at 311. We reasoned that, by using the phrase “own residence,” the General Assembly surely did not intend to put on the lien claimant the burden of proving that throughout the entire course of construction the owner of the home intended to make it his “own residence.” Id. Later, in Winkler Const. Co., Inc. v. Jerome, 355 Md. 231, 734 A.2d 212 (1999), we held that § 9-104(f)(3) does not require the hen claimant to aver in the complaint whether, at the time the subcontractor’s notice was sent, the owner had paid the prime contractor in full. Id. at 253, 734 A.2d at 224. The basis for this holding was the same as in Reisterstoum: “that the mechanic’s lien law should not be construed in such a way as to make the burden on the claimant so difficult as effectively to withdraw the remedy that the Legislature has clearly provided.” Id. at 252, 734 A.2d at 224.

Reisterstown and Winkler are not controlling in that they concern the burdens borne by a lien claimant, whereas here we are concerned with a phrase that governs the applicability of the statute. Nevertheless, we may still draw two lessons from Reisterstoum and Winkler: in interpreting § 9-104(f)(3), we seek rules that can be applied with “relative simplicity,” Reisterstoum, 319 Md. at 631, 574 A.2d at 311, and that strike a fair and reasonable balance of the competing interests of homeowners and subcontractors. Winkler, 355 Md. at 254, 734 A.2d at 225.

There is no support for the claim that the Legislature, in attempting to encourage construction, favored construction of new homes over improvements. In Ridge Sheet Metal, the Court of Special Appeals reasoned that “[i]ncreasing the risk of double payment for the single family dwelling owner may well dampen the enthusiasm of the prospective house builder.” 69 Md.App. at 375, 517 A.2d at 1138. This analysis, however, was part of the court’s discussion of “manifest fairness,” not legislative intent. Moreover, if Ridge’s view were adopted, a family that has paid for building a new home on a vacant lot would not be subject to a subcontractor’s lien, while a family such as the Brennens, having spent the same amount of money, will be in danger of losing their home through foreclosure on a mechanic’s lien. Creating a risk of double payment for homeowners considering expensive improvements surely will not benefit the construction industry, which profits from improving homes. Because the Legislature has given us no indication that it wanted to encourage only one type of construction, we cannot ascribe to it an intent that would impede rather than encourage construction.

In light of the foregoing, we hold that § 9 — 104(f)(3) applies to an addition to an existing home. We see no basis in the statutory language or case law for reading the phrase “being erected” so that a the owner of a new home is protected from double payment while the owner of a improved home is not. In keeping with Reisterstown and Winkler, our reading allows for simple and efficient application of § 9 — 104(f)(3). Finally, favoring owners of new homes over owners of improved homes is inconsistent with the one policy rationale Ridge has supplied: encouraging new construction. Assuming Ridge is correct that the Legislature hoped to increase construction, then, absent evidence of contrary legislative intent, § 9-104(f)(3) should be interpreted to foster construction on new and existing homes.

JUDGMENT OF THE COURT OF SPECIAL APPEALS AFFIRMED; COSTS TO BE PAID BY PETITIONERS.

1 . Unless otherwise noted, all statutory references are to Maryland Code (1974, 1998 Repl.Vol., 2001 Supp.), Real Property Article.