Skyline Consulting v. Mortensen

2022 MT 192, 518 P.3d 462

Opinion

10/04/2022

DA 22-0103 Case Number: DA 22-0103

IN THE SUPREME COURT OF THE STATE OF MONTANA

2022 MT 192

SKYLINE CONSULTING GROUP,

Plaintiff and Appellant,

v.

MORTENSEN WOODWORK, INC.,

Defendant and Appellee.

APPEAL FROM: District Court of the Eighteenth Judicial District, In and For the County of Gallatin, Cause No. DV-21-1215B Honorable Rienne H. McElyea, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Cherche Prezeau, Colin Phelps, Christensen & Prezeau, PLLP, Helena, Montana

For Appellee:

Ryan Lorenz, E.J. Guza & Associates, Bozeman, Montana

James R. Artzer, Henner & Scarbrough, LLP, Atlanta, Georgia

Submitted on Briefs: August 17, 2022

Decided: October 4, 2022

Filed: ir--6--if __________________________________________ Clerk Justice Beth Baker delivered the Opinion of the Court.

¶1 Skyline Consulting Group appeals an order entered by the Eighteenth Judicial

District Court, Gallatin County, denying its Motion to Vacate and Set Aside Bond

Substitution and Reinstate Construction Lien. We restate and address the following two

issues:

1. Did the District Court err in concluding that Mortensen Woodwork, a subcontractor, could file a substitute bond when Montana law authorizes only a “contracting owner” to do so?

2. Did the District Court err in concluding that Skyline Consulting Group waived its right to challenge the substitute bond by making alternative arguments in the parties’ arbitration proceeding?

We answer both issues affirmatively and reverse.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 This case concerns a dispute between two subcontractors who worked on the

Spanish Peaks Lodge construction project near Big Sky, Montana. In 2019, Suffolk

Construction, the general contractor for the project, subcontracted with Mortensen

Woodwork. Suffolk agreed to pay Mortensen $5.8 million for custom architectural

woodwork to go inside the Lodge. Mortensen, in turn, subcontracted with Skyline

Consulting to install its custom woodwork.

¶3 By the fall of 2021, Skyline alleged that Mortensen owed it nearly $600,000 for

unpaid labor and materials. Mortensen disagreed, contending that Skyline had abandoned

the installation work. To ensure its payment, Skyline filed a construction lien against the

2 Spanish Peaks Lodge property with the intent to pursue foreclosure. In the lien, Skyline

named the owner of the Lodge—SP Hotel Owner.

¶4 To keep the Lodge’s title clear of liens, both Suffolk’s contract with SP Hotel Owner

and Mortensen’s contract with Suffolk required Suffolk and Mortensen to remove any liens

filed by subcontractors against the project. Suffolk accordingly directed Mortensen to

“bond around” Skyline’s lien. Mortensen secured a bond from a surety company for 150%

of the amount Skyline claimed and petitioned the District Court to substitute the bond for

the lien. The District Court did so, freeing up the Lodge’s title.

¶5 Two days after the District Court’s substitution, Skyline filed an answer to

Mortensen in their separate arbitration proceeding. In its arbitration filing, Skyline asserted

that Mortensen “‘improperly filed a petition to substitute a bond for the construction lien”

and “inaccurately represented to the court that it was a ‘contracting owner.’” Skyline

requested to join SP Hotel Owner to the arbitration proceeding, especially “in the event

[Mortensen’s] bond substitution is declared invalid.” Skyline also requested to join Intact

Insurance, the surety that had issued Mortensen’s bond, “which purports to be serve [sic]

as substitution for [Skyline’s] construction lien.”

¶6 A week later, Skyline asked the District Court to reinstate its lien, arguing that

Mortensen, a subcontractor, was not authorized to substitute a bond because Montana’s

construction lien laws allow only a “contracting owner” to do so. The District Court denied

Skyline’s request in a one-paragraph decision, concluding that Mortensen had “acted at the

direction and as the agent of the Owner” and thus could substitute a bond for Skyline’s

lien.

3 STANDARDS OF REVIEW

¶7 The interpretation of a statute is a matter of law, which we review de novo. dck

Worldwide Holdings v. CH SP Acquisition LLC, 2015 MT 225, ¶ 15, 380 Mont. 215,

355 P.3d 724. We review for correctness a district court’s legal conclusion about whether

a party has waived a right. VanDyke Constr. Co. v. Stillwater Mining Co., 2003 MT 279,

¶ 11, 317 Mont. 519, 78 P.3d 844.

DISCUSSION

¶8 1. Did the District Court err in concluding that Mortensen Woodwork, a subcontractor, could file a substitute bond when Montana law authorizes only a “contracting owner” to do so?

¶9 Skyline argues that Mortensen was not permitted to file a bond in substitution for

Skyline’s construction lien because Mortensen was not a contracting owner. Mortensen

responds that its substitute bond is valid because it filed the bond on behalf of and at the

direction of the contracting owner.

¶10 Montana law provides that someone who furnishes labor or materials for a

construction project may secure payment by claiming a lien against the property and

pursuing foreclosure. Section 71-3-523, MCA. Once such a lien has been claimed, “the

contracting owner of any interest in the property, whether legal or beneficial,” may file a

bond in substitution for the lien, clearing up the property’s title while the payment dispute

proceeds. Section 71-3-551(1), MCA (emphasis added). The term “contracting owner” is

defined as “a person who owns an interest in real estate and who, personally or through an

agent, enters into an express or implied contract for the improvement of the real estate.”

4 Section 71-3-522(4)(a), MCA. Montana’s construction lien laws list no other party who

may substitute a bond besides a “contracting owner.”

¶11 When considering the meaning of a statute, courts simply must “ascertain and

declare” what is contained in the words of the statute. Section 1-2-101, MCA. We look to

the statute’s plain language, Comm’r of Political Practices for Mont. v. Mont. Republican

Party, 2021 MT 99, ¶ 7, 404 Mont. 80, 485 P.3d 741, and cannot “insert what has been

omitted.” Section 1-2-101, MCA. Additionally, the procedural requirements of

construction lien statutes “will be strictly construed.” Swain v. Battershell, 1999 MT 101,

¶ 26, 294 Mont. 282, 983 P.2d 873.

¶12 The plain language of Montana’s construction lien laws does not authorize general

contractors (like Suffolk) or subcontractors (like Mortensen) to substitute bonds for liens.

Sections 71-3-522, -551(1), MCA. It allows only contracting owners—those who own an

interest in property and enter into a contract for its improvement—to do so.

Montana law is notably different on this point. For example, the model Uniform

Construction Lien Act explicitly authorizes parties other than contracting owners to

substitute bonds for liens. Unif. Constr. Lien Act § 212 (1987) (“A construction lien does

not attach to real estate . . . if the owner or the prime contractor has procured . . . a

bond . . . .”). So do several of our sister states. See, e.g., Alaska Stat. § 34.35.072 (2021)

(“If the owner of the property . . . or a prime contractor or subcontractor disputes the

correctness or validity of the claim of lien . . . the owner or contractor may record . . . a

bond . . . .”); Cal. Civ. Code § 8424(a) (LexisNexis 2022) (“An owner of real

property . . . or a direct contractor or subcontractor . . . that disputes the correctness or

5 validity of the claim may obtain . . . a lien release bond.”); Wash. Rev. Code § 60.04.161

(2022) (“Any owner of real property subject to a recorded claim of lien . . ., or contractor,

subcontractor, lender, or lien claimant . . . may record . . . a bond . . . .”).

¶13 But Montana law, as it is currently written, allows only contracting owners to

substitute bonds. The Legislature passed the current statute permitting substitute bonds,

§ 71-3-551, MCA, in 1971. It amended the statute in 1987 and again in 2007. In drafting

and amending, the Legislature never added parties, such as general contractors or

subcontractors, who could file substitute bonds.1 Mortensen admittedly owns no interest

in the Spanish Peaks Lodge. Mortensen thus was not a contracting owner and not allowed

to file a substitute bond.

¶14 Mortensen argues that we should allow it to substitute a bond for a lien because our

case law indicates that the purpose of allowing substitute bonds is to allow properties to be

free of liens while contract disputes play out. Total Indus. Plant Servs. v. Turner Indus.

Grp., 2013 MT 5, ¶ 55, 368 Mont. 189, 294 P.3d 363 (discussing policy considerations).

While this may be so, Mortensen’s argument is not persuasive because courts do not turn

to policy arguments to aid interpretation when the statute’s plain language is unambiguous.

Small v. Bd. of Trs., 2001 MT 181, ¶¶ 21-22, 306 Mont. 199, 204, 31 P.3d 358. See also

Stand Up Mont. v. Missoula Cty. Pub. Schs., 2022 MT 153, ¶ 25, 409 Mont. 330, 514 P.3d

1 The parties point us to a 2000 non-cite opinion alerting the Legislature to this limit. Petri v. James Talcott Constr., Inc., No. DA 00-168, 2000 MT 355N, ¶ 14, 2000 Mont. LEXIS 341. Pursuant to Section I, Paragraph 3(c)(ii) of the Montana Supreme Court Internal Operating Rules, parties may not rely on unpublished memorandum opinions except in very narrow circumstances not applicable here. 6 1062 (“‘When the plain language of the statute is clear, no other means of interpretation

are necessary or proper . . . .’”) (quoting State v. Hicks, 2013 MT 50, ¶ 19, 369 Mont. 165,

296 P.3d 1149).

¶15 Mortensen also argues that our 2011 decision, Dick Anderson Construction, Inc. v.

Monroe Property Co., controls the outcome in this case. 2011 MT 138, 361 Mont. 30, 255

P.3d 1257. We disagree. In that case, a construction company contracted with a shell

entity and eventually sought to enforce a lien against the property on which it had worked.

The property owner argued that it was not a contracting owner whose property could be

reached by a lien because it had not contracted personally with the construction company—

the shell entity had. The shell entity and the property owner were controlled by the same

person. Montana law defines a contracting owner as “a person who owns an interest in

real estate and who, personally or through an agent, enters into an express or implied

contract for the improvement of the real estate.” Section 71-3-522(4)(a), MCA. We held

that the property owner was a contracting owner because it owned an interest in the

property and had acted through its agent, the shell entity, when contracting with the

construction company. Dick Anderson Construction, ¶ 27. In this case, however,

Mortensen did not own an interest in the Spanish Peaks Lodge and thus cannot be a

contracting owner under Montana law.

¶16 Finally, Mortensen argues that it was acting as an agent of the property owner and

thus was allowed to substitute the bond for the lien. Skyline responds that agency

principles are applied inappropriately in this instance and that Mortensen in any event

failed to establish an agency relationship with the property owner.

7 ¶17 Lien laws are statutory in nature, with “no likeness at common law or in equity.”

II Garrard Glenn, Mortgages, Deeds of Trust, and Other Security Devices as to Land § 351

(1943); see also dck Worldwide Holdings, ¶ 17 (“A construction lien . . . is a ‘creature of

statute . . . .’”) (quoting Matos v. Rohrer, 203 Mont. 162, 174, 661 P.2d 443, 450 (1983)).

We are therefore reluctant to incorporate common law agency principles into the statutory

definition of “contracting owner.” The Montana Legislature has explicitly authorized

agents, in addition to contracting owners, to perform certain acts under the construction

lien laws. For example, a different section in the construction lien laws describes the

process for filing a notice of completion for a project. It states that “written acceptance by

the contracting owner, the contracting owner’s agent, or the representative of the building”

constitutes completion. Section 71-3-533(2)(a), MCA (emphasis added). But the section

concerning substitute bonds, § 71-3-551, MCA, contains no language authorizing an agent

of a contracting owner to substitute a bond.

¶18 What is more, Mortensen points to no record support that it was acting as an agent

of the property owner. “Integral to any agency relationship are the elements of consent

and control.” Wolfe v. Schulz Refrigeration, 188 Mont. 511, 517, 614 P.2d 1015, 1018

(1979). Mortensen had a contractual relationship with the general contractor, Suffolk; it

had no contractual relationship with the property owner. All rights, obligations, and

remedies set forth in the subcontract were between Mortensen and Suffolk only, with the

exception that the subcontract obligated Mortensen to name both the Owner and Suffolk

as additional insureds on its policies. Mortensen agreed under the subcontract “to be bound

to the Contractor with respect to the Work by all the terms of the Contract Documents” and

8 “to assume to the Contractor with respect to the Work, all obligations and responsibilities

which the Contractor has assumed to the Owner . . . except to the extent that provisions in

the Contract Documents by law are applicable only to Contractor and cannot be passed

down to Subcontractor.” There is no language in the subcontract suggesting that the

subcontractor could act on behalf of the Owner in any capacity. Nor is the contract between

the Owner and Suffolk in the record. At any rate, it was Suffolk, not the property owner,

who directed Mortensen via email to bond around the lien. Mortensen’s contract with

Suffolk, requiring Mortensen to bond around liens filed by subcontractors, does not dictate

a different outcome in the face of contrary statutory language.2

¶19 We conclude that Montana’s construction lien laws did not permit Mortensen to

substitute a bond for Skyline’s lien.

¶20 2. Did the District Court err in concluding that Skyline Consulting Group waived its right to challenge the substitute bond by making alternative arguments in the parties’ arbitration proceeding?

¶21 Mortensen argues that Skyline waived its right to challenge Mortensen’s substitute

bond in District Court when, in an earlier arbitration filing, Skyline named the surety

issuing the bond and said that it would seek to collect on the bond.

2 Section 28-10-105(2), MCA, provides, “Every act that, according to this code, may be done by or to any person may be done by or to the agent of the person for that purpose unless a contrary intention clearly appears.” Subsection (1) of the same statute further excepts from an agent’s authority acts “to which the principal is bound to give personal attention.” Skyline argues that § 71-3-551, MCA, by its plain language, binds the property owner’s personal attention to construction liens for purposes of bonding around them. For its part, Mortensen does not cite § 28-10-105, MCA, or argue for its application in this case. Given Mortensen’s lack of an agency relationship with the owner, together with the Legislature’s explicit definition of a contracting owner and its exclusion of agency language in the substitute bond section that it included elsewhere in the same part, § 28-10-105, MCA, does not affect our analysis in this case. 9 ¶22 This Court has held that to establish waiver, “the party asserting waiver must

demonstrate the other party’s knowledge of the existing right, acts inconsistent with that

right, and resulting prejudice to the party asserting waiver.” VanDyke Constr. Co., ¶ 15.

Montana Rule of Civil Procedure 8(d)(2) allows parties to make alternative arguments in

their pleadings.

¶23 Mortensen failed to establish that Skyline acted inconsistently with its right to

challenge the substitute bond in District Court when it filed an answer in the parties’

arbitration proceeding. Skyline’s arbitration filing explicitly contested the legality of

Mortensen’s substitute bond at least three times. First, it asserted that Mortensen

“improperly filed a petition to substitute a bond” and “inaccurately represented to the court

that it was a ‘contracting owner.’” Second, in its request to join the Lodge owner as a

party to the arbitration proceeding, Skyline reasoned that the owner should be joined “in

the event [Mortensen’s] bond substitution is declared invalid.” And third, in its request to

join the surety company, Skyline stated that the bond that the company issued “purports to

be serve [sic] as substitution” for Skyline’s lien. (Emphasis added.) Skyline’s statements

were consistent with its challenge of the validity of Mortensen’s substitute bond in the

District Court. To the extent that Skyline sought to collect upon the bond and thus join the

surety company that issued the bond, it made these arguments in the alternative. The

District Court thus incorrectly concluded that Skyline had waived its right to challenge the

substitute bond.

10 CONCLUSION

¶24 The District Court erred in concluding that Montana law authorized Mortensen

Woodwork, a subcontractor, to substitute a bond for Skyline Consulting Group’s

construction lien. Skyline did not waive its right to challenge the substitute bond in the

parties’ separate arbitration proceeding. We reverse and remand for the District Court to

vacate the improperly filed bond and reinstate Skyline’s lien.

/S/ BETH BAKER

We Concur:

/S/ MIKE McGRATH /S/ LAURIE McKINNON /S/ JAMES JEREMIAH SHEA /S/ INGRID GUSTAFSON