DCK Worldwide Holdings, Inc. v. CHSP Acquisition, LLC

DCK Worldwide Holdings, Inc. v. CHSP Acquisition, LLC, 2015 MT 225 (Aug. 4, 2015) (Rice, J.) (4-0, rev’d)

Issue: (1) Whether the district court erred in concluding the unpaid portion of the contractor’s fee was lienable as a matter of law, and (2) whether the district court erred in concluding the unpaid portion of the subcontractor’s fee was lienable as a matter of law.

Short Answer: (1) Yes, and (2) yes.

Reversed and remanded

Facts: In 2007, Dick Construction Company, predecessor in interest to Worldwide, entered into a cost-plus contract with Spanish Peaks Lodge, LLC, to act as the general contractor for the Spanish Peaks Lodge Resort. Spanish Peaks was to pay Dick actual construction costs plus 5% of the total cost, and 5% on self-performed work, with a cap of $130,483,926 for the total price, yielding a contractor’s fee of $6,915,195. Spanish Peaks was to pay the contractor’s fee in installments, and Dick was entitled to the entire fee if the contract was terminated, based on an estimate of the cost of work not yet completed. Spanish Peaks obtained financing through Citigroup, predecessor in interest to CHSP, and took a $130 million mortgage against all of Spanish Peaks’ development property, including the resort.

In 2008, Spanish Peaks suspended work and stopped making payments to Dick in breach of the contract. At that point, Dick had invoiced about $21 million in materials and labor and had been paid $1,438,968 of the total contractor’s fee. Spanish Peaks owed Dick the unpaid portion of the contractor’s fee, $5,476,277. Spanish Peaks filed for Chapter 7 bankruptcy, and the resort was never finished.

Dick filed a construction lien for $10,500,000, which included the unpaid contractor’s fee and $661,767 Dick owed to subcontractor Allied Steel. Allied Steel filed its own lien, and then filed suit against Spanish Peaks, Dick and Citigroup seeking foreclosure of its lien, a money judgment, and a determination of lien priority. Dick cross-claimed against Citigroup seeking a determination of priority.

Allied, Spanish Peaks, and Dick settled. The agreement provided for Spanish Peaks to pay $500,000 to Dick, and for Dick to pay $500,000 to Allied Steel, after which Allied would release all claims against Dick and Spanish Peaks. Allied Steel assigned all of its claims against Dick and Spanish Peaks to Dick, and was dismissed from the action. Worldwide bought Dick’s assets, including Dick’s lien, at public auction, and CHSP bought Citigroup’s mortgage.

In April 2013, the district court ordered that Wordwide’s construction lien had priority over CHSP’s mortgage, noting that the dollar amount of the lien was in dispute. The court granted summary judgment on priority, but denied summary judgment on the amount of the lien.

Procedural Posture & Holding: CHSP and Worldwide reached a partial settlement under which Worldwide was paid $2.7 million and released all claims against CHSP except for its claim concerning its right to lien the unpaid contractor’s fee and the amount of Allied Steel’s lien. The district court granted Worldwide’s motion, holding that the unpaid portion of the contractor’s fee and the subcontractor’s fee were secured by Worldwide in the amounts of $5,476,277 and $661,767, and lienable as a matter of law. CHSP appeals and the Supreme Court reverses.

Reasoning: (1) Under the lien statutes, the contract does not create the lien. The use of materials and work and labor expended by the contractor does. CHSP argues that only overhead and profit on work actually performed is lienable. The lien statutes permit claims for the amount agreed upon in the contract, but only for the unpaid amounts of services and materials provided under a construction contract. This interpretation is supported by the plain language, the procedures for perfecting a lien, and the purpose of construction liens.

Although Worldwide contends the record shows the unpaid fee was for services actually performed by Dick, the Court finds the undisputed facts in the record establish the opposite. In a breach of contract action against Spanish Peaks, Dick would have been entitled to the entire contractor’s fee; however, once Spanish Peaks went into bankruptcy, Dick was compelled to foreclose its construction lien against Citigroup, a non-party to the contract.

(2) CHSP argues that Allied Steel’s fee did not remain lienable after Allied settled its claim. Because Allied relinquished all of its claims against Spanish Peaks, it extinguished its construction lien and had no lien to assign to Worldwide.