Ami Operating Partners Ltd. Partnership v. Jad Enterprises, Inc.

WILNER, Judge. The Circuit Court for Anne Arundel County declared that appellee (Fairmount) was entitled to a mechanics’ lien in the amount of $50,664.75 on certain property comprising the Holiday Inn at Baltimore-Washington International Airport. The related business entities that own, lease, and manage that hotel, to whom we shall collectively refer as AMI, appeal that decision, complaining that: ⁶⁵⁹ I. The Maryland mechanics’ lien law is unconstitutional because it (1) deprives owners of their property without due process of law; and (2) allows the State to engage in a “taking” of private property for a private use.

II

The trial court erred in (1) admitting into evidence certain invoices produced for the first time at trial; (2) determining that December 19, 1986, was the date of last delivery; (3) considering certain “unsigned” invoices; and (4) awarding pre-judgment interest. We find no merit in AMI’s first complaint or in parts (2), (3), and (4) of its second complaint. We do find partial merit in argument 11(1), however, and shall therefore remand the case for an appropriate amendment to the judgment. Background In the spring of 1986, AMI hired Prime Construction Company, a sister company of AMI, to do certain renovation work at the hotel.

Prime subcontracted a portion of that work to MJY General Contractors, which, in turn, through an oral agreement, purchased building materials from Fair-mount. From July through December of 1986, Fairmount allegedly supplied MJY with goods having a value of $75,147.40. In September and October, MJY paid Fairmount a total of $9,000. In December, Fairmount received a third payment of $24,750 in the form of a check drawn by Prime and made payable to both Fairmount and MJY.

Later that month, MJY walked off the job and apparently “disappeared,” leaving $41,397.40 of its debt to Fairmount unpaid. On March 18, 1987, Fairmount gave AMI written notice of its intention to claim a mechanics’ lien. When that threat proved unavailing, it proceeded to file a petition for the lien. On August 21, 1987, the court entered an interlocutory ⁶⁶⁰ order establishing a lien in the amount claimed—$41,397.40.

AMI responded with a motion to dismiss the petition on the ground that the mechanics’ lien law is unconstitutional. After a full evidentiary hearing, the court denied AMI’s motion and entered a final order establishing a lien in the amount of $50,664.75—$41,397.40 in principal debt found to be due and $9,267.35 in pre-judgment interest. I. Constitutionality AMI mounts a dual attack on the validity of the law, complaining, first, that it deprives an owner of his property without due process of law and, second, that it results in an unconstitutional “taking” of property. We reject both challenges.

(1) Due Process In Barry Properties v. Fick Bros., 277 Md. 15 , 353 A.2d 222 (1976), the Court of Appeals evaluated Maryland’s former mechanics’ lien law in light of the due process considerations of the 14th Amendment and Article 24 of the Maryland Declaration of Rights. The Court determined that because, under that law, a lien attached as soon as work was performed or material supplied, the law “permitted] an owner to be deprived of a significant property interest without notice or a prior hearing, and thus [was] unconstitutional____” Id. at 31 , 353 A.2d 222 (footnote omitted). Therefore, the Court “excis[ed] that portion of the statute which purported] to create a lien from the time work [was] performed or materials furnished to the time a lien is established by judicial determination in a proceeding sufficient with respect to due process” and explained that “there can be no existing lien on property until and unless the claimant prevails either in a suit to enforce the claimed lien or some other appropriate proceeding providing notice and a hearing.” Id. at 37 , 353 A.2d 222 . As a result of Barry Properties, the Legislature, which was in session when the case was decided, promptly rewrote the law in a manner “designed to avoid the procedural due process denial found in the former statute.” Tyson v. ⁶⁶¹ Masten Lumber & Supply, 44 Md.App. 293, 295 , 408 A.2d 1051 (1979), cert. denied 287 Md. 758 (1980).

Despite AMI's assertions to the contrary, we believe that the Legislature has succeeded in that endeavor. As we explained in Tyson , under the current law, a lien does not attach automatically upon the performance of work or the supply of materials. The supplying of work or materials merely entitles the supplier to seek a lien for the value of that work or materials, if the other conditions set forth in the law are met. One of those conditions, relevant here, is that, if the supplier is a subcontractor having no direct contract with the owner, he must give written notice to the owner, within 90 days after last supplying his work or materials, of his intention to claim a lien.

Even when the claimant satisfies the various eligibility requirements, however, a lien is not automatically created. The lien can be created only by a court, and then only after the owner has had an opportunity to contest both the claim itself and the claimant’s entitlement to a lien. The claimant’s petition must be supported both by affidavit and by all documents constituting the basis of the lien (Md.Real Prop. Code Ann. § 9-105); the petition must be initially reviewed by the court and found at least facially sufficient (§ 9-106(a)); and the court must then afford the owner an opportunity to answer the petition and present evidence in his behalf.

Only in conformance with those requirements and procedures may a lien be established. To AMI, this is not enough. It urges that, because an owner is not in privity with subcontractors and may not even be aware of their existence until after they have supplied work or materials, the owner may still end up having to pay twice for the same work. Ignorant of the subcontractor, he may innocently pay his general contractor and then, if the general contractor fails to pay the subcontractor, have to pay the subcontractor himself.

As subcontractors have up to 90 days from the date they last supplied work or materials to give notice to the owner, a dishonest general contractor can abscond with the owner’s money ⁶⁶² before the owner is even made aware that subcontractors are on the job, or who they are. On this premise, AMI urges that, although the law requires some notice on the part of subcontractors, the notice is not “meaningful.” Notice would not be meaningful, it claims, unless subcontractors were required to inform the owner of their involvement before performing any work. Only then, it contends, can an owner take steps to ensure that the subcontractors are paid. Although it appears that at least one State (New Jersey) and perhaps a few others have imposed that requirement by statute, we are aware of no judicial pronouncement imposing the requirement as a matter of due process.

In this context, due process requires only that a defendant be notified of any claim against him that would deprive him of his property and that he be afforded some type of hearing before the deprivation occurs. See Barry Properties v. Fick Bros., supra, 277 Md. at 25-32 , 353 A.2d 222 (discussing North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601 , 95 S.Ct. 719 , 42 L.Ed.2d 751 (1975); Mitchell v. W.T. Grant Co., 416 U.S. 600 , 94 S.Ct. 1895 , 40 L.Ed.2d 406 (1974); Fuentes v. Shevin, 407 U.S. 67 , 92 S.Ct. 1983 , 32 L.Ed.2d 556 (1972); Sniadach v. Family Finance Corp., 395 U.S. 337 , 89 S.Ct. 1820 , 23 L.Ed.2d 349 (1969)). It does not mandate notice to a potential defendant that a claim might arise so that he can take steps to avoid it. The kind of advance notice sought by AMI may indeed be very helpful to owners, but it could also be a substantial burden to suppliers.

For one thing, it is not always clear who the “owner” is; in the case at bar, for example, one entity owned the fee, another owned the leasehold for part of the time, and a third owned the leasehold for another part of the time. To require every supplier of labor or material to search the land records (and even then endeavor to determine whether there are any unrecorded leases or assignment of leases in existence) or, alternatively, to find a suitable place to affix some notice at the jobsite before supplying a day’s work or a dollar’s worth of material can ⁶⁶³ be a very troublesome impediment to efficient construction. We observe, moreover, that an owner is not, as AMI believes, unable to protect himself. There are a number of ways in which an owner may avoid the establishment of a lien on his property, among them, (1) requiring the general contractor to furnish a bond, (2) retaining a percentage of each payment to the general contractor until the project is complete as a reserve fund for paying potential claims, (3) negotiating an agreement with the general contractor whereby the owner will pay the subcontractors directly, or (4) negotiating an agreement with the general contractor whereby all payments to the subcontractors are by checks issued by the owner and made payable to both the general contractor and the subcontractor.

See generally MICPEL, Mechanics’ Liens and the Maryland Trust Fund Law at 65-74 (revised ed. 1988). It may have been in tacit recognition of some of these safeguarding mechanisms that the Court of Appeals has observed that: “If [the owners’] failure to protect themselves against an impecunious contractor causes them to have to pay twice for materials, it is their own fault. The mechanic’s lien law was passed to cover just such a situation and to protect material men. The theory of it is that the owner gets the benefit of the material, and he has control of the money.

If he negligently and carelessly pays the money out to the contractor without taking precautions to see that it is applied to the payment of the materials which go in the building, then he must stand the loss rather than the material man, who has no opportunity to protect himself once he has delivered the materials.” Bounds v. Nuttle, 181 Md. 400, 406 , 30 A.2d 263 (1961). See also Riley v. Abrams, 287 Md. 348, 357 , 412 A.2d 996 (1980); Dickerson Lumber Co., Inc. v. Herson, 230 Md. 487, 491 , 187 A.2d 689 (1963); Reisterstown Lumber Co. v. Reeder, 224 Md. 499, 507 , 168 A.2d 385 (1961); T. Dan Kolker, Inc. v. Shure, 209 Md. 290, 296 , 121 A.2d 223 (1956). ⁶⁶⁴ In summary, then, we do not believe that the current law deprives an owner of property without due process of law. The one deficiency found by the Court in Barry Properties has been corrected. (2) Unconstitutional Taking Relying principally on Arnsperger v. Crawford, 101 Md. 247 , 61 A. 413 (1905) and Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 , 43 S.Ct. 158 , 67 L.Ed. 322 (1922), neither of which is on point, AMI attacks the mechanics’ lien law as a State scheme to take private property for a non-public use, i.e., for the use of laborers and materialmen who have no contractual privity with the owner.

We do not share that view of the law. A mechanics’ lien is not substantially different in purpose or effect than any other kind of property lien established by law. It represents, in one sense, a legislatively determined balance between the competing economic interests of owners of property, on the one hand, and those who, by the investment of their labor or capital, improve or increase the value of that property and expect to be paid therefor. 1 But there is also a public benefit that flows from this balance. As the Court pointed out in Barry Properties, supra, 277 Md. at 18 , 353 A.2d 222 , “[generally speaking, mechanics’ lien statutes, in an endeavor to provide for the public welfare, are designed to encourage construction by ensuring that those who contribute to a project are compensated for their efforts.” Indeed, these kinds of statutory liens are, themselves, not substantially different than the traditional judicial lien placed (or placeable) on a debtor’s property following the entry of a judgment.

They all rest on the fundamental principle undergirding both our economic and legal system that the ultimate measure of wealth and therefore the ultimate source of debt satisfaction is property. So long as ⁶⁶⁵ the process for adjudicating liability and establishing the amount of debt owed is fundamentally fair and comports with the requirements of law, there is nothing unfair, and certainly nothing unconstitutional, about the subjection of the debtor’s property, upon compulsion of law, to the satisfaction of that debt. The State isn’t “taking” the debtor’s property for either public or private use; it is merely creating an orderly process for the satisfaction of a debt that has a basis in law and that has been found by a court to be due and owing.

II

Invoices Section 9-105 of the Real Property article requires that, “[i]n order to establish a lien under this subtitle,” a claimant must file three documents with the clerk of the circuit court: (1) a petition containing the information set forth in § 9-105(a)(l), including “[t]he nature or kind of work done or the kind and amount of materials furnished, the name of the person for whom the work was done or to whom the materials were furnished and the amount or sum claimed to be due, less any credit recognized by the petitioner”; (2) an affidavit by the petitioner or his agent “setting forth facts upon which the petitioner claims he is entitled to the lien in the amount specified”; and (3) “Either original or sworn, certified or photostatic copies of all material papers or parts thereof, if any, which constitute the basis of the lien claim, unless the absence thereof is explained in the affidavit.” See also Md.Rule BG71(b) mirroring these requirements. If the court, upon its preliminary review, determines that a lien should attach, copies of these “pleadings and documents on file” are served on the owner together with the court’s show cause order. See § 9-106(a). In its petition, Fairmount averred that it had furnished “various types and quantities of lumber and building materials” to both MJY and Prime and that “[a]s a result of furnishing said work and materials, there remains due and ⁶⁶⁶ payable” $41,397.40.

The “exact types and quantities” of lumber and materials supplied, it said, “are set forth on Plaintiffs invoices, copies of which are attached hereto and made a part hereof as Exhibit ‘A.’ ” The affidavit accompanying the petition, made by Fairmount’s Vice President, Adam Woltman, stated merely that: “All of the matters and facts set forth in the Petition to Establish and Enforce a Mechanic’s Lien, which are adopted herein, are true and correct; and, the Exhibits attached to said Petition, which are also made a part of this Affidavit, are true copies of all material papers which constitute the basis of the Lien claimed.” The exhibits attached to the petition consisted, in relevant part, of (1) a copy of a running account billing to MJY referring, by date and invoice number, to 55 charges and four credits, and showing a net amount due of $41,397.40, (2) copies of 46 delivery tickets, (3) copies of 46 invoices, each based on the counterpart delivery ticket, and (4) one credit ticket for certain material that was returned. The problem here arises from the fact that the $41,397.40 claimed was based on all 55 invoices referred to in the billing but that nine of those invoices (and counterpart delivery tickets) were not included among the exhibits. 2 The invoices (and supporting delivery tickets) that were referred to in the billing but not included among the exhibits are Nos. 7441, 7442, 7231, 7250, 7258, 7270, 7324, 7563, and 8097. At trial, Fairmount offered, and over AMI’s objection the court received, into evidence all 55 invoices, including those nine. The lien established by the court was based on all 55. ⁶⁶⁷ AMI makes three basic complaints about what happened.

First, it urges that because the invoices are “material papers ... which constitute the basis of the lien claim” and because their absence was not “explained in the affidavit,” Fairmount failed to comply with the requirement of § 9-105(a) and is therefore not entitled to any lien at all. The second complaint also challenges the entire lien. The notice of Fairmount’s intention to claim a lien was given to AMI on March 18, 1987. Because the law requires such notice to be given “within 90 days after doing the work or furnishing the materials,” § 9-104(a), it became critical for Fairmount to show a delivery on or after December 18, 1986.

The billing shows no charges on December 18 and but three charges after that date—No. 7441, representing a charge of $498.16 on December 19, No. 7563, representing a charge of $158.45 on December 30, and No. 8097, representing a charge of $805.14 on February 3, 1987. All other charges are shown on the billing to have been made on or before December 17, although, in answers to interrogatories and in testimony at trial, Fairmount contended that the materials represented by Invoice No. 7442, which the billing shows as December 17, were actually delivered on either the 18th or the 19th. Whenever those materials were delivered, the fact is that none of those invoices were attached to the petition; they are among the nine omitted. For that reason, AMI contends that Fairmount failed to prove a delivery within 90 days of its notice.

Finally, in this regard, AMI urges that, even if the omission of the invoices is insufficient to preclude the establishment of a lien, they should at least be deducted in calculating the amount of the lien. We shall consider these points in order. (1) Omission Of Material Papers Preferring rhetoric to fact, Fairmount dismisses AMI’s complaint about the omission of the nine invoices as “baseless and disingenuous.” In derogation of the record, it asserts that the nine exhibits were attached to the petition; ⁶⁶⁸ in derogation of the clear requirement of § 9-105 that all material papers constituting