C & B Construction, Inc. v. Dashiell

Zarnoch, J. This is a dispute over the nonpayment for construction work performed by subcontractor, appellant C&B Construction (“C & B”) for general contractor Temco Builders, Inc. (“Tem-co”). At the heart of this case is whether C&B may employ the Maryland Construction Trust Statute, Md. Code (1974, 2015 Repl. Vol.), Real Property Article (RP) §§ 9-201 et seq., to hold officers of Temco, appellees Vice President Jeffrey Dashiell (“Dashiell”) and President Edward J. Maguire (“Ma-guire”), personally liable for money owed to C & B by Temco. After C&B concluded its case at a bench trial in the Circuit Court for Wicomico County, Dashiell and Maguire filed a motion for judgment, which the circuit court granted based on its finding that RP § 9-204(a) 1 did not permit C & B to hold Dashiell and Maguire personally liable.

The key issue we must address, therefore, is whether the applicability clause in § 9-204(a) required C & B to establish that its subcontracts were subject to either the Little Miller Act or the mechanics’ lien statute. If the Construction Trust statute does apply, C&B asks us to address whether the circuit court erred in granting judgment to Dashiell and Maguire, despite evidence showing that Temco had been paid by the owners in full or in large part based on Temco’s applications for payment. BACKGROUND AND PROCEDURAL HISTORY On six construction projects located across Maryland, C&B performed various drywall, ductwork, and other related construction work as part of a subcontract with Temco. According to C & B, for five of the six projects, C&B completed all of its obligations under the subcontract with Temco, and Temco was paid by the owners for all or the majority of the work performed by C & B. However, Temco failed to pay C & B for the work it performed.

Additionally, on a sixth project, C&B alleged that Temco owed C & B for work for which Temco had received credit against a debt to another company, but failed to pay C&B. Neither party disputes that Temco failed to pay C & B for work performed under the subcontracts. According to C & B, rather than paying C & B for the work it performed, Dashiell and Maguire spent the money they received from the project owners by paying other subcontractors and Temco office expenses, or by repaying themselves for money they had put into the business. On October 1, 2015, C&B filed a complaint in the Circuit Court for Wicomico County against Temco, as well as Dashiell and Maguire individually. For each of the six projects, C&B alleged breach of contract against Temco and sought to hold Dashiell and Maguire individually liable under the Maryland Construction Trust Statute. 2 C & B’s claims against Dashiell and Maguire included primarily three allegations: (1) “During the course of the Project, the owner paid Temco for labor and materials supplied to the Project by C&B” and “Temco held these monies in trust for C&B”; (2) “Defendants Maguire and Dashiell, as officers/managing agents for Temco, had direction over and control of the monies held in trust by Temco for the benefit of C&B”; and (3) “Defendants Maguire and Dashiell used and/or retained the monies held in trust for C&B for purposes other than to pay C&B for the materials and labor it supplied to the Project.” For the six projects for which C&B alleged it was not paid for work performed, C&B sought a total of $218,349.90. 3 On May 3, 2016, Temco entered into a consent judgment with C&B, agreeing to the entry of an award against it in the amount of $225,607.00. 4 C & B’s claims against Dashiell and Maguire, however, proceeded to trial on July 13, 2016.

At the conclusion of C & B’s case, the Temco officers moved for judgment, asserting that the Construction Trust statute did not apply in this case, because the subcontracts were not subject to either the Little Miller Act or the mechanics’ lien statute. 5 After hearing argument, the Circuit Court Judge Donald C. Davis agreed with Dashiell and Maguire, noting: [I]t seems to me really looking at the Statute and Section 9-204(a) ..., it applies to contracts under the Maryland Little Miller Act, and there is no contention that any of the contracts in this case would be subject to the Maryland Little Miller Act as well as properties subject to 9-102 of this Article which is the Mechanics Lien Statute. And the only way to know whether the property is subject to 9-102 is for evidence to be provided that it is subject to 9-102, which I am just going to shorten it up and say that it’s either basically new construction or every building repaired, rebuilt or improved to the extent of 15 percent of its value. And in this case, I have looked at the contracts, and there is nothing to indicate that the contracts are for any of the other exceptions. [... ] There is no way for the Court to make any judgment as to whether or not that improvement is to the extent of 15 percent of the value of the project. And as I said, there is no way for the Court to infer that[,] because there is no evidence that would permit a finding, a direct finding from the evidence.

And it does seem to me that a basic proposition is that one cannot proceed under the Construction Trust Statute without first establishing that the ... contract for which that construction trust is sought to be imposed is one which would be lienable. So I think sort of the basic proposition is that Plaintiff must first establish that the property is I will say lienable under Section 9-102 as a predicate for anything under Section 9-201 [et seq.], and there is really no evidence in this case that would permit me to make that finding directly from the evidence or by any inference from the evidence that has been submitted. So I don’t think—the question is a closer one as to whether or not there is adequate evidence of earmarking, but I don’t think I need to get to that point really, because I don’t believe that the evidence as submitted is sufficient for me to, even if I looked at it in the light most favorable to the Plaintiff, which I’m not required to do, but even if I did do that, I don’t think the evidence is sufficient. So I’m going to grant the motion for judgment on behalf of Mr. Maguire and Mr. Dashiell.

On July 19, 2016, the circuit court issued a formal ruling in favor of Dashiell and Maguire. C&B filed a Motion for New Trial, which the circuit court denied without a hearing on August 16, 2016. C & B’s appeal to this Court followed. DISCUSSION Our focus here is on the proper interpretation of RP § 9-204.

The Court of Appeals reiterated in Nesbit v. Gov’t Emps. Ins. Co. that “[w]hen the trial court’s order ‘involves an interpretation and application of Maryland statutory and case law, our Court must determine whether the lower court’s conclusions are legally correct under a de novo standard of review.’ ” 382 Md. 65, 72 , 854 A.2d 879 (2004) (quoting Walter v. Gunter, 367 Md. 386, 392 , 788 A.2d 609 (2002)). In this case, the trial court found that the Construction Trust statute does not apply and concluded that Dashiell and Maguire could not be held personally liable.

We must examine whether that determination is legally correct. I. Principles of Statutory Construction and Applicable Law Many issues of statutory construction are resolvable on the basis of three factors: (1) text; (2) purpose; and (3) consequences. Town of Oxford v. Coste, 204 Md.App. 578, 585 , 42 A.3d 637 (2012), aff'd 431 Md. 14 , 63 A.3d 582 (2013). Text is the plain language of the relevant provision, typically given its ordinary meaning, ... considered in light of the whole statute, ... and generally evaluated for ambiguity ....

Legislative purpose, either apparent from the text or gathered from external sources, often informs, if not controls, our reading of the statute .... An examination of interpretive consequences, either as a comparison of the results of each proffered construction, ... or as a principle of avoidance of an absurd or unreasonable reading, ... grounds the court’s interpretation in reality. 204 Md.App. at 585-86 , 42 A.3d 637 (Citations omitted); see also Blue v. Prince George’s County, 434 Md. 681, 689 , 76 A.3d 1129 (2013). The Court of Appeals has said: [w]e may and often must consider other “external manifestations” or “persuasive evidence,” including a bill’s title and function paragraphs, amendments that occurred as it passed through the legislature, its relationship to earlier and subsequent legislation, and other material that fairly bears on the fundamental issue of legislative purpose or goal, which becomes the context within which we read the particular language before us in a given case. Kaczorowski v. Cty. of Baltimore, 309 Md. 505, 515 , 525 A.2d 628 (1987).

The Construction Trust statute was designed to “protect subcontractors from dishonest practices by general contractors and other subcontractors for whom they might work.” Ferguson Trenching v. Kiehne, 329 Md. 169, 174-175 , 618 A.2d 735 (1993). Thus, the legislature made officers, directors and managing agents within a contractor corporation personally liable when such agent knowingly uses monies held in trust improperly. See RP § 9-202. The legislative purpose was “to ensure that funds disbursed by an owner or contractor for payment to a subcontractor for work done are actually paid to the subcontractor.” See S.B. 374, 1987 General Assembly of Maryland, Summary of Committee Report, 2.

At the time of the enactment of the 1987 legislation, as many as eighteen other states had enacted similar construction trust statutes. See id. at 1. The Construction Trust statute establishes a trust relationship in the following paragraphs: (1) Any money paid under a contract by an owner to a contractor, or by the owner or contractor to a subcontractor for work done or materials furnished, or both, for or about a building by any subcontractor, shall be held in trust by the contractor or subcontractor, as trustee, for those subcontractors who did work or furnished materials, or both, for or about the building, for purposes of paying those subcontractors. (2) An officer, director, or managing agent of a contractor or subcontractor who has direction over or control of money held in trust by a contractor or subcontractor under paragraph (1) of this subsection is a trustee for the purpose of paying the money to the subcontractors who are entitled to it.

RP § 9-201(b). Subsection 9-202 establishes personal liability for the misuse of money held in trust: Any officer, director, or managing agent of any contractor or subcontractor, who knowingly retains or uses the money held in trust under § 9-201 of this subtitle, or any part thereof, for any purpose other than to pay those subcontractors for whom the money is held in trust, shall be personally liable to any person damaged by the action. RP § 9-202. Finally, the paragraph most critical to this case states: (a) This subtitle applies to contracts subject to Title 17, Subtitle 1 of the State Finance and Procurement Article, known as the “Maryland Little Miller Act”, as well as property subject to § 9-102 of this title.

(b) This subtitle does not apply to: (1) A contract for the construction and sale of a single family residential dwelling; or (2) A home improvement contract by a contractor licensed under the Maryland Home Improvement Law. (c) In this subtitle, “owner”, “contractor”, and “subcontractor” have the same meanings as in § 9-101 of this title. § 9-204. Subsection 9-204 references two other statutes. The first is the Maryland Little Miller Act (“Little Miller Act”), codified in Md. Code (1985, 2015 Repl.

Vol.), §§ 17-101 et seq. of the State Finance and Procurement Article (SFP). The second is RP § 9-102, which specifies the coverage of the State’s mechanics’ lien statute.

II

The Applicability Clause of the Construction Trust Statute Limits the Subtitle to Contracts Subject to Either the Little Miller Act or Maryland’s Mechanics’ Lien Statute. C&B argues on appeal that it was not required to establish that the contracts at issue fell within the Little Miller Act or the mechanics’ lien statute, because the language in RP § 9-204(a) does not limit the scope of the statute’s applicability; rather, it contends, that provision merely ensures that certain claims and remedies are not excluded by a trial court where more than one remedy may apply. We disagree. In our view, § 9-204 circumscribes the entire scope of the statute.

This applicability clause does not include the words “only” or “also” in defining the limits of the statute’s reach. Whether or not this renders the statute ambiguous, however, we are free to consult legislative history to confirm the meaning of the text. See Mayor & Cty. Council of Baltimore v. Chase, 360 Md. 121, 131 , 756 A.2d 987 (2000).

We therefore examine both the statute’s language in context and as a whole, its legislative history and purpose to determine its applicability. We begin by examining the text of the statute. A. The Text of RP § 9-204 Limits the Applicability of the Subtitle to Contracts Subject to the Little Miller Act and RP § 9-102. The complete text of § 9-204(a) is “[t]his subtitle applies to contracts subject to Title 17, Subtitle 1 of the State Finance and Procurement Article, known as the ‘Maryland Little Miller Act’, as well as property subject to § 9-102 of this title.” No other language in the statute defines the scope of the statute.

Indeed, prior to enactment, the clause was amended, changing the original language of the bill, which limited it to certain sections within the subtitle, to read instead “[t]his Subtitle applies.” See S.B. 374, House Jud. Comm. Amendments (April 6, 1987), Amendment No. 9. Contained in the same paragraph of the statute, subsection 9-204(b), which was added by a House amendment to this bill, lists specifically what contracts the statute does not apply to, including “(1) [a] contract for the construction and sale of a single family residential dwelling,” and “(2) [a] home improvement contract by a contractor licensed under the Maryland Home Improvement Law.” Together, the two paragraphs provide the entirety of the statute’s language describing its applicability (or non-applicability)—the Subtitle applies to contracts subject to the Little Miller Act or the mechanics’ lien statute, and it does not apply to certain contracts for the construction of single family homes and home improvement contracts.

Notably, no language in the Subtitle indicates that the statute would apply to contracts not subject to the Little Miller Act or the mechanics’ lien statute. Clearly, subsection (b) is an exception to the general scope of the statute’s applicability contained in subsection (a). Further, the purpose clause in the title of the Construction Trust legislation was amended prior to enactment to broaden the scope of § 9-204. The language of the title in the original bill, which read “For the purpose of .., providing a certain application of this Act,” was amended to read “For the purpose of ... providing for the application of this Act.

Ch. 345, Laws of 1987, 1932 (Emphasis added). In other words, this change to the Subtitle’s purpose clause clarified that the bill provided the application of the Subtitle, rather than merely certain applications. This change suggests exclusivity. B. The Context and Purpose of the Statute Clarify the Intended Scope of the Applicability Clause.

That § 9-204 defines the entire scope of the statute’s applicability is made clearer by examining the statute as a whole, particularly regarding the subtitle’s incorporation of the mechanics’ lien statute. 6 For private construction projects, limiting the availability of remedies in the Construction Trust statute to contracts subject to the mechanics’ lien statute is consistent with the subtitle’s other cross references to the mechanics’ lien statute. See, e.g., RP § 9-204(e). Not only does § 9-204(a) reference the mechanics’ lien statute as one of two areas of applicability, but subsection (c) of RP § 9-204 relies on the mechanics’ lien statute to define its critical terms. 7 Linking the meanings of terms in the Construction Trust statute to the definitions provided in the mechanics’ lien statute aids in determining whether the Construction Trust statute applies to a particular contract. Clearly, the Construction Trust statute was drafted with the mechanics’ lien statute in mind.

Moreover, the well-defined boundaries provided in the mechanics’ lien statute are in stark contrast to C & B’s view of RP § 9-204(a). Subsection 9-102(a) of the Real Property-Article provides, in great detail, the applicability of the mechanics’ lien statute to “buildings”: 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,