Advent, Inc. v.
Ave. Apartments
Filed 4/2/12 Advent, Inc. v. Ashland Ave. Apartments CA2/2
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
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publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
TWO
ADVENT, INC.,
Plaintiff and Appellant,
v.
ASHLAND
AVENUE APARTMENTS, LLC, et al.
Defendants and Respondents.
B230182
(Los Angeles
County
Super. Ct.
No. BC396815)
APPEAL from
a judgment of the Superior Court
of
County.
Holly E. Kendig, Judge.
Affirmed.
Advent
Companies, Treg A. Julander; Edward M. Picozzi for Plaintiff and Appellant.
Freeman, Freeman
& Smiley, John P. Godsil, Jared A. Barry for Defendant and Respondent
Ashland Avenue Apartments, LLC.
Troutman
Sanders, Dan E. Chambers, Amy A. Hoff for Defendant and Respondent California
Bank & Trust.
___________________________________________________
For purposes of determining priority, a mechanic’s lien
relates back to the time of “commencement of the work of improvement.” (Civ. Code, § 3134.) Following a bench trial, the trial court
found that the plaintiff, appellant Advent, Inc. (Advent), failed to establish
the priority of its mechanic’s lien over a deed of trust held by respondent
California Bank & Trust (CB&T).
Based on evidence presented at trial, the trial court held that no
apparent and visible work occurred prior to the recordation of the deed of
trust, and therefore the work of improvement commenced after the
FACTUAL AND PROCEDURAL BACKGROUND
In the
summer of 2006, David Wood purchased the property at 917
North Sierra Bonita Avenue in West
Hollywood. At the time,
situated on the property was a vacant, old, single-family house. Around the time of purchase, Wood and others
formed Stratus Urban 917 Sierra Bonita, LLC (Stratus), for the purposes of
developing, building, and selling five townhouses on the property. Wood eventually transferred title in the
property to Stratus in furtherance of this plan.
Besides
Wood, another investor in Stratus was John Tyson Jacobsen, the president of
Advent. Jacobsen put $150,000 into and
held a 12.71 percent interest in Stratus.
Stratus
hired Advent to be the general contractor for the project. The written owner-contractor agreement
between Stratus and Advent was executed on November 3, 2006.
However, at trial, both Wood and Jacobsen testified that they came to an
earlier oral agreement in September or October 2006 for Advent to act as
contractor.
Stratus
obtained funding for the construction and development of the project from
Vineyard Bank, N.A. (Vineyard). Stratus
and Vineyard entered into a construction loan agreement on November 9, 2006, wherein Vineyard agreed to loan
up to $3,284,000. Vineyard’s deed of
trust on the property was recorded on November
20, 2006. Stratus eventually
defaulted on the loan, and in June 2008 Vineyard caused to be recorded a notice
of default and election to sell under the deed of trust, reflecting an
outstanding balance in excess of $3.3 million.
According
to Advent, it worked as contractor on the project until June 2008, when it
stopped due to lack of payment. In
August 2008, Advent recorded a mechanic’s lien and filed a lis pendens, stating
it was owed approximately $654,000. Soon
after, Advent filed a complaint against Stratus for, among other things,
foreclosure of the lien. In its
complaint, Advent alleged that it entered into an agreement with Stratus in
about November 2006, and the complaint attached as an exhibit the November 3, 2006, owner-contractor
agreement.
While
Advent’s foreclosure action was pending, Vineyard nonjudicially foreclosed on
its deed of trust, acquiring the property in December 2008. Then, in February 2009, Vineyard sold the
property to respondent Ashland Avenue Apartments, LLC (Ashland). Advent amended its complaint to name Vineyard
and Ashland in place of “Doe”
defendants, alleging that its mechanic’s lien on the property was superior to
defendants’ interests.
Around this
time, Vineyard was closed by the Office of the Comptroller of the Currency, and
the Federal Deposit Insurance Corporation (FDIC) was named receiver. CB&T became the assignee of the FDIC for
Vineyard, and it substituted into the action in place of Vineyard in August
2009. Stratus never answered the
complaint and its default was entered in April 2009. Trial for the purposes of resolving the
priority of Advent’s mechanic’s lien claim was held in June, July, and August
2010.
The Trial
The issue
for trial was whether the mechanic’s lien had priority over the deed of
trust. It was undisputed that Vineyard’s
deed of trust was recorded on November
20, 2006. The primary issues
of dispute were (i) whether “commencement of a work of improvement” on the
property occurred prior to November
20, 2006, so that the mechanic’s lien would take priority over the
deed of trust, and (ii) whether any work done on the property prior to November 20, 2006, was pursuant to
the construction contract between Stratus and Advent.
As noted
above, the written contract between
Stratus and Advent was executed on November
3, 2006. No provision of the
written contract referred to any work having already commenced, and a project
schedule attached to the contract contemplated a start date of June 2007. The principals of Stratus and Advent,
however, both testified that they reached an oral agreement in September or
October 2006, and that work on the project started by October 2006.
Evidence at
trial established that a temporary fence was erected on the property by October
2006. Evidence also showed that asbestos
was found on the roof of the existing home on the property (which was to be
demolished), and that the asbestos was removed on October 23, 2006.
Advent hired a demolition subcontractor, DemoCo, which in turn retained
an asbestos abatement subcontractor, Absolute Abatement & Demolition
(Absolute Abatement), to do the abatement work.
Advent contended that this asbestos abatement was performed pursuant to
its agreement to work as general contractor on the project.
Three
employees of Absolute Abatement worked on the asbestos removal. The asbestos was contained in mastic found
under the old house’s Spanish-style roof tiles.
The crew used large hand tools to remove the asbestos; no heavy
machinery was required. They spent about
four to five hours removing material from the roof, loading approximately 14
bags with mastic, roof tiles, and other asbestos-contaminated refuse. Absolute Abatement’s foreman testified that
after he and his crew completed the job, he went inside the house and could see
little holes in the roof through the ceiling.
The workers hauled away the bags and their equipment and left the site
in a clean condition. No tag or sign was
left at the property indicating that the work had been done.
In connection with the
Vineyard loan application process, Todd Niitsuma inspected the property on
behalf of his then-employer, CTI Inspections, a company that verified the
condition of properties for title insurance companies. Niitsuma testified that one of the objectives
of his inspection was to determine whether any construction work had been done
or was in progress. Niitsuma made two
trips to the property, one on October 16, 2006, and one early in the morning of
November 20, 2006, just before Vineyard’s deed of trust was recorded.
During his
first inspection, Niitsuma walked the property, took eight photographs from
various locations, sketched the property, and prepared a report summarizing his
observations. He did not see any signs
of construction on the property.
Niitsuma
testified that the primary reason he inspected the property the second time was
to look for signs of construction, since the deed of trust was set to be
recorded at 8:00 a.m. that morning. He
walked the property looking for construction work and looked inside the house
through a window. Niitsuma’s
observations included a visual inspection of the roof from various vantage
points on the ground. He saw no sign that
any construction (including demolition or similar work) had been done or was in
progress anywhere on the property, including the house and the roof. Niitsuma took eight pictures of the property
and prepared a report noting that there was no construction in progress. He testified that he observed no changes to
the property from the time of his first visit in October.
Loan
agreement and other documentary evidence
Stratus
entered into several agreements with Vineyard and was required to submit the
written owner-contractor agreement in order to obtain the construction
loan. On behalf of Stratus, Wood and
other managing members signed a construction loan agreement requiring that
Stratus “not permit any work or materials to be furnished in connection with
the Project until . . . Lender’s mortgage or deed of trust and other Security Interests
in the Property have been duly recorded and perfected.” Wood testified that Stratus “endeavored” to
comply with this requirement and that Stratus never told Vineyard it would
start work on the project before the loan funded. Stratus also agreed that Vineyard would not
be required to make an initial advance until Vineyard received a title
insurance policy showing its deed of trust as “a valid first lien on the
Property.” Moreover, Stratus agreed that
it would “commence construction” no later than December 26, 2006.
Other
evidence presented at trial also tended to show that, as of November 2006,
Stratus did not consider that demolition or other construction work had yet
commenced. In addition to the written
owner-contractor agreement—which was executed on November 3, 2006, and pointed
to a subsequent commencement date—Stratus’s own meeting notes repeatedly stated
that demolition would commence “after loan funds” and that Stratus was
“awaiting permit and . . . loan funding.”
It appears that the first funds from the construction loan were paid out
in January 2007, in part as payment for demolition of the existing house. DemoCo’s corresponding invoice showed that
the “service date” for demolition was December 6, 2006.
The Statement of
Decision
Following
trial, the trial court issued a proposed statement of decision, to which Advent
objected. The trial court then issued
its “final decision” on November 23, 2010.
The court found in favor of Ashland and CB&T, ruling that Advent
failed to establish the priority of its mechanic’s lien over the November 20,
2006 deed of trust.
The trial
court’s decision (which was detailed and thorough) stated that the “key
question” was whether the asbestos abatement performed in October 2006 met the
legal requirements to establish priority of Advent’s mechanic’s lien. The trial court found that it did not for two
reasons: (i) the asbestos abatement did
not qualify as “commencement” of a “work of improvement” under Civil Code
section 3134, and (ii) the asbestos abatement was performed pursuant to a
contract for “site improvement” under Civil Code section 3135 separate from the
construction contract. The court wrote
that Advent had tried to characterize the asbestos abatement as “demolition” so
it could plausibly contend that “commencement of the work of improvement”
occurred in October 2006. However, the
court noted that even if the asbestos removal was “demolition,” the mechanic’s
lien at issue did not necessarily attach in October 2006 since demolition work
can “qualify as a separate contract for site improvement under Civil Code
sections 3102 and 3135.”
In its
decision, the court summarized the evidence supporting its finding that Civil
Code section 3134 did not apply to Advent’s lien. The basis for its finding was that the
“visual evidence on site did not clearly reveal that work had commenced on a
construction project. Thus, it did not
provide notice to anyone of the commencement of work before the Bank’s deed of
trust was recorded.”
With respect to the determination that the
asbestos removal was an independent contract for site improvement separate from
the construction agreement, the court relied on the language of the
owner-contractor agreement, which did not reference any prior work, as well as
Advent’s internal meeting notes and other documentary evidence. The court found that Advent’s case “involves
various arguments and retroactive maneuvers that try to bootstrap the earlier
asbestos removal contract into the subsequently-signed written construction contract.”
Furthermore,
Advent’s witnesses were found to have “credibility issues.” The decision stated: “Mr. Wood’s credibility was impaired when he
testified that although he knew that construction had begun, he knowingly
misrepresented to the Bank, orally and in the written contract, that no
construction had begun in order to obtain the loan in the fall of 2006.” The court found that Jacobsen’s credibility
was impaired because, in addition to being president of Advent, he was also an
investor in Stratus.
DISCUSSION
I. Appealability
Advent
originally attempted to appeal from the November 23, 2010 “final
decision.” After we issued an order
requiring Advent to submit a final, appealable judgment, Advent responded by
filing a judgment that was recently entered by the trial court. This judgment disposes of all claims between
Advent, on the one hand, and Ashland and CB&T, on the other. Furthermore, Advent submitted a request for
dismissal with prejudice of its claims against Stratus, and this request has
been entered by the superior court.
Accordingly, since all claims pertaining to Advent have been determined,
appeal is appropriate. (See
568, disapproved on other grounds in Ochoa
v. Superior Court (1985) 39 Cal.3d 159, 171.) We will treat this appeal as if it were taken
from the judgment.
title="">[1]
II. The Trial Court Properly Found that Advent
Failed to Establish the Priority of Its Mechanic’s Lien
The mechanic’s lien law
The
California mechanic’s lien derives from article XIV, section 3, of the
California Constitution, which provides:
“Mechanics, persons furnishing materials, artisans, and laborers of
every class, shall have a lien upon the property upon which they have bestowed
labor or furnished material for the value of such labor done and material
furnished; and the Legislature shall provide, by law, for the speedy and
efficient enforcement of such liens.” At
present, the mechanic’s lien law is codified at chapters 1 and 2 of title 15,
part 4, division 3 of the Civil Code.
remedy arising from the California Constitution, laws pertaining to mechanics’
liens are liberally construed for the protection of laborers and materialmen. (Betancourt
v. Storke Housing Investors (2003) 31 Cal.4th 1157, 1166.)
The
overriding issue in this case is when Advent’s mechanic’s lien for its work as
general contractor on the project took effect.
The date of recording of a mechanic’s lien is not determinative of its
priority. (Wachovia Bank v. Lifetime Industries, Inc. (2006) 145 Cal.App.4th
1039, 1052.) Rather, a mechanic’s lien
relates back to the time of commencement of the work of improvement. (Ibid.) As provided in Civil Code section 3134,
mechanics’ liens, “other than with respect to site improvements,” are
“preferred to any lien, mortgage, deed of trust, or other encumbrance upon the
work of improvement and the site, which attaches subsequent to the commencement
of the work of improvement . . . .”
Civil Code section 3106 defines a “work of improvement” as including
“construction, alteration, addition to, or repair, in whole or in part, of any
building, . . . the filling, leveling, or grading of any lot or tract of land,
the demolition of buildings, and the removal of buildings. Except as otherwise provided in this title,
‘work of improvement’ means the entire structure or scheme of improvement as a
whole.”
Civil Code
section 3135 explains the “site improvements” which fall outside the scope of
section 3134: “If any site improvement
is provided for in a separate contract from any contract with respect to the
erection of residential units or other structures, then the site improvement
shall be considered a separate work of improvement and the commencement thereof
shall not constitute a commencement of the work of improvement consisting of
the erection of any residential unit or other structure.” “Site improvement” is defined in Civil Code
section 3102 as “the demolishing or removing of improvements, trees, or other vegetation
located thereon, or drilling test holes or the grading, filling, or otherwise
improving of any lot or tract of land . . . .”
Thus, under
this statutory scheme, a mechanic’s lien takes priority over a deed of trust if
(i) the “commencement of the work of improvement” precedes the recording of the
deed of trust, and (ii) the work was not for “site improvement” provided for in
a separate contract.
The trial
court determined that Advent proved neither of these requirements, and denied
Advent’s claim on these two separate bases.
First, the court found that the work of improvement at the property did
not commence before the deed of trust was recorded. Second, it found that the asbestos abatement
was site improvement done under a contract separate from the November 2006
construction contract. Since we conclude
that the trial court did not err in finding that the work of improvement did
not commence prior to recordation, we examine only this basis for denial of
Advent’s claim.
B. The trial court applied the correct law
Advent
contends that the trial court erred by relying on the case of
(1933) 217 Cal. 631 (English), to
determine what constitutes “commencement” of a work of improvement.
In
corporation. The lease authorized the
lessee to construct an auditorium on the property. After the lease was executed, the owners of
the property posted a notice of nonresponsibility on the premises. At the time of posting, there had already
been delivered to the property six hundred board feet of lumber, and a
“test-hole” had been dug in the ground measuring six feet by ten feet by six
feet deep; the hole was eventually used as part of the excavation for the
auditorium. (English, supra, 217 Cal. at p. 634.) The auditorium was constructed, and soon
afterward various mechanics’ liens were filed.
The lessee defaulted on its payment of rent, and the owners filed an
unlawful detainer action and retook possession of the property. (Id.
at p. 635.) Litigation ensued between
the mechanic’s lien claimants and the property owners. It was held, and the Supreme Court affirmed,
that, based on the delivery of the lumber and digging of the test-hole,
construction began before the notice of nonresponsibility was posted. (Id.
at p. 636.) In making this
determination, the decision quoted an earlier Court of Appeal opinion,
Cal.App.1, 5 (Simons Brick), which
held that “commencement of work” means “‘some work and labor on the ground,
seen by everybody; such as beginning to dig the foundation, or work of like
description, which everyone can readily
see and recognize as the commencement of a building.’” (English,
to determine what type of work qualifies as commencement of the work of
improvement.
Arguing
that this standard is overly stringent, Advent attempts to distinguish
of a notice of nonresponsibility, not recordation of a deed of trust. We find this distinction immaterial given the
issues presented. As in the instant
case, in English the matter to be
resolved was when commencement of work occurred. English
did not limit its standard of “commencement” only to cases involving notices of
nonresponsibility. Rather, the
it was applying the mechanic’s lien law.
(217 Cal. at pp. 637-638.)
Indeed, the case followed by the English
court, Simons Brick, dealt with
issues similar to those presented in the current dispute. The court in Simons Brick, applying the standard later adopted by
justified in finding that a 60-foot trench dug by subcontractors at the front
of the property was sufficiently visible to constitute commencement of
work. (Simons Brick, supra, 72
Cal.App. at p. 5.) Based on this
determination, the Simons Brick court
found that mechanics’ liens were superior to a mortgage recorded after the
trench was dug. (Ibid.)
title="">[3] There was no notice of responsibility at
issue in Simons Brick.
More recent
case law is in line with the rule enunciated in Simons Brick and English. In Walker
v. Lytton Sav. & Loan Assn. (1970) 2 Cal.3d 152, 156-157, plaintiff
architects, pointing to the statutory definition of “‘work of improvement’” as
including “‘the entire structure or scheme of improvement as a whole,’”
contended that commencement of the work of improvement occurred when the
plaintiffs prepared plans and specifications for a project. Our Supreme Court disagreed, holding that a
mechanic’s lien did not attach until construction commenced “by the doing of
actual visible work on the land or the delivery of construction materials
thereto.” (Ibid.) D'Orsay Internat. Partners v. Superior Court (2004) 123 Cal.App.4th
836, 844, likewise held that the plaintiff was not entitled to a mechanic’s
lien since “no actual visible work was commenced at the project site and no
materials were delivered to the site.”
(See also Nat. Charity League,
Inc. v. County of L.A. (1958) 164 Cal.App.2d 241, 247-248 [citing to
find commencement of building]; Showplace
Square Loft Co., LLC v. Primecore Mortg. Trust, Inc. (Bankr. N.D.Cal. 2003)
289 B.R. 403, 408 [“Under Simons and
work are apparent and visible and of a permanent nature, construction commenced
for the purposes of California Civil Code section 3134”].) Case law has further clarified that, in
addition to being apparent and visible, the work must be “permanent.” (Howard
A. Deason & Co. v. Costa Tierra Ltd. (1969) 2 Cal.App.3d 742, 753;
Lumber Products, Inc. (2009) 174 Cal.App.4th 1479, 1484.)
Thus, to
summarize, for work to constitute “commencement of the work of improvement”
under Civil Code section 3134, the work must be apparent, visible, and
permanent. The trial court did not
deviate from this standard in its decision.
The trial court’s decision was supported by substantial evidence
Whether a
work of improvement has commenced has been described as a question of fact for
the trial court to determine. (
189 Cal.App.2d 599, 601; English,
224 Cal.App.2d 165, 174; Simons Brick,
appropriately described as a mixed question of law and fact, nevertheless the
analysis is predominantly factual, and so we apply a substantial evidence
standard of review. (See
San Francisco (1989) 49 Cal.3d 881, 888; Vine v. Bear Valley Ski Co. (2004) 118 Cal.App.4th 577, 586.)
Under this standard of review, we
determine if there is any substantial evidence, whether contradicted or
uncontradicted, to support the trial court’s findings. (Jessup
Farms v. Baldwin (1983) 33 Cal.3d 639, 660.) We “view the evidence in the light most
favorable to the prevailing party, giving it the benefit of every reasonable
inference and resolving all conflicts in its favor in accordance with the
standard of review so long adhered to by this court.” (Ibid.) “Substantial evidence” is not synonymous with
“any” evidence, but instead is “evidence of ponderable legal significance . . .
that is reasonable, credible and of solid value.” (Roddenberry
v. Roddenberry (1996) 44 Cal.App.4th 634, 651. “Substantial” refers to the quality, not the
quantity, of evidence. (
Thus, “[v]ery little solid evidence may be ‘substantial,’ while a lot of
extremely weak evidence might be ‘insubstantial.’” (Toyota
Motor Sales U.S.A., Inc. v. Superior Court (1990) 220 Cal.App.3d 864,
871.)
The trial court was presented with
ample evidence to support a finding that the asbestos abatement work was not
apparent and visible, and so did not constitute commencement of the work of
improvement under Civil Code section 3134.
The asbestos abatement work was completed in about four to five hours.
left in a clean condition. All bags and
equipment used in the abatement were hauled away upon completion. No sign was left at the property indicating
that the work had been done. Although
Absolute Abatement’s foreman testified that he could see little holes in the
roof through the ceiling inside the existing house, the trial court found that
his credibility was impaired. This was a
determination within the trial court’s sound discretion; we do not reweigh the
credibility of witnesses. (
Cal.App.4th 189, 195.)
Meanwhile,
the trial court found that the inspector, Niitsuma, was “a neutral witness,
with no stake in the outcome,” and that his testimony was “highly
credible.” Niitsuma testified that he
saw no sign of construction (including demolition or similar work), either to
the land, the house, or the roof. Moreover,
he saw no visible changes at the property between his October 16 and November
20, 2006 inspections. His testimony
supported the finding that no visible and apparent work was done at the
property.
This
conclusion was also supported by various photographs in evidence at trial. As found by the trial court, the photographs
taken by Niitsuma on the date the deed of trust was recorded showed no evident
signs of construction. Advent offered a
competing photograph of the property, but the trial court found that it was not
compelling evidence because it was taken in December 2006, after the deed of
trust was recorded. Moreover, Advent’s
photograph merely depicted a small number of Spanish tiles stacked on a limited
portion of the roof of the old house.
The trial court did not err by finding this photograph did not advance
Advent’s case.
We also
find it highly significant that the lender (at the time, Vineyard) recorded its
deed of trust without any notice that Advent may or could later claim that the
work of improvement had commenced.
Although mechanic’s lien laws are to be liberally construed to protect
laborers and materialmen, it has also been recognized that the law expressed in
Civil Code section 3134 “was designed for the protection of those who take
security interests in land as well as for the protection of mechanic’s lien claimants.” (Tracy
Price Associates v. Hebard (1968) 266 Cal.App.2d 778, 788;
“‘[A]ctual visible work on the land notifies potential lenders that
mechanic’s liens have arisen. [Citation.]’” (D'Orsay
Internat. Partners v. Superior Court,
supra, 123 Cal.App.4th at p. 842; see also Lambert Steel Co. v. Heller Financial, Inc., supra, 16 Cal.App.4th at
p. 1043 [“the current system . . . requires the lender to inspect the
site for visible signs of work before recording its lien and disbursing the
funds”; but see South Bay Engineering
Corp. v. Citizens Sav. & Loan Assn. (1975) 51 Cal.App.3d 453, 456
[stating that the “element of notice . . . is not the critical issue”
in finding that stakes and markers placed on the property did not constitute
commencement of the work of improvement].)
Prior to
the time the deed of trust was recorded, Vineyard did not just have Niitsuma’s
inspection reports and photographs.
Vineyard was also presented with the oral and contractual
representations made on behalf of Stratus by its principal, Wood, that no
construction had begun. We recognize
that these representations were made by Stratus, not Advent. But Advent’s relationship with Stratus could
hardly be described as typically arm’s length.
Rather, the evidence showed that Wood had negotiated other projects with
Advent, and that Advent’s principal, Jacobsen, was himself a significant
investor in Stratus, holding a 12.71 percent interest. Of course, a lender cannot simply turn a
blind eye to construction that has already begun, but there is no indication
that this occurred here. Instead, if, as
Advent now asserts, work had actually commenced by the time the deed of trust was
recorded, then it appears that the lender was deliberately misled. In any event, the evidence supported the
trial court’s finding that, because there was no apparent and visible work at
the time the deed of trust was recorded, the work of improvement had not
commenced.
In sum, in
light of all the evidence, we find that the trial court’s decision that Advent
failed to establish the priority of its mechanic’s lien was not in error.
DISPOSITION
The
judgment is affirmed.
NOT TO
BE PUBLISHED IN THE OFFICIAL REPORTS.
BOREN,
P.J.
We concur:
DOI TODD,
J.
ASHMANN-GERST,
J.
CB&T and Ashland filed cross-complaints, but neither named Advent as a
cross-defendant. Trial was bifurcated so
that only Advent’s claim was heard in the first phase and, following trial, the
cross-complaints were severed for all purposes from Advent’s complaint. Since no issues remain to be determined with
regard to Advent, the cross-complaints do not render this matter nonappealable.
name="_ftn2" title="">[2] This
will change effective July 1, 2012, when new Civil Code provisions take effect.
