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Inland Empire Dry Wall Supply Co. v. Western Surety Co.

Supreme Court of Washington, En Banc

January 18, 2018

INLAND EMPIRE DRY WALL SUPPLY CO., a Washington corporation, Respondent,
v.
WESTERN SURETY COMPANY (Bond No. 58717161), Petitioner.

          JOHNSON, J.

         This case involves the issue of whether the purchaser of a lien release bond is an indispensable party in an action under chapter 60.04 RCW by a lien claimant against the surety of the release bond. The Court of Appeals, in a divided opinion, reversed the trial court's grant of summary judgment in favor of the surety and held that a claim against a lien release bond could be pursued solely against the surety. We affirm.

          Facts and Procedural History

         Inland Empire Dry Wall Supply Company is a supplier of drywall materials. Inland Empire entered into an agreement to supply drywall materials to Eastern Washington Drywall & Paint (EWD&P). EWD&P contracted with Fowler General Construction to work on an apartment complex project in Richland, Washington. Inland Empire claims to have supplied $124, 653.05 worth of drywall for the apartment complex project work that EWD&P was performing.

         Inland Empire claims EWD&P never paid it for the materials supplied. To pursue payment, Inland Empire filed a preclaim notice and timely recorded a mechanics' lien against the construction project under RCW 60.04.091. To release the project property from the lien, Fowler obtained a lien release bond in the amount of $186, 979.57 from Western Surety Company. The lien release bond identifies Fowler as the "Principal, " Western as the "Surety, " and Inland Empire as the "Obligee." Clerk's Papers (CP) at 23. After Fowler recorded the lien release bond, Inland Empire filed an action asking for "judgment in the principle sum of $124, 653.05" plus interest, costs, and attorney fees, and for "an order foreclosing [its] claim against Defendant Western Surety's Bond . . . and an Order directing the penal sum be paid to [it]." CP at 5, 6. The complaint named Western Surety-but not Fowler, the principal on the bond-as a party to the action. In its answer, Western raised several affirmative defenses, including the affirmative defense that Inland Empire failed to name and include Fowler as a necessary and indispensable party, and that Inland Empire had not satisfied the statute of limitations under chapter 60.04 RCW. Inland Empire and Western then filed cross motions for summary judgment.

         The trial court granted summary judgment in favor of Western. It ruled that under RCW 60.04.141, Inland Empire was required to sue and serve both Western as surety and Fowler as principal in the action to foreclose on a lien release bond. It reasoned that because the bond, rather than the apartment complex property, was now the property subject to the claim of lien, Fowler, as purchaser of the bond, together with Western became owners of the subject "property." The trial court therefore dismissed the lawsuit because Inland Empire failed to name and to serve Fowler as a party within the 90 days required under RCW 60.04.141.

         Division Three of the Court of Appeals in a divided opinion reversed, the majority holding that RCW 60.04.161 controlled under these circumstances and that Inland Empire was only required to name Western, the bond surety, as the defendant to its bond foreclosure action. Inland Empire Dry Wall Supply Co. v. W. Sur. Co., 197 Wn.App. 510, 519, 389 P.3d 717, review granted, 188 Wn.2d 1002, 393 P.3d 785 (2017). Chief Judge Fearing dissented.

          Analysis

         This case raises the issue of whether under chapter 60.04 RCW the purchaser of a lien release bond is an indispensable party who must be named and joined in an action on the lien release bond; this is an issue of statutory interpretation. Construction of a statute is a question of law that this court reviews de novo. State v. Wentz, 149 Wn.2d 342, 346, 68 P.3d 282 (2003). Where a "statute's meaning is plain on its face, then the court must give effect to that plain meaning as an expression of legislative intent." Dep't of Ecology v. Campbell & Gwinn, LLC, 146 Wn.2d 1, 9-10, 43 P.3d 4 (2002). Such meaning "is discerned from all that the Legislature has said in the statute and related statutes which disclose legislative intent about the provision in question, " and if the statute remains susceptible to more than one reasonable meaning, this court resorts to aids of construction, including legislative history. Campbell & Gwinn, 146 Wn.2d at 11, 12.

         Chapter 60.04 RCW creates a cause of action for suppliers of labor, materials, or equipment to a construction project. The statute is often referred to as the "construction lien" statute. Before chapter 60.04 RCW was enacted, material and equipment providers and laborers were limited in pursuing unpaid claims under contract principles and generally could bring suit against only the purchaser of the materials or person (or entity) contracting for labor. In the absence of some equitable or contractual theory, no claim existed against the property, property owner, or others. Construction lien statutes such as chapter 60.04 RCW were enacted to create a cause of action and remedy under certain circumstances in the construction industry. The enactment of chapter 60.04 RCW created a limited cause of action, allowing a claim to be filed against the property and property owner, so long as strict statutory time requirements were followed. As we have previously noted, the statute is construed liberally to protect persons who fall within its provisions. See Williams v. Athletic Field, Inc., 172 Wn.2d 683, 696-97, 261 P.3d 109 (2011).

         RCW 60.04.021 allows "any person furnishing labor, professional services, materials, or equipment for the improvement of real property" to place a lien on the construction project property as a method of securing payment for services rendered. A lien claimant, here Inland Empire, is required to give the property owner and the prime contractor written notice of the lien claim and to record the notice in the county where the subject property is located. RCW 60.04.031, .091. The statutory scheme includes strict time limits in which to act.

         RCW 60.04.141 describes procedures a lien claimant must follow once the lien has been recorded. It provides, in relevant part:

No lien created by this chapter binds the property subject to the lien for a longer period than eight calendar months after the claim df lien has been recorded unless an action is filed by the lien claimant within that time in the superior court in the county where the subject property is located to enforce the lien, and service is made upon the owner of the subject property within ninety days of the date of filing the action . . . and in case the action is not prosecuted to judgment within two years after the commencement thereof, the court, in its discretion, may dismiss the action for want of prosecution, and the dismissal of the action or a judgment rendered thereon that no lien exists shall constitute a cancellation of the lien.

RCW 60.40.141. The statutory language makes it clear that RCW 60.04.141 requires "the owner of the subject property" to be named in actions where no release bond has been filed. This makes legal and practical sense: while the foreclosure suit seeks to enforce payment, if payment is not made, the property owner's interest in the property may be foreclosed, i.e., forfeited. Based on this potential remedy, the statute-RCW 60.04.141-requires joinder of the property owner. Failure to comply with these statutory provisions results in the loss by the lien claimant of the right to the lien. See Bob Pearson Constr., Inc. v. First Cmty. Bank, 111 Wn.App. 174, 179, 43 P.3d 1261 (2002). The type of action created under RCW 60.04.141 is a quasi in rem type of action where the object, or res, is the real property.

         RCW 60.04.161 authorizes a property owner or contractor, subcontractor, lender, or lien claimant who disputes the correctness or validity of the claim of lien to post a lien release bond. The real property then is released from the claim and becomes unreachable, and the bond purchaser instead posts the bond as security.

          The purpose of the lien release bond is twofold. First, the bond protects the property owner by removing the lien from the real property, thus providing the owner with clear marketable title. Second, the bond "protects the lien claimant by taking the place of the property and serving as a form of substitute security should the lien claimant ultimately prevail." The Law OF MISCELLANEOUS AND Commercial Surety Bonds 155 (Todd C. Kazlow & Bruce C. King eds., 2001); see also CalPortland Co. v. LevelOne Concrete, LLC,180 Wn.App. 379, 387, 321 P.3d 1261 (2014). Fowler, the general contractor on the project here, obtained a lien release bond to free up the construction project property. As the Court of Appeals correctly recognized, "Once a lien release bond is recorded, the procedural statute shifts from RCW 60.04.141 to RCW 60.04.161." Inland Empire, 197 Wn.App. at 516. Unlike RCW 60.04.141, the language of RCW 60.04.161 refers to the liability of the surety and does not mention either the bond purchaser or property owner in that context. RCW 60.04.161, of course, necessarily refers to the owner of the property as one of several entities that may dispute a lien and record a bond. But aside from that reference, it simply states that "[t]he ...


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