June 14 2011
DA 10-0440
IN THE SUPREME COURT OF THE STATE OF MONTANA
2011 MT 138
DICK ANDERSON CONSTRUCTION,
INC., a Montana corporation,
Plaintiff and Appellant,
v.
MONROE PROPERTY COMPANY, LLC,
a Delaware limited liability company,
Defendant and Appellee.
APPEAL FROM: District Court of the Fourth Judicial District,
In and For the County of Missoula, Cause No. DV 01-710
Honorable Katherine M. Irigoin, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
John H. Guin; Law Office of John H. Guin, PLLC, Spokane, Washington
For Appellee:
Jeffrey T. Dickson; Christian, Samson & James, PLLC, Missoula,
Montana
Scott M. Stearns, Randy J. Cox, Thomas J. Leonard; Boone Karlberg, P.C.
Missoula, Montana
Submitted on Briefs: April 6, 2011
Decided: June 14, 2011
Filed:
__________________________________________
Clerk
Chief Justice Mike McGrath delivered the Opinion of the Court.
¶1 Dick Anderson Construction (DAC) appeals from the order of the District Court of
the Fourth Judicial District granting summary judgment to Monroe Property Company.
We reverse.
BACKGROUND
¶2 This case arose over a decade ago when David Lipson, principal of the
approximately 10,000-acre Paws Up Angus Ranch and Paws Up Horse Ranch in
Missoula County, Montana, engaged DAC to construct buildings, roads and other
improvements on the Ranch. Lipson projected that the work would cost approximately
$10 million, and when DAC did not get paid for the last approximately $800,000 of
billings, it filed a construction lien to secure its claim. DAC commenced a breach of
contract and lien foreclosure action in 2001 and has spent the intervening years trying to
bring this dispute to a conclusion and to collect the debt.
¶3 David Lipson has been described as a shrewd and experienced businessman. See
e.g. Securities and Exchange Comm’n v. Lipson, 278 F.3d 656 (7th Cir. 2002). When
Lipson engaged DAC for the Paws Up construction project in April, 2000, he entered a
written contract with DAC on behalf of Monroe Construction, a limited liability company
formed under the laws of Delaware, with a home address in Chicago. Monroe
Construction was a shell entity without any on-going assets, while the Ranch itself was
owned by another Lipson entity called Monroe Property, an LLC organized under the
laws of Nevada. Lipson controlled both entities and testified that his intent was that
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Monroe Construction would contract with DAC and pay for the cost of the improvements
at the Ranch, using money drawn from various sources within the Lipson organization.
Monroe Property owned the Paws Up ranch at all relevant times, and when each phase of
the construction was substantially completed, Monroe Construction sold that phase to
Monroe Property for cost plus a 5% “contractor’s fee.”
¶4 At the time Lipson entered the construction contract with DAC, there was no
written agreement between Monroe Construction and Monroe Property evidencing the
arrangement that Monroe Construction would sell the phases of the DAC job as they
were completed. In August, 2002, after this litigation was well under way, Monroe
Construction and Monroe Property entered a written agreement purporting to
memorialize the arrangement. It was “dated as of” March 9, 2000, and David Lipson
signed the document as President of Monroe Property, LLC, and as President of Monroe
Construction, LLC and as “manager” of DEL Investments Corporation. Lipson testified
that DEL is the manager of Monroe Property; that Monroe Property is a single-member
LLC; that the single member of Monroe Property is Monroe Capital Partners, LLC, and
that he is the representative of the manager DEL. He also testified that he was not
employed by Monroe Property and that neither it nor Monroe Construction has any
employees or any ownership interest in the other entity. He testified that Monroe
Property operates under the assumed names of Paws Up Angus Ranch, Paws Up Cattle
Company and Paws Up Horse Ranch. It is clear that Lipson controlled Monroe Property,
Monroe Construction, DEL Investments, and the Paws Up operations.
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¶5 Neither Lipson nor the Monroe entities presented any explanation for the necessity
or utility of the complicated structure of these entities. Whatever the effect of these
intertwined entities may have been, one clear result was to isolate David Lipson,
individually, and Monroe Property, as the titleholder of the Paws Up property, from
direct contracts with contractors such as DAC. Monroe Construction by design had no
discernable assets. They admitted in the District Court proceedings that one of the
reasons for the structure was to make it judgment proof and to protect the Paws Up land
itself from liens. This has been successful for a decade. Nevertheless, the individual that
DAC dealt with throughout its project was David Lipson. Lipson had detailed
discussions with DAC’s representative leading up to execution of the construction
contract. Lipson signed the contract with DAC on behalf of Monroe Construction, and
the contract designated the “project” as “Paws Up Angus Ranch, Greenough, Montana,”
the land owned by Monroe Property.
¶6 During the construction phase, DAC personnel dealt with Lipson regularly and
often. One of the many proceedings that has been held in the effort to conclude the DAC
claim was an arbitration that took place in November, 2005 and which included a nine-
day evidentiary hearing. The arbitrators in their written decision found that there were
never any complete or detailed plans for the work that DAC was to complete, and that the
costs of the project were not detailed cost estimates that DAC could rely on but were just
budget estimates provided by Lipson. After DAC began work, its representatives warned
Lipson about the increase in the estimated costs caused by the absence of complete plans
and the “many changes that were being directed by Lipson.” Lipson and his wife met
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with DAC representatives weekly to provide directions on what they wanted done, and
DAC would direct its crews accordingly. DAC representatives testified that this led to
inconsistent and untimely instructions from the Lipsons, and that meeting the Lipsons’
changing expectations resulted in completed work being torn out and reconstructed. The
evidence showed that between August, 2000 and March, 2001, Lipson directed 41
changes or additions to the plumbing and 113 pages of changes to the work done on the
equestrian center. The arbitration panel found that the “skyrocketing costs” experienced
toward the end of the project “were the result of the changes and expansions directed by
Dave Lipson.”
¶7 Monroe Construction paid DAC through the April 30, 2001 invoice, a total of
$10,339,223. Monroe did not pay DAC’s June and July, 2001 invoices, which totaled
$894,607. In July, 2001 DAC filed a construction lien against the property and in
September, 2001 DAC sued Monroe Construction for breach of contract and Monroe
Property to foreclose the lien. The Monroe entities responded with several counterclaims
for constructive fraud, misrepresentation, negligence and breach of contract.
¶8 In 2002, the District Court denied Monroe’s motion for summary judgment and
upheld the validity of DAC’s construction lien. In May, 2004, the District Court upheld
the validity of the lien against further Monroe contentions that it was technically
deficient. The District Court also dismissed all of Monroe’s tort-based counterclaims,
leaving only the breach of contract counterclaim by Monroe Construction. These rulings
have not been appealed.
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¶9 The Monroe entities then moved to compel arbitration under the construction
contract, and in March, 2005 the District Court ordered that the parties participate in
arbitration. The arbitration proceeded with DAC and Monroe Construction only and
included the nine-day evidentiary hearing, the only one held in any proceeding connected
with this matter. In December, 2005 the arbitrators awarded DAC $802,661 in damages;
$309,729 in interest; $33,186 in costs and $331,892 in attorney fees against Monroe
Construction.1
¶10 DAC returned to District Court and moved for an entry of judgment against
Monroe Construction on the arbitration award and for summary judgment against
Monroe Property on the foreclosure of the construction lien. The District Court entered
two orders on March 16, 2007. The first granted DAC’s motion to confirm the
arbitration award in its favor and denied the motion of the Monroe entities to vacate or
modify the award. The primary issue regarding the confirmation was the arbitration
panel’s award of attorney fees to DAC. In addition, the Monroe entities contended that
the panel exceeded its authority by making findings and conclusions regarding the
construction lien.
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The arbitrators also found against Monroe Construction on its claims for breach of
contract and for fraud, concluding that they “were so totally devoid of merit as to
constitute bad faith under the circumstances of this case. These claims appear to have
been interposed only to hinder and delay the progress of this case.” The arbitrators also
found against Monroe Construction on its defamation claim, which was based on a letter
from DAC to one of its subcontractors in which DAC stated that Dave Lipson “had not
been honest in his dealings with DAC.” The arbitrators found first that this was only a
statement of opinion based upon disclosed facts, and that in any event the statement was
not defamatory because it was true.
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¶11 In the second March 16, 2007 order the District Court granted DAC’s motion for
summary judgment against Monroe Property on the construction lien. In doing so the
District Court held in favor of DAC on the Monroe entities’ arguments that there were
absent necessary parties; that the lien did not properly identify the land at issue; and that
the lien did not properly identify the improvements at issue.
¶12 In May, 2007, the District Court followed up on the March 16 orders and entered a
final judgment against Monroe Construction on the arbitration award in the amount of
$1,632,961.14. The District Court also entered a final judgment against Monroe Property
foreclosing the lien and ordered that the real property of the Paws Up Ranch be sold to
satisfy the claim.
¶13 Monroe appealed to this Court, and we affirmed in part and reversed in part. Dick
Anderson Const., Inc. v. Monroe Construction, 2009 MT 416, 353 Mont. 534, 221 P.3d
675 (DAC I). First, this Court upheld the District Court’s order confirming the amount of
the arbitration award against Monroe Construction, including the attorney fees. Next this
Court rejected Monroe Property’s argument that it was a third party beneficiary of the
Monroe Construction-DAC construction contract so as to be entitled to raise claims and
defenses regarding the contract. Finally, this Court reversed the District Court’s order
foreclosing the construction lien on the ground that the order improperly relied on the
arbitration panel’s advisory findings concerning the lien. This Court concluded that
Monroe Property’s “statutory defenses on the construction lien issue” involving issues of
whether the lien was “properly and timely filed against Monroe Property’s real property”
remained to be litigated.
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¶14 On remand to the District Court, in May, 2010 Monroe Property again raised
technical issues concerning the validity of the lien by moving for summary judgment
against DAC on the issue of the validity of the construction lien. Monroe Property
argued that since it was not a party to the construction contract with DAC and was not a
third party beneficiary of the construction contract, it was not a “contracting owner”
under § 71-3-522(4)(a), MCA, against whom the lien could be foreclosed. DAC argued
that Monroe Construction was an agent of Monroe Property and that therefore the lien
was enforceable. The District Court concluded that Monroe Property and Monroe
Construction were separate entities; that DAC “failed to establish” that Monroe
Construction was an agent of Monroe Property; and that the lien was enforceable only as
to Monroe Construction’s interest in the real property, which did not exist. The District
Court further held that “DAC’s lien extended only to the improvements it constructed for
Monroe Construction, not to the real property owned by Monroe Property.” The District
Court then concluded that the construction lien was “invalid” and unenforceable. The
District Court reserved any ruling on DAC’s quantum meriut claim against Monroe
Property.
¶15 DAC appeals. While DAC raises several issues on appeal, we find the issue
regarding the existence of an agency relationship between Monroe Property and Monroe
Construction to be dispositive, and therefore do not reach the others.
STANDARDS OF REVIEW
¶16 The District Court disposed of this matter on summary judgment. This Court
reviews a district court’s decision on summary judgment de novo, examining whether the
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decision correctly found that there were no genuine issues of fact and that the moving
party was entitled to judgment as a matter of law. All reasonable inferences that may be
drawn from the evidence must be drawn in favor of the party opposing summary
judgment. Talmage v. City of Kalispell, 2009 MT 434, ¶ 12, 354 Mont. 125, 223 P.3d
328. We review legal conclusions reached by a district court to determine whether the
court erred. Poole v. Poole, 2000 MT 117, ¶ 13, 299 Mont. 435, 1 P.3d 936.
DISCUSSION
¶17 Montana law provides “for the attachment and enforceability of a construction lien
against real estate in favor of a person furnishing services or materials under a real estate
improvement contract.” Section 71-3-521, MCA. The purpose of the lien is to secure the
payment of the contract price for construction work. Section 71-3-523, MCA. “A
construction lien extends to the interest of the contracting owner in the real estate, as the
interest exists at the commencement of work or is subsequently acquired. . . . ” Section
71-3-525, MCA. A “contracting owner” is a “person who owns an interest in real estate
and who personally or through an agent, enters into an express or implied contract for the
improvement of the real estate.” Section 71-3-522(4), MCA. The statutes contain
specific requirements for notice, §§ 71-3-531 and -532, MCA, and for filing, §§ 71-3-534
and -535, MCA.
¶18 The procedural requirements of the lien statutes exist to notify the real property
owner that a lien has been filed against the property and to protect other parties dealing
with the property. Johnston v. Palmer, 2007 MT 99, ¶ 40, 337 Mont. 101, 158 P.3d 998.
When the strict requirements of the lien statutes are met, the statutes will be liberally
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construed to give effect to their remedial purpose. Gaston Engineering & Surveying v.
Oakwood Properties, 2011 MT 44, ¶ 14, 359 Mont. 341, 249 P.3d 75; Swain. v.
Battershell, 1999 MT 101, ¶ 26, 294 Mont. 282, 983 P.2d 873.
¶19 Throughout this litigation, until the order appealed from, the District Court has
held that the DAC lien satisfies the strict procedural requirements of the statutes. The
issue that Monroe Property raises in this appeal is whether it is a “contracting owner”
under the lien statutes. We conclude that it is.
¶20 Monroe Property argues that it is not a “contracting owner” under the definition of
that term in § 71-3-522(4)(a), MCA. Monroe Property argues that it was not a
contracting owner because it did not enter the construction contract with DAC, but rather
that Monroe Construction, a completely “separate entity,” did so. Monroe Property
further asserts that there is “no evidence” of any agency relationship between the two
Monroe entities and that Monroe Construction did not act as its agent. The District Court
adopted those positions in the summary judgment order underlying this appeal.
¶21 An agent is one who represents another, § 28-10-101, MCA, and agency is either
actual or ostensible, § 28-10-103(1), MCA. An actual agency occurs when the agent is
“really employed” by the principal, and is ostensible when the principal “intentionally or
by want of ordinary care causes a third person to believe another to be the principal’s
agent when that person is not really employed by the principal.” Section 28-10-103(1),
MCA. Agency may be created and authority to act conferred by prior authorization or
subsequent ratification, and consideration is not required to create an agent’s authority.
Sections 28-10-201 and -202, MCA. An agent represents the principal and the rights and
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liabilities that accrue from the agent’s acts accrue to the principal. Section 28-10-601,
MCA.
¶22 A court may review the record to determine whether there is sufficient evidence of
agency, Butler Mfg. Co. v. J & L Implement Co., 167 Mont. 519, 523, 540 P.2d 962, 965
(1975), and the existence of agency may be implied from conduct and from all the facts
and circumstances of the case. Butler Mfg., 167 Mont. at 524, 540 P.2d at 965. When a
party contends there is an ostensible agency, the principal must have undertaken some act
to lead the other party to believe that an agency existed, even if it did not exist in fact.
Miller v. Cascade N. Co., 181 Mont. 66, 69, 592 P.2d 156, 158 (1979). A belief in
ostensible agency must be reasonable, Larson v. Barry Smith Logging, 267 Mont. 444,
447, 884 P.2d 786, 788 (1994).
¶23 The facts of this case demonstrate that Monroe Construction was the actual agent
of Monroe Property for the purpose of engaging DAC to complete construction work on
Monroe Property’s Paws Up Ranch. Monroe Property nominally owns the Paws Up
Ranches. David Lipson controls and manages Monroe Property and the Paws Up
Ranches. David Lipson created Monroe Construction to facilitate the construction of
improvements at the Paws Up Ranches. Lipson’s intent at the time of the DAC contract
was that Monroe Construction would be designated as the contracting entity and, upon
substantial completion of various portions of the work would pay DAC and in return sell
the completed portion of the work to Monroe Property.
¶24 The construction contract with DAC recited that Monroe Construction was “the
Owner” and that “the Project is: Paws Up Angus Ranch, Greenough, Montana.” Lipson
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signed the contract for Monroe Construction. Throughout the negotiations leading up to
the contract and the construction of the projects at the Ranch, DAC dealt personally with
Lipson. In 2002, after this litigation began, Monroe Property and Monroe Construction
entered a written agreement on the face of which Monroe Construction agreed to sell to
Monroe Property the improvements constructed by DAC. David Lipson signed the
agreement for both Monroe entities, as president of DEL Investments Corporation, listed
as the manager of both entities. A purpose of creating Monroe Construction was to
establish an entity to contract with third persons such as DAC, but which entity would
have no on-going assets against which liens or judgments could be levied.
¶25 The District Court’s recitation of the “undisputed material facts” was more than
sufficient to support the legal conclusion that Monroe Construction was the agent of
Monroe Property. The only reasonable conclusion of law to be drawn from the
undisputed facts is that Monroe Construction was created to act and did act as the agent
of Monroe Property for the purpose of contracting for improvements to the Paws Up
Ranch. Monroe Property has not made any compelling argument that there was no
agency, instead repeatedly stating that Monroe Construction was a “separate entity.” It
also argues that had Monroe Construction been an agent of Monroe Property, then
Monroe Property as the principal would have been allowed to challenge the contract
between Monroe Construction and DAC, which this Court disallowed in DAC I, ¶ 50.
The issue considered in that case, however, was whether Monroe Property was a third
party beneficiary of the construction contract, and not whether Monroe Construction was
an agent of Monroe Property. The third party beneficiary issue was not determinative of
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agency. Monroe Property acknowledged in DAC I that Monroe Construction served as a
general contractor on the Paws Up project and hired DAC to improve the property. It is
undisputed that this was done for the benefit of Monroe Property and with its approval.
¶26 Moreover, it is clear that if the Monroe Property-Monroe Construction
arrangement (in which an asset-free shell entity with no title to real property is the
contracting entity for real property improvements) were adopted as a model by others,
there would be no enforceable construction liens. Monroe tries to refute this issue by
contending that all a contractor has to do is to enter a contract with the owner of the real
property. Under the Monroe Property-Monroe Construction model, as DAC has found,
this can be difficult. The remedial purposes of the construction lien statutes—including
providing payment security for contractors who construct improvements to real
property—would clearly be frustrated by adopting Monroe Property’s position.
¶27 The undisputed facts establish that Monroe Construction was an agent of Monroe
Property for the purpose of contracting with DAC to build improvements on Monroe
Property’s Paws Up Ranches. Therefore, under § 71-3-522, MCA, Monroe Property,
acting through its agent Monroe Construction, was a “contracting owner” with regard to
the construction contract with DAC. The District Court’s conclusion of law to the
contrary was error, and the order on summary judgment is hereby reversed.
¶28 Monroe Property had the opportunity on remand to the District Court to raise any
statutory defenses it had to DAC’s assertion of a construction lien. Monroe Property did
so, contending that it was not a contracting owner and that the lien was invalid. Having
resolved this issue against Monroe Property and in favor of DAC, no issues remain to be
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decided as to the validity of the DAC lien. 2 We therefore reinstate the Final Money
Judgment and Final Judgment Foreclosing Construction Lien in favor of DAC and
against Monroe Property previously entered in this matter, dated April 30, 2007 and filed
May 1, 2007. DAC may foreclose its construction lien in the amounts provided in that
judgment.
¶29 Reversed.
/S/ MIKE McGRATH
We concur:
/S/ JAMES C. NELSON
/S/ MICHAEL E WHEAT
/S/ BETH BAKER
/S/ JIM RICE
2
DAC’s alternative quantum meriut claim is rendered moot by this decision.
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