may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1996).
STATE OF MINNESOTA
IN COURT OF APPEALS
Leonard K. Brunz, et al.,
File No. C6-96-1370
Karl O. Friedrichs, Friedrichs & Marsh, P.A., 237 Belgrade Avenue, Suite 200, North Mankato, MN 56003 (for appellants)
Considered and decided by Huspeni, Presiding Judge, Schumacher, Judge, and Shumaker, Judge.
Leonard K. and Eileen R. Brunz (Brunzes) appeal from a judgment awarding a mechanic's lien to respondent Michael Pongratz d/b/a Pongratz Construction (Pongratz), arguing that (1) Pongratz failed to give the proper pre-lien notice; (2) Pongratz waived his right to a lien by failing to obtain a contractor's license; (3) the district court erred in calculating deductions from the lien; and (4) Pongratz is not entitled to attorney fees. We reverse.
At the time he entered the contract with the Brunzes, Pongratz did not plan to use any subcontractors. He did, however, know that he would have to obtain the materials for the project as he did not have them on hand. Those materials included tons of sand, gravel, concrete and other masonry supplies. It is undisputed that Pongratz did not give the pre-lien notice provided in Minn. Stat. § 514.011 (1996).
During the project, Pongratz did use two subcontractors, but he had not anticipated doing so at the outset. He also obtained materials. No subcontractors or material suppliers filed liens or made claims against the Brunzes or the Brunz property for unpaid labor or supplies.
The Brunzes paid Pongratz $12,500 but refused to pay the rest because they were dissatisfied with the quality of the work. Pongratz filed a mechanic's lien and commenced a foreclosure action.
After a trial, the court found that Pongratz was not required to give a pre-lien notice because he did not plan to use subcontractors and all material suppliers had apparently been paid; and that he did not knowingly fail to obtain a residential contractor's license. The trial court's order established a mechanic's lien in favor of Pongratz in the sum of $10,716.13 and awarded $3,900 to Pongratz for attorney fees. The Brunzes appeal.
1. The Brunzes first argue that Pongratz is not entitled to a mechanic's lien because he failed to give the pre-lien notice provided in Minn. Stat. § 514.011, subd. 1 (1996). That subdivision applies to anyone
[w]ho enters into a contract with the owner for the improvement of real property and who has contracted or will contract with any subcontractors or material suppliers to provide labor, skill or materials for the improvement * * * .
Minn. Stat. § 514.011, subd. 1 (1996).
Such a contractor must give to the owner notice of two facts:
(1) anyone who supplies labor or materials to the improvement of the property may file a lien against the property if the labor or materials are not paid for; and
(2) the owner has a right to hold back amounts from the contractor to pay suppliers of labor or materials or to make direct payments to them.
The subdivision further states: "A person who fails to provide the notice shall not have the lien and remedy provided by this chapter." Minn. Stat. § 514.011, subd. 1 (1996).
In Nasseff v. Schoenecker, 312 Minn. 485, 253 N.W.2d 374 (1977), the Minnesota Supreme Court reviewed the historical background and the purpose of this 1973 enactment. Homeowners frequently found themselves in this scenario: The homeowner hires a general contractor to improve the homeowner's real estate. The general contractor uses subcontractors and material suppliers for the project. The homeowner pays the general contractor. The general contractor fails to pay the subcontractors or material suppliers. The latter file, and often foreclose, liens against the homeowner's property for the value of the labor or materials supplied. The homeowner pays twice. Id.
As the supreme court noted:
The evident purpose was to protect an owner from hidden liens arising from labor or materials supplied to the contractor by subcontractors or materialmen who extended credit to the contractor on the security of the owner's property and whose identities were unknown and often unascertainable by the owner.
Section 514.011 is remedial and protective, and the notice required therein functions as a condition precedent to the attachment of the general contractor's own mechanic's lien. Minn. Stat. § 514.011 (1966).
Although the trial court in this case correctly understood the purpose of the pre-lien notice, it apparently made an equitable decision not to invalidate Pongratz's lien because no material supplier had filed a lien. The effect of such an approach is to turn the pre-lien notice into a condition subsequent, that is, the contractor shall have his lien despite his failure to give the pre-lien notice unless a subcontractor or material supplier files a lien. This approach subverts the intention of the statute and potentially leaves the homeowner with the same risk the statute was designed to obviate. Section 514.011, subd. 1 is clear: A contractor who fails to give the pre-lien notice "shall not have the lien and remedy provided by this chapter."
As noted in Cox v. First Nat'l. Bank of Aitkin, 415 N.W.2d 385, 387 (Minn. App. 1987): "Mechanic's lien laws are strictly construed when determining whether a lien has attached, but are liberally construed once the lien has attached."
In Merle's Const. Co., Inc. v. Berg, 442 N.W.2d 300, 302 (Minn. 1989), the supreme court said:
The prelien notice is no mere technicality. Failure to give the notice defeats the mechanic's lien. * * * There must be strict compliance with the prelien notice requirement.
Because Pongratz knew at the outset that he would have to use suppliers since he did not have the extensive required materials on hand, and because he nevertheless failed to give the mandatory pre-lien notice, his own lien never attached. He, therefore, is not entitled to the remedy of mechanic's lien foreclosure. The trial court's holding to the contrary is reversible error.
2. The Brunzes argue that Pongratz cannot enforce the mechanic's lien because Pongratz failed to obtain a contractor's license as required by Minn. Stat. ch. 326. We agree.
A residential remodeler and a residential building contractor must be licensed. Minn. Stat. § 326.84, subd. 1 (1996). A residential remodeler or building contractor contracts to improve or build residential real estate by providing two or more special skills. Minn. Stat. § 326.83, subds. 15, 16 (1996). The license requirement, however, does not apply to a specialty contractor. Id., subd. 3(5), (8). A specialty contractor contracts to build or improve residential real estate by providing one special skill. Id., subd. 20. Each of the following is a "special skill": excavation; masonry and concrete; carpentry; interior finishing; exterior finishing; drywall and plaster; roofing; or general installation specialties. Id., subd. 19.
Pongratz argues he is exempt from the licensing requirement because he is a specialty contractor. We disagree. It is undisputed that Pongratz was not licensed as a residential remodeler or building contractor. Pongratz testified his special skill was masonry and that the project was 95% masonry work. Pongratz testified that, in addition to the masonry work, he put sheetrock on some walls and installed a window, a door, shelving, cabinets, and a stairway. Under Minn. Stat. § 326.83, subd. 19(c), (f), these projects involve the special skills of carpentry, drywall and plaster, more than one special skill. Thus, Pongratz was not a specialty contractor and was required to obtain a license.
An unlicensed person who "knowingly violates" the licensing requirement has no right to claim a lien under Minn. Stat. § 514.011 and the lien is void. Minn. Stat. § 326.92, subd. 2 (1996). The record shows that the bid included new sheetrock and paneling, and installation of a door, window, shelving, and cabinets. Pongratz testified he knew there was a licensing requirement before he made the bid, but assumed he "could do a little out of my specialty trade and not be required [to get] a license." By his own admission, Pongratz knew about the special skills exception to the licensing requirement before he started work on the project, and he admitted that he would do work beyond his specialty. Even if he did not realize it at the time of the bid, Pongratz should have known he needed a license when he actually did the carpentry and drywall work. Pongratz's testimony indicates he knew the rules, and therefore his failure to ensure that he was operating lawfully is a knowing violation of the licensing requirement. Thus, Pongratz's lien is void as a matter of law. The district court's conclusion that Pongratz's violation of the license requirement was an honest misunderstanding is clearly erroneous.
3. Because Pongratz's mechanic's lien never attached, we need not determine whether the district court erred on the amount of the lien.
4. Pongratz is not entitled to attorney fees under Minn. Stat. § 514.14 (1996), because he is not entitled to the remedies allowed under Chapter 514.
HUSPENI, Judge (concurring in part, dissenting in part)
I agree with the majority that respondent's lien never attached and he is, therefore, not entitled to the remedy of mechanic's lien foreclosure. Even though the mischief to be avoided by the pre-lien notice does not occur when the contractor himself seeks to foreclose a lien, and even though no pre-lien notice would be required if the contractor actually did, in fact, supply the labor and materials on a project (thus permitting the very result the trial court reached here), the statute is inflexible and compels the result we reached on the lien issue.
I would reach a result different from the majority, however, on the license requirement issue. Respondent testified that he knew of the licensing requirement, but mistakenly thought it did not apply to him. The trial court determined this to be an "honest misunderstanding." The trial court is in a better position than are we to judge the sincerity and credibility of a witness. Minn. R. Civ. P. 52.01. Although the trial court here could have found a knowing violation, it did not do so. I would affirm, as not clearly erroneous, the trial court's determination on the licensing issue.