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OAH 3-1903-21593-2 |
STATE OF
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE COMMISSIONER OF LABOR AND INDUSTRY
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In the Matter of Jason B. and Kelli J. McClary’s Application for Compensation from the Contractor Recovery Fund |
ORDER ON CROSS MOTIONS FOR SUMMARY DISPOSITION |
Based upon all the files, records and proceedings herein, and for the reasons set forth in the accompanying Memorandum, the Administrative Law Judge makes the following:
ORDER
IT IS HEREBY ORDERED THAT:
1. The Department’s Motion for Summary Disposition is GRANTED;
2. The Applicants’ Motion for Summary Disposition is DENIED; and
3. The Department’s decision to deny recovery from the Contractor Recovery Fund is AFFIRMED.
Dated: December 10, 2010.
/s/ Kathleen D. Sheehy
___________________________
KATHLEEN D. SHEEHY
Administrative Law Judge
NOTICE
Pursuant to
MEMORANDUM
I. Factual
Background
The material facts are not
disputed. On March 4, 2009, the McClarys
entered into a contract with Hardy Boys Construction, LLC (Hardy Boys) to
install new exterior finishes on their home in
On April 10, 2009, the McClarys paid Hardy Boys $7,500. On or about May 4, 2009, the McClarys paid Hardy Boys $2,100, and they received from Hardy Boys an executed Receipt and Waiver of Mechanic’s Lien Rights, which recognized full and final payment on the project.[5]
Despite having issued the Receipt and Waiver, Hardy Boys caused a mechanic’s lien in the amount of $10,368 to be filed against the McClarys’ property on May 8, 2009.[6] Because of the lien, the McClarys were unable to pay off their short-term construction loan and refinance the loan as they had planned. They incurred costs associated with the delayed closing. They were also forced to hire an attorney and file suit against Hardy Boys in Dakota County District Court to have the lien removed. In September 2009, the district court ordered a default judgment in the McClarys’ favor in the amount of $18,464.50. This amount represented $755.50 for costs and disbursements; $3,000 for attorney’s fees; and $14,709 in damages due to the delay.[7]
On June 14, 2010, the McClarys filed an application for compensation from the Contractor Recovery Fund.[8] They sought recovery of $14,709, representing that portion of the judgment that did not include costs or attorney’s fees. By letter dated August 26, 2010, the Department denied the application for recovery on the basis that Minn. Stat. § 326B.89, subd. 6(3), precludes recovery for fraudulent conduct that occurred when the contractor was not licensed.[9] The McClarys requested a hearing on the denial of the application.[10]
II.
Motion for Summary Disposition
Summary disposition is the administrative equivalent of summary judgment. Summary disposition is appropriate where there is no genuine issue as to any material fact and one party is entitled to judgment as a matter of law.[11] The parties have agreed that there are no genuine issues of material fact and that this matter is amenable to summary disposition.
The
purpose of the Contractor Recovery Fund is to compensate eligible homeowners and lessees who meet the
requirements of the statute; to reimburse the Department
for the legal and administrative expenses incurred in administering and defending the fund; to pay for educational
or research projects in the field of residential contracting; and to provide information to the public on
residential contracting issues.[12]
The Claimants bear the
burden of proving their eligibility to recover from the Fund by substantial
evidence.[13] To be eligible, a homeowner or lessee must
submit an application to the Commissioner and verify the following information,
in relevant part:
(1) the specific grounds upon which the owner
or lessee seeks to recover from the
fund;
(2)
that the owner or lessee has obtained a final
judgment in a court or competent jurisdiction against a licensee under section
326B.83; [and]
(3)
that the final judgment was obtained against the
licensee on the grounds of fraudulent, deceptive, or dishonest practices,
conversion of funds, or failure of performance that arose directly out of a contract directly between the licensee
and the homeowner or lessee that was
entered into prior to the cause of action and that occurred when the licensee was licensed and performing any
of the special skills enumerated under section 326B.802, subdivision 19[.][14]
Whenever an applicant’s judgment is by
default, the applicant shall have the burden of proving the cause of action for
fraudulent, deceptive, or dishonest practices, conversion of funds, or failure
of performance.[15] Whatever the nature of the misconduct,
however, the statute requires applicants to show that it occurred when the
contractor was licensed.
In this case, the Department does not
dispute that the filing of a malicious lien is fraudulent, deceptive, or
dishonest conduct that arises out of the contract; it maintains, however, that
because the fraudulent, deceptive, or dishonest conduct occurred on May 8,
2009, when Hardy Boys was no longer licensed, the McClarys are not eligible to
recover from the Fund. The Applicants
have not alleged that the contractor committed any misconduct during the time
when the contractor was licensed. Based
on the plain language of the statute, the Department contends it is entitled to
judgment as a matter of law. The
Department also argues that, even if there were some ambiguity in the statutory
language, the Department’s interpretation of the statute to cover losses
incurred only as a result of licensed conduct is entitled to deference.
The Applicants agree that the
misconduct occurred when the contractor slandered the title to the property.[16] They argue, however, that under Minn.
Stat. § 514.05, subd. 1, the
lien attached and took effect from the time the first item of material or labor
was furnished on the project (March 24, 2009), when the contractor was still
licensed.[17]
Because the contract was signed and some
work was performed, and because the lien effectively attached on March 24,
2009, while the contractor was licensed, they argue that the contractor was
licensed at all relevant times and that their application for recovery should
be granted.
Minn. Stat. § 514.05, subd. 1, governs
when a mechanic’s lien attaches and provides for potentially different dates of
attachment depending upon whether the person is the owner of the property, or a
purchaser, mortgagee, or encumbrancer.
It provides, in relevant part, that “[a]ll liens, as against the owner
of the land, shall attach and take effect from the time the first item of
material or labor is furnished upon the premises for the beginning of the
improvement, and shall be preferred to any mortgage or other encumbrance not
then of record, unless the lienholder had actual notice thereof.” The lien ceases to exist within 120 days of
performing the last work on the project, unless the lien holder files a
statement of claim and serves a copy on the owner.[18] The Applicants argue that, because the lien
came into existence automatically upon the commencement of work, at a time when
the contractor was licensed, it is irrelevant that the contractor was not
licensed when it filed the statement of claim on May 8, 2009.
The Administrative Law Judge
disagrees. In this case, the lien was
created automatically when the contractor began work on March 24, 2009. The lien was extinguished on or about May 1,
2009, when the contractor provided the Applicants with a lien waiver
acknowledging receipt of full payment for the work performed. The misconduct that caused damage to the
Applicants occurred on May 8, 2009, when the contractor filed the statement of
claim asserting lien rights that had been discharged. At that time, the contractor was not
licensed. Based on the plain language of
the statute, the Administrative Law Judge concludes the Applicants are not eligible
for compensation from the Recovery Fund.
This result, although unfortunate from
the perspective of the Applicants, is entirely consistent with the legislative
scheme. The Recovery Fund is created by
fees assessed when residential building contractors apply for or renew their
licenses.[19] The amount of the fee depends on the amount
of the contractor’s gross annual receipts.
It was accordingly a rational decision by the legislature to make
eligibility for recovery contingent on the applicant demonstrating that the underlying
misconduct was committed by a licensed contractor.
K.D.S.
[1] Affidavit of Eileen McNiff Ex. 1; Affidavit of Kelli J. McClary ¶ 2 & Ex. A.
[2]
[3] Affidavit of Kelli J. McClary ¶ 3.
[4] McNiff Aff. ¶ 3; Affidavit of Anthony W. Thompson Ex. A.
[5] McNiff Aff. Ex. 6 at ¶¶ 7-9; McClary Aff. ¶¶ 4-6 & Ex. D.
[6] McNiff Aff. Ex. 6 at ¶ 11; McClary Aff. Ex. E.
[7]
[8] McNiff Aff. Ex. 7; McClary Aff. Ex. F.
[9]
[10]
[11] Sauter v. Sauter, 70 N.W.2d 351, 353 (
[12]
[13]
[14]
[15]
[16] See Plaintiff’s Reply Memorandum at 1 (there is no question of defective work or damage resulting from the labor performed by Hardy Boys, but instead the damages resulting from its slander of title to the property).
[17]
[18]
[19]