Richard and Kristen Williamson lived in a residence which they had quit-claimed to the Williamson Family Trust. The Williamsons were both the trustees and the beneficiaries of the trust. They contracted with Freedom Architectural Builders to construct an addition to the residence. The Williamsons were to make payments to Freedom on a set schedule, and from those payments Freedom would pay for all supplies and subcontractors.
Freedom subcontracted with PVOrbit to install doors on the extension, but Freedom went out of business without paying PVOrbit for the work or materials. The Williamsons eventually hired another contractor to complete the project, paying more than $30,000 above the original contract price. PVOrbit filed a mechanic’s lien against the residence.
The Williamsons brought suit against PVOrbit seeking to release the lien on the grounds that the Williamsons were owner-occupants and had never entered into a contract with PVOrbit, and therefore A.R.S. § 33-1002(A)(2) prohibited the lien. The Williamsons also made a claim seeking statutory damages against PVOrbit pursuant to A.R.S. § 33-420 for filing a groundless lien. PVOrbit contended that the Williamsons were not “owner-occupants” because the trust held title to the residence, and counterclaimed for unjust enrichment. The trial court granted summary judgment for the Williamson on all counts, and PVOrbit timely appealed.
The Court of Appeals upheld summary judgment on the lien issue. If certain conditions are met, A.R.S. § 33-1002(B) precludes any mechanic’s liens against the dwelling of an owner-occupant absent a written contract between the lien claimant and the owner-occupant. Arizona Revised Statute § 33-1002(A)(2) defines “owner-occupant” to mean, inter alia, a “natural person who . . . holds legal or equitable title to the dwelling . . . .” The parties disputed whether the trust qualifies as a natural person holding legal or equitable title. Citing Dunlap Investors Ltd. v. Hogan, 133 Ariz. 130, 132, 650 P.2d 432, 434 (1982), the Court held that legal title to the residence was held by the trustees rather than the trust. As trustees, the Williamsons were therefore owner-occupants and entitled to the protections of A.R.S. § 10-1002, making the lien invalid.
The Court, however, reversed the summary judgment granting a penalty against PVOrbit under A.R.S. § 33-420. Under that statute, a lien claimant may be penalized for recording a lien only if the claimant knows or has reason to know the lien is false or otherwise invalid. The statute provides additional penalties it the claimant, while knowing or having to reason to know of its invalidity, refuses to release or correct the lien after receiving a written demand from the owner or beneficial title holder. The statute, however, does not define “know” or “reason to know.” The Court, accordingly, held that the definition in the Restatement (Second) of Torts § 12(1) applied to the statute. Under that definition, the actor must have information from which a person of reasonable intelligence or of the superior intelligence of the actor would infer that the fact in question exists. Moreover, whether a person has “reason to know” must be determined on a case-by-case basis. Because the question of whether trustees qualify as owner-occupants was a matter of first impression, there was a genuine dispute of material fact as to whether PVOrbit knew or should have known that its lien was invalid.
The Court also reversed the summary judgment in favor of the Williamsons on the unjust enrichment counterclaim. Although an unjust enrichment claim can be defeated when a defendant has paid someone other than the plaintiff for the materials and labor, a defendant cannot prevail if no payment was made at all. The Williamsons conceded that Freedom disputed whether the payments it received from the Williamsons were intended to pay for the doors installed by PVOrbit. The Court held that this dispute was enough to defeat summary judgment, and the additional $30,000 paid by the Williamsons to the replacement contractor did not defeat the unjust enrichment claim as a matter of law.
Judge Orozco authored the opinion; Judges Norris and Gemmill concurred.
Posted by: Shane Ham