Laboratory Design and Equipment, Inc. v. Brooks Development Authority--Appeal from 166th Judicial District Court of Bexar County

MEMORANDUM OPINION
No. 04-07-00284-CV
LABORATORY DESIGN & EQUIPMENT, INC.,
Appellant
v.
BROOKS DEVELOPMENT AUTHORITY,
Appellee
From the 166th Judicial District Court, Bexar County, Texas
Trial Court No. 2006-CI-09262
Honorable Janet P. Littlejohn, Judge Presiding

Opinion by: Karen Angelini, Justice

 

Sitting: Catherine Stone, Justice

Karen Angelini, Justice

Rebecca Simmons, Justice

 

Delivered and Filed: January 2, 2008

 

AFFIRMED

This is an appeal from an order granting Brooks Development Authority's Motion for Summary Judgment as to Laboratory Design & Equipment, Inc.'s ("LDE") claims.

Factual and Procedural Background

Brooks Development Authority ("Brooks") is a governmental entity, created by the City of San Antonio, which has the legal authority to enter into contracts. See Tex. Loc. Gov't Code Ann. 379B.004(a)(3)(Vernon 2005). Brooks contracted with Con-Cor, Inc. ("CCI") as the prime contractor on a public works project to remodel Brooks City Base Building No. 140 (hereinafter referred to as "the Project"). CCI in turn subcontracted with LDE on or about June 9, 2003, for the delivery and installation of laboratory cabinets and equipment for the Project at a cost of $350,432.00.

LDE delivered all cabinets and equipment to the Project site in October, November and December of 2003. Following delivery, LDE began installation until CCI allegedly directed LDE to stop due to unrelated issues concerning required building permits. On December 15, 2003, LDE sent CCI an invoice requesting payment in the amount of $346,136.00. CCI then sent its invoice to Brooks and although CCI received payment from Brooks in the amount of $319,826.00 by February 2004, CCI only paid LDE $208,676.00. On June 3, 2004, LDE informed Brooks in writing that it had not been paid in full for the cabinets and equipment and was still owed approximately $109,602.00. Brooks subsequently advised CCI that LDE was entitled to payment. In response, CCI claimed it had spent $11,000.00 installing the cabinets after LDE ceased work on the Project but otherwise agreed to pay LDE the amount owed. Nevertheless, no further payments were made to LDE, and LDE subsequently sued both CCI and Brooks, jointly and severally.

LDE's claim against Brooks was based on 1) breach of the payment bond obligation pursuant to Chapter 2253 of the Government Code; and 2) an assertion that an equitable lien existed on prime contract proceeds in Brooks's possession which obligated Brooks to ensure that funds for the Project in its possession were paid to LDE. LDE also sued to recover approximately $34,683.60 held by Brooks in retainage. Brooks moved for summary judgment, arguing that 1) there was no evidence LDE provided Brooks the required statutory notice pursuant to 2253.041 of the Government Code; and 2) there was no evidence there was a cause of action for an equitable lien on the Project's contract monies. The trial court granted Brooks's motion as to each of LDE's claims against Brooks with the exception of LDE's claim for retainage. This claim was severed and LDE now brings this appeal.

Standard of Review

Under Rule 166a(i), a party may move for a no-evidence summary judgment on the ground that there is no evidence of one or more essential elements of a claim or defense on which an adverse party would have the burden of proof at trial. Tex. R. Civ. P. 166a(i). We review a no-evidence summary judgment de novo by construing the record in the light most favorable to the respondent and disregarding all contrary evidence and inferences. Merrill Dow Pharm., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997); Reynosa v. Huff, 21 S.W.3d 510, 512 (Tex. App.--San Antonio 2000, no pet.); Moore v. K Mart Corp., 981 S.W.2d 266, 269 (Tex. App.--San Antonio 1998, pet. denied). A no-evidence summary judgment is improperly granted when the respondent brings forth more than a scintilla of probative evidence that raises a genuine issue of material fact on the challenged elements. Tex. R. Civ. P. 166a(i); Gomez v. Tri City Cmty. Hosp., Ltd., 4 S.W.3d 281, 283 (Tex. App.--San Antonio 1999, no pet.). Less than a scintilla of evidence exists when the evidence is "so weak as to do no more than create a mere surmise or suspicion" of a fact, and the legal effect is that there is no evidence. Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex. 1983).

Perfection of 2253.027 Claim

Chapter 2253 of the Government Code provides that a governmental entity entering into a public works contract with a general contractor is required under some circumstances to ensure that the contractor executes performance and payment bonds before work on the project may commence. Tex. Govt Code Ann. 2253.021(a) (Vernon 2000). This statute, also known as the McGregor Act, was enacted to protect claimants providing labor or materials in the construction of public works who were otherwise precluded from obtaining a mechanic's lien against public works. City of LaPorte v. Taylor, 836 S.W.2d 829, 831-32 (Tex. App.--Houston [1st Dist.] 1992, no writ). Thus, the Act provides that if a general contractor fails to meet its payment obligations, a payment bond beneficiary may sue the contractor or its surety, jointly or severally, for any unpaid amounts. Id. 2253.073. The Act further subjects a governmental entity failing to obtain a payment bond from a prime contractor to the same liability that a surety would have if the surety had issued and obtained a payment bond. Id. 2253.027(a) (Vernon 2000 & Supp. 2007).

In order to pursue a claim against a governmental entity, the Act specifies that "the only notice a payment bond beneficiary is required to provide to the governmental entity is a notice provided in the same manner as described by Subchapter C" and further, that "[t]he notice must be provided as if the governmental entity were a surety." Id. 2253.027 (b) (Vernon Supp. 2007)(emphasis added). Subchapter C requires that a payment bond beneficiary properly perfect its claim by mailing written notice to the contractor and the surety before it may recover in a suit against the surety on a payment bond. Id. 2253.041(a). The notice must be mailed on or before the 15th day of the third month after each month in which the labor was performed or the material was delivered. Id. 2253.041(b). Additionally, the notice must be "accompanied by a sworn statement of account that states in substance: (1) the amount claimed is just and correct; and (2) all just and lawful offsets, payments, and credits known to the affiant have been allowed." Id. 2253.041(c). Once notice has been provided in accordance with Subchapter C, a payment bond beneficiary may then sue the surety provided the claim has not been paid before the 61st day after the date the notice for the claim was mailed. Id. 2253.073(a).

Discussion

I. Statutory Notice Required to Perfect a Payment Bond Claim

In this case, the trial court granted Brooks's motion for summary judgment after finding no evidence that LDE complied with the statutory notice requirements set forth in Chapter 2253. However, LDE maintains that its June 15, 2005 letter "substantially complies with the requirements of notice" and further argues that the Act does not require a claimant to provide notice to a governmental entity within any specific period of time. We disagree.

Here, it is undisputed that LDE delivered all cabinets and equipment to the Project site in October, November and December of 2003. Pursuant to Chapter 2253, Subchapter C, LDE was required to mail written notice of its claim to the prime contractor and the surety, or to the governmental entity "as if the governmental entity were a surety", on or before the 15th day of the third month after each month in which the labor was performed or the material was delivered. See id. 2253.027(b) (Vernon Supp. 2007), 2253.041(b) (Vernon 2000). Therefore, notice of LDE's claim should have been mailed to Brooks, at the very latest, by March 15, 2004. However, to establish notice of its claim, LDE relies upon a letter that was mailed June 15, 2005, over one year after the statutory due date.

LDE cites to several cases in support of its position that a payment bond beneficiary is not required to provide notice of its claim to a governmental entity within any specified period of time; however, the cited authority does not support LDE's argument. See Capitol Indem. Corp. v. Kirby Rest. Equip. & Chem. Supply Co., Inc., 170 S.W.3d 144, 146 (Tex. App.--San Antonio 2005, pet. denied) (finding letter and sworn statement "substantially complied" with statutory requirements; however, date of notice was not in dispute and notice was, in fact, timely); Ramex Const. Co. v. Tamcon Servs. Inc., 29 S.W.3d 135, 139 (Tex. App.--Houston [14th Dist.] 2000, no pet.) (claimant must "substantially comply" with statutory requirements regarding notice's content and form; however, issue of timely notice not specifically addressed); Argee Corp. v. Solis, 932 S.W.2d 39, 52-53 (Tex. App.--Beaumont 1995) (use of estimates of work completed is a valid means of perfecting bond claims under the Act; however, court noted that "notice requirement is not a mere statute of limitations but is a substantive condition precedent to the existence of a cause of action"), rev'd on other grounds sub nom., Green Int'l v. Solis, 951 S.W.2d 384 (Tex.1997); S.A. Maxwell Co. v. R.C. Small & Assoc., Inc., 873 S.W.2d 447, 453-454 (Tex. App.--Dallas 1994, writ denied) (notice limitations period begins to run on the date materials are delivered, and issue was when "delivery" occurred; however, court noted that the "[f]ailure to comply with these notice requirements will bar a claim on the payment bond"). Thus, LDE was required by the statute to give Brooks notice of its claim within the same specified period of time as it would have if Brooks had been a surety. See id. 2253.027(b) (Vernon Supp. 2007), 2253.041(b) (Vernon 2000).

Additionally, LDE failed to provide a sworn statement with its notice, and cites to Acme Brick, a Div. of Justin Indus., Inc. v. Temple Assoc., Inc., 816 S.W.2d 440, 441 (Tex. App.--Waco 1991, writ denied), in support of its position that the McGregor Act requires only substantial compliance with its notice provisions. In Acme Brick, however, the court did not find that the requirement of an affidavit could be dispensed with altogether but rather, that a document that otherwise met the requirements of an affidavit "substantially complied" with the statutory requirements, even though the "affiant's" signature preceded the factual statement rather than followed it. See id. In this case, in addition to mailing its notice over a year after the statutory deadline, LDE failed to include any sworn statement whatsoever with its notice. See id. 2253.041(b), (c). Accordingly, LDC did not substantially comply with the statutory requirements and, therefore, the trial court did not err in rendering summary judgment as to LDE's claim against Brooks based on LDE's failure to properly perfect its claim pursuant to Chapter 2253.

II. Lien on Public Funds

LDE next argues that the trial court erred in granting Brooks's motion for summary judgment after finding there was no evidence that an equitable lien existed on prime contract proceeds in Brooks's possession which obligated Brooks to ensure that these funds were paid to LDE. Citing no authority for its position, LDE maintains that although 53.231 of the Property Code applies a statutory scheme that does not allow a lien on such funds for contracts over $25,000, 2253.027 of the Government Code, nevertheless, permits such a lien. See Tex. Prop. Code Ann. 53.231 (Vernon 2007); Tex. Gov't Code Ann. 2253.027(a). We disagree.

Section 2253.027 provides that:

a) If a governmental entity fails to obtain from a prime contractor a payment bond as required by Section 2253.021:

. . .

(2) a payment bond beneficiary is entitled to a lien on money due to the prime contractor in the same manner and to the same extent as if the public work contract were subject to Subchapter J, Chapter 53, Property Code.

Id. 2253.027(a) (emphasis added). However, Subchapter J, Chapter 53 of the Property Code, provides that one "who furnishes material or labor to a contractor under a prime contract that does not exceed $25,000 and that is for public improvements in this state and who gives notice required by this subchapter has a lien on the money, bonds, or warrants due the contractor for the improvements." Id. 53.231 (emphasis added). Thus, when read together, 2253.027 of the Government Code permits a lien on money due to the prime contractor only "in the same manner and to the same extent" as 53.231 of the Property Code, which, in addition to other stipulations, requires that the prime contract at issue not exceed $25,000. See Tex. Gov't Code Ann. 2253.027(a) (emphasis added); Tex. Prop. Code Ann. 53.231; see also City of Corpus Christi v. Heldenfels Brothers, Inc., 802 S.W.2d 35, 40-41 (Tex. App.-- Corpus Christi 1990), aff'd, 832 S.W.2d 39 (Tex. 1992) (equitable lien may not be imposed on funds due under the separate general contract between the City and general contractor where contract exceeded $25,000 and statute limited application of lien to contracts not exceeding $25,000).

In this case, it is undisputed that the prime contract exceeded $25,000; therefore, no statutory lien attached to the retained funds pursuant to either 2253.027 of the Government Code or 53.231 of the Property Code. See Tex. Gov't Code Ann. 2253.027(a); Tex. Prop. Code Ann. 53.231; see also Heldenfels Brothers, Inc., 802 S.W.2d at 41. Accordingly, the trial court did not err in granting Brooks's motion for summary judgment with respect to LDE's claim that an equitable lien existed on prime contract proceeds in Brooks's possession.

Conclusion

Having found no error, we affirm the trial court's judgment.

 

Karen Angelini, Justice