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SMC Construction Co. v. Rex Moore Group, Inc.

United States District Court, D. Nevada

September 21, 2017

SMC CONSTRUCTION CO., Plaintiff,
v.
REX MOORE GROUP, INC.; Defendants.

          ORDER

          LARRY R. HICKS UNITED STATES DISTRICT JUDGE.

         Before the court is plaintiff SMC Construction Co.'s (“SMC”) motion to release or reduce mechanic's lien pursuant to Nevada Revised Statutes (“NRS”) Section 108.2275. ECF No. 5. Defendant Rex Moore Group, Inc. (“Rex Moore”) filed an opposition (ECF No. 15) to which SMC replied (ECF No. 20). Rex Moore then filed a sur-reply with the court's leave. ECF No. 24.

         I. Facts and Procedural Background

         At its core, this action involves a dispute between a general contractor and a subcontractor for payment of work performed on a construction project. Plaintiff SMC initiated the underlying action against defendant Rex Moore in order to settle a construction contract dispute and, specifically, to release or reduce a mechanic's lien Rex Moore recorded against the construction project in the amount of $2, 117, 602.78.

         In the summer of 2015, non-party Edgewood Companies (“Edgewood”) contracted with SMC to build a high-end hotel in Lake Tahoe, Nevada, known as the Edgewood Tahoe Resort (“the project”). As the prime contractor for the project SMC solicited bids from subcontractors for various parts of the project. Rex Moore bid for, and won, the subcontract to provide the electrical system and electrical fixtures for the project. On September 3, 2015, SMC and Rex Moore then entered into a subcontract for the electrical work under which Rex Moore was to be paid $5, 464, 364 (“the subcontract”).[1] The subcontract provided that Rex Moore was to be paid monthly upon application of time and expense records with a final ten percent (10%) withheld retention payment due upon ultimate completion of the project. See ECF No. 5, Ex. 4 §III(B). Further, as part of the subcontract, SMC and Rex Moore agreed that Rex Moore would not be entitled to any monetary damages or other compensation or damages resulting from delays to the project. Id. §II(G). Finally, SMC and Rex Moore agreed that the subcontract could only be amended or modified by written change orders. Id. §IV(A).

         During the winter of 2016/2017 the project experienced a series of construction delays which required an acceleration of work if the project was to be completed in a timely manner. In January 2017, SMC allegedly ordered the subcontractors, including Rex Moore, to accelerate their work to get the project finished. As part of the project acceleration, SMC and Rex Moore entered into a series of twenty (20) different written change orders to compensate Rex Moore for the project acceleration and address certain additional project expenses.[2]Pursuant to these written change orders to the subcontract, Rex Moore was to be paid a total of $6, 184, 183.00 for completion of the electrical work on the project.

         On March 29, 2017, while the parties were continuing to enter into change orders for the subcontract, Rex Moore submitted a claim to SMC for over $927, 000 in additional damages resulting from delays on the project including damages for weather delays, out of sequence work costs, increased fixture costs, breach of contract, and Rex Moore's inability to take on other work.[3] Edgewood and SMC rejected Rex Moore's claim for additional compensation outside of the agreed upon contract price. Subsequently on July 10, 2017, Rex Moore recorded a mechanic's lien on the project in the amount of $2, 117, 602.78. ECF No. 1, Ex. 1. Rex Moore calculated its lien as follows: $5, 464, 364 under the original contract plus $1, 941, 710.74 in additional work (including approved change orders up to that time) and damages for breach of contract minus $5, 288, 471.93 for payments received for a lien of $2, 117, 602.78. Id.

         In response, on July 20, 2017, SMC initiated the underlying complaint against Rex Moore in state court alleging three causes of action: (1) lien expungement pursuant to NRS § 108.2275; (2) construction fraud; and (3) declaratory relief. ECF No. 1, Ex. 2. On August 8, 2017, Rex Moore removed the action to federal court on the basis of diversity jurisdiction. See ECF No. 1. Thereafter, on August 9, 2017, SMC filed the present motion to release or reduce mechanic's lien pursuant to NRS § 108.2275. ECF No. 5. A hearing on SMC's motion to release or reduce mechanic's lien was held on Monday, September 11, 2017.

         II. Legal Standard

         Chapter 18 of the Nevada Revised Statutes governs the filing, perfection, validity, and foreclosure of a mechanic's lien. Under Nevada law, a lien claimant - such as a subcontractor on a construction project - has a lienable property interest for the work, materials, and equipment furnished on that project. NRS § 108.222(1). In order to attach and perfect the lien claimant's interest, a lien claimant must record its lienable interest, known generally as a mechanic's lien, on the underlying real property. NRS § 108.226(1). A recorded mechanic's lien must include the terms of the construction contract, if any, and a statement of the total lienable amount after deducting all just credits and offsets. NRS § 108.226(2). If the lien claimant's interest is governed by a contract, then the lien claimant's interest is limited to “the unpaid balance of the price agreed upon for such work, material or equipment.” NRS § 108.222(1)(a).

         Once a lien claimant has recorded a mechanic's lien, the owner of the property, debtor, or another party in interest may move a court for an order releasing or reducing the mechanic's lien if the movant believes the lien “is frivolous and was made without reasonable cause, or that the amount of the notice of lien is excessive.” NRS § 108.2275. “[W]hen a property owner seeks to remove a lien by arguing it is frivolous or excessive, the district court must determine the material facts in order to reach a conclusion regarding whether a lien is frivolous or excessive.” J.D. Constr., Inc. v. IBEX Int'l Group, LLC, 240 P.3d 1033, 1035-36 (Nev. 2010). In order to determine the material facts, the court must hold a hearing on the motion “if there is a possibility that the lien will be expunged.” Id. at 1037. However, “the district court is not required to hold a full evidentiary hearing, ” instead the court “may base its decision on affidavits and documentary evidence submitted by the parties.” Id. at 1036. In determining whether a lien is frivolous or excessive, the district court applies a preponderance of the evidence standard. Id. at 1043.

         After the hearing, a district court has three options. Id. at 1038; see also NRS § 108.2275(6). The court may find (1) that the lien is frivolous and made without reasonable cause, (2) that the lien is excessive, or (3) that the lien is not frivolous and that the amount is not excessive. NRS § 108.2275(6). If the court finds that the lien is frivolous or made without reasonable cause, the court must expunge and release the lien. NRS § 108.2275(6)(a). If the court finds that the lien is excessive, the court may order the lien reduced to “an amount deemed appropriate by the court.” NRS § 108.2275(6)(b). If the court either releases or reduces the lien, the court shall award reasonable attorneys' fees and costs to the party bringing the motion. NRS § 108.2275(6)(a)-(b). However, if the court finds that the lien is not frivolous then the court shall deny the motion and award reasonable attorneys' fees and costs to the lien claimant for defending the motion. NRS § 108.2275(6)(c).

         III. Discussion

         NRS § 108.222(1)(a) provides in pertinent part that if the lien claimant's interest is governed by a contract, then the lien claimant's interest is limited to “the unpaid balance of the price agreed upon for such work, material or equipment.” Here, it is undisputed that there is a subcontract and twenty written change orders between the parties which sets forth an agreed upon price of $6, 184, 183.00 for Rex Moore's work on the project. SMC contends that Rex Moore has been paid $5, 470, 580.63 on the project leaving an amount due of $713, 602.37. In contrast, Rex Moore contends that it has only been paid $5, 437, 763.66 as it had not received SMC's most recent alleged payment. The court is unable to determine the exact amount that has been paid to Rex Moore as neither party has provided evidence of alleged recent payments to Rex Moore. Regardless, the parties agree that at most Rex Moore is only entitled to a remaining payment of $746, 415.34 under the agreed upon ...


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