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Madison, Inc. v. Western Plains Regional Hospital, LLC

United States District Court, D. Kansas

February 15, 2018

MADISON, INC., Plaintiff,
v.
WESTERN PLAINS REGIONAL HOSPITAL, LLC; AND SANDERLING HEALTHCARE, LLC, Defendants.

          MEMORANDUM AND ORDER

          ERIC F. MELGREN UNITED STATES DISTRICT JUDGE.

         Plaintiff Madison, Inc., (“Madison”) filed an action for enforcement and foreclosure of Madison's mechanic's lien against Defendant Western Plains Regional Hospital, LLC, (“Western Plains”), and filed a claim against Defendant Sanderling Healthcare, LLC, (“Sanderling”) for breach of contract, quantum meruit, and statutory interest and attorneys' fees based on a dispute stemming from a construction project. Madison alleges that Western Plains owes $278, 212.28 plus interest pursuant to a mechanic's lien valid under K.S.A. § 60-1102. Western Plains moved to dismiss Madison's claim for enforcement and foreclosure of the mechanic's lien, and Sanderling filed counterclaims of breach of contract, breach of implied warranty, breach of express warranty, negligence, fraudulent or negligent misrepresentation, an action to adjudicate the mechanic's lien as void, and an action for attorneys' fees pursuant to K.S.A. § 16-1806. Madison then moved to dismiss those claims.

         For reasons explained below, the Court grants Western Plains's Motion to Dismiss (Doc. 5) and dismisses Madison's claim for enforcement and foreclosure of the mechanic's lien against Western Plains. Sanderling did not challenge Madison's claims for breach of contract, quantum meruit, or statutory interest and attorneys' fees against Sanderling, so these claims remain. The Court grants Madison's Motion to Dismiss (Doc. 11) Sanderling's claims of breach of express warranty and fraudulent misrepresentation, but denies Madison's Motion to Dismiss Sanderling's claims for breach of contract, breach of implied warranty, negligence, negligent misrepresentation, and attorneys' fees.

         I. Factual and Procedural Background[1]

         Western Plains owns a medical complex in Dodge City, Kansas. Western Plains and Sanderling entered into a contract in which Sanderling (as general contractor) would make improvements on the medical complex. Sanderling entered into a subcontract agreement with Madison whereby Madison would provide improvements to the medical complex in the form of labor, materials, equipment, etc. Madison alleges that the last of its services to Sanderling was completed on August 3, 2016, and that Sanderling has an unpaid balance to Madison of $278, 212.28. On October 18, 2016, Madison filed a Contractor's Lien on the medical complex in Ford County District Court pursuant to K.S.A. § 60-1103. On May 1, 2017, Madison filed suit in Ford County District Court for enforcement and foreclosure of its lien against Western Plains and against Sanderling for breach of contract, quantum meruit, and statutory interest and attorneys' fees.

         Madison alleges that despite having satisfactorily performed all services required by the contract, Sanderling has failed to pay the amount required by the contract, and that Sanderling has been unjustly enriched by accepting Madison's services without paying the fair price for those services. On May 18, 2017, Madison filed a motion to amend its mechanic's lien to add additional itemization left out of the initial lien and on May 30, 2017, Sanderling removed the case to the U.S. District Court for the District of Kansas.

         On June 2, 2017, Western Plains moved to dismiss Madison's claim for enforcement of the mechanic's lien and on June 8, 2017, Sanderling filed counterclaims against Madison for breach of contract, breach of implied warranty, breach of express warranty, negligence, fraudulent or negligent misrepresentation, an action to adjudicate the mechanic's lien as invalid, unsubstantiated, and void, and an action for attorneys' fees pursuant to K.S.A. § 16-1806. Sanderling alleges that Madison breached its contract with Sanderling because Madison failed to complete its scope of work, failed to perform a “significant portion of that work in a good and workmanlike manner, ” breached its duty of good faith and fair dealing, breached its express warranty as to parts and labor, and was negligent in its failure to perform, failure to correct defects, and failure to use ordinary care. On July 13, 2017, Madison moved to dismiss Sanderling's counterclaims.

         II. Legal Standard

         Under Rule 12(b)(6), a defendant may move to dismiss a claim for which a plaintiff “fails to state a claim upon which relief can be granted.”[2] A complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim of relief that is plausible on its face.' ”[3] A claim is facially plausible if the court can reasonably infer the defendant is liable from the facts pleaded.[4] The plausibility standard reflects the Rule 8 requirement that pleadings must provide defendants with fair notice of the claims, as well as the grounds upon which the claims rest.[5] The Court accepts all factual allegations in the complaint as true and views them in a light most favorable to the plaintiff.[6]The Court, however, does not apply the same standard to conclusory allegations or legal conclusions.[7]

         III. Analysis

         A. Western Plain's Motion to Dismiss Madison's Claim for Enforcement and Foreclosure of Madison's Mechanic's Lien

         On October 18, 2016, Madison filed a contractor's lien in Ford County District Court alleging that it was owed $278, 212.28 for labor and materials provided to Sanderling in connection with real property owned by Western Plains. The attachment to the lien itemized only $6, 574.69 in labor and materials of the total amount due. On May 1, 2017, Madison moved for enforcement and foreclosure of its lien against Western Plains. Western Plains moves to dismiss Madison's claim for enforcement and foreclosure of its mechanic's lien arguing that the lien is vitally defective and that the time to amend the defective lien has passed.

         To establish a valid lien under K.S.A. § 60-1102, a person must file:

[W]ith the clerk of the district court of the county in which property is located, within four months after the date material, equipment or supplies, used or consumed was last furnished or last labor performed under the contract a verified statement showing:
(1) The name of the owner,
(2) the name and address sufficient for service of process of the claimant,
(3) a description of the real property,
(4) a reasonably itemized statement and the amount of the claim, but if the amount of the claim is evidenced by a written instrument, or if a promissory note has been given for the same, a copy thereof may be attached to the claim in lieu of the itemized statement.[8]

K.S.A. § 60-1103 provides that subcontractors may file a lien statement in the same manner as the original contractor except that “the lien statement must state the name of the contractor and be filed within three months after the date supplies, material or equipment was last furnished or labor performed by the claimant.”[9]

         Western Plains argues that Madison's lien was defective because it did not provide a “reasonably itemized statement” in itemizing only $6, 574.69 of the $278, 212.28 claimed. The Kansas Court of Appeals has held that:

Reasonable would seem to require a well-balanced statement, one that is not extreme, i.e., one that is neither excessive nor insufficient in detail; a statement that is fair and sufficient to inform the landowner of the claim and to enable the landowner to ascertain whether the work was completed and whether the charge therefor is fair.[10]

         Additionally, the Kansas Supreme Court has held that a “lien statement's validity must be ascertained from its four corners.”[11] Because only a small portion of the total amount claimed was itemized, it could not be said that Western Plains, looking only to the document, could properly “determine whether the work was performed or the material furnished and whether the amount claimed is reasonable.”[12]

         Although the lien was not reasonably itemized, K.S.A. § 60-1105 allows amendments of mechanic's liens “in furtherance of justice, except to increase the amount claimed.”[13] The Kansas Supreme Court held, however, that the statute does not permit “amendment of a vitally defective lien statement after the statutory period in which to file such lien has expired” and that allowing for amendment after the statutory period would have “the effect of creating a lien where none previously existed” and “defeat the operation of 60-1102 and 60-1103.”[14] K.S.A. § 60-1103 requires a subcontractor's lien to be filed “within three months after the date supplies, material or equipment was last furnished or labor performed by the claimant.”[15] Because Madison completed its work on August 3, 2016, and did not file its motion to amend the lien until May 18, 2017, if the lien is vitally defective, Madison will be unable to amend it.

         Madison argues that the failure to itemize reasonably did not make the lien vitally defective and that it may amend the lien to correct the deficiency. However, “[s]ince the mechanic's lien is purely a statutory creation, only strict compliance with the provisions in the statute will give rise to an enforceable lien.”[16] Failing to properly itemize over ninety-seven percent of a claim is not “strict compliance” with the reasonable itemization provision of § 60-1102. Additionally, the Kansas Supreme Court has long-held that the statute does not allow for creation of a lien where there is failure to provide an adequately itemized statement and that “substantial compliance with this provision has always been regarded as essential . . . for the protection of owners, purchasers, and other lien creditors.”[17] If a lien is not created where a contractor fails to provide adequate detail in the itemization of its claim, it follows that failure to itemize the vast majority of a claim would also not allow for the creation of a lien.[18]

         Although Madison draws to the Court's attention a Kansas Supreme Court decision that permitted amendment of a mechanic's lien and cited eight cases allowing liens to be amended, those cases and are distinguishable from the case at hand.[19] The cases cited include amendments to correct the name of an owner of real property, [20] correct the improper use of the term subcontractor, [21] correct a statement of applicable laws from Oklahoma to Kansas, [22] and correct the description of the real property at issue.[23] In each of those cases, unlike here, the lien at issue provided sufficient information to give the property owners notice of the claims. Further, those cases all took place prior to the Kansas Supreme Court's holding that vitally defective liens cannot be amended after the statutory period.[24] Because Kansas courts have repeatedly held that a lien cannot be formed without strict compliance to the requirements of § 60-1102 and because Madison did not meet the requirement of a “reasonably itemized” statement, the lien was vitally defective and therefore cannot be amended after the statutory period, which has passed.

         Next, Madison argues that even if the entire $287, 212.28 lien cannot remain, the $6, 574.69 was reasonably itemized in the original filing of the lien and therefore should be enforceable. Neither party cited, nor was this Court able to find Kansas case law addressing whether an invalid lien may be saved in part by severing the invalid portion of the lien and allowing the otherwise valid portion of the lien to remain.[25] Recently, however, the Kansas Court of Appeals stated:

It is a settled rule in this state that equitable considerations do not ordinarily give rise to a mechanic's lien. Being created by statute, a mechanic's lien can only arise under the circumstances and in the manner prescribed by the statute. A lien claimant must secure a lien under the statute or not at all.[26]

         Because Madison's lien was vitally defective as filed, it cannot be found to be partially valid. Severing defective portions of liens would not give defendants proper notice of the claim against them and would circumvent the strict requirements of the statute by creating liens without statutory compliance. For these reasons, Western Plains's Motion to Dismiss the claim for enforcement and foreclosure of the lien is granted.[27]

         B. Madison's Motion to Dismiss Sanderling's Breach of Contract Claim

         Madison first moves to dismiss Sanderling's claim for breach of contract. In Kansas, the elements of a breach of contract claim are: “(1) the existence of a contract between the parties; (2) sufficient consideration to support the contract; (3) the plaintiff's performance or willingness to perform in compliance with the contract; (4) the defendant's breach of the contract; and (5) damages to the plaintiff caused by the breach.”[28] Madison does not dispute the existence of the contract, the sufficiency of the consideration for the contract, or that Sanderling was willing to perform in compliance with the contract. Madison argues only that Sanderling did not properly assert specific factual allegations to support its claims that Madison breached the contract or adequately allege specific damages caused by Madison.

         In its Answer, Sanderling alleges that Madison “failed to perform a significant portion of [its] work in a good and workmanlike manner, ” including:

A. failing to follow its own custom-designed structural plans;
B. failing to follow the Project's architectural plans;
C. failing to weld the structural steel C-Channels on the underside of the steel floor building frames to the steel weld plates that were embedded in the foundation walls and piers, both along the foundation walls, and to each and every reinforced concrete pier underneath the building;
D. failing to physically join the various structural members underneath the building to each other; and
E. failing to put proper bracing over the header of each of the interior doors.

         Sanderling also alleges that Madison failed to complete the work in accordance with the subcontract and failed to perform warranty work required by the subcontract. Sanderling further alleges that these failures caused Sanderling damages, including costs to complete and repair the defective and incomplete work, lost profits, and lost business income. Accepting these allegations as true, the Court finds that Sanderling stated a claim for relief that is plausible on its face and that adequately gives Madison notice of its claims. For these reasons, Madison's Motion to Dismiss Sanderling's breach of contract claim is denied.

         C. Madison's Motion to Dismiss Sanderling's Breach of Implied Warranty Claim

         Madison next moves to dismiss Sanderling's breach of implied warranty claim for failure to provide specific factual allegations. Kansas courts have routinely held that “a contract to do work or perform a service includes an implied warranty that the work will be done in a workmanlike manner, using appropriate care and skill, unless there is an express agreement that no such warranty may be implied.”[29] As previously noted, Sanderling alleged that Madison failed to complete its work in a workmanlike manner due to failure to follow contracted plans, properly weld and join structural elements, and put proper bracing over the headers of the interior doors. Taking these allegations as true, Sanderling has stated a claim for relief that is sufficiently detailed and that gives Madison fair notice of its claims. For these reasons, Madison's Motion to Dismiss Sanderling's breach of implied warranty claim is denied.

         D. Madison's Motion to Dismiss Sanderling's Breach of Express Warranty Claim

         Next, Madison moves to dismiss Sanderling's claim for breach of express warranty. K.S.A. § 84-2-313 states:

(1) Express warranties by the seller are created as follows:
(a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the ...

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