Petition — Frederick Contractors, Inc. v. Metropolitan Federal Savings & Loan Ass'n

IN THE

Supreme Court of the Gnit States

SEPTEMBER TERM, 1976

No. 76-1668

FREDERICK CONTRACTORS, INC., e¢ al.,

Petitioners,

METROPOLITAN FEDERAL SAVINGS AND LOAN

ASSOCIATION OF BETHESDA, ez? ai.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE JUDGMENT OF THE COURT OF APPEALS

OF MARYLAND

MANUEL M. WEINBERG

CARVILLE M. DOWNES

DAVID M. GUGGENHEIM

Weinberg, Michel and Stern

10 West College Terrace

Frederick, Md. 21701

REX L. STURM

Brown and Sturm

260 East Jefferson Street

Rockville, Maryland 20850

Attorneys for Petitioners

Wasringron OC © CLE PUBLISHERS © LAW PRINTING CO « (70?) 3193 0675

(i)

TABLE OF CONTENTS

APPENDIX:

Extract of Petitioners’ Memorandum in the Circuit

Court for Montgomery County .................

Extract of Petitioners’ Brief in the Court of Appeals

Se neck dehasdeseSbetsebbedcésuen da

Cases.

Barry Properties, Inc. v. Fick Bros. Roofing Co.,

277 Md. 15, 353 A.2d 222 (1976) ...............

Brook Hollow Associates v. J. E. Greene, Inc., 389

Pes SEED concn cceudeoesecvcs

Coffin Brothers v. Bennett, 277 U.S. 29, 48 S. Ct.

SP OE HD no otbcedcceecccceeceses

Fuentes v. Shevin, 407 U.S. 67, 92 S. Ct. 1983, 32

EOE cceeccococccescsccescccesccces

Mitchell v. W. T. Grant Co., 416 U.S. 600, 94 S. Ct.

PEG MENGE coccccececeeccereccesss

(ii)

North Georgia Finishing, Inc. v. Di-Chem, Inc. 419

U.S. 601, 95 S. Ct. 719, 42 L.Ed.2d 751 2... ee eee eee ee 7

Residential Industrial Loan Company, Inc. v.

Manuel M. Weinberg, Trustee, et al. and

Frederick Contractors, Inc. v. Metropolitan

Federal Savings and Loan Association of

DT 66 cGeSUS SUSE E CSREES SEENEHOE GSS eUEeSEe CHOSE. l

Roundhouse Construction Corp. v. Telesco Masons

Supplies Company, Inc. (67 Conn. 371,

SE CUED ace nedeeedeesesescesccccanaceans 6

Snaidach v. Family Finance Corp., 395 U.S. 337, 89 S.

ee oe ie coat acbateeesdess eden 7

Spielman-F ond, Inc. v. Hanson's Inc., 379 F.Supp.997

(D. Ariz. 1973) per (curiam), aff'd 417 US. 901

DEE. suuunédad ceambeseaekubusestedd dbiseuces céceeeses 6

In Re Thomas A. Carey, Inc., 412 F. Supp. 667 (E.D.

ree re ce uudeebeseed 6

Statutes and Constitutional Provisions:

14th Amendment, Federal Constitution .... 2... 0.666 cee eee 2?

Md. Code (1974 and 1975 Cum. Supp.), Real Prop.

Be Cee GED choc cc be cdcccescccescccceccees 2

IN THE

Supreme Court of the United States

SEPTEMBER TERM, 1976

No.

FREDERICK CONTRACTORS, INC., ef al,

Petitioners,

METROPOLITAN FEDERAL SAVINGS AND LOAN

ASSOCIATION OF BETHESDA, et al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE JUDGMENT OF THE COURT OF APPEALS

OF MARYLAND

PRELIMINARY STATEMENT

Frederick Contractors, Inc. prays that the Writ of Certiorari

issue to review a judgment of the Court of Appeals of

Maryland, entered on February 24, 1977 in the case styled

Residential industrial Loan Company, Inc. v. Manuel M.

Weinberg, Trustee, et al. and Frederick Contractors, Inc. et al.

v. Metropolitan Federal Savings and Loan Association of

Bethesda No. 120, September Term, 1976.

OPINIONS

The original decision of the Court of Appeals of Maryland

decided on February 24, 1977 is included herein as Appendix

A. An extract of Petitioners’ memorandum in the Circuit

Court for Montgomery County, Maryland raising the Federal

issue is set forth herein as Appendix B. An excerpt from

Petitioners’ Brief in the Court of Appeals of Maryland raising

the Federal question is included herein as Appendix C.

JURISDICTION

The Jurisdiction of this Honorable Court to issue a Writ of

Certiorari is grounded on 28 U.S. Code §1254.

QUESTION PRESENTED

DID THE COURT OF APPEALS OF MARYLAND ERR

IN HOLDING THAT THE MARYLAND MECHANICS

LIEN LAW AS APPLIED TO THESE PARTIES

VIOLATED THE DUE PROCESS CLAUSE OF THE

FEDERAL CONSTITUTION.

STATUTES AND CONSTITUTIONAL PROVISIONS

INVOLVED:

Md. Code (1974 and 1975 Cum. Supp.), Real Prop. Art.,

§ §9-101 to -111.

14th Amendment, Federal Constitution.

STATEMENT OF THE CASE

On March 26, 1975, the Court of Appeals of Maryland

held that Frederick Contractors, Inc., had a mechanic's lien

but must wait for arbitration to foreclose its lien. Because

of a delay on the part of the landowner, Bel Pre Medical

Center, Inc., in paying the necessary fees to go to

arbitration, the panel was not to hear the case until

January 15 and 16, 1976. When the day for the arbitration

hearing approached, Bel Pre withdrew its request for

arbitration. Frederick Contractors, Inc., promptly

petitioned for a hearing to enforce its mechanic’s lien. A

hearing was held on February 26, 1976, and an Order

appointing Manuel M. Weinberg and Rex L. Sturm as

trustees to sell was entered on that date. On February 10,

1976, the Court of Appeals filed its opinion in Barry

Properties, Inc. vs. Fick Bros. Roofing Co., 277 Md. 15

(1976). This case held the Maryland mechanic's iien law

unconstitutional. The Trustees scheduled a foreclosure sale

for April 9, 1976. Upon the application of Metropolitan

Federal Savings and Loan Association and Residential

Industrial Loan Company, owners of Deeds of Trust on the

property, the sale was enjoined by the Circuit Court on

April 9, 1976. The trustees under the Deed of Trust

securing Metropolitan Federal Savings and Loan Association

scheduled a sale for June 14, 1976. That sale was enjoined

by the Referee in Bankruptcy for the Federal District

Court for Maryland.

On July 16, 1976, a hearing was held to determine the

priorities between the parties to this action. On August 20,

1976, an order was filed in the Circuit Court for

Montgomery County, Maryland ruling the order of

priorities with Metropolitan Federal first, Frederick Con-

tractors second, and Residential Loan Company third.

4

An appeal was taken by the Residential Industrial Loan

Company and Frederick Contractors, Inc. The Court of

Appeals of Maryland granted certiorari and upon hearing

held that th. mechanic's lien law of Maryland was void ab

initio and therefore the two Deeds of Trust took priority

because they were recorded prior to the Court decree for

foreclosure. Thus, the priority was held to be: First,

Metropolitan Federal; Second, Residential Industrial Loan

Company; and Third, Frederick Contractors, Inc.

STATEMENT OF THE FACTS

This case involves the order of priorities among two

owners of Deeds of Trust notes and a holder of a

mechanic's lien on property owned by a bankrupt

landowner, Bel Pre Medical Center, Inc. In 1971 Frederick

Contractors, Inc. agreed with the landowner, Bel Pre, to

construct an addition to a nursing home and began

construction shortly thereafter. On November 30, 1972 Bel

Pre executed a Deed of Trust covering the real property

involved securing 2 Note for $1,400,000.00 to Metropolitan

Federal Savings and Loan which Deed of Trust was

recorded in the Land Records on December 12, 1972. The

construction was completed in January 1973 at which

point approximately $148,000.00 was claimed by Frederick

Contractors, but was disputed by Bel Pre. Metropolitan and

Bel Pre were advised under the statutory procedure of the

intent to file a mechanic’s lien against the property and on

March 22, 1973 a mechanic’s lien was filed in the Land

Records. On April 30, 1973 a Bill of Complaint to

foreclose the lien was filed.

On April 18, 1973 some twelve (12) days earlier a Deed

of Trust securing a loan in the amount of $160,000.00

from Residential Industrial Loan Company, Inc. was

executed. On May 11, 1973 some eleven (11) days after

the filing of the Bill of Complaint, this Deed of Trust was

recorded in the Land Records.

From that time until March 26, 1975, the case traveled

through the Court system in Maryland and on March 26,

1975 the Court of Appeals stayed the foreclosure

proceeding “until arbitration [was] concluded or Be\ Pre’s

demand |was] withdrawn.”

The arbitration proceedings were eventually scheduled

for hearing on January 15 and 16, 1976, but when the day

for arbitration approached, Bel Pre’s demand was with-

drawn. Frederick Contractors promptly petitioned for a

hearing on its foreclosure proceeding and such a hearing

was held on February 26, 1976. Bel Pre at that hearing did

not dispute the amount nor the right to a mechanic’s lien

nor did it raise any defense of constitutionality. The Court

thus entered a “Decree for Enforcement of Mechanics Lien

and Appointment of Trustees for Foreclosure Sale.”

On February 10, 1976, the Barry Properties, Inc. vs. Fick

Bros. Roofing Co. decision was filed by the Court of

Appeals of Maryland holding that prior to a judicial hearing

a mechanic’s lien does not attach to real estate.

A foreclosure sale was scheduled by the trustees for

April 9, 1976 and the two Deeds of Trust Note holders

filed a Bill of Complaint to enjoin the sale and requested

that the mechanic's lien be declared junior to their liens.

Subsequently, Bel Pre went into bankruptcy and the

bankruptcy Judge permitted the Circuit Court of Maryland

to hear the question of priority of liens. Such a hearing was

held and the trial Judge entered an order declaring that

Metropolitan had a first lien, Frederick had a second and

Rilco had a third lien.

The Court of Appeals of Maryland upon hearing the case

held that the mechanic's lien law under which the case was

decided was unconstitutional in that it gave the mechanic's

lien holder priority before a judicial determination of the

validity of lien was held.

6

ARGUMENT

THE STATE COURT OF APPEALS ERRED IN

DECIDING THAT THE MECHANICS LIEN LAW

OF MARYLAND VIOLATED THE DUE PROCESS

CLAUSE OF THE FEDERAL CONSTITUTION.

This case presents the question of the validity of

Maryland’s Mechanics Lien law. The concept has previously

been before the Court in the case of Roundhouse

Construction Corp. y. Telesco Masons Supplies Company, Inc.

(67 Conn. 371, 362 A.2d 778 (1975), which was remanded by

the Court to consider whether the decision was based upon

Federal or State Constitutional grounds, 423 U.S. 809, 96 S.

Ct. 20, 46 L.Ed.2d 29. Upon remand the Connecticut Court

reconsidered and held that its decision was based upon both

State and Federal Constitutions, thus avoiding review of its

decision by this Court (cert. denied, 97 S. Ct. 246).

During the pendency of the Connecticut case, the Court of

Appeals of Maryland held sections of its mechanics lien law

unconstitutional and clearly based that result upon the

Federal Constitution. Barry Properties, Inc. v. Fick Bros.

Roofing Company, 277 Md. 15, 353 A.2d 222 (1976). The

Maryland Court then held that the particular landowner had

not been deprived of due process and upheld the lien, thus

avoiding the possible scrutiny of the Supreme Court. (A

maneuver labeled “wizardry” in the dissenting opinion.)

The Maryland case now stands alone in finding that

mechanics liens are invalid solely because they violate the due

process clause of the Federal Constitution. The Federal Courts

have uniformly found to the contrary. See Spielman-Fond,

Inc. v. Hanson's Inc., 379 F. Supp. 997 (D. Ariz. 1973) (per

curiam), aff'd 417 U.S. 901 (1974), In Re Thomas A. Carey,

Inc., 412 F. Supp. 667 (E.D. Va) (1976), even in

Connecticut, Brook Hoilow Associates vy. J. E. Greene, Inc.,

389 F. Supp. 1322 (Conn. 1975).

)

Mechanics liens fall within the decision in Coffin Brothers

v. Bennett, 277 U.S. 29, 48 S. Ct. 422, 722 Ed. 768 (1928)

in which it was noted that nothing is more common than a

lien dependent upon the result of a suit.

The Maryland Court struggled with the question of whether

the law deprived a debtor of a “significant property interest”

but a review of the cases considered by the Supreme Court

show that each involves a “possessory” interest and not a

notice to others that the property may be subject to a prior

claim. Sniadach v. Family Finance Corp. , 395 U.S. 337, 89 S.

Ct. 1820, 23 L.Ed.2d 349, Fuentes v. Shevin, 407 U.S. 67, 92

S. Ct. 1983, 32 L.Ed.2d 556, Mitchell v. W. T. Grant Co.,

416 US. 600, 94 S. Ct. 1895, 40 L.Ed.2d 406 and North

Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601, 95 S.

Ct. 719, 42 L.Ed.2d 751. Under a mechanics lien, only

foreclosure can deprive the owner of possession and under the

Statute that only can occur after notice and a full judicial

hearing.

Some of the considerations in Mitchell supra, (holding no

violation of due process) are applicable here. In that case the

Court dealt with conflicting interests in the same property. A

claim under a mechanics lien relates to additions to the land

which the lienholder claims to have made. Both parties claim

an interest in the subject matter of the lien. The lien statutes

were based upon unjust enrichment of a landowner where

ancient theory and time honored practice held that once

attached personal property legally became a part of the land.

The basic error of the Maryland Court in declaring the lien

unconstitutional was compounded with the following holding:

“Under this ruling, we believe, the statute continues to

effectuate the primary legislative intent, yet the owner is

not deprived of a significant property interest without

due process since the owner’s interest is not impinged

upon until after he is provided with notice and an

opportunity for a hearing. It follows that §9-107(b), to

the extent that it grants mechanics’ liens “priority over

any mortgage, judgment, lien or encumberance attaching

to the building or ground subsequent to the commence-

ment of the building” but prior to the time the lien is

established by a judicial determination, is also null and

void since to hold otherwise would permit contractors to

seize with their left hand what we have said they cannot

grasp with their right.” i

A startling new Constitutional concept has been conceived.

As a result we are dealing, not with possessory rights of the

individual property owner, but the security rights of large

corporate banking and financing institutions. The tug of war

between a lien holder and his interest in property which he

has placed upon the land is no longer between him and the

landowner. It is now between the creditor of the landowner

whose loan was made into the teeth of the lien perhaps the

day before the judicial hearing as to the value of the lien is

held. The deprivation in this case is visited upon the

lienholder. Surely such a result is not contemplated under any

of the decisions to date on denial of due process and

deprivation of property right.

The issue is ripe for a full airing and only this Court can

bring the Court of Appeals of Maryland ‘in line with the

Federal Courts and the prior decisions of the Court.

9

CONCLUSION

For the foregoing reasons, it is respectfully submitted that

the demands of public policy and justice require in this case

that a Writ of Certiorari should be granted and the judgment

in this case reversed.

Respectfully submitted,

MANUEL M. WEINBERG

CARVILLE M. DOWNES

DAVID M. GUGGENHEIM

Weinberg, Michel and Stern

10 West College Terrace

Frederick, Md. 21701

REX L. STURM

Brown and Sturm

260 East Jefferson Street

Rockville, Maryland 20850

Attorneys for Petitioners

la

APPENDIX A

IN THE COURT OF APPEALS OF MARYLAND

No. 120

September Term, 1976

RESIDENTIAL INDUSTRIAL LOAN

COMPANY, INC.

v.

MANUEL M. WEINBERG, TRUSTEE, et al.

** *

FREDERICK CONTRACTORS, INC., et al.

v.

METROPOLITAN FEDERAL SAVINGS AND

LOAN ASSOCIATION OF BETHESDA

Opinion by Digges, J.

Filed: February 24, 1977

This suit involves the ordering of priorities among three real

property lien creditors of the bankrupt Bel Pre Medical Center,

Inc., two of which are owners of deeds of trust notes, and the

other of which is a holder of a mechanics’ lien. Concluding

that under our ruling in Barry Properties v. Fick Bros., 277

Md. 15, 353 A.2d 222 (1976), the mechanics’ lien was not

established until after the recordation of the deeds of trust, it

follows that it is junior in priority to both of them.

Although we can only surmise from the facts of this case,

we have little doubt that Frederick Contractors, Inc., which

has been trying for the past four years to obtain payment for

work completed in 1973, must at this point wonder why it

has never gotten beyond the veritable Slough of Despond'

which has prevented it from achieving even a modicum of

success during all these years. Back in August of 1971,

Frederick entered into a contract with Bel Pre to construct an

addition to its nursing home in Silver Spring, Montgomery

County, and work was begun shortly thereafter. In the

autumn of 1972, before the addition was completed, Bel Pre

sought to obtain a permanent first trust loan from

Metropolitan Federal Savings and Loan Association of

Bethesda, and by letter dated November |, 1972, Metro-

politan committed itself to make that loan in the amount of

‘In John Bunyan’s The Pilgrim's Progress (1678), the first stumbling

block encountered on the pilgrimage to the Celestial City was the

Slough of Despond, “the descent whither the scum and filth that

attends conviction for sin doth continually run... .”

3a

$1,400,000. At the settlement on November 30, Bel Pre

executed a deed of trust covering the real property on which

the nursing home is located securing its note for the

$1,400,000 to Metropolitan; this deed of trust was duly

recorded on December 12, 1972. Although the facts are not

undisputed, it seems that at the time of this settlement, these

parties together with Frederick contemplated that $150,000

of the loan would be held in escrow to insure completion of

the addition and to secure the waiver of any mechanics’ liens

Frederick could claim for labor performed or materials

provided through November 29, 1972. Following completion

of the addition in January of 1973, Frederick demanded

payment of a little over $148,000 from the $150,000

Metropolitan was then holding, but was unable to collect the

money. Subsequently, an attorney for Frederick advised

Metropolitan of its intent to file a mechanics’ lien against the

property owned by Bel Pre, and on March 22, 1973,

Frederick recorded such an instrument. On April 30, 1973,

Frederick filed a bill of complaint to foreclose its claimed

lien.

Before the foreclosure proceedings could be terminated,

several things happened: Bel Pre obtained another loan

secured by a second deed of trust; pursuant to its contract

with Frederick, Bel Pre demanded arbitration of Frederick's

claim for payment; and Metropolitan disbursed to Bel Pre the

$150,000 it was holding. Specifically, the record discloses that

on April 18, 1973, a deed of trust securing a loan of

$160,000 from Residential Industrial Loan Company, Inc.

(RILCO) was executed, and this was recorded on May 11,

1973, subsequent to Frederick's bill of complaint to foreclose,

but prior to any judicial determination of the issue. The next

several years, however, found Frederick unable to establish its

claim because it was entangled in a dispute, initiated by Bel

Pre on May 22, 1973, over whether arbitration of Frederick’s

demand for payment was required before the mechanics’ lien

4a

could be foreclosed. The matter was not finally resolved until

this Court issued its opinion on March 26, 1975, staying the

foreclosure proceeding [“until arbitration [was] concluded or

Bel Pre’s demand [was] withdrawn.” Frederick Contr. v. Bel

Pre Med., 274 Md. 307, 316, 334 A.2d 526, 531 (1975).] In

the meantime, On May 23, 1974 to be exact, Bel Pre had

requested and obtained disbursement to it of the $150,000

Metropolitan was then holding.

Had the mechanics’ lien litigation been promptly termi-

nated following our decision in Frederick Contr. v. Bel Pre

Med., the parties probably would not be here today, but

unfortunately for Frederick, the chain reaction initiated by

Bel Pre’s demand for arbitration was to continue into 1976.

The proceedings were delayed, and although the hearing was

eventually scheduled for January 15 and 16, 1976, Bel Pre

withdrew its arbitration demand at the eleventh hour. Finally

free to pursue once again its mechanics’ lien foreclosure case,

Frederick promptly petitioned the Circuit Court for Mont-

gomery County for an early hearing, which it received on

February 26, 1976. On that day, the court entered a

(“Decree for Enforcement of Mechanics Lien and Appoint-

ment of Trustees for Foreclosure Sale.”] But it was already

too late — two weeks earlier this Court had decided Barry

Properties v. Fick Bros., 277 Md. 15, 353 A.2d 222 (1976),

where we held that, prior to the judicial establishment of a

mechanics’ lien, no such lien attaches to the real estate.

Learning that the foreclosure sale was scheduled for Aprii 9,

1976, Metropolitan and RILCO filed a bill of complaint three

days prior to the sale seeking to enjoin it, and requesting that

the court declare their liens “to be prior and senior to the

mechanics’ lien.” The court consolidated this action and the

original suit by Frederick against Bel Pre, and following a

trial, Judge Stanley B. Frosh entered an order declaring that

Metropolitan had a first lien, Frederick had a second lien, and

RILCO had a third lien. Both losers appealed, and RILCO

Sa

petitioned this Court as well for a writ of certiorari which we

issued before the Court of Special Appeals considered the

matter.

The question at the heart of this litigation is the

applicability of Barry Properties. In that case we ruled that

portions of the Maryland mechanics’ lien law then in force

and controlling here, Md. Code (1974 & 1975 Cum. Supp.),

Real Prop. Art., §§9-101 to -111, were unconstitutional

because they operated to deprive property owners of a

significant interest without due process of law.* Excising that

aspect “which purports to create a lien from the time work is

performed or materials furnished,” we held that there could

be no lien “until and unless the claimant prevails either in a

suit to enforce the claimed lien or in some other appropriate

proceeding. ...”" 277 Md. at 37, 353 A.2d at 235. We further

noted that until that time, the claimant possessed only a

chose in action, and that Section 9-107(b), to the extent it

granted mechanics’ liens priority over some encumbrances

recorded before the lien was established by a judicial

determination, was “null and void.” /d. Undoubtedly, the full

impact of Barry Properties applies in the present suit.

Although we did not explicitly state in that case that the

decision was to have retroactive operation, we indicated as

much by noting that “those portions of the statute we hold

unconstitutional are void ab initio.... 277 Md. at 38, 353

A.2d at 235. While we will not always reach such a

conclusion as to the effect of an unconstitutional statute, see

Perkins v. Eskridge, 278 Md. 619, 366 A.2d 21 (1976), it is

clear that we found no overriding concern dictating that we

give those mechanics’ liens recorded prior to February 10,

1976, the date of our decision in Barry Properties, any force

? Responding to the Barry Properties case, the General Assembly by

Chapter 349 of the Laws of 1976 extensively revised this State's

mechanics’ lien statute. See Md. Code (1974, 1976 Cum. Supp.), Real

Prop. Art., §§9-101, to -113.

6a -

unless and until a judicial determination takes place. See also

Scott & Wimbrow, Inc. v. Calwell, 31 Md. App. 1, 6, 354

A.2d 463, 466, cert. denied, 278 Md. (1976).

Contrary to Frederick’s contentions, we find nothing in the

present action which takes it outside the scope of Barry

Properties. \t is of no significance that here the dispute is

between a contractor holding a mechanivs’ lien and two other

lien creditors as opposed to the situation in Barry Properties

where the dispute was between a contractor and the property

owner. In either case, no mechanics’ lien attaches to the

property until the claimant has prevailed in an “appropriate

proceeding” to establish the lien’s existence. Moreover, in

spite of Frederick’s argument to the contrary, it is clear that

the Bel Pre case before this Court in 1975 was not a

proceeding which resulted in the creation of a mechanics’ lien.

The only issue we decided was whether Bel Pre’s demand for

arbitration precluded Frederick from establishing its me-

chanics’ lien until arbitration proceedings had been termi-

nated. Consequently, by no stretch of the imagination can the

“law of the case” or the res judicata doctrine catapult

Frederick to first place. Finally, we are also of the view that

the doctrine of lis pendens cannot aid Frederick here, since it

has been determined that as of the time of the recording of

the two deeds of trust, Frederick had no interest in the Bel

Pre property.

It is apparent from the foregoing that the order of the

priorities is as follows: Metropolitan first, RILCO second, and

Frederick third. This is so because Metropolitan recorded its

deed of trust on December 12, 1972, RILCO recorded its

instrument on May 11, 1973, and Frederick did not obtain a

mechanics’ lien until February 20. ‘976 Since we here decide

7a

only the priority issue, nothing in this opinion should be

construed as indicating our views as to the merits of any

other actions not pending or which may arise among the

parties to this suit.

ORDER OF THE CIRCUIT COURT FOR

MONTGOMERY COUNTY AFFIRMED IN

PART AND REVERSED IN PART AND

CASE REMANDED TO THAT COURT FOR

ENTRY OF AN ORDER AS HEREIN

STATED. COSTS TO BE PAID BY

MANUEL M. WEINBERG AND REX L.

STURM, TRUSTEES, AND FREDERICK

CONTRACTORS, INC

Ib

It should be understood that the facts in the Barry case did

not relate to priority of liens, vis a vis, a mortgage or deed of

trust; although a portion of the statute relating to priority

was declared unconstitutional. It is suggested that the portion

of the opinion of the Court of Appeals would not bear up

when weighed against the facts in this case. The Court should

apply the fests of constitutionality to the facts of this case

against the statutes involved.

The tests of constitutionality applied are notice and a prior

hearing. Metropolitan nor any other party has challenged the

validity of the lien nor has a serious challenge of its amount

been raised. Metropolitan had actual notice as outlined above

of the claim for approximately $150,000 to pay for the

construction work. All other parties had notice by iis

pendens, a doctrine which the Court of Appeals certainly has

not discarded (Marylard Rule BD1).

There is no question of the validity of the Mechanics Lien

of Frederick Contractors, only the issue of waiver which is

addressed above. The Court of Appeals should reexamine the

applicability of its constitutional tests to the facts as they

arise in this case and as they most often arise in other cases

before making a determination of constitutionality. The

Supreme Court cases relating to notice and prior hearing

(Sniadach v. Family Finance Corp., 395 U.S. 342; Fuentes v.

Shevin, 407 U.S. 371; Mitchell v. W. T. Grant Co., 416 US.

614). Each involve a possessory interest, not a mere financial

interest; and it is submitted that the Court of Appeals has

overreached the constitutional limitations in the dicta which

relates to the priority of a mechanics lien.

The only reason given for this remarkable decision is that

“to hold otherwise would permit contractors to seize with

their left hand what we have said they cannot grasp with their

2b

right.” Where this principle is set forth or implied by the

Constitution, we suggest needs further exploration by the

Court of Appeals.

We point out in note (13) of the opinion in the Barry case

the Court exercised the restraint which it should have with

respect to issues not before it.

THE CIRCUIT COURT FOR MONTGOMERY

COUNTY WAS IN ERROR IN NOT GIVING

PRIORITY TO THE CROSS-APPELLANT OVER

THE APPELLEE. .

Frederick Contractors because of the interpretation of the

lower court of the decision in the case of Barry Properties,

Inc. v. Fick Bros. Roofing Co..(decided February 10, 1976)

277 Md. 15, 353 A.2d 222, finds itself in a position that a

Court of Equity should abhore. This Court in Frederick

Contractors v. Bel Pre Medical Center, 274 Md. 307, 334

A.2d 526 (1975) decided that the Cross-Appellant was

entitled to its mechanic's lien. From that case's inception,

when Frederick had its lien and this Court agreed, in spite of

a provision for arbitration, that “an award in Frederick's favor

may be enforced or alternatively Frederick's claim may be

satisfied by the foreclosure of the lien,’ Frederick Contractors

was able to rely for protection on the Mechanic’s Lien law at

that time, enforced by a mandate by this Court. At no time

during this entire case was any defense raised to the merits of

the lien itself by anyone, Bel Pre, Metropolitan Federal nor

Residential Industrial Loan Co. and this Court knew from

argument and record about the existing Deeds of Trusts held

by Metropolitan Federal and Residential Industrial Loan Co.

Everyone knew that the lien was a valid one and could be

enforced if the arbitrators awarded money to Frederick

Contractors. Never did Bel Pre claim that the statute was

unconstitutional and in fact after the Frederick Contractors v.

Bel Pre Medical Center decision, Bel Pre chose not to arbitrate

nor present the alleged waiver of liens. If there had been a

.

2c

valid waiver, the case would never have gone further than the

original hearing in the Circuit Court for Montgomery County.

Metropolitan Federal was holding the money, and knew that

it was available to protect itself against Frederick Contractors’

mechanic’s lien.

Now, Frederick Contractors, armed with this mandate,

finds that this same Court in the Barry case has decided only

months later that the statute is unconstitutional and Frosh, J.

applied it retroactively to Frederick Contractors’ mechanic's

lien.

See 46 Am Jur 2d Judgments Sec. 19 which states:

“The fact that a Judgment in a civil action is based upon

an unconstitutional statute or ordinance does not render

it void or deprive it of its effect as a judgment.”

“The modern view is based on theory that the court

rendering the judgment has jurisdiction to determ'ne the

validity of the statute, that the parties derive their rights,

not from the unconstitutional statute, but from the

unreversed and unvacated judgment and that the finality

of the judgment is not affected by the unconstitu-

tionality of the statute.”

Sec. 2: “The definition of a judgment as a final

determination of the rights of the parties in an action

has been declared broad enough to include all final

judgments, whether they are for money or for some

other kind of relief.”

It is respectfully suggested that this Honorable Court take a

long, hard look at the effect of the Barry case on contractors

who acted in good faith upon a long standing legitimate

remedy only to find this remedy retroactively pulled out from

under them in mid-stream when the statute which affords the

remedy is declared unconstitutional. In 16 Am Jur 2d

Constitutional Law Section 178:

“It has been stated that an unconstitutional law should

not be applied to work a hardship or impose a liability

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on one who has acted in good faith and relied on the

validity of a statute before the courts have declared it

invalid.”

The case of Scott & Wimbrow, Inc. v. Calweil, 31 Md. App.

1, 354 A.ld 463 (decided June 3, 1976) went even further

than the Barry case and stated that a prior recorded

mechanic's lien would be a nullity ab initio. However, Gilbert

J. went one more step and said:

“It would, therefoi., appear that under Barry Properties,

appellant not having prevailed ‘in a suit to enforce the

claimed lien or in some other eppropriate proceeding’ the

alleged mechanic’s lien is of no force and effect.”

(emphasis supplied)

Your Cross-Appellant contends that the previous case

against Bel Pre supra was “some other appropriate proceed-

ing.” The matter of the right to a mechanic’s lien was

litigated and argued in the Circuit Court for Montgomery

County, the Court of Special Appeals and in this Court.

Cross-Appellant’s lien meets the constitutional tests of Barry

and should receive the benefits that were afforded it; namely,

priority over Metropolitan Federal and Residential Industrial

Loan Co. via a valid, enforceable lien. As is stated in 2 MLE

Appeals Section 543:

“The rule that the determination rendered on appeal is

the law of the case and binding on the lower court in

further or subsequent proceedings therein has been held

to apply even though such determination is erroneous

and not withstanding the Court of Appeals, subsequent

to its decision and while the case is still pending in the

lower court, adopts a position in cases similar to the

pending use which is inconsistent with the principals

enumerated by it in such case.” (emphasis supplied)

In the case at bar Frederick Contractors not only acted in

good faith and relied on the validity of a statute, but it also

had a mandate declaring the lien valid and enforceable, and it

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relied on the fact that Metropolitan Federal was holding the

funds. Even if this Court upholds the ruling in the Scott &

Wimbrow case supra as to the retroactive effect on the statute

by the Barry case supra, it is beyond all comprehension that,

as against your Cross-Appellant, the ruling would be

retroactive beyond the ruling in Frederick Contractors v. Bel

Pre, supra. See also Bay State Harness Horse Racing &

Breeding Association v. PPG Industries, Inc., 365 F. Supp.

1299 (Mass. 1973), and Gunter v. Merchants Warren National

Bank, 360 F. Supp. 1085 (S.D. Maine 1973), both of which

held that the finding of the unconstitutionality of prejudg-

ment real estate attachments was prospective only.

In Section 5(a) of an annotation in 10 ALR 3d 1371 it is

stated:

“It has often been recognized that retroactive operation

of an overruling decision is neither required nor

prohibited by constitutional provisions, and that whether

and to what extent a new rule adopted in an overruling

decision will be given retroactive effect ts thus not a

matter of constitutional compulsion, but a matter of

judicial policy, to be determined by the Court after

weighing the merits and demerits of the particular case,

by looking to the prior history of the rule in question,

its purpose and effect, and whether retroactive applica-

tion will further or retard its operation.” (emphasis

supplied)

It is respectfully suggested that the thrust of the Barry case

was to protect the owner — not the lender. Regarding

Metropolitan Federal, being the lender and not an owner, the

Barry case should not be applicable. This issue is the crux of

the case at bar! Who has priority between Frederick

Contractors, Metropolitan Federal and Residential Industrial

Loan Co.? As is argued elsewhere in this brief the

Cross-Appellant had a valid lien ahead of the others and

granted only a conditional Waiver of Liens to Metropolitan

Federal which was not adhered to by Metropolitan Federal

and its agents and they all knew it!

Sc

The position of the Cross-Appellant is that Sec. 9-107(b) is

constitutional and does not violate the 14th Amendment of

the U.S. Constitution nor Article 23 of the Maryland

Declaration of Rights. As this Court stated, Fick Bros. was

entitled to its lien because “The facts of this case show that

the Appellant knew of the Appellee’s claim to a lien

sometime well prior to the Appellee’s institution of this

enforcement action but chose not to challenge the lien’s

validity at that point; we conclude it thereby elected not to

assert any right it may have had to have its position

determined as of a time earlier than the hearing before Judge

Haile.” In footnote 12 of the Barry case it is stated:

“We do not here hold that the legislature could not

enact a mechanic’s lien law permitting general contrac-

tors and sub-contractors to obtain liens prior to owners

being given notice and an opportunity for a hearing if

the statute includes safeguards such as those discussed in

(cases cited). Rather, in this case, we only hold that

since the present law does not include such safeguards no

lien can exist under it until after owners are provided

with notice and a chance for a hearing.”

The Cross-Appellants respectfully suggest that there is no

difference between the case at bar and the position of Fick

Bros. The facts show that Bel Pre (and Metropolitan Federal)

knew of Frederick Contractors claim to a lien sometime well

prior to Frederick Contractors institution of the enforcement

action, and in fact, prior to settlement, (E. 3 & 40) but no

one chose to challenge the lien’s validity at that point (see

Frederick Contractors v. Bel Pre supra) and it has to be

concluded that there was an election by Bel Pre and

Metropolitan Federal not to assert any right they may have

had to have their position determined as of a time earlier than

the hearing before Judge Frosh on February 26, 1976.

Factually, all of the guarantees required by the U.S.

Constitution, the Maryland Declaration of Rights and the

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_ Barry case have been met as to Bel Pre and Metropolitan

Federal. The due process protections were there and the

Appellant and Appellee have been fully protected except

Frederick Contractors. If ever there was a case where Equity

should be done to protect a party which has done everything

equitably within its power to protect its interest and the

interests of others, this is the case. The testimony and

exhibits clearly show the intention of the parties, the escrow

of the $150,000.00 and the conditional waiver of liens. (E.

8-40) .

Quere: How can Metropolitan Federal, which admittedly

was holding the money for the completion of construction,

and obtained a conditional waiver of liens before it disbursed

funds to Bel Pre, now turn around and say “We are first in

priority.””?

The comparison of the Barry case with the facts in the case

at bar clearly show that to deny Frederick Contractors a lien

priority would fly into the face of the requirements

established by the Barry case. As with Fick Bros., Bel Pre, the

owner of the property through three stages of litigation had

every opportunity to attack the lien on the basis of the

waiver asserted by Frederick Contractors, which, it chose not

to do. The purpose of the Barry decision was to protect Barry

Properties in that case and Bel Pre in this case. Construction

was substantially completed in December, 1972, on March 22,

1973 Frederick Contractors recorded a Mechanic's Lien in the

Montgomery County Circuit Court and on April 30, 1973

filed a Bill of Complaint to foreclose the lien. On May 24,

1973 Bel Pre countered with a motion to strike the

mechanic’s lien, grounded on the contention that the contract

between Frederick Contractors and Bel Pre compelled

arbitration of disputes arising out of the contract which Bel

Pre had demanded. This issue as to the validity of the lien

raised by the owner came all the way up to this Court. This

Court in the Barry case ruled that the statute was

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unconstitutional because the law “permits an owner to be

deprived of a significant property interest without notice or a

prior hearing.” However, in turning to the problem of Fick

Bros. the court measured the position of Fick Bros. with

respect to the statute as it stands free of those provisions

(held unconstitutional).

“The facts of this case show that the Appellant knew of

the Appellee’s claim to a lien sometime well prior to the

Appellee’s institution of its enforcement action but chose

not to challenge the lien’s validity at that point;”’ Barry

Properties, supra at p. 235 & 236.

Fick was provided with notice and a hearing and the court

concluded that the Appellant (Barry) was afforded due

process prior to being deprived of its property.

The Cross-Appellant here can see absolutely no difference

between the position of Fick and its own position. The lien

was valid and enforceable as determined by this Court and

therefore was prior to Metropolitan Federal’s Deed of Trust.

The so called “Waiver of Liens” was conditional and since the

conditions were not met the waiver was void for lack of

consideration.

Since Metropolitan Federal was admittedly holding the

$150,000.00 for completion of construction there was no

violation of due process as far as the lender was concerned.

(E. -40) It was fully protected. So far as it was concerned the

funds belonged to Bel Pre or the contractor depending on the

outcome of any dispute they might have. (E.46)

To recapitulate briefly, the owner Bel Pre iiad all the due

process protections and is not now complaining as to the

validity of the lien. The complainors are the two lenders,

neither of which had any due process guarantees denied. If

this Court decides (as it should) that Frederick Contractors

stands on the same footing as Fick Bros., then the lien is a

valid one and the only issue is not the Barry case but a

question of fact as to who has the priority.

~ i ce

dc

The Cross-Appellant submits that the lower court com-

mitted error in its findings of fact and its interpretation of

the applicable law and the decision should be reversed, giving

the Cross-Appellant a first priority over the two lenders.

THE CROSS-APPELLANT HAS BEEN DENIED

DU&€ PROCESS OF LAW BY THE DECISION OF

THE MONTGOMERY COUNTY CIRCUIT COURT

PUTTING IT BEHIND THE APPELLEE IN

PRIORITY.

Realistically, the Barry case was a decision that had

regrettable import. The decision, if held to bar the

Cross-Appellant’s mechanic's lien, deprives the Cross-Appellant

of a property right without due process of law in violation of

the 14th Amendment to the Constitution of the United States

and Article 23 of the Declaration of Rights. In cases from

other jurisdictions and in Federal Courts the logic of the

Barry case is looked at with little favor. In fact these

decisions did not find that the property owner lost a

“significant property interest.” In Brook Hollow Associates ¥.

J. E. Greene, Inc., 389 F. Supp. 1322 (Conn. 1975) the court

cited with approval the ruling in Spielman-Fond, Inc. ¥.

Hansons, Inc., 379 F. Supp. 997 (Ariz. 1973) which said:

“It cannot be denied that the effect of such lien may

make it difficult to alienate the property. If the plaintiffs

can find a willing buyer, however, ther: is nothing in the

statutes or the liens which prohibits the consummation

of the transaction. Even though a willing buyer may be

more difficult to find, once he is found there is nothing

to prevent plaintiffs from msxing the sale to him. The

liens do nothing more Ut ‘yinge upon economic

interest of the property ows. - ae right to alienate has

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been harmed, but the difficulties which the lien creates

may be ameliorated through the use of bonding or title

insurance.”’ (emphasis supplied)

This Court in the Barry case supra while making a few

minor distinctions to the Spielman-Fond, Inc. case supra

acknowledged that the Arizona law did not provide for notice

of a prior hearing (just like the Maryland law) and stated

“... the Supreme Court may have thought that the Arizona

law contained enough safeguards to satisfy due process... .”

(emphasis supplied)

In a post Barry decision, In Re Thomas A. Carey, Inc., 412

F. Supp. 667 (E.D. Va. 1976) the Court cited Spielman-Fond,

Inc. and Brook-Hollow Asseciates supra with approval and

ruled that the Virginia mechanic's lien law (which is similar to

Maryland’s old Mechanic’s Lien law) did not violate the due

process clause of the 14th Amendment as there was no

deprivation of a “significant property interest.” The Court

“was mindful” of the Barry decision but considered “the

wiser course is to follow the decisions of the other District

Courts.” It is felt most important to point out that in this

decision the Court considered the decisions in Sniadach y.

Family Finance Corp., 395 U.S. at 337, 89 S. Ct. 1820, 23 L.

Ed.2d 349, Fuentes v. Shevin, 407 U.S. 67, 92 S. Ct. 1983,

32 L Ed.2d 556, Mitchell v. W. T. Grant Co., 416 U.S. 600,

94 S. Ct. 1895, 40 L Ed.2d 406 and North Georgia Finishing,

Inc. v. Di-Chem, Inc., 419 U.S. 601, 95 S. Ct. 719, 42 L

Ed.2d 751.

For another post Barry decision holding a prejudgment

attachment procedure as applied to real estate does not

deprive a debtor of a “significant property interest,” see First

Recreation Corp. v. Amoroso, 26 Ariz. App. 477, 549 P.2d

257 (Ct. of Appeals, Ariz. 1976). See also Carl A. Morse, Inc.

v. Rentar Indus. Develop. Corp., 379 N.Y. $.2d 994 (1976).

In another state -— Georgia, the mechanic’s lien law

Statute is substantially similar to the old Maryland mechanic’s

lien law and the Supreme Court of Georgia in Tucker Door &

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Trim Corp. v. Fifteenth St. Co., 235 Ga. 727, 221 SE.2d 433

(1975) in its opinion stressed the importance of the

mechanic’s lien to contractors, and held that the filing of the

lien does not deprive the owner of a “significant property

interest” since it does not deprive the owner of possession

and it is not until the foreclosure of the lien, after full

judicial proceeding, that any judgment attaches against

property. The filing of the claim of a lien is similar to a lis

pendens notice. See also Matter of Northwest Homes of

Chehalis* Inc. v. Weyerhaeuser Co., 526 F.2d 505 (9th Cir.

1975), cert. denied, 3/29/76 in 96 S. Ct. 1501, and In Re

The Oronoka, 393 F. Supp. 1311 (Maine 1975).

In Connecticut, after the decision in Roundhouse Con-

struction Corp. v. Telesco Masons Supplies Co., 168 Conn.

371, 362 A.2d 778 (1975) the State Legislature enacted a

procedure for validating mechanic’s liens affected by the

decision. The lienors had a period of time in which to refile

their mechanic’s liens. This procedure, it is submitted, was a

recognition of the great hardships and unconstitutional denial

of due process placed upon a contractor. Maryland did not

proceed in this manner, but only enacted a Mechanic’s Lien

Law in accordance with the Barry decision, forgetting the

contractors and sub-contractors caught in the middle of

judicial process with no adequate relief.

It is most respectfully suggested that the Barry decision is

unconstitutional as to contractors such as the Cross-Appellant

who had filed their liens, and given notice thereof, but had

not obtained a Decree to Foreclose, particularly where the

present dispute is between lenders and a contractor.