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Forsgren Associates, Inc. v. Pacific Golf Community Development LLC

February 23, 2010


APPEAL from the Superior Court of San Bernardino County. Kurt Lewin, Judge. (Retired judge of the Los Angeles Sup. Ct., assigned by the Chief Justice pursuant to art. VI, § 6, of the Cal. Const.) Reversed. (Super.Ct.No. VCVVS023200).

The opinion of the court was delivered by: Gaut, J.



Plaintiff and appellant Forsgren Associates, Inc. (Forsgren), the general contractor for construction of a public golf course and flood channel, brought this breach of contract and foreclosure action against Pacific Golf Community Development, LLC (Pacific), the developer, and against property owners, Wilshire Road LLC (Wilshire), Makasa LLC (Makasa), and Desert Tortoise Public Financing Authority (Desert Tortoise). The trial court entered judgment in favor of Forsgren. It was undisputed Pacific breached the construction contract by failing to pay Forsgren in full for the construction work. The parties stipulated that Pacific owed Forsgren $1,592,638 under the construction contract. The trial court further found that Forsgren's mechanic's lien and a subcontractor's lien, assigned to Forsgren (collectively referred to as Forsgren's mechanic's lien), attached to the golf course property owned by Desert Tortoise and adjacent property owned by Wilshire and Makasa.

Wilshire and Makasa contend on appeal that the trial court erred in entering judgment authorizing foreclosure of Forsgren's mechanic's lien against their adjacent property. Wilshire and Makasa argue their adjacent land was not required for the convenient use and occupation of the golf course and was unauthorized. In addition Wilshire and Makasa argue that the mechanic's lien did not attach to their adjacent property because Wilshire and Makasa transferred the golf course property to Desert Tortoise before attachment of the lien.

Makasa and Wilshire further argue the trial court erred in awarding prejudgment and postjudgment interest. Pacific asserts the trial court erred in awarding Forsgren attorney's fees under Civil Code section 1717.*fn1

Forsgren filed a cross-appeal asserting that the trial court erred in awarding prejudgment interest at the statutory rate, rather than at the interest rate specified in the construction contract.

We conclude Forsgren's mechanic's lien did not attach to the entirety of Makasa and Wilshire's property adjacent to the golf course property because not all of the adjacent property was required for the convenient use and occupation of the golf course. The evidence established that the lien attached only to a limited portion of the adjacent property, such as the area where a tee box was located outside the golf course property, and the portion of the property where Forsgren and its subcontractors installed irrigation, provided landscaping, and performed grating and leveling in connection with removal of topsoil transported to the golf course.

Because the trial court's judgment, authorizing foreclosure as to the entirety of Makasa and Wilshire's property, is overbroad, we reverse the judgment. We further conclude the trial court erred in awarding pre- and postjudgment interest on the foreclosure claim. Forsgren's cross-appeal is thus moot. Pacific's contention regarding attorney's fees is also moot because Forsgren never filed a motion requesting attorney's fees.

1. Facts and Procedural Background

In the 1980's, Manoucher Sarbaz, acting through various entities, purchased numerous parcels of land, which were combined into one large piece of vacant agricultural land, totaling 1,375 acres. This undeveloped property is located in the Lucerne Valley. Sarbaz purchased the parcels by forming partnerships with family members. These partnerships merged into limited liability companies formed by Sarbaz, known as Lucerne Valley LLC (Lucerne), Club View LLC (Club View), Wilshire Road LLC (Wilshire), and Makasa LLC (Makasa). Sarbaz was a managing member of Wilshire, Makasa, and Club View.

Sarbaz purchased the land with the intent of developing a master- planned residential community called "Rancho Lucerne." Sarbaz envisioned that his development project would include 4,257 single family homes, a 27-hole public golf course, and commercial property.

In 1995, Sarbaz and his sister, Mina Sarbaz, formed Pacific, a limited liability company, which acted as the developer for the Rancho Lucerne project. In addition, Pacific represented the land owners in connection with the development, including purchases, sales and pledges of land, receipt of funds and payment of debts. Sarbaz was manager of Pacific and Pacific's sole employee. He acted as the developer of the entire Rancho Lucerne project. Pacific had no assets and no operating history.

In 1997, the San Bernardino Planning Commission approved a master tentative tract map and a final development plan for the project. The public improvements for the project were to be financed under the Marks- Roos Local Bond Pooling Act (Gov. Code, §§ 6500 et seq.). The Act enabled local government entities collectively to issue tax-exempt municipal debt as a joint powers authority (JPA) to finance the project, including the public golf course. Desert Tortoise was one of the JPA public entities that issued securities for Rancho Lucerne public improvements.

The bonds were to be payable from the anticipated revenue from the golf course and from "Project Impact Reimbursement Fees." These fees are fees the developer pledged to pay from the proceeds of lot sales and were secured by liens the developer and property owners agreed to impose on lots pledged as security property for each of the bond issuances. The project's public golf course was included in the development to attract buyers of the residential lots, raise the market value of the project, and assist the developer in retiring the outstanding debt.

According to the preliminary official statement for funding the bonds issued for financing the Rancho Lucerne development project, phase one of the project covered approximately 489 acres and was planned to include 15 holes of the public golf course located on 155 acres (including approximately five acres for the planned clubhouse), a 30- acre commercial parcel, and 1,248 single-family lots located on approximately 304 acres within the Project. The 304 acres include approximately 26 acres for parks, 39 acres for roads, and 239 acres for residential lots divided into 14 development areas. Five additional holes of the public golf course, located on approximately 34 acres of property outside of but adjacent to the phase one property, were to be built at the same time. The golf course property consisted of approximately 185 acres, plus additional acreage for construction of the clubhouse.

The preliminary official statement further stated that the project was being developed by Pacific and the 489 acres, comprising phase one of the project, were owned by Wilshire. Makasa, "an affiliate" of Pacific, owned an additional 34 acres also being developed as part of the golf course. The bonds were to be used by Desert Tortoise and Legends Golf Club Community Association (Legends) to purchase the golf course property and pay for construction of the golf course by Forsgren. Pacific was to become the manager and operator of the golf course upon its completion.

Legends was a California nonprofit corporation organized in April 2000 to facilitate the acquisition and construction of the public facilities associated with the public golf course and the project, in cooperation with Desert Tortoise. Legends had no independent staff and was dependent upon Pacific and Desert Tortoise to assist with its bond- related responsibilities.

Raymond Johnson, who was the golf course designer, coordinator, and project manager for Pacific, testified that the county was required to design a flood channel for the entire Lucerne Valley. In 1996 and 1997, before the golf course was designed, the county designed a master flood channel which was located in the vicinity of the golf course project. Johnson and the golf course architect, David Etsel, began designing the golf course in early 1997, incorporating the county's flood channel plans. Johnson completed the tentative tract map in 1997. A revised version was approved in March 1998.

In April 1998, Forsgren submitted a proposal to Pacific for the construction of the 20-hole public golf course. On December 16, 1998, Forsgren and Pacific entered into a written contract (construction contract) for the construction of the golf course, which included a driving range, practice facility, earthwork, an irrigation system, cart path, drainage, and seeding. Earl Kemp, president of Forsgren, and Sarbaz, on behalf of Pacific, signed the contract.

The construction contract provided that Pacific would pay Forsgren $2,000,000 to construct a 20-hole golf course. Forsgren was to furnish work and material in accordance with the golf course plans. Forsgren was also responsible for designing and building an irrigation system for the course. All developer decisions were to be made by Sarbaz.

When Forsgren began construction of the golf course in early March 1999, Wilshire and Makasa owned the golf course property and adjacent property.

On June 30, 1999, Forsgren signed four change orders, resulting in an increase in the contract price from $2,000,000 to $4,374,097. The changes were due in part to modifying the plans so that the golf course property would serve as a flood channel. The stated purpose of change order No. 1 was: "Change Bunker Construction & Cart Path Line items from original bid quantities to actual plan quantities." Change order No. 3 added irrigation and seeding, and increased "pump station & wetwell to accommodate area outside of golf course (flood control areas)." The change order also added lake circulation pumps and piping, and golf course sodding. The stated purpose of the change order was: "Increase of scope of work to accommodate extra areas not included in original contract."

During the trial, Kemp testified that what generated these changes in the project "was a county requirement that all areas that were disturbed by mass grading had to be revegetated. When we were putting in irrigation for the golf course, we expanded irrigation on the golf course to cover the areas that were disturbed in the flood control channel, on the top of the channel, and the top of the dike. We increased the pump capacity stations for the seven holes."

Kemp further explained that "The flood control channel was a channel that was required, I believe, by the county. It wasn't designed by us, but it handled large storm water conveyance across the project. And it's not unusual for golf courses to actually be built in those type[sic] of conveyance channels." Kemp noted that the dikes created the channel. The change orders increased the irrigation to include watering of the entire flood control channel and all of the disturbed areas, in addition to the area where the golf course was originally set. This was done "to vegetate" the entire flood control channel for erosion control protection.

At the end of August 1999, Forsgren and its subcontractors suspended construction due to Pacific's failure to pay their outstanding invoices.

In order to secure additional bond financing, Wilshire and Makasa transferred title to the golf course property to Desert Tortoise. In turn, on May 17, 2000, Desert Tortoise, as trustor, executed a deed of trust and assignment of rents, transferring to Legends title to the golf course property for the purpose of securing payment of the bonds. Once the bonds were paid, the property was to be transferred back to Desert Tortoise. The grant deeds were executed on April 27 and June 20, 2000, and recorded on July 13, 2000.

Pacific paid Forsgren and its subcontractors' outstanding balances with the bond funds. Thereafter, at Sarbaz's request and upon notifying Forsgren that there was additional funding available to complete the golf course project, Forsgren and its subcontractors resumed work in June 2000, with delivery of construction materials beginning on June 19, 2000.

Kemp explained at trial that originally Pacific contracted Forsgren to work solely on construction of the public golf course, which was the first phase of the Rancho Lucerne development project.*fn2 The second phase was going to be the development of the surrounding residential and commercial property. Forsgren entered into the construction contract with the understanding it was only hired to work on the golf course and not the residential or commercial construction. During construction of the golf course, the construction contract was expanded by change orders requiring construction related to creating a flood control channel running through the golf course.

Killebrew, who had worked on building golf courses with Forsgren for 22 years, oversaw the design and production of the Rancho Lucerne golf course. When shown a map of the golf course, Killebrew testified that the map showed features of the golf course that were to be built outside the golf course boundary lines. For instance, the "back tee" of one of the holes was outside the property line.

John Simmons, who worked for Forsgren as a project manager, testified that Forsgren moved topsoil from the adjacent property to the golf course property to enhance the golf course topography.

Pacific failed to timely meet all of its payment obligations under the construction contract. Forsgren and its subcontractors continued working on the project until the end of January or beginning of February 2001, when work on the golf course was once again suspended. At that point, substantial portions of the golf course had been completed. As of March 2001, Pacific owed Forsgren $1,592,638.38.*fn3

In March 2001, Forsgren's largest subcontractor, Ranger Construction Industries, Inc. (Ranger), recorded a mechanic's lien against the golf course property, owned by Desert Tortoise, and adjacent property, owned by Wilshire and Makasa, for nonpayment of money owed, amounting to $978,724, beginning in August 2000. In March, Ranger also filed a lawsuit for foreclosure of its lien against Forsgren, Pacific, Desert Tortoise, Wilshire, Makasa, and Legends.

Ranger filed a notice of correction of the legal description contained in its lis pendens. Ranger stated that the original lis pendens notice inadvertently included, not only the property subject to Ranger's lien, but also surrounding ...

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