Ball Kelly, LLC v. Bank of America, N.A.

Ball Kelly, LLC, d/b/a Taylor Kelly, LLC v. Bank of America, N.A., No. 11-3369 (10th Cir. 2012)
10th Circuit affirmed the U.S. District Court for the District of Kansas dismissal of complaint for failure to state a claim where plaintiff subcontractor asserted claim for equitable lien in undisbursed loan proceeds held by construction lender. The 10th Circuit affirmed the trial court's ruling that equitable liens in undisbursed loan proceeds have never been recognized under Kansas law, and affirmed the federal trial court's refusal to create new rights under state law. The 10th Circuit further affirmed the trial court's conclusion that plaintiff failed to allege a colorable claim for an equitable lien by failing to allege adequate facts to support plaintiff's detrimental reliance, i.e., acts, representation, admissions or silence by the defendant such that would adequately plead detrimental reliance.
Procedural context:
Following borrower's bankruptcy, in which bankruptcy court determined that subcontractor was unlikely to recover on its claim for unpaid work against borrower, subcontractor commenced state court action against construction lender, asserting an equitable lien in undisbursed loan funds. Lender removed case to U.S. District Court, and moved to dismiss under FRCP 12(b)(6) for failure to state a claim upon which relief may be granted. U.S. District Court granted motion. Plaintiff subcontractor appealed to 10th Circuit. Tenth Circuit affirmed dismissal of subcontractor's claim under FRCP 12(b)(6).
Subcontractor (Ball Kelly) entered into two contracts with borrower (Corbin Park, L.P.) to construct comercial properties in Kansas. Lender (Bank of America) provided borrower with construction loans for the projects. Lender retained a construction consultant to review pay applications submitted by contractors, including Ball Kelly. In March of 2009, lender determined that borrower was in default on loans, and ceased further funding. Lender did not notify Ball Kelly of default. Ball Kelly continued to work on projects and submitted pay applications to lender. Upon receiving notice that no further payments would be forthcoming, Ball Kelly ceased further work.
Kelly, Baldock, and Ebel (10th Circuit).

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