Category Archives: Lien

OH NO! A LIEN IS RECORDED! WHAT ARE SOME OF MY OPTIONS?

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You are an owner and a construction lien is recorded on your property.  Or, you are a general contractor required to indemnify the owner for construction liens and a subcontractor you are in a dispute with records a construction lien (or one of the subcontractor’s suppliers or subcontractors records a lien).  What are your options (other than paying the lienor in consideration of a satisfaction of lien) to extinguish the lien or transfer that lien to another form of security other than the real property?

 

(1) Notice of Contest of Lien – This is an efficient, cost effective strategy that I oftentimes prefer to use to truly determine whether a lienor (entity that recorded lien) actually intends on foreclosing on the lien.  Recording a Notice of Contest of Lien pursuant to Florida Statute s. 713.22 shortens the statute of limitations to foreclose on the lien to 60 days after service of the Notice; if the lienor neglects to do so, the lien is extinguished.  (A construction lien is otherwise good for one year from its recording.)  Section 713.22 provides that an owner or an owner’s attorney can record a Notice of Contest of Lien in the official records (same official records where the lien is recorded).  The Notice is a statutory form (see form below).  Once it is recorded, the clerk serves it on the lienor at the address in the lien putting the lienor on notice that it must foreclose within 60 days.  Notably, because the statute says an owner or owner’s attorney should record this, if representing the general contractor, I typically suggest that the general contractor get the owner to sign the Notice (or, get the owner’s permission that it is acceptable for the general contractor to sign as a representative for purposes of the Notice).

 

(2) Filing a Lawsuit to Show Cause – Another approach to shorten a lienor’s statute of limitation to foreclose on the lien is to file a complaint pursuant to Florida Statute s. 713.21 where the clerk issues a special summons “to the lienor to show cause within 20 days why his or her lien should not be enforced by action or vacated and canceled of record.”  Fla. Stat. s. 713.21.   Any interested party can file this lawsuit and the lawsuit is typically accompanied with a fraudulent lien claim against the lienor.  When a lienor receives this lawsuit, it MUST foreclose on its lien within 20 days from service or else its lien should be discharged by the court.  However, this requires drafting of the lawsuit and the special show cause summons, filing the lawsuit, and serving the lawsuit, so it certainly is not as cost effective as the first option.  Also, sometimes, by the time the lawsuit is drafted, filed, and served, the 20 day show cause period would be pretty close to the expiration of the 60 days if the Notice of Contest of Lien was recorded.  Every situation is different and there are circumstances where filing this lawsuit is a more attractive option than recording the Notice of Contest of Lien.

 

(3) Transferring the Lien to Alternative Security such as a Lien Transfer Bond – Sometimes, an owner needs the lien off of its property immediately and wants the lien transferred from the real property to alternative security such as a lien transfer bond.  This is done pursuant to Florida Statute s. 713.24 where cash or a surety bond is posted with the court “in an amount equal to the amount demanded in such claim of lien, plus interest thereon at the legal rate for 3 years, plus $1,000 or 25 percent of the amount demanded in the claim of lien, whichever is greater, to apply on any attorney’s fees and court costs that may be taxed in any proceeding to enforce said lien.”  Fla.Stat. s. 713.24.   Typically, no one wants to post and tie up cash in the amount of the lien, plus 3 years of interest, plus another 25% of that lien amount to cover potential fees/costs.  And, obtaining a surety bond is not always easy without posting collateral or cash to the surety, etc., so that the surety’s risk in posting the bond in the event the lienor prevails is mitigated.  Now, a lien can be transferred to a lien transfer bond at any time including during the  pendency of a lawsuit.  For example, let’s say you elect option (1) or (2) above and the lienor does timely foreclose on the lien; the option of transferring the lien is still available.  The major difference is that if a lien foreclosure lawsuit is underway and the lien transferred to a bond (or cash), the lienor has one year from the date of the transfer to amend its lawsuit to assert a claim against the bond.  If the lien is transferred before the lien foreclosure lawsuit, then the one year to foreclose on the lien from the date the lien is recorded still applies.

 

An attorney should be consulted to assist you to determine the best option and strategy for you if a lien is recorded based on your circumstances.

 

NOTICE OF CONTEST OF LIEN

To: (Name and address of lienor)

You are notified that the undersigned contests the claim of lien filed by you on ___, (year) , and recorded in ___ Book ___, Page ___, of the public records of ___ County, Florida, and that the time within which you may file suit to enforce your lien is limited to 60 days from the date of service of this notice. This ___ day of ___, (year) .

Signed: (Owner or Attorney)

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

LEGAL COMPLEXITIES WHEN THERE IS A FAILED PROJECT

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Iberiabank v. Coconut 41, LLC, 2013 WL 6061833 (M.D.Fla. 2013) is a new case involving a failed mixed-use master development (subdivision) that illustrates some of the complexities when a construction project goes bad. It is a great case discussing aspects of Florida’s Lien Law (such as liens for subdivision improvements, single claim of lien, fraudulent liens) that are important for all construction participants. It is also a great case that discusses an unjust enrichment claim for unpaid work and a slander of title claim due to a fraudulently recorded lien. While the facts and issues are lengthy, there are numerous take-aways from this case that should not be ignored and are pointed out at the end of this article.

 

 

I. The Failed Development

 

 

In this case, a developer purchased approximately 46 acres of land. The land was intended to be developed into a master development. The developer sold approximately 14 acres referred to Development Area 2 to HG Coconut. The developer was responsible for installing the necessary infrastructure outside of Development Area 2 that would be required to develop both the developer’s land and Development Area 2. (This included, among other things, widening a road and sanitary-sewer work.)

 

To construct the infrastructure, the developer hired a heavy civil contractor. Two contracts were executed. The first contract was for on-site infrastructure improvements to the developer’s land. The second contract was for off-site infrastructure improvements such as the infrastructure improvements needed to develop Development Area 2. (There was no contract between the contractor and HG Coconut, the owner of Development Area 2.)

 

Because of nonpayment, the contractor recorded a single claim of lien. The lien included Development Area 2 (owned by HG Coconut). Remember, the contractor did not have a contract with the owner of Development Area 2.

 

II. Claims against HG Coconut – the Owner of Development Area 2 – and HG Coconut’s Claims against the Contractor

 

 

The contractor filed a lawsuit and asserted an unjust enrichment claim and lien foreclosure claim against HG Coconut–the owner of Development Area 2.  HG Coconut asserted a fraudulent lien claim and slander of title claim against the contractor.

 

 

A. Unjust Enrichment

 

The contractor contended that it benefited HG Coconut (a party it did not have a contract with) through infrastructure work it performed that provided value to Development Area 2. HG Coconut argued that the unjust enrichment claim should be barred because the contractor’s work was incomplete—it did not finish all of its work. The Middle District dismissed this argument equating recovery under an unjust enrichment theory to that of recovery when a contractor substantially performs. When a contractor substantially performs / completes its work, it is entitled to the full contract price minus the owner’s right to recover damages due to the contractor’s failure to render full performance. Since the contractor substantially completed its work subject to the unjust enrichment claim that provided a benefit to Development Area 2, the Middle District held that the contractor was entitled to the fair market value of the work minus HG Coconut’s offset for the remaining work.

 

B. Lien Foreclosure and Fraudulent Lien

 

The contractor argued that it was not paid for work performed under its off-site contract (the infrastructure work outside of developer’s land that was also needed to develop HG Coconut’s Development Area 2). HG Coconut asserted an affirmative claim against the contractor arguing that the contractor recorded a fraudulent lien.

 

The Middle District entered judgment against the contractor on its lien foreclosure claim. The fraudulent lien claim asserted by HG Coconut establishes the problems under Florida’s Lien Law with the contractor recording a lien that included Development Area 2.

 

Contractor’s performing subdivision improvements are entitled to certain protections under Florida’s Lien Law. Florida Statute s. 713.04(1) provides:

 

“Any lienor who, regardless of privity, performs services or furnishes material to real property for the purpose of making it suitable as the site for the construction of an improvement or improvements shall be entitled to a lien on the real property for any money that is owed to her or him for her or his services or materials furnished in accordance with her or his contract and the direct contract. The total amount of liens allowed under this section shall not exceed the amount of the direct contract under which the lienor furnishes labor, materials, or services. The work of making real property suitable as the site of an improvement shall include but shall not be limited to the grading, leveling, excavating, and filling of land, including the furnishing of fill soil; the grading and paving of streets, curbs, and sidewalks; the construction of ditches and other area drainage facilities; the laying of pipes and conduits for water, gas, electric, sewage, and drainage purposes; and the construction of canals and shall also include the altering, repairing, and redoing of all these things. When the services or materials are placed on land dedicated to public use and are furnished under contract with the owner of the abutting land, the cost of the services and materials, if unpaid, may be the basis for a lien upon the abutting land. When the services or materials are placed upon land under contract with the owner of the land who subsequently dedicates parts of the land to public use, the person furnishing the services or materials placed upon the dedicated land shall be entitled to a lien upon the land abutting the dedicated land for the unpaid cost of the services and materials placed upon the dedicated land, or in the case of improvements that serve or benefit real property that is divided by the improvements, to a lien upon each abutting part for the equitable part of the full amount due and owing. If the part of the cost to be borne by each parcel of the land subject to the same lien is not specified in the contract, it shall be prorated equitably among the parcels served or benefited. No lien under this section shall be acquired until a claim of lien is recorded. No notice of commencement shall be filed for liens under this section. No lienor shall be required to serve a notice to owner for liens under this section.”

 

 

However, just because a contractor performing subdivision improvements has certain lien rights, does not mean it can record a fraudulent lien. A fraudulent lien is defined in Florida Statute s. 713.31(2)(a):

 

“Any lien asserted under this part in which the lienor has willfully exaggerated the amount for which such lien is claimed or in which the lienor has willfully included a claim for work not performed upon or materials not furnished for the property upon which he or she seeks to impress such lien or in which the lienor has compiled his or her claim with such willful and gross negligence as to amount to a willful exaggeration shall be deemed a fraudulent lien.”

 

If a lien is deemed fraudulent, it is unenforceable. Fla.Stat. s. 713.31(2)(b). Additionally, an owner (or contractor, subcontractor, etc. that suffers damage from a fraudulent lien) can assert a claim for damages against the lienor for recording the fraudulent lien:

 

“An owner against whose interest in real property a fraudulent lien is filed, or any contractor, subcontractor, or sub-subcontractor who suffers damages as a result of the filing of the fraudulent lien, shall have a right of action for damages occasioned thereby. The action may be instituted independently of any other action, or in connection with a summons to show cause under s. 713.21, or as a counterclaim or cross-claim to any action to enforce or to determine the validity of the lien. The prevailing party in an action under this paragraph may recover reasonable attorney’s fees and costs. If the lienor who files a fraudulent lien is not the prevailing party, the lienor shall be liable to the owner or the defrauded party who prevails in an action under this subsection in damages, which shall include court costs, clerk’s fees, a reasonable attorney’s fee and costs for services in securing the discharge of the lien, the amount of any premium for a bond given to obtain the discharge of the lien, interest on any money deposited for the purpose of discharging the lien, and punitive damages in an amount not exceeding the difference between the amount claimed by the lienor to be due or to become due and the amount actually due or to become due.”

Fla.Stat. 713.31(2)(c).

 

 

A lien will be fraudulent if it contains willfully exaggerated amounts which can include liening for amounts that are NOT properly lienable. See Coconut 41, supra, at *15. This is why it is imperative to consult an attorney before recording a claim of lien! Not spending the due diligence in advising an attorney of the facts and the accounting comprising the amount you want to lien for can result in a fraudulent lien. Also, because a fraudulent lien contains a willful exaggeration of amounts, the lienor’s consultation with its lawyer is a factor a court can consider to determine that there was no willful exaggeration. Id. “[A] lienor can rely on consultation with counsel prior to filing the claim of lien as evidence of good faith only in the event of a full and complete disclosure of the pertinent facts to the attorney from whom the advice is sought before the lienor acts on the advice. Consultation with an attorney is not entitled to any legal weight if the contractor did not disclose all pertinent facts to the attorney.” Id. quoting Sharrard v. Ligon, 892 So.2d 1092, 1097 (Fla. 2d DCA 2004). Notably, this means that if a lienor is using this defense to counteract a fraudulent lien claim /defense, certain discussions with counsel must be waived to establish the consultation and advice to show the lien and amount was recorded and compiled in good faith.

 

Here, the contractor recorded a single claim of lien that included Development Area 2. However, the entire lien amount did NOT pertain to infrastructure improving Development Area 2.

 

The Middle District pointed out that a single claim of lien was not proper because the property liened was owned by different owners. Florida Statute s. 713.09 discusses the concept of a single claim of lien:

 

“A lienor is required to record only one claim of lien covering his or her entire demand against the real property when the amount demanded is for labor or services or material furnished for more than one improvement under the same direct contract. The single claim of lien is sufficient even though the improvement is for one or more improvements located on separate lots, parcels, or tracts of land. If materials to be used on one or more improvements on separate lots, parcels, or tracts of land under one direct contract are delivered by a lienor to a place designated by the person with whom the materialman contracted, other than the site of the improvement, the delivery to the place designated is prima facie evidence of delivery to the site of the improvement and incorporation in the improvement. The single claim of lien may be limited to a part of multiple lots, parcels, or tracts of land and their improvements or may cover all of the lots, parcels, or tracts of land and improvements. In each claim of lien under this section, the owner under the direct contract must be the same person for all lots, parcels, or tracts of land against which a single claim of lien is recorded.”

 

For this reason, the Middle District found that the lien was willfully exaggerated. In other words, the contractor acknowledged that of its approximate $195,000 lien, the pro-rata share for work done on Development Area 2 was only approximately $61,000; thus, there was an exaggeration of over $100,000 in the lien that covered Development Area 2. “The Claim of Lien was for the total amount owing for offsite work even though Westwind Contracting knew that only a substantially lesser amount was apportionable to HG Coconut.” Coconut 41, supra, at *16. Although the contractor tried to counteract the fraudulent lien by testifying that it provided its counsel with certain information, there was no testimony that it advised counsel that the lien it wanted recorded included land owned by someone other than the entity that hired it.

 

Now, even though the lien was deemed unenforceable, HG Coconut still needed to prove its damages due to the fraudulent lien. The Middle District, however, found that HG Coconut failed to prove such damages. Remember, the damages are included in Section 713.21: “court costs, clerk’s fees, a reasonable attorney’s fee and costs for services in securing the discharge of the lien, the amount of any premium for a bond given to obtain the discharge of the lien, interest on any money deposited for the purpose of discharging the lien, and punitive damages in an amount not exceeding the difference between the amount claimed by the lienor to be due or to become due and the amount actually due or to become due.” HG Coconut did NOT put any evidence of the court costs, reasonable attorneys’ fees, bond premium, or punitive damages.

 

C. Slander of Title

 

In addition to asserting an affirmative claim for fraudulent lien, HG Coconut also asserted a claim against the contractor for slander of title based on the lien. This is a common claim when a party believes a lien was improperly recorded against their property. The elements of slander of title in Florida are: 1) a falsehood, 2) that has been published or communicated to a third party, 3) the defendant knew or should have known the falsehood would result in inducing others not to deal with the plaintiff, 4) the falsehood does result in others not dealing with the plaintiff, and 5) actual and/or special damages (inclusive of attorneys’ fees) are proximately caused by the falsehood. Coconut 41, supra, at *17 quoting McAllister v. Breakers Seville Ass’n, Inc., 981 So.2d 566, 574 (Fla. 4th DCA 2008). However, even if all of the elements above are proven, a defense to slander of title is good faith. Coconut 41, supra, at *18. This defense is important because good faith raises a privilege and shifts the burden to the plaintiff asserting the claim to prove actual malice in order to recover under a slander of title theory of liability. Id. quoting McAllister v. Breakers Seville Ass’n, Inc., 981 So.2d 566, 574 (Fla. 4th DCA 2008).

 

Here, the court did not need to delve into whether there was actual malice because HG Coconut did not prove the elements of slander of title. In particular, there was no evidence that the lien caused or induced anyone not to deal with HG Coconut or that the contractor should have known the lien would have that effect. Further, there was no evidence that HG Coconut incurred any actual and/or special damages caused by the lien. While HG Coconut clearly incurred attorneys’ fees, it did not put on any evidence as to the amount of fees it incurred.

 

III.  Important Take-Aways

 

Below are important points to take-away from this case:

 

  • Unjust enrichment is a claim that can be asserted if a contractor is not in contractual privity with the owner of the land and work was knowingly performed that conferred a benefit to the owner’s land
  • An owner can offset damages in an unjust enrichment claim by asserting as a defense that the work was incomplete/ the contractor failed to fully perform its work
  • A notice to owner is not required for subdivision improvements
  •  If a lien for subdivision improvements includes multiple parcels of land, it shall be prorated among the parcels (if not otherwise stated in the contract)
  • A single claim of lien can cover different land/ parcels if the owner is the same person
  • If there are multiple contracts, there should be separate liens for each contract (even if with the same owner)
  • A fraudulent lien includes a willful exaggeration and can include amounts not properly lienable
  • A party asserting a fraudulent lien needs to present evidence of its damages: attorneys’ fees, court costs, bond transfer costs, punitive damages, etc. to be entitled to damages due to the fraudulent lien
  • Consultation will a lawyer is a defense to a fraudulent lien but all of the important communications with the lawyer regarding the formation and compilation of the lien must be waived and must come into evidence to establish the good faith basis of the lien and lien amount
  • Slander of title is a difficult claim to prove based on a construction lien; the plaintiff must show defendant knew the lien would result in third parties not dealing with the plaintiff and, in fact, third parties did not deal with plaintiff because of the lien
  • A plaintiff in a slander of title action must prove its actual and/or special damages and special damages can include attorneys’ fees
  • A defendant in a slander of title action should assert good faith as a defense which would shift the burden to the plaintiff to prove actual malice

 

For more information on fraudulent liens and slander of title, please see: https://floridaconstru.wpengine.com/owners-defending-a-lien-especially-a-patently-fraudulent-lien/

 

For more information on liens and lienable items/ amounts, please see: https://floridaconstru.wpengine.com/the-final-furnishing-date-and-lienable-amounts-for-construction-liens-decided-on-a-case-by-case-basis/

 

For more information on unjust enrichment theories, please see: https://floridaconstru.wpengine.com/subcontractors-and-unjust-enrichment-claims/

and

https://floridaconstru.wpengine.com/the-reality-when-the-construction-lender-forecloses/

 

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

MAKE SURE CONSTRUCTION LIENS ARE PROPERLY PREPARED AND DO NOT CONTAIN ERRORS

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If a construction lien is improperly filed or contains errors, an owner will try to capitalize on the improper filing or errors in order to get the lien discharged from his property. This is what an owner should do, although he should not lose sight over the difference between a ministerial error in the lien that you do not bank your entire defense on versus a truly substantive error under Florida’s Lien Law that could give the owner leverage in the dispute (e.g., not recording the claim of lien within 90 days from final furnishing, a subcontractor/supplier not serving a notice to owner, a lien from an unlicensed contractor, or a lien that includes improper amounts for nonlienable items).

 

The recent case of Premier Finishes, Inc. v. Maggirias, 2013 WL 5338052 (Fla. 2d DCA 2013), illustrates an error in a lien (that appears ministerial at first glance) that resulted in the lien being discharged by the trial court. However, although not discussed in the opinion, this case addresses much more than an error in a lien, but an interesting licensing issue.

 

In this case, a contractor was engaged to build a house. The contractor entered into the contract under a fictitious name. However, from reviewing the case, it does not appear that the fictitious name was a registered fictitious name, nor does it appear that the fictitious name was registered as a licensed contractor. Rather, it was simply an acronym used by the licensed contractor.

 

A payment dispute arose when the owner terminated the contractor, and the contractor recorded a claim of lien and moved to foreclose the lien. However, the lien was recorded and lawsuit initiated by the contractor and not the fictitious name that entered into the contract. The owner argued that the contractor was not a proper lienor and therefore the lien should be discharged because it was not the entity that actually entered into the contract. The trial court agreed.

 

On appeal through a petition for a writ of certiorari, the Second District reversed for two main reasons.

 

First, the Court held that a contract entered into under a fictitious name is enforceable (even if that fictitious name is not properly registered). See Fla. Stat. 869.09(9). The Court explained: “[I]f Premier Finishes [contractor] was the real entity using the fictitious name when entering into the contract, it is the actual party to the contract or the contractor…and is entitled to proceed with a claim of lien against the Owner.” Premier Finishes, 2013 WL 5338052 at *3.

 

Second, under Florida’s Lien Law, a ministerial error does not invalidate a lien unless the owner can show he was prejudiced by the error. See Fla. Stat. 713.08(4). The owner will have to show how he was adversely affected / prejudiced by the error, which would require an evidentiary hearing and can be quite challenging to prove.

 

Now, what is interesting about this case is whether there was any argument that the lien should be unenforceable because the fictitious entity that signed the contract was an unlicensed contractor (assuming this is the case). Under Florida Statute s. 489.128, contracts entered into by an unlicensed contractor are unenforceable in law or in equity by the unlicensed contractor. Thus, an unlicensed contractor cannot properly lien. Instead of the focus being on the error in the lien due to the lien being recorded by the contractor instead of the fictitious entity, the argument could center on the fact that the contract was entered into by an unlicensed contractor and, therefore, the contract and corresponding lien are not enforceable. Perhaps, the owner plans on raising this argument to establish prejudice.

 

While the contractor can certainly raise arguments to address the fact that the fictitious name is properly licensed since the contractor that owns the fictitious name is properly licensed, a contractor that is required to be licensed by the state (e.g., general contractor, mechanical contractor, electrical contractor, plumbing contractor, etc.) is technically supposed to register and identify the fictitious name it is doing business under. See Fla. Stat. 489.119.  Although, notably, there is an older case, Martin Daytona Corp. v. Strickland Const. Services, 881 So.2d 686 (Fla. 5th DCA 2004), that held that a subcontractor’s failure to obtain a license under its fictitious name did not render the contract unenforceable. However, this case was decided under a previous version of Florida Statute s. 489.128 and, importantly, the current version of this statute likely would not have applied to this case since the subcontractor (a mason) is not required to obtain a state license like a general contractor. It is uncertain how this case would be decided under current law.

 

The key is to double check your liens to ensure they are accurate and do not contain errors. Naturally, it is always a good thing to work with an attorney to prepare your lien so that if you know that if an error will likely exist you can game plan accordingly.  For example, if you entered into contracts in the name of an unregistered fictitious name, the decision in Premier Finishes can support your argument that the fictitious name would not render the contract or lien unenforceable especially if the fictious name is used by a properly licensed contractor.  Also, contractors needs to be sure they maintain proper licenses to remove any argument that the contract or lien is unenforceable. Keep in mind that under the law, a contract with an unlicensed contractor is unenforceable one-way by the unlicensed contractor; the other party to the contract can still seek recourse.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

CONDO ASSOCIATIONS AND CONSTRUCTION LIENS

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Condominium associations hire contractors for capital improvements and repair / restoration work to common elements (painting, balcony/concrete/stucco restoration or repairs, etc.). When a condominium association hires a contractor to provide labor, services, or materials to the condominium, it needs to understand that nonpayment can lead to the contractor liening–recording a construction lien–the condominium units in the condominium.

 

Florida Statute s. 718.121(2) maintains: “Labor performed on or materials furnished to the common elements are not the basis for a lien on the common elements, but if authorized by the association, the labor or materials are deemed to be performed or furnished with the express consent of each unit owner and may be the basis for the filing of a lien against all condominium parcels in the proportions for which the owners are liable for common expenses.”

 

Furthermore, s. 718.121(3) maintains: “If a lien against two or more condominium parcels becomes effective, each owner may relieve his or her condominium parcel of the lien by exercising any of the rights of a property owner under Chapter 713 [Florida’s Lien Law], or by payment of the proportionate amount attributable to his or her condominium parcel. Upon payment, the lienor shall release the lien of record for that condominium parcel.”

 

Now, what does this mean? First, it means that when an association hires a contractor to perform construction-related work, the work is deemed authorized by all unit owners. Second, it means that because all unit owners are deemed to consent to the work, the contractor, if unpaid, can lien each condominium parcel / unit. Third, it means that the lien against each unit will be in the proportionate amount that the owner is liable for common expenses. And, last, it means that each owner has options to discharge the lien from his/her condominium unit- the owner can pay his/her proportionate share to discharge the lien or the owner can transfer the lien to a bond or other security.

 

If a contractor is not paid by the association and elects to lien and move forward with a lien foreclosure lawsuit, the contractor is not required to sue each individual owner. Rather, the contractor can simply sue the association since the association is deemed to represent the unit owners’ interests. See Trintec Construction, Inc. v. Countryside Village Condominium Association, Inc., 992 So.2d 277 (Fla. 3d DCA 2008) (finding that unpaid roofing contractor that filed lien foreclosure action against association was not required to join all of the unit owners in the action); Four Jay’s Construction, Inc. v. Marina at the Bluffs Condominium Association, Inc., 846 So.2d 555 (Fla. 4th DCA 2003) (finding that balcony contractor properly sued the association in breach of contract action as a class representative on behalf of the owners).

 

Contractors that are hired by associations need to understand their lien rights in the event of nonpayment. And, associations that hire contractors need to understand their options in the event they are involved in a payment dispute with a contractor so that owners can be best advised.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

PRESERVING CONSTRUCTION LIEN RIGHTS BY SERVING A NOTICE TO OWNER

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Entities such as subcontractors and suppliers that are not in privity of contract with the owner are required to serve a notice to owner in order to perfect their construction lien rights. See Fla. Stat. 713.06. Not timely serving a notice to owner can be fatal to a lien foreclosure action by an entity that is not in privity of contract with an owner.

 

 
The case of Marble Unlimited, Inc. v. Weston Real Estate Investment Corp., 38 Fla. L. Weekly D686b (4th DCA 2013) discusses notices to owners. In this case, a marble contractor contracted directly with the owner to install granite countertops in condominium units. (Due to the privity of contract, a notice to owner was not required.) The owner, at some point during construction, transferred its ownership of condominium units to a related entity. The issue was whether the marble contractor should have served a notice to owner on the “new” owner of the condominium units. The Fourth District said NO!, i.e., this would simply “allow corporate owners to play a shell game with ownership and frustrate the valid claims of contractors who complete work on real property.” Marble Unlimited.

 
Importantly, the Fourth District discussed cases when there is common ownership between the owner and the contractor. For example, let’s assume an owner and contractor, although maintain separate corporate names, have a common identity. The contractor then hires a subcontractor. In this situation, there is an argument that the subcontractor does not need to serve a notice to owner on the owner because no prejudice would exist to the owner that should be aware of the subcontractor based on its common identify with the entity that hired the subcontractor. See Marble Unlimited discussing Aetna Cas. & Surety Co. v. Buck, 594 So.2d 280 (Fla. 1992) and Boux v. East Hillsborough Apartments, Inc., 218 So.2d 202 (Fla. 2d DCA 1969).

 

 
In an abundance of caution, an entity not in privity with an owner should serve a notice to owner to preserve its lien rights as a matter of course, even when the owner and general contractor share a common identity / ownership. The entity should know prior to performing work whether they will have payment bond or lien rights in the event of nonpayment, and undertake actions to ensure they are preserving their rights from the get-go.

 

 

For more information on Notice to Owner, please see: https://floridaconstru.wpengine.com/contractors-and-suppliers-do-not-neglect-the-notice-requirements-in-floridas-lien-law/

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

FURTHER CONFUSION TO RECOVERING ATTORNEYS’ FEES IN A LIEN ACTION

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Recovering attorneys’ fees in a lien action is becoming more and more convoluted. Recent caselaw has made it more challenging for a party prevailing in a lien action to recover their attorneys’ fees. Now, the test to recover attorneys’ fees is the “significant issues test,” i.e., which party prevailed on the significant issues in the case. In other words, a party could win the lien action yet still not be entitled to recover their attorneys’ fees. Plus, the determination of the significant issues is in the discretion of the judge, meaning it is very difficult to predict whether a party will recover any attorney fees even if they prevail on the lien action.

 
The case of GMPF Framing, LLC v. Villages at Lake Lily Associates, LLC, 100 So.3d 243 (Fla. 5th DCA 2012), illustrates the challenges in recovering attorneys’ fees. In this case, a lienor recorded a claim of lien and filed a lien foreclosure action. However, instead of just suing to foreclose the lien, the lienor also sued for unjust enrichment and for an equitable lien (both counts which are difficult counts for a lienor / contractor to prevail on against an owner). The owner prevailed on the lien claim and the trial court awarded the owner attorneys’ fees. However, on appeal, the Fifth District Court of appeal reversed because it was undetermined which party won on the significant issues because the equitable lien and unjust enrichment claims remained pending even though the trial court discharged the lien. In particular, the Fifth District found that it is possible that the lienor could prevail on these remaining counts and be deemed the prevailing party by prevailing on the significant issues in the case.

 
This decision complicates how attorneys’ fees are awarded in a lien action and, to that end, which party will be deemed the prevailing party. A lien action is a statutory action that statutorily entitles a party to prevailing party attorneys‘ fees. See Fla.Stat. s. 713.29. The other counts in this lawsuit (unjust enrichment and equitable lien) have no statutory or contractual basis for attorneys‘ fees. Thus, they really should not factor in as to which party won on the significant issues of the lien action–the action that entitles a party to attorneys‘ fees. Unfortunately, this is not how the GMPF Framing Court ruled (nor does it appear to be how other Florida appellate courts will rule), which may have the undesirable effect of motivating lienors to sue on otherwise improper liens by simply coupling their lien claim with another claim and hope they are still able to prevail on the significant issues even if the lien claim is discharged.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

TRANSFERRING A LIEN TO A LIEN TRANSFER BOND DURING A LIEN FORECLOSURE LAWSUIT

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When a construction lien is recorded, the lien can be transferred to a lien transfer bond (thereby removing the encumbrance or cloud on the property caused by the lien).   The procedure to transfer a lien to a lien transfer bond is statutory in nature and governed under Florida Statute §713.24.

 
A lien does not necessarily have to be transferred to a bond immediately after the lien is recorded. Rather, an owner (or other person with interest in the property) can transfer the lien to a bond after the entity or person that recorded the lien (referred to as the “lienor”) files a lien foreclosure lawsuit. In this circumstance, it is important for the lienor to know that they must amend their lien foreclosure action to assert a claim against the lien transfer bond; otherwise, the lienor will essentially lose its lien rights. The lienor will not be able to foreclose the lien as to the property (because it was transferred to a bond) and the lienor will not be able to pursue its claim against the lien transfer bond.

 
This is exactly what happened in The Cool Guys, LLC d/b/a Paragon Indoor Air Quality v. Jomar Properties, LLC, 2012 WL 716084 (Fla. 4th DCA 2012). In this case, the lienor recorded a construction lien and filed a lien foreclosure lawsuit. While the lawsuit was pending, the owner transferred the lien to a lien transfer bond. Under Florida Statute §713.24, if a lien is transferred to a bond during the pendency of a lien foreclosure lawsuit, the lienor must commence an action against the lien transfer bond within 1 year after the transfer. The lienor in this case, however, did not amend its lawsuit to assert a claim against the lien transfer bond until two years after it was transferred. The owner moved for summary judgment arguing that the lienor could no longer assert a claim against the bond because it waited more than one year after the lien was transferred to the bond to assert its claim on the bond. The trial court agreed which was affirmed by Florida’s Fourth District Court of Appeal. Thus, the lienor was neither able to foreclose its lien on the property or the bond.

 
Therefore, as an owner, it is important to know that a construction lien recorded on your property can be transferred to a lien transfer bond immediately or during the course of a lien foreclosure lawsuit. As the lienor moving to forclose the lien, it is important to know that when a lien is transferred to a lien transfer bond, the recourse is against the bond and not the real property.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

CONTRACTORS AND SUPPLIERS-DO NOT NEGLECT THE NOTICE REQUIREMENTS IN FLORIDA’S LIEN LAW

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Oftentimes, subcontractors, suppliers, and sub-subcontractors rely on companies to serve the statutory notices that are prerequisites to preserving a lien or bond claim under Florida’s Lien Law in the event of nonpayment.  However, if these notices are not served in accordance with Florida’s Lien Law, the outcome could be injurious to the subcontractor, supplier, or sub-subcontractor.  Stated differently, the outcome could mean a loss of lien or bond rights which may be the only true leverage the party has to secure payment.

 

The case of Stock Building Supply, Inc. v. Soares Da Costa Construction Services, LLC, 36 Fla. L. Weekly D2200a (Fla. 3d DCA 2011), illustrates the absolute importance of complying with the notice requirements in Florida’s Lien Law.

 

 

In this case, an owner hired a contractor to build a condominium.  The contractor subcontracted with a structural shell subcontractor which, interestingly, held a 40% ownership interest in the contractor.   The subcontractor engaged a supplier to provide rebar to the project.  The contractor also engaged the same supplier to provide certain materials to the project.  To graphically illustrate:

 

 

Contractor –> Shell Subcontractor –> Supplier

and

Contractor –> Supplier

 

 

Originally, there was no payment bond on the project.  Therefore, once the supplier was engaged to provide materials, it served a statutory notice to owner on the contractor and the owner stating that it was supplying materials under an order given by the subcontractor.  It served a second notice to owner on the contractor and owner stating it was supplying materials under an order given by contractor. (Notably, Florida Statute §713.06 requires lienors not in privity of contract with the owner to serve a notice to owner on the owner no later than 45 days after commencing services.  The notice should also be served on anyone up the chain to the owner the lienor is not in privity of contract with, i.e., the sub-subcontractor or supplier to the subcontractor should serve the notice on the contractor too.  This is a mandatory statutory notice if there is not a payment bond in place.)

 

 

Shortly after construction commenced, there was a funding problem that led to a halt in construction.  The supplier recorded 2 claims of lien for nonpayment: one for nonpayment by the subcontractor and the other for nonpayment by the contractor.

 

 

The owner then paid the supplier and had the liens satisfied and recorded a notice of termination of the initial notice of commencement which is a procedure under Florida’s Lien Law that allows an owner to terminate a notice of commencement that accurately states that all lienors were paid in full.  After the notice of commencement was terminated by law, the owner recorded a new notice of commencement that attached a payment bond, meaning the owner’s property was now exempt from all liens except that of the general contractor it hired.  (One of the main reasons an owner would terminate a notice of commencement and record a new notice of commencement is so a construction lender financing construction can record a mortgage and maintain a first priority encumbrance on the property in the event the owner did not repay the loan.)

 

 

Once construction restarted, the supplier continued supplying rebar to the structural shell subcontractor.  The supplier also continued to supply building materials to the contractor.  However, for whatever reason, the company the supplier hired to serve the statutory notices served only one statutory notice to contractor stating that the supplier was supplying building materials under an order given by the contractor.   Unlike the notice to owner mentioned above, when there is a payment bond in place, lienors not in privity of contract with the contractor must serve a notice on the contractor stating that they intend to look to the contractor’s payment bond for payment.  In other words, the supplier was required to serve a notice on the contractor that it was supplying materials under an order given by the subcontractor, but it really wasn’t required to serve the same notice for the supplies it was providing under an order given by the contractor.

 

 

The point or objective of the notices is so the owner, in a situation without a payment bond, and a contractor, in a situation with a payment bond, know specifically who is performing work on the project to ensure these entities get paid.  The reason why a contractor doesn’t need to serve a notice to owner (when there is no bond) or a subcontractor doesn’t need to serve a notice on the contractor (when there is a payment bond) is because the owner or contractor in these situations know the entities it hired to ensure these entities get paid.

 

 

Although the contractor paid the structural shell subcontractor for the rebar, the subcontractor did not pay the supplier.  The supplier then served a notice of nonpayment on the payment bond surety (another prerequisite to suing on a general contractor’s payment bond) and filed suit.

 

 

The main issue in this case was whether the supplier had properly preserved a payment bond claim for the rebar it supplied to the subcontractor that it was not paid for by virtue of its neglect in serving the proper notice on the contractor that it was supplying rebar under an order given by the subcontractor.  The trial court concluded that the supplier could NOT pursue a payment bond claim because it failed to serve this notice.  The Third District affirmed the trial court on this issue essentially holding that because lien and bond claims are creatures of statute, the supplier’s failure to comply with the lien law by serving this initial notice was fatal to its bond claim for rebar materials it supplied to subcontractor.

 

 

Unfortunately for the supplier, this is a hypertechnical argument that killed its claim against the payment bond for materials it supplied under the order given by the structural shell subcontractor. This ruling, however, does not seem to make sense in light of the specific facts of the case.  Again, the whole point of the notice is so the contractor in this situation knows that the supplier is supplying rebar to the subcontractor and that it will look to the payment bond if it is not paid so that the contractor can affirmatively ensure the supplier gets paid.  First, the contractor knew the supplier was supplying rebar because before the owner terminated the notice of commencement, the supplier was supplying the same rebar and the contractor was made aware of same. Second, after the owner recorded a new notice of commencement with a payment bond, the supplier served a notice on the contractor (although it was not legally required to do so) that it was serving materials to the contractor per an order given by the contractor.  Well, at this point in time, the contractor had continued knowledge the supplier was still involved in the project and still supplying materials, even though there may have been oversight in that another notice was not also provided by supplier for the materials it was providing under an order given by the subcontractor.  And, last, the subcontractor owned 40% of the contractor, thus, how could contractor not know that its minority owner was still utilizing and ordering rebar?  The Third District did not get into this, but I believe this fact is important because it would seem to impute some knowledge on the contractor under this fact pattern  that the subcontractor was still utilizing the supplier, which just so happened to an identical supplier that contractor was utilizing and ordering materials from.  Thus, where was the prejudice to the contractor??

 

 

Regardless of the equities of the Third District’s decision, the morale remains that it is absolutely critical to comply with Florida’s Lien Law, as in many circumstances, oversight or neglect will not be tolerated!!  Do not let this happen to you!

 

In this case, the supplier used an outside company to serve the required statutory notices and it was uncertain why the outside company did not serve the required notice on the contractor that supplier would look to the bond for protection if it was not paid for materials supplied to the subcontractor, especially when it served the unnecessary notice for materials being supplied directly to contractor.  The supplier or outside company’s oversight, whatever the case may be, resulted in a loss of its payment bond claim.

 

 

To prevent this from happening, it is always a good idea to utilize an attorney on the front end to ensure the proper notices are being served.  An attorney understanding construction will ask: 1) is it a private project or publicly funded project; 2) do you have a copy of the notice of commencement (to see whether there is or is not a payment bond in place); 3) who hired you; and 4) when did you first start commencing services.  In the event of nonpayment, the attorney will ask the follow-up questions: 5) when was your last day on the job and 6) how much are you owed and how did you arrive at this specific amount (e.g., retainage owed, contractual work owed, change order work owed, does this include delay-related damages or lost profit, etc.) in order to ensure the lien or payment bond claim comports with Florida’s Lien Law.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

OWNERS DEFENDING A LIEN – ESPECIALLY A PATENTLY FRAUDULENT LIEN

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Owners are sometimes in a difficult position and predicament when an entity wrongly records a claim of lien on their real property and forecloses on the lien. The owner is forced to defend the lien foreclosure claim that it contends was improperly filed and fraudulent (or is simply forced to deal with an improperly filed lien encumbering their property). In this circumstance, an owner should not remain on the defensive, but should pursue his/her own affirmative fraudulent lien claim. Another affirmative claim the owner can assert, besides possibly a breach of contract claim, is a slander of title claim in furtherance of exerting some pressure against the entity and person that wrongly filed a lien.  This is especially true if the lien is so patently wrong under Florida’s Lien Law and cases interpreting Florida’s Lien Law.

 

Medellin v. MLA Consulting, Inc. d/b/a UBuildIt, Fla. L. Weekly D2042a (Fla. 5th DCA 2011), is a new case discussing fraudulent liens, slander of title for recording a fraudulent lien, and the awarding of attorneys’ fees to an owner that successfully defends a lien.   These are all important considerations for an owner that is confronted with a patently improper or fraudulent lien as appears to be the exact situation the owners confronted in this case.

 

In Medallin, owners hired a consultant (that was neither a licensed contractor nor architect) to provide consulting services to assist them with the process of constructing their home as their own general contractor.   The consultant was to provide its services in two phases. The first phase was the planning phase which involved a site inspection, budget meeting, plans review, and estimation of construction costs. This phase was completed. The second phase was the construction phase whereby consultant would specifically assist owner in serving as their own general contractor. This phase was not completed.  Instead, the owners terminated the contract with consultant per the terms of the contract before this construction phase began.

 

The consultant recorded a construction lien for the entire amount of the construction planning phase (despite this phase not having started or finished) and filed a lawsuit against the owners to foreclose the lien and for breach of contract. The owners, in turn, countersued consultant for filing a fraudulent lien and the consultant’s president, believed to be the person that signed the lien, for slander of title. The owners apparently (and correctly) argued that the consultant was not an entity that could properly record a construction lien under Florida law and included amounts which were not lienable under the law (such as lost profits).

 

The trial court ruled after a bench trial that the owners did not breach the contract and did not owe consultant any money because they terminated the contract prior to the construction phase and per the contract. The trial court, however, held that consultant did not record a fraudulent lien because it had a good faith reason to think it was owed the full amount of the construction phase fee under the contract. The trial court further held that the president of the consultant was not liable for slander of title and did not award the owners attorneys’ fees for successfully defeating consultant’s lien claim. The owners appealed these rulings to the Fifth District Court of Appeal.

 

Whether the Trial Court Should Have Declared the Lien Fraudulent

 

In a lengthy discussion on this issue, the Fifth District explained in relevant part:

 

“We agree with Appellants that a trial court is permitted to conclude that a lien was fraudulently filed where the lien is based on services that cannot support a lien under chapter 713, even if the lienor had a good faith belief that it was owed money by the property owner.  Section 713.31(2) provides, in relevant part:

(a) Any lien asserted under this part in which the lienor has willfully exaggerated the amount for which such lien is claimed or in which the lienor has willfully included a claim for work not performed upon or materials not furnished for the property upon which he or she seeks to impress such lien or in which the lienor has compiled his or her claim with such willful and gross negligence as to amount to a willful exaggeration shall be deemed a fraudulent lien.

(b) [A] minor mistake or error in a claim of lien, or a good faith dispute as to the amount due does not constitute a willful exaggeration that operates to defeat an otherwise valid lien.

***

This court has held that a trial court can determine that a lien is fraudulent notwithstanding a good faith dispute as to the amount owed under a contract. In particular, a trial court can conclude that a lien is fraudulent where the underlying claim does not support a lien under chapter 713. In Onionskin, Inc. v. DeCiccio, 720 So. 2d 257, 257 (Fla. 5th DCA 1998), this court affirmed a trial court’s finding that a lien was willfully exaggerated and, therefore, fraudulent, where the lienor filed a lien based on claims of damages for breach of contract and lost profits because, as the trial court put it, these items are clearly not lienable by any stretch of the imagination.

***

The decisions in Onionskin and Stevens [another case the court relied on] clearly hold that a trial court may or may not find that a lienor willfully exaggerated a lien where the underlying claim does not support a lien under chapter 713. These decisions also make it clear that a good faith dispute as to the amount owed does not necessarily mean as a matter of law that a lien is not fraudulent. Here, UBuildIt [consultant] did not perform labor or services constituting an improvement on Appellants’ [owner] property that would give UBuildIt a right to file a lien on the property. Rather, its lien was based on breach of contract and lost profits, which are not a proper basis for a lien. Appellants correctly assert that a trial court can conclude that a lien was willfully exaggerated where the lienor included claims that were not lienable, notwithstanding the lienor’s good faith belief that he or she is entitled to payment.

***

Accordingly, the trial court misinterpreted section 713.31 when it determined that it could not address Appellants’ arguments that UBuildIt’s lien was willfully exaggerated given that UBuildIt included claims that were not lienable. We must, therefore, reverse that part of the final judgment denying Appellants’ claim for fraudulent lien and remand this case to the trial court to address that issue in a manner consistent with this opinion.”

Medellin (internal quotations and citations omitted) (emphasis added).

 

Although the Fifth District is remanding this case back to the trial court to determine whether the lien should be declared fraudulent, there are two prominent facts that should support this finding.  First, the Fifth District pointed out that consultant really was not a proper liener under Florida’s Lien Law.  Second, the lien included amounts that are not properly lienable, even if consultant was deemed a proper liener (such as lost profits).  Considering both factors together should lead to the reasonable finding that the lien was fraudulent.  Moreover, if consultant was not a proper liener and was never in a position to properly record a lien to begin with, then technically, all amounts included in the lien would be improper and not lienable amounts (because they are amounts coming from an improper lienor).  Thus, by not declaring the lien fraudulent would not be punishing an entity from recording a lien when it did not have a proper legal basis to do so and for including amounts that are not proper amounts to include in a lien.

 

Could the President of Consultant be Liable for Slander of Title

 

The Fifth District found that the president of consultant could be found liable for slander of title in light of the fact that the the lien included amounts which were not properly lienable under the law.

 

While the elements of slander of title still needed to be established, providing owners an avenue to sue the entity and potentially the person that signed the lien for slander of title may give them some personal argument/claim when a lien is so grossly incorrect.   The downside, however, is that by allowing owners to assert personal claims against the person that signed the lien could result in a chilling effect where certain lienors are afraid to lien because they don’t want to be sued personally.  This fear makes sense because the person is not signing the lien in a personal capacity, but in the capacity as the representative of the lienor.

 

Should the Trial Court Have Awarded the Owners’ Attorney Fees for Defeating the Consultant’s Lien Claim

Lastly, the Fifth District maintained that the owners should have been awarded their attorneys’ fees as the prevailing parties for defeating the consultant’s lien claim.

This ruling is important and makes sense because if an owner is successful and defeats a lien claim, there really is no reason why they should not be deemed the prevailing party for purposes of attorneys’ fees.  Otherwise, there is no repercussion to an entity that records a lien and forecloses , rightfully or wrongfully, if they are not going to be responsible for the owner’s attornesy’ fees if they lose their lien claim outright.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

DO NOT BANK ON RECOVERING YOUR ATTORNEYS’ FEES IN A CONSTRUCTION LIEN FORECLOSURE ACTION

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A party should never bank on recovering their attorneys’ fees when prosecuting or defending a construction lien foreclosure action.

 

In a construction lien action, the prevailing party has been statutorily entitled to recover their reasonable attorneys’ fees. Fla.Stat. §713.29.   This is important since a party can only recover their attorneys’ fees if there is a statutory or contractual basis to do so.

 

 

The Florida Supreme Court in Trytek v. Gale Indus., Inc., 3 So.3d 1194 (Fla. 2009), analyzed what it meant to be a prevailing party for purposes of attorneys’ fees in a construction lien action and held that that the significant issues test is the test to determine the prevailing party. Under this test, the prevailing party is not necessarily the party that wins a sum of money at trial, but, rather, the party that wins the significant issues in the case. Hence, it is more than possible that the party that wins the significant issues based on the circumstances of the case is not the party that wins money. The Florida Supreme Court further held that a court can rule that no party is the prevailing party in this case.

 

The decision in Trytek has led to confusion, as well as consternation, because there is no objective or qualitative standard to determine the prevailing party for purposes of attorneys’ fees under the significant issues test. Instead, a pure subjective standard is used to determine the prevailing party that is not necessarily tied to the outcome of the case; and, importantly, this decision permits the trial court to find no prevailing party. This is noteworthy because the recovery of attorneys’ fees oftentimes drives the outcome of a case because the fees can be more than the amount in controversy.   Now, with a subjective test used to determine whether a party can recover their attorneys’ fees, a party must consider that they may not be entitled to their attorneys’ fees when deciding how to pursue or defend a construction lien foreclosure action.

 

The recent case of Sheppard v. M&R Plumbing, Inc., 36 Fla. L. Weekly D1697b (Fla. 1st DCA 2011), elaborates on the confusion of the significant issues test and the reason why a party should not bank on recovering their attorneys’ fees in a construction lien foreclosure action. In this case, a plumber installed a water treatment system in a house. Apparently, there was no written contract and there was no meeting of minds with respect to the costs to install this water treatment system. The plumber recorded a construction lien and foreclosed the lien and, as an alternative cause of action, sued the owner for quantum meruit (unjust enrichment) for the reasonable value of labor, services, and materials it provided to the owner.

 

The reason the plumber sued the owner to foreclose a construction lien and for quantum meruit is because there was uncertainty as to whether a contract existed between the owner and the plumber. A construction lien, however, can only arise if there is a contract (oral or written)—no contract means no lien rights. Under a quantum meruit action, there is an acknowledgment that a contract does not exist, but because value was allegedly provided, the party should be entitled to the reasonable cost of that value.

 

Whether the plumber prevailed on its construction lien action or alternative quantum meruit action should have been crucial for a determination of which party should be deemed a prevailing party for purposes of recovering its attorney fees. The reason being that a party does not have any legal basis to recover their attorneys’ fees in a quantum meruit action since there is no statutory or contractual basis to recover fees in this type of action.

 

At trial, a jury decided that a contract did not exist between the plumber and the owner. Because a contract did not exist, the plumber could not prevail on its construction lien action. However, the jury did decide that the plumber did provide value to the owner of approximately $13,000 and ruled in favor of the plumber on its alternative quantum meruit action.

 

The issue on appeal to the First District was whether the owner or the plumber should be deemed the prevailing party for purposes of fees. From a practical standpoint, it would make sense that the owner prevailed on the significant issues test because the owner prevailed in entirety on the construction lien foreclosure action, importantly, the only count that entitled a party to recover attorneys’ fees. But, this rationale is not the rationale employed by the First District. Instead, the First District maintained:

 

“While we agree the Shephards [owner] must now be deemed the prevailing parties on the lien foreclosure count, entry of the money judgment in favor of M&R [plumber] on the quantum meruit count made M&R, not the Shephards, the prevailing party in the litigation, viewing the entire ‘action brought’ as a whole.”

 

Neither party was deemed the prevailing party for purposes of attorneys’ fees. This ruling, unfortunately, leads to further confusion and frustration on when a party will be deemed the prevailing party in a construction lien action. Here, the plumber lost in entirety its lien action despite being awarded some money in its quantum meruit action (again, an equity action that does not afford the prevailing party to attorneys’ fees). This was overlooked by the First District leaving an owner that prevailed on the significant issues of the lien action to bear all of its attorneys’ fees. The only conclusion that can be reached from this decision is that, again, there is no objective or qualitative way to determine the prevailing party in a construction lien foreclosure action, especially given the ruling in this case where a party can win the lien action but lose an alternative equity action and still not be deemed the prevailing party.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.