The “Early Bird” Gets an Unenforceable Lien: Subcontractor That Prematurely Recorded a Mechanics Lien Prevented From Filing a Lawsuit to Foreclose on its Lien
Construction and Procurement Law News
Construction industry professionals across the country have dealt with the unfortunate circumstances that stem from filing a mechanic’s lien late. They are all too familiar with the reality that the protection and recovery of hard-earned money owed to them on a construction project can turn on correctly noting the contractor’s last date of work on a project and/or the date of completion of the project. Indeed, many professionals in the construction space champion an “early-bird-gets-the-worm” mentality when it comes to the filing of mechanics’ liens. However, the California Court of Appeals recently emphasized an equally important principle: a mechanic’s lien that is filed prematurely is void and unenforceable.
In Precision Framing Systems Inc. v. Luzuriaga, the defendant contracted with a general contractor for the construction of a veterinary hospital; the general contractor hired Precision Framing Systems, Inc. (“Precision”) as a framing subcontractor tasked with providing the “labor, lumber, trusses, and hardware necessary to complete the . . . project.” Precision, in turn, selected Inland Empire Truss, Inc. (“Inland”) to design and manufacture the trusses. In July and August of 2013, Precision commenced installation of the framing for the Project; in the fall of that year, the city issued two correction notices arising out of the trusses’ failure to comply with the architect’s plans for the project. Despite the fact that both correction notices were outstanding, the general contractor and Precision did a walk-through of the project on December 23, 2013, and the general contractor determined that Precision had completed its scope of work. Precision never received payment for its work, so it filed a mechanic’s lien on the project on January 2, 2014.
On January 29, 2014, the defendant property owner raised the argument that Precision’s lien was premature because it had not completed its scope of work, pointing to the outstanding correction notices as proof that the trusses needed additional repairs. On February 12 or 13, Inland revisited the project site and made some repairs related to the structural calculations for the trusses; the President of Precision accompanied representatives from Inland on this visit.
Ultimately, Precision attempted to foreclose on its mechanic’s lien and was unsuccessful. The trial court found that Precision filed its lien prematurely given the repairs performed in mid-February 2014 and, therefore, Precision’s lien was void and unenforceable.
In support of its ruling, the California Court of Appeals reviewed the history of California Civil Code section 8414 which requires potential lien claimants, other than direct contractors, to file a lien: (a) “after the claimant ceased work[,]” or (b) the earlier of (1) ninety days after the project reached completion or (2) thirty days after the owner recorded a notice of completion or cessation. Precision alleged that its lien was timely under subsection (a) and contended that it had “ceased” its work prior to the filing of its lien on January 2, 2014. The appellate court disagreed.
The appellate court analyzed both the meaning of “ceased” and “work” under the statute. It found that, in order for work to have actually “ceased,” it must have come to an end — not simply winding down or completing punch list repairs. Therefore, in deciding if Precision’s work had come to an end, the court had to first decide what constituted the scope of Precision’s “work.” Relying on two prior California cases, the Luzuriaga court found that the repairs Inland performed post-lien filing were part of Precision’s required “work,” because the repairs were part of the “scheme of the improvement as a whole.”
The court looked primarily at the language of Precision’s contract. It noted that, in Precision’s course of dealings with the general contractor, the architect, and owner, and by the terms of its agreement, Precision was responsible for providing the “trusses . . . necessary to complete the . . . project.” With outstanding notices from the city related to the shortcomings of the trusses, Precision had necessarily failed to meet this obligation. Precision knew about these notices, and despite that fact, filed its lien. Thus, the court found that Precision filed its mechanic’s lien before Precision had “cease[d] to provide work” on the project. It did note that, had Precision caught its mistake in time, “nothing in the [mechanic’s lien laws] prohibited [Precision] from refiling its claim again after the repairs were performed” and its work complete. Unfortunately, Precision did not catch its mistake, and its lien was void.
Luzuriaga makes clear that contractors should focus not only on the deadline to file a lien, but also the date of their first opportunity to file a mechanic’s lien. Contractors in states with statutory schemes similar to California need to be cautious of filing a lien prior to their completion of work on a project. In deciding what constitutes “work,” the Luzuriaga court points out that repairs may very well fall within the scope of work — even if a party higher up the chain has suggested or stated that a contractor’s scope of work is complete. Contractors should be wary of filing a lien with notices from municipalities or cities still outstanding. Finally, industry professionals need to ensure that, if there is a chance a lien was filed prematurely, they review the relevant contract and state laws on cancelling and refiling liens so as to preserve a contractor’s rights.
This article, "The “Early Bird” Gets an Unenforceable Lien: Subcontractor That Prematurely Recorded a Mechanics Lien Prevented From Filing a Lawsuit to Foreclose on its Lien," was published in the Bradley Construction and Procurement Law Newsletter for the first quarter of 2020.