Every state provides property owners and others a mechanism to dispute mechanic liens improperly filed. In Washington, when a party challenges a lien, the statute authorizing the challenges requires attorney fees to get awarded.  If the lien is frivolous, the fees to go the challenging party.  If the lien is not frivolous, the fees go to the lien claimant. I commented about this in a post “The Risks of Litigating a Washington Construction Lien:”

In Washington, anyone who disputes a lien faces potential risk…or reward. If they win and the lien is overturned, they may be entitled to attorneys fees. If they lose and the lien is upheld, the lien claimant will be entitled to attorneys fees. Since lien dispute proceedings can cost thousands in attorneys fees, the Washington laws require parties disputing a lien to think long and hard about whether to bring this type of action.

While I didn’t like the overall appeals court ruling in Williams, one thing I thought they got right was awarding attorney fees to the lien claimant even though the lien was declared invalid.  In essence, the lien claimant lost the challenge because the lien was invalid, but was awarded attorney fees because although the lien was invalid, it was not “frivolous.”

The reason attorney fees should always be awarded in these Washington lien challenge cases is because the statute requires an award of attorney fees by using the term “shall.”  Take a look at RCW § 60.04.081(4):

If, following a hearing on the matter, the court determines that the lien is frivolous and made without reasonable cause, or clearly excessive, the court shall issue an order . . . awarding costs and reasonable attorneys’ fees to the applicant to be paid by the lien claimant. If the court determines that the lien is not frivolous and was made with reasonable cause, and is not clearly excessive, the court shall issue an order so stating and awarding costs and reasonable attorneys’ fees to the lien claimant to be paid by the applicant.

So…who got attorney fees after the Supreme Court’s Williams case?  No one!

The Washington Supreme Court carved out an equity exception to the legislature’s mandate that someone be awarded attorney fees, saying that it wouldn’t be fair for one party to bear the substantial costs of all of these proceedings.  This is what the court said:

However, in reviewing a decision, an appellate court may take action as required by the merits of the case and the interests of justice. RAP 12.2. In this unique instance, given that both parties reasonably interpreted the ambiguous acknowledgment requirement in RCW 60.04.091(2), we think it would be inequitable for one party alone to bear the costly burden of this litigation. In the interest of justice, we do not award attorney fees to either party for the trial or appellate proceedings.

I don’t agree with this component of the decision, because it’s a direct contradiction to the statute, and I don’t think the issue was as ambiguous as the high court let on. Attorneys made this issue ambiguous, but any plain Joe reading the statute would understand what it said: the statutory form is sufficient.

It will be interesting to see if any appeal courts use this RAP 12.2 to wipe out an award of fees in future mechanic lien challenges. As RAP 12.2 only applies to the appeal courts, that rule won’t apply at the trial level.

When the Washington Supreme Court delivered its big mechanic’s lien opinion last week in Williams v. Athletics’ Field, I only had a few moments to report it here on the blog (Williams v. Athletics’ Field). However, this decision has significant consequences to mechanic lien jurisprudence in Washington state, and it deserves a blog post or two to explain what the Supreme Court had to say and how it should affect mechanic lien filings.

Summary of Case

If you’re a reader of the Construction Lien Blog, you know we’ve been following this case for more than a year now (read our posts: Williams v. Athletics’ Field tag).

In this case, the lien claimant filed a lien using a form that was provided by the Washington mechanic lien statute.  The lien statute says within it that a filing “using substantially the same form shall be valid.”  (§60.04.091) However, because of some other wording in the statute, lawyers challenging the lien argued that a separate “acknowledgment” of the lien claimant’s signature was required as an attachment to the statutory provided lien form.

While I think the argument is terrible, and a clear misreading of the statute’s plain language making the provided form acceptable per se, the trial court and the appeals court agreed with the party challenging the lien.  This was measurable seismic activity on mechanic lien jurisprudence in Washington state, jeopardizing the validity of thousands and thousands of liens in the state.

The Washington Supreme Court accepted review, and all was made right with the world again. But, the Washington Supreme Court did a lot more with its recent decision than just dismiss this acknowledgement argument. They set law on a growing division between the state’s appeal circuits over whether mechanic lien statutes should be liberally or strictly construed, and this could have far-reaching consequences.

The Liberal v. Strict Construction Divide in Washington

I don’t want to brag, but I saw this decision coming a mile away. While there was a lot of argument in the trial and circuit courts about the friction between §60.04.091′s acknowledgment requirements and the statutory provided form lacking an acknowledgment, what really mattered in deciding whether the lien was valid or invalid was whether courts were to require strict compliance with §60.04.091 or liberal compliance.

Earlier this year, I wrote about this saying:

Interestingly, the decision does a lot more than just address how a Washington mechanic’s lien must be signed and notarized. Instead, it addresses a big-picture difference between Division I and Division II of the Washington Courts of Appeals.

The bigger issue is whether lien laws must strictly or liberally construed by courts. Critizing the Williams v. Athletic Field decision and the underlying reasoning of the Division II court, Division I engaged in the debate about whether strict or liberal interpretation must be applied in lien disputes with the following:

“In the lien context…there is a strong statutory directive that “[the lien statutes]…be liberally construed to provide security for all parties intended to be protected by their provisions.” RCW 60.04.900. This directive clearly applies to RCW 60.04.091. See, e.g. Northlake Concrete Prods., Inc. v. Wylie, 34 Wn.App. 810, 818, 663 P.2d 1380 (1983) (explaining the Legislature’s intent that “the lien laws shall be liberally construed with the view to effecting their object” meant that “when it has been determined that persons come within the operation of the act it will be liberally applied to them” (quoting De Gooyer). N. Coast. Elect. Co. v. Ariz. Elec. Serv., 2010 Wash. App. LEXIS 914, fn4 (Wash. Ct. App. Aug 23 2010).”

The strict v. liberal rub is weird in Washington.  It seems obvious to me, in reading the case law, when liberal construction applies versus when strict construction applies. However, attorneys making confusing or disingenuous arguments combined with misapplication of jurisprudence by district and appeal court judges, created a long-lasting incorrect application of law that caused big problems to Washington lien claimants.

The problem arises because both strict and liberal construction of mechanic liens may be required depending on circumstances. If the court is determining whether a particular claimant falls into the class of parties who are protected by lien laws, strict construction should apply.  If the party is protected by lien laws, and the question is simply whether the lien is valid or meets statutory requirements, then liberal construction should apply.  The strict construction rule comes from jurisprudence (case law), and the liberal construction rule comes straight from statute (§60.040.900).

If you look at the law and jurisprudence, this diachodimy of construction is actually clear.  §60.040.900 requires the mechanic lien statutes to be “liberally construed to provide security for all parties intended to be protected by their provisions.”  Case law picks up on this, stating that to decide who is “intended to be protected” requires strict construction.  Seems simple, yes?

Somehow, however, case law confused the issue. The Supreme Court in Williams pointed to a 1997 Division II case as when mechanic lien jurisprudence went off track:

…more recent cases have expanded the rule of strict construction beyond identifying what services or property the mechanics’ lien statutes protect. In Lumberman’s of Washington, Inc. v. Barnhardt, 89 Wn. App. 283, 286 (1997), the Court of Appeals applied the rule of strict construction in determining whether a lien was valid where the claimant failed to sign a statement swearing it believed the claim of lien to be just.

Williams Decision Restores Liberal Construction

The Supreme Court in Williams recognizes that §60.040.900′s liberal construction has taken a back seat to strict construction since the 1997 Lumberman’s decision.  They drew a comparison between the pre-1997 jurisprudence and the post-1997 jurisprudence and held that the old ways of considering mechanic lien questions should prevail:

We agree with Hos [defendant in Williams] that the appropriate way to view the competing canons of strict and liberal construction is found in our early cases. The strict construction rule, at its origin, was invoked to determine whether persons or services came within the statute’s protection. Expanding the rule of strict construction beyond this inquiry effectively nullifies RCW 60.04.900. As Hos explains, “applying a ‘liberal construction’ to RCW 60.04.091 only after a valid lien is deemed to attach would make no sense. At that point — when by definition the claimant has a valid lien — nothing in RCW 60.04.091 would matter to the claimant.” Appellant’s Reply Br. at 3. To the extent Lumberman’s or other cases suggest that the statute’s mandate of liberal construction has been supplanted by a common law rule of strict construction, we disapprove them.

Conclusion – What Does This Mean?

As I see it, having the Supreme Court weigh in on this question was a long time coming. Practicing law in Washington, I can’t count the number of times opposing attorneys have relied on Lumberman’s to argue a lien was invalid. Defense attorneys loved the Lumberman’s precedent, but to me it always just seemed to be a wrong decision.  Now, the Supreme Court has addressed the discrepancy, and Lumberman’s is tossed.

This is a big deal for Washington lien claimants.  If you’re a party who is intended to be protected by the mechanic lien laws (contractors, subcontractors, suppliers, etc.)….then you’ll have just a bit more leeway in filing your mechanic lien claims.  If there is a small mistake in your lien claim, Washington courts should now look at that mistake liberally, allowing you to amend and fix it in most situations.

As lots of little mistakes can be made in filing a mechanic’s lien, this little bit of breathing room can be a huge difference maker.

Today, the Washington Supreme Court released its opinion on Williams v. Athletic’s Field, and reversed, making all lien claimants breathe a huge sigh of relief.    We’ve written a great number of posts on this interesting case in Washington state, and how much it means to mechanic lien claimants in that state.  You can read our posts here.  

More analysis on this decision is coming soon – but wanted to post and announce the decision.  You can read the decision’s full text on the Washington court’s website.

Last year, the Washington Supreme Court accepted the decision for review, and the matter was orally argued on June 14, 2011.  You can watch the oral argument at this link, or in the video embedded below:

This case is interesting because a mechanics lien was invalidated even though it used the same wording and form provided by the statute. There is a conflict between the provided form and some other terminology within the law stating the verification must be in conformance with the state’s notary statutes.

When counsel for Athletics Field was making his presentation,the justices continually interrupted him questioning why the lien should stand when the acknowledgement is not in conformance with the notary statutes.  Justin Wiggins, for example, asks pointedly “If the statutory form was not an issue, do you think the acknowledgement was acceptable?” Another justice appeared concerned that the person who ultimately signed the lien (an employee of a lien preparation company) did not fully identify herself or explain her relationship to the claimant.

An underlying issue with this case that I think is very important but which has not been put front and center by the court and parties thus far is whether the lien statutes are subject to strict or liberal interpretation.  There is a conflict in the lien laws with respect to this issue as well, and the 1st District Court of Appeals have subscribed to liberal interpretation of liens, while the 2nd District, from where this Williams v. Athlethic Field decision arises, have subscribed to the opposite.  I discuss this in the blog post:  Bill Dies That Would Offset Controversial Williams v. Athletic Field Decision.

To catch you up on the decision, its effects and the bill, here are some cliff notes:

The Issue

In Washington state, mechanic liens must be notarized and verified by the lien claimant. The lien statutes require that the claim be notarized pursuant to the state’s notarization statutes, which has different methods for notarizing an individual signature and a corporate signature. However, the lien statutes themselves provide a lien form that can be used by claimants, and that form has the notarization language required for individuals. The issue in Williams v. Athletic Field is whether the statutory lien form could be used for corporate claimants…or if the corporate notary language was required.

Timeline

– August 2006 – Washington Court of Appeals Division II Finds the Lien, relying on the statutory form, is valid.

– March 2010 – Sua Sponte, Washington Court of Appeals reconsiders its decision, withdraws it and reverses, invaliding the lien.  See blog post:  Washington Appeals Case Confirms Lien Requirements Are Technical.

– November 2010:  Washington Supreme Court Accepts Case for Review (blog post)

– January 2011: House Bill 1475 introduced in Washington Legislature to offset the impact of the controversial decision. Bill passes the house unanimously.  (blog post)

– April 2011:  House Bill 1475 dies, as it does not reach a vote in the Washington Senate before the session April 12, 2011 deadline.

Now What?

Unfortunately, now that the mechanic lien legislation has died in the 2011 legislature, the Washington lien laws remain up in the air. I have been involved in a few cases in Washington where the effect of the Williams v. Athletic Field decision is squarely at issue.  Interestingly, the decision does a lot more than just address how a Washington mechanic’s lien must be signed and notarized. Instead, it addresses a big-picture difference between Division I and Division II of the Washington Courts of Appeals.

The bigger issue is whether lien laws must strictly or liberally construed by courts. Critizing the Williams v. Athletic Field decision and the underlying reasoning of the Division II court, Division I engaged in the debate about whether strict or liberal interpretation must be applied in lien disputes with the following:

In the lien context…there is a strong statutory directive that “[the lien statutes]…be liberally construed to provide security for all parties intended to be protected by their provisions.” RCW 60.04.900. This directive clearly applies to RCW 60.04.091. See, e.g. Northlake Concrete Prods., Inc. v. Wylie, 34 Wn.App. 810, 818, 663 P.2d 1380 (1983) (explaining the Legislature’s intent that “the lien laws shall be liberally construed with the view to effecting their object” meant that “when it has been determined that persons come within the operation of the act it will be liberally applied to them” (quoting De Gooyer).  N. Coast. Elect. Co. v. Ariz. Elec. Serv., 2010 Wash. App. LEXIS 914, fn4 (Wash. Ct. App. Aug 23 2010). 

Now that House Bill 1475 is history, the importance of the Washington Supreme Court decision is more pronounced. However, it was always going to be important.

Now, the construction industry must collectively hold their breath, as we all wait and see how this ends, and whether Division I’s liberal construction, or Division II’s strict construction will prevail.

Today, Representative Moeller introduced a bill “addressing the notice requirements for claiming a mechanics’ or materialmen’s lien,” leapfrogging the Washington Supreme Court to legislatively address the impact of Athletic’s Field. House Bill 1475 can be viewed here. It’s schedule for public hearing in the House Committee on Labor & Workforce Development on January 28th.

Read the original text of the bill here.

The proposed changes are quite simple. When setting forth the statutory form for acknowledgment, the proposed bill would separately provide acknowledgment language for individuals and corporations.

The acknowledgment language that currently exists in the law should be used for “An acknowledgment for an individual claimant, an attorney of an individual claimant, or the administrator, representative, or agent of the trustees of an employee benefit plan…”

For a corporate claimant, the following acknowledgment language is provided in the bill:

_________, being sworn, says: I am the present (or vice president, secretary, treasurer, or other authorized officer or agent, as the case may be) of _________ that executed the claim of a lien, and I acknowledge this claim to be the free and voluntary act and deed of the corporation, for the uses and purposes therein mentioned; I am authorized to execute this claim and the seal affixed is the corporate seal of the corporation; I have read or heard the forgoing claim, read and know the contents thereof, and believe the same to be true and correct and that the claim of lien is not frivolous and is made with reasonable cause, and is not clearly excessive under penalty of perjury.

The law also provides that a party or entity that is not specifically identified in the statute with associated acknowledgment language “shall modify the pattern form to comply with the acknowledgment requirements pursuant to chapter 64.08 RCW”

If passed, the act would take effect on January 1, 2012. We’ll monitor and update you on the status of this act.

The court – three years after first deciding the case – revisited the decision and reversed itself, holding that the language acknowledging the lien claimant’s signature that is within the statute itself may not be enough to make lien claims valid.

The decision is a bit complex, but as we stated in our blog post on the topic, it confirmed that lien requirements in the state are hyper-technical and the lien form itself is important:  Washington Appeals Case Confirms Lien Requirements Are Technical.

Well, many folks predicted this would go to the Washington Supreme Court, but earlier in October we got confirmation.    The Washington Supreme Court blog posted that the Supreme Court agreed to hear the Athletic Field case in its September conference.

A decision, therefore, will be forthcoming, and we’ll keep you advised…

But it isn’t just the courts that change mechanic lien laws.   State legislatures are constantly proposing bills that will alter the lien statutes completely.   Currently, two such bills are pending in New Jersey and Michigan.

The Michigan Mechanic Lien Legislation

The Michigan legislation is actually getting a great deal of coverage on Twitter (yes, twitter).   See twitter posts from the legislature, and a legislator, here and here.    This particular bill’s summary provides that it “would amend the Construction Lien Act to repeal provisions concerning the Homeowner Construction Lien Recovery Fund (HCLRF), which is essentially insolvent, and cannot meet the demand for claims from the fund.”    Read about House Bill 5830 at the Legislative Website here.

We actually wrote about the problems with the Lien Recovery Fund back in January (Michigan Lien Recovery Fund Raises White Flag).

While a good idea on paper, the Lien Recovery Fund just couldn’t make ends meet.   This legislation in Michigan is almost a foregone conclusion, as the fund itself is insolvent.   The bill is just formally closing the book on it.

The New Jersey Mechanic Lien Legislation

The legislation pending in New Jersey, in comparison to the Michigan legislation, may have a bit more of an effect on that state’s mechanic lien statutes if passed.   The bill doesn’t aim to make substantial change to the mechanic lien requirements, but many contractors and suppliers in New Jersey may be effected by the suggested changes.   Read about NJ Assembly Bill 410 at the Legislative website here.

Here is a quote of the bill’s summary:

This bill revises the “Construction Lien Law,” which was enacted in 1993, by:
(1) clarifying and adding certain defined terms, to conform to actual construction industry usage;
(2) clarifying procedures for the filing and amending of the lien claim and for the calculation, distribution and enforcement of the lien fund;
(3) providing more specific provisions for discharging a satisfied lien claim;
(4) further defining the arbitrator’s role;
(5) modifying time limits for filing and perfecting residential construction contract lien claims;
(6) specifying the application of lien claims to community association property; and
(7) addressing certain ambiguities as to mortgage priorities with respect to lien claims.

We’ll monitor these bills and keep you update.

Alan’s right.   This decision really accentuates just how technical lien statutes are in Washington.  More interesting to me, however, was the decision to award the loser of the suit attorneys fees, which accentuates how risky it is to litigate the validity of a Washington construction lien.

Form, Form, Form – How to Sign A Lien

RCW 60.04.091 requires all mechanics liens to be “signed by the claimant or some person authorized to act on his or her behalf…”  The statute itself has an example form for the lien (see here), and a specific form for the claimant’s or agent’s signature.

The Division II decision released just last month (March 2010) was actually a re-consideration of the original decision.  On the matter’s first hearing, the appeals court ruled that a lien filing corporation could sign on behalf of the claimant, as the statute allows an authorized agent to sign the lien.   The court was then urged to reconsider its decision, and specifically consider the manner that the lien filing corporation signed the document.

The lien filing corporation was a corporation, and they signed the lien for the claimant using the general form provided by the legislature.   The property owner argued that the lien corporation was required to sign the lien using the corporate form for authenticated signatures in Washington.

The form used by the lien filing company stated as follows:

I am the claimant (or attorney of the claimant, or administrator, representative, or agent of the trustees of an employee benefit plan) above named; I have read or heard the foregoing claim, read and know the contents thereof and believe the same to be true and correct and that the claim of lien is not frivolous and is made with reasonable cause, and is not clearly excessive under penalty of perjury.

However, the Court held that 60.04.091(2) requires the notice of claim be acknowledged pursuant to Chapter RCW 64.08.   Therefore, despite the “lien form” in the statute having the above attestation clause, since a corporation was signing the attestation clause should have complied with RCW 64.08.070, and have the following form for corporate acknowledgement:

On this ___ day of _____, 20___, before me personally appeared ________, to me known to be the (president, vice president, secretary, treasurer, or other authorized officer or agent, as the case may be) of the corporation that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said corporation, for the uses and purposes therein mentioned, and on oath stated that he was authorized to execute said instrument and that the seal affixed is the corporate seal of said corporation.

The attestation was not sufficient, and because of this technical defect, the lien was declared null and void.

Lien Declared Invalid, but Lien Claimant Wins Attorneys Fees

Earlier this year, I wrote a blog post about the risks of litigating a construction line in Washington.    This Athletic Field decision really underlines the risks of litigating a construction lien.

According to RCW § 60.04.081(4), if someone files suit to have a construction lien removed from property records, someone is going home with attorneys fees.    If the lien is declared “frivolous and made without reasonable cause, or clearly excessive,” the property owner or interested party gets attorneys fees.  If the lien is not declared “frivolous,” the lien claimant gets attorneys fees.

There’s just one wild card:  “Although all frivolous liens are invalid, not all invalid liens are frivolous.”   Intermountain Elec., Inc. v. G-A-T Bros. Constr., Inc., 115 Wn. App. 384, 394 (2003).

So, what happens when a lien is declared invalid, but not frivolous?    That’s exactly what happened in Athletic Field.

The Court in Athletic Field held that while the lien was invalid because of the erroneous attestation clause, it was not frivolous because construction of §60.04.091 presented a debatable issue of law.    The result:  Athletic Field, the lien claimant, lost its lien right but was awarded all of its attorneys fees in defending the action to declare the lien invalid.

So, the loser was awarded attorneys fees.

What This Means

This decision largely means three things:

1. Make sure your lien meets the technical requirements of the lien statutes
2. Washington liens are very powerful, because even invalid liens are risky to litigate and invalidate
3. If you want to challenge a Washington construction lien, tread carefully