Washington Construction Law Blog

This case involves the interplay between two fairly clear rules -- that a lien foreclosure action must be filed within 8 months of recording the lien (RCW 60.04.141) and that if a prior foreclosure suit is already pending, a subsequent lien claimant can't file a new suit but instead must apply to join in the existing case (RCW 60.04.171).

The window supplier in this case recorded its lien on October 30, 2003 and obtained an order allowing it to intervene in a prior pending case about 7 months later.  So far so good.  But for reasons unexplained in the opinion, the claimant did not actually file its answer and cross claim until much later (November 2004), after the expiration of the 8 month period.

Invoking all sorts of well-established rules, Division 1 took no mercy and dismissed the lien.  It was true that the claimant had timely obtained permission to intervene.  But no pleading in fact was filed until the 8 month period had lapsed.  The Court stressed that each and every claimant must separately meet the 8 month test, and rejected the window supplier's attempt to rely on the prior suit as evidence of compliance.

Copy of opinion also available here Download file

The mechanics lien statute gives an Owner the option of discharging a lien against its property by purchasing a bond normally in the amount of 150% of the lien.  See RCW 60.04.161. 

The Owner in this case purchased such a bond, and thereby cleared title for the sale of its property.  The lien claimant (DBM Consulting) thereafter went to trial against the Owner on its breach of contract claim and won a verdict of roughly $68,000 plus legal fees and interest.

Verdict in hand, the lien claimant turned to the bond surety and demanded payment.  Rejecting the claim, Division 1 held that the lien claimant failed to obtain judgment against the bond as well as the Owner.  For that reason, the lienability of the construction work and the validity of the lien were not litigated -- and any attempt to litigate that issue now would be barred by res judicata. 

The lesson?  The bond stands in for the real estate but does not eliminate the claimant's burden of proving the same elements that would need to be established without the bond -- i.e., timeliness of the lien, coverage of the lien statute, validity of lien notice, etc.

Copy of opinion also available here Download file

Division 2 holds in this case that a subcontractor has the right to lien site improvements under RCW 60.04.010 even though the underlying real property is nonlienable public property.

The case arose from a failed effort to build an ice arena in Bremerton.  The City owned the land and hired a developer to build the facility on a leasehold basis.  The developer in turn hired a GC who in turn hired the site work subcontractor who didn't get paid for its work.

The subcontractor liened the project as a whole, including the real estate.  The Court first threw out the lien against the real estate, based on the bedrock rule that public property in Washington is not subject to liens.  But the Court allowed the subcontractor to lien the leasehold improvements even though improvements are normally considered to be fixtures to the real estate itself.

The Court also held the sub's lien related back and took priority over the financing deed of trust, rejecting the lender's argument that relation-back under RCW 60.04.061 only applies to liens "upon any lot or parcel of land" as the statute seems to read.  The Court disagreed & said the lender had taken an "overly literal" reading of the relation-back statute.

A copy of the decision is also available here Download file

General contractors and sureties received a nice little Christmas gift late last week when the Washington Supreme Court issued its decision in Cosmopolitan Eng'g Group v. Ondeo Degremont.  The case involved a claim made by an unpaid subcontractor against the Contractors Registration Act (RCW 18.27) bond issued to the general contractor.  The issue in the case was whether the subcontractor, as the prevailing party, could recover its legal fees from the general contractor in addition to the bond itself. 

The Court of Appeals said yes, and thus opened the door to substantial new liability for GCs since legal fee awards can easily exceed the $12,000 statutory bond amount.  For WCL's background on the Court of Appeals decision, see here.

The Supreme Court reversed, holding the subcontractor could recovery its fee award only from the surety whose liability in turn is capped at the penal sum of the bond.  

In its main contract with the GC, the owner of a fast food facility required the GC to obtain its approval before any extra or changed work could be authorized.  The GC broke that promise by signing a series of change orders with a dirt sub to export wet soils. 

When the GC didn't pay the amounts in the approved change orders, the sub filed a lien and sued to foreclose against the owner's property.  Division 1 held the sub's lien was good against the owner -- even though the owner itself had not approved the changes -- because the GC was the "construction agent" of the owner within the meaning of RCW 60.04.011(1).

The Court said the GC's "potential liability to [owner] for breach of contract" -- that is, not obtaining approval from owner prior to signing the changes with the sub -- "is not before the court and we do not decide the issue here."

In a case of first impression, Division 2 has held that the venue rule in the retainage statute -- which states that a suit to foreclose a lien against the project retainage shall be brought in the county where the lien is filed (RCW 60.28.030) -- gives way to the forum selection clause in a subcontract.

The case arose out of a Pierce County project and the subcontractor filed suit there to foreclose its retainage lien against the surety and general contractor (Garco).  But in the subcontract, Garco had provided for all dispute resolution to occur in Spokane.  The trial court denied Garco's motion to transfer venue to Spokane.  Reversing, the Court of Appeals held the venue rule in the statute could be waived -- and that it was waived here by inclusoin of the Spokane venue clause.

The Court of Appeals also turned away the subcontractor's claims that enforcement of the Spokane venue would be contrary to "public policy" or that Pierce County venue should be retained under the doctrine of forum non conveniens.

This lien case arose out of a bridge project in Duvall where the subcontractor claimed a lien under RCW 60.28 (retainage) and RCW 39.08 (bond) for sums due from the general contractor.  The case went to trial for 15 days and the jury awarded the sub an amount not specified in the opinion.

As the prevailing party, the sub moved for its fees in the claimed amount of $213,770.  The Court awarded only $135,000.  Part of the rationale was the lawyer's "ponderous questioning" which needlessly extended the trial.  Another major factor was that 7 professionals (four lawyers, three paralegals) billed time to the case for the claimaint.

If you begin work for Owner A on a given parcel but that owner sells its interest in the land to Owner B in the middle of your work, what impact does this transfer have on your ability to enforce your mechanics lien - especially for that portion of the service performed after the land sale?

According to this new Division 1 case, the impact is considerable - and negative.  That's because the lien statute (RCW 60.04.051) assumes that the owner or its agent is the party requesting the service to be performed - and in fact makes the validity of the lien depend on that being the case.

So when the ownership changes from A to B in mid-stream, the work done by the contractor under its contract with Owner A but which now benefits the land owned by Owner B may well fall outside the lien statute because Owner B did not request the service.  Keeping an eye on who actually owns the property is thus yet another to-do item for lien claimants under this case.

The primary issue in this appeal was whether a lien service had the authority to sign the attestation clause required for an effective mechanics' lien under RCW 60.04.091.  The Superior Court had vacated the lien on the ground that the lien service had no such authority.  Reading the statute differently, Division 2 held the attestation clause was valid even though it was not signed by the lien claimant itself or its attorney.

The scenario is all too familiar to Washington general contractors -- a subcontractor neglects to make its fringe benefit contributions to union trust funds. The trust funds in turn threaten to file a lien against the GC's payment bond and foreclose under RCW 39.08.

In the Trig Electric case decided in 2000, our Supreme Court interpreted ERISA as preempting any such bond claim by union trust funds. That's the good news, at least for GCs.

The story gets complex because the 9th Circuit subsequently decided under ERISA that trust funds were allowed to bring such bond claims against the GCs surety, setting up a conflict between how the state and federal courts in Washington approach the same issue of federal law.

As a result, the issue can boil down to which forum controls the matter: if the issue is decided by the state court, the GC will ordinarily win. But if the case goes to federal court, the trust fund has the upper hand.

If a GC wants to enforce its rights, it will therefore bring a declaratory judgment action in state court against the trust fund, to obtain a ruling that its purported lien is preempted. The trust fund's response -- knowing the state venue is probably fatal -- is to remove to federal court. But the attached ruling -- which grants the GCs motion to remand such a case back to state court -- is a decisive victory for GCs in long-running battle with the trust funds over the risks associated with unpaid fringe benefit contributions. Download file

This Division 3 case is a nice summary of the "joint check rule" and how it operates in the context where the general contractor who writes the joint check then attempts to sue a subcontractor on an cause of action assigned to it by a lower-tier subcontractor.

Confusing? Yes. But if you read the details, it is also a good lesson in how to avoid the trap evidently presented by the "joint check rule", which in short provides:

Many jurisdictions (including Washington; see Dauphin, 42 Wn. App. at 496) have adopted the "joint check rule" to this purpose: "{w}hen a subcontractor and his materialman are joint payees, and no agreement exists with the owner or general contractor as to allocation of proceeds, the materialman by endorsing the check will be deemed to have received the money due him.

The scenario: a supplier of electrical products signed a lien release in exchange for a check from the general contractor for $100,000. The lien release was good up though July 30, according to the face of the document. But the supplier said the document was in error -- that its release only went up through May 25 and that it was still entitled to seek payment for invoices submitted after May 25 (another $100,000).

Overruling the trial court, Division 1 held the supplier had made an adequate factual showing for the dispute to go to trial on the supplier's theory of mistake. The case is a useful starting point for anyone looking to analyze how traditional concepts of contract law such as mistake interact with the instruments of risk management (i.e., releases) which are a vital part of the construction industry.