OWNERS DEFENDING A LIEN – ESPECIALLY A PATENTLY FRAUDULENT LIEN

Posted on October 2, 2011October 2, 2011 by Edward Garber

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

Posted on August 7, 2011August 7, 2011 by Edward Garber

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.