FORECLOSING JUNIOR LIENHOLDERS AND RECORDING A LIS PENDENS

When you foreclose on a construction lien, there are a couple of pointers to remember.

First, you want to make sure you include junior lienholders or interests you are looking to foreclose (or you want to be in a position to amend the foreclosure lawsuit to identify later).  The reason being is you want to foreclose their interests to the property. “[J]unior interest holders are a narrow class of mortgagees whose interest in the underlying property is recorded after the foreclosing contractor’s claim of lien is filed. This class is routinely joined to the construction lien enforcement action under section 713.26 to allow the construction lienor to foreclose out the junior lienholder’s interest in the property encumbered by the construction lien.” See Decks N Sunch Marine, infra.

Second, you want to record a lis pendens with the lien foreclosure lawsuit.  Failure to do so could be problematic because Florida Statute s. 713.22(1) provides in part, “A lien that has been continued beyond the 1-year period by the commencement of an action is not enforceable against creditors or subsequent purchasers for a valuable consideration and without notice, unless a notice of lis pendens is recorded.”

A recent case, Decks N Such Marine, Inc. v. Daake, 45 Fla.L.Weekly D1168b (Fla. 1st DCA 2020), discusses these pointers.  In this case, a contractor filed a construction lien foreclosure action in 2006 against residential real property. However, the contractor did not record a lis pendens until 2013.  The lis pendens, however, was recorded after the owner had a mortgage recorded on the property.  The contractor amended its construction lien foreclosure action to foreclose the mortgagee claiming the mortgagee was a junior lienholder.  The mortgagee moved for summary judgment pursuant to Florida Statute s. 713.22 arguing the lien was “not enforceable against creditors or subsequent purchasers for valuable consideration and without notice, unless a notice of lis pendens is recorded.”   In other words, the mortgagee was not a lienholder that could be foreclosed in light of the untimely recording of the lis pendens.  The mortgagee prevailed on this issue.

The mortgagee then sought its attorney’s fees against the contractor as the “prevailing party” under Florida Statute s. 713.29 (in Florida’s Lien Law).  The trial court agreed.  The appellate court did not.  The appellate court held that a junior lienholder is not entitled to attorney’s fees under Florida Statute s. 713.29 when prevailing in a construction lien enforcement action.  The contractor is not enforcing its lien against the junior lienholder but “joining it to the underlying action to ensue determination of superiority of liens or security interests upon a foreclosure sale.” Decks N Sunch Marine, supra.

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.

 

PRE-SUIT SETTLEMENT OFFERS AND CONSTRUCTION LIEN ACTIONS

shutterstock_127849640It is unfortunate, but in certain matters, a construction lien foreclosure action is not actually driven by the principal amount in dispute.  Oh no.  Rather, it is driven by attorney’s fees.  That’s right.  Attorney’s fees. This is true even though Florida applies the significant issues test to determine the prevailing party for purposes of attorney’s fees.  However, oftentimes  the prospect of attorney’s fees is enough for parties to fear that exposure. 

 

There is a 1985 Florida Supreme Court case that I like to cite if applicable, C.U. Associates, Inc. v. R.B. Grove, Inc., 472 So.2d 1177, 1179 (Fla. 1985), that finds, “in order to be a prevailing party entitled to the award of attorney’s fees pursuant to section 713.29 [a construction lien claim], a litigant must have recovered an amount exceeding that which was earlier offered in settlement of the claim.”  Accord Sullivan v. Galske, 917 So.2d 412 (Fla. 2d DCA 2006) (explaining that although contractor is receiving a judgment in his favor, he may not be the prevailing party if the homeowner offered to settle prior to the lawsuit for an amount equal to or greater  than the award in the judgment).

 

If there is a pre-suit settlement offer on the table, and it is a good faith offer (which presumably it is), than that offer can very well come into play to determine whether the party that will the action should be deemed the prevailing party for purposes of attorney’s fees.  This is still good law.  Therefore, before readily dismissing a pre-suit offer, consider the potential ramifications if you are unable to beat this offer at trial. Banking on attorney’s fees may not be prudent if there is a pre-suit offer that is within striking distance from where you need to be or can very well be a likely outcome based on a reasonable argument raised by the opposing 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.

 

RECEIVING A $0 VERDICT AND STILL BEING DEEMED THE PREVAILING PARTY FOR PURPOSES OF ATTORNEY’S FEES

shutterstock_336450779Low and behold, a party can be the prevailing party for purposes of attorney’s fees even if that party is awarded $0.  That’s right, even if the party is awarded a big fat zero, they can still be the prevailing party for purposes of being entitled to attorney’s fees.   This is because a party is the prevailing party if they prevail on the significant issues in the case.  A party can prevail on the significant issues even if that party is awarded $0. Whoa!

 

For example, in Coconut Key Homeowner’s Association, Inc. v. Gonzalez, 43 Fla.L.Weekly D1045a (Fla. 4th DCA 2018), a homeowner sued her homeowner’s association claiming the association breached its governing documents. There was a basis for fees under Florida’s homeowner’s association law (and there likely was a basis under the governing documents).  At trial, the jury held that the association breached its governing documents, but awarded the homeowner nothing ($0). The trial court also issued injunctive relief in favor of the homeowner.  The homeowner claimed she should be deemed the prevailing party for purposes of attorney’s fees; however, this was denied by the trial court  based on the $0 verdict and no fees were awarded to the homeowner.

 

On appeal, however, the Fourth District took a different stance.  The Court, relying on other Florida appellate decisions, maintained that the homeowner could be deemed the prevailing party despite receiving no monetary award:

 

While the prevailing party determination does not depend solely on the magnitude of relief Gonzalez [homeowner] obtained, she was required, at the least, to secure some relief on the merits of her claim to achieve such status. “ [P]laintiffs may be considered a ‘prevailing party’ for attorney’s fees purposes if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit.’ ”  Although there is ongoing debate in the courts on whether a plaintiff who recovers no money damages can be a prevailing party, a party who receives affirmative judicial or equitable relief is clearly considered a prevailing party under the law. Gonzalez was indisputably a prevailing party on her injunctive claim in equity, regardless of her marginal victory on the breach count. Thus, prevailing party attorney fees should be awarded to Gonzalez in this dispute. 

Gonzalez, supra (internal citations omitted).

 

The Fourth District  justified declaring the homeowner the prevailing party because an injunction was also issued in her favor.  Hence, she did receive some benefit by bringing the suit even if she recovered no monetary damages.  However, even if the homeowner did not bring a claim for injunctive relief, it is highly likely the same result would have been reached by the Fourth District.  Since the jury found that the association breached the governing documents, the homeowner would have achieved some benefit in bringing the suit and, therefore, prevailed on the significant issues.  Gonzalez, supra (“When there is a prevailing party statute or contract, reasonable attorney fees must be awarded.”). 

 

As of now, it is uncertain how this would be reconciled with the significant issues test to determine the prevailing party in a construction lien action.  Case law has held that a court has discretion to determine no party is the prevailing party for purposes of attorney’s fees in a construction lien action.  Putting this aside, however, this holding should apply to breach of contract cases and to other potential statutory claims that afford a basis for attorney’s fees to the prevailing party. Despite a party receiving no monetary award, they may still be deemed the prevailing party for purposes of attorney’s fees if they prevail on the significant issues in the case (e.g., the jury determined the other party committed a breach). 

 

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.

 

APPELLATE ATTORNEY’S FEES AND THE SIGNIFICANT ISSUES TEST

shutterstock_379140319The significant issues test to determine the prevailing party in construction lien actions (which, by the way, also applies to breach of contract actions) applies to appellate attorney’s fees too!  Under this test, the trial court has discretion to determine which party prevailed on the significant issues of the case for purposes of attorney’s fees.  The trial court also has discretion to determine that neither party was the prevailing party for purposes of attorney’s fees

 

In a recent decision, Bauer v. Ready Windows Sales & Service Corp., 42 Fla. L. Weekly D1417a (Fla. 3d DCA 2017), there were competing motions for appellate attorney’s fees.   Both parties believed they should be deemed the prevailing party under Florida Statute s. 713.29 (statute that authorizes prevailing party attorney’s fees under Florida’s Construction Lien Law).    The appellate court held that neither party was the prevailing party under the significant issues test:  “[W]e conclude that each party lost on their appeal, while each party successfully defended that part of the judgment in their favor on the other party’s cross-appeal. Because both parties prevailed on significant issues, this Court finds that appellate fees are not warranted for either party.” Bauer, supra

 

Attorney’s fees can very easily drive construction lien and bond disputes.  Just remember, the significant issues test to determine the prevailing party for purposes of attorney’s fees applies to fees incurred at the trial court and appellate court levels.  This test has a subjective component that gives a court an easy out—determine that neither party prevailed on the significant issues or, as in the above case, both parties prevailed on the significant issues, meaning neither party is entitled to attorney’s fees. 

 

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.

QUICK NOTE: ATTORNEY’S FEES AND THE SIGNIFICANT ISSUES TEST

imagesAttorney’s fees become a component of damages that parties seek to recover whenever there is a contractual or statutory basis for them to recover their fees.  Parties want to be able to recover all or substantially most of the attorney’s fees they incurred in pursuing their claim. (In my experience, recovering all of the fees incurred is very challenging.)  But, to be entitled to attorney’s fees, a party has to be deemed the prevailing party.  There is the sentiment that as long as you recover a positive net judgment (even if it is for $100 when your claim was for $50,000) then you will be able to recover your attorney’s fees which will likely exceed the amount that was ever in dispute.  With this sentiment, certain disputes become solely driven by attorney’s fees.  Now, there is a trend for the prevailing party for purposes of attorney’s fees for certain disputes such as construction lien actions and breach of contract actions to be determined by the significant issues test.  While recovering a net judgment is important, there are other equitable considerations a court or arbitrator can consider to determine the party that prevailed on the significant issues for purposes of awarding attorney’s fees.  This article explains more.  

 

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.

THERE DOES NOT HAVE TO BE A PREVAILING PARTY FOR PURPOSES OF ATTORNEY’S FEES IN CONSTRUCTION LIEN DISPUTE

images-1Just because you are suing to foreclose your construction lien does NOT mean you will automatically recover your attorney’s fees as the prevailing party.   There does NOT have to be a prevailing party for purposes of recovering attorney’s fees.  This means a court or arbitrator could rule that neither party was the prevailing party for purposes of attorney’s fees; thus, neither party can recover their attorney’s fees from the other (or presumed losing) party.  This is an important consideration because it is impossible to predict on the frontend whether a court or arbitrator will deem you the prevailing party for purposes of recovering your attorney’s fees. This is because a court or arbitrator is to employ the significant issues test to determine which party prevailed on the significant issues to be deemed the prevailing party; and, again, a court or arbitrator could find neither party prevailed on the significant issues, hence there is no prevailing party.

 

This issue was clarified the hard way in Wells v. Halmac Development, Inc., 41 Fla.L.Weekly D924a (Fla. 3d DCA 2016) when an arbitrator ruled that neither party was the prevailing party for purposes of awarding attorney’s fees.  (Check here for a history of this dispute.) The attorney’s fees incurred in the arbitration were probably significant so a party believed it should have been declared the prevailing party for purposes of attorney’s fees and continued to fight this issue in court when the arbitration award was trying to be confirmed and enforced.  The fight turned acrimonious–there were motions for sanctions served and two appeals. 

 

Of applicability here, one of the appeals dealt with whether the trial court should have granted attorney’s fees pursuant to a motion for sanctions due to the opposing party continuing to try to declare itself as the prevailing party after (a) the arbitrator determined there would be no prevailing party and (b) the arbitrator’s determination corresponded with the law.  The Third District held that the motion for sanctions should have been granted awarding the party attorney’s fees because the continuous fight to be declared the prevailing party was not colorable under the law—the law was clear that there did NOT have to be a prevailing party for purposes of attorney’s fees in a construction lien action.  On this point, the Third District stated:

 

In fact, at the time Castro filed his motion requesting the trial court to declare him the prevailing party, the Florida Supreme Court had already weighed in on this issue and had explicitly “reject[ed] the notion that in every construction lien case the trial court is compelled to find a prevailing party.” Trytek, 3 So. 3d at 1204 n. 13. The Trytek court further emphasized that there might not always be a “prevailing party” in these types of suits and held that “the possibility that neither party is a ‘prevailing party’ is consistent with an application of the ‘significant issues’ test of Moritz and .” Id. at 1203. Most notably for our analysis, Trytek made it clear that Hollub and similar cases should not be read to mean that a prevailing party must be declared in a construction lien action:

We do not construe any of the appellate cases concerning prevailing party attorneys’ fees to mandate that there be a prevailing party, only that where a “prevailing party” is determined, the entitlement to attorneys’ fees is mandatory. See Pennington & Assocs., Inc. v. Evans, 932 So.2d 1253, 1254 (Fla. 5th DCA 2006); Hollub Constr. Co. v. Narula, 704 So.2d 689, 690 (Fla. 3d DCA 1997); Grant v. Wester, 679 So.2d 1301, 1308 (Fla. 1st DCA 1996); Sanfilippo v. Larry Giacin Tile Co., 390 So.2d 413, 414 (Fla. 4th DCA 1980). We reject the notion that in every construction lien case the trial court is compelled to find a prevailing party. See Kenmark Constr., Inc. v. Cronin, 765 So.2d 129 (Fla. 2d DCA 2000) (declining to announce a bright-line rule that a trial court must find a prevailing party in every construction lien action).

Id. at 1204 n. 13.

The Trytek decision — issued in 2009 — represented the settled law in Florida well before the arbitration proceedings in this case, and the arbitrator specifically relied upon and cited to Trytek in its determination that “there is no prevailing party for the purposes of an award of attorney’s fees.” Therefore, Castro’s counsel knew or should have known that any claim that Castro was entitled to be declared the prevailing party, after the arbitrator clearly determined there was no prevailing party, “[w]ould not be supported by the application of then-existing law to those material facts.” § 57.105(1)(b), Fla. Stat. (2012). This court has already and necessarily made this very determination when we held (in the prior appeal) that the trial court had no legal basis upon which to overturn the arbitrator’s determination (that there was no prevailing party) and to declare that Castro was the prevailing party.

Wells, supra. 

 

If you extract anything from this case, it is that a court or arbitrator does NOT have to deem a party the prevailing party in a construction lien case. The court or arbitrator will do this by finding that neither party prevailed on the significant issues of the case (as determined by the court or arbitrator).  As such, neither party is the prevailing party and neither party is entitled to attorney’s fees from the opposing 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.