Friday, May 19, 2017

Construction Lien Foreclosure and Attorneys Awarded by Montana Supreme Court

Construction Lien Foreclosures Permitted When Work is Substantially Complete

In new Montana Construction Lien caselaw, the Montana Supreme Court provided clarity on when a construction lien can be foreclosed upon, and when a contractor is entitled to attorneys fees under Montana's Construction Lien Law.

One of the questions before the court was whether a contractor was entitled to an award of attorney's fees and the right to foreclose upon its construction lien under § 71-3-521, et seq., MCA.
The case involved a dispute between a homeowner and a contractor.  The homeowner, an attorney, borrowed funds from a bank to construct a million-dollar home in Ravalli Couty, Montana. The first contractor hired by the homeowner quit after a dispute relating to the construction costs and the filing of a construction lien. The homeowner thereafter hired a second contractor, who also later filed a construction lien after a dispute over contractor's fees and the quality of work by the stone subcontractor.

At the trial level, the court found that the homeowner "had failed to meet the burden of proof relating to their counterclaims..." for defective work. The District Court also found that the construction lien was valid, and properly filed. Despite this, the District Court found that the contractor was not entitled to foreclose on the construction lien because the homeowner found the stone work to be unsatisfactory. As a result, the contractor could not foreclose on the construction lien, and was not entitled to the statutory attorneys fees.

The contractor appealed, arguing that the District Court erred because under § 71-3-535(4), MCA, the standard is not whether a homeowner is "satisfied" with the work, but whether the work was completed or substantially completed. The Montana Supreme Court reviewed the case and the Construction lien Law. In Montana, construction liens are meant to protect those who increase the value of a property through their labor or materials. Montana, somewhat different from other states, requires that in order to file a lien the lien claimant must "substantially furnish services or materials pursuant to a real estate improvement contract prior to filing the lien notice. Section 71-3-535(4), MCA. Lienable materials are those that are supplied "with the intent that they be used in the course of construction of or incorporated into the improvement[;]" and that are actually "incorporated in the improvement or consumed as normal wastage in construction operations[.]" Section 71-3-524, MCA. Montana's lien statutes do not authorize liens for the total amount of a construction contract, but rather for the amount of contractual services and materials left unpaid, subject to § 71-3-524, MCA.


As for attorneys fees, under § 71-3-124(1), MCA, a district court "shall allow as costs the money paid and attorney fees incurred for filing and recording the lien and reasonable attorney fees in the district and supreme courts. The costs and attorney fees must be allowed to each claimant whose lien is established[.]"  According to the Supreme Court, "A district court is not empowered with discretion to determine whether a party with an established lien is entitled to attorney's fees—the language of the statute is mandatory. A district court errs if it fails to award attorney's fees to a party with an established lien," and Section 71-3-124, MCA does not require the award of attorney's fees to be reduced if the judgment is for an amount less than what was claimed in the lien.

The Supreme Court, after reviewing the statutes and prior case law, found that the District Court erred in its ruling. In so finding, the Supreme Court found "...the equitable principles underlying the lien statutes would be undermined if owners could avoid foreclosure of a construction lien by simply expressing their dissatisfaction with a contractor's work performed. The rule instead...is that work completed or substantially completed, in addition to lienable materials, establishes the lien." With that, the court ruled that the contractor was entitled not only to foreclosure of its lien, but also to the entirety of the attorneys fees claimed:

"A district court "shall allow as costs the money paid and attorney fees incurred for filing and recording the lien and reasonable attorney fees in the district and supreme courts. The costs and attorney fees must be allowed to each claimant whose lien is established[.]" Lewistown Miller Constr. Co. v. Martin, 2011 MT 325, ¶ 30, 363 Mont. 208, 271 P.3d 48 (quoting § 71-3-124(1), MCA). A district court is not empowered with discretion to determine whether a party with an established lien is entitled to attorney's fees—the language of the statute is mandatory. A district court errs if it fails to award attorney's fees to a party with an established lienLewistown Miller, ¶ 30Section 71-3-124, MCA, does not require the award of attorney's fees to be reduced if the judgment is for an amount less than what was claimed in the lien."

The entire case can be found at Vintage Constr., Inc. v. Feighner, 2017 MT 109.

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