The California Court of Appeal recently discussed an owner's remedies (and some limits to those remedies) when a contractor improperly records a mechanic's lien. According to the court's analysis, the owner's primary remedy will generally be removal of the offending lien. Seeking damages, on the other hand, can backfire with an award of attorney fees in the contractor's favor.
Given that California is often seen as the leading authority on one of the key issues in the case, it could have an effect in other states as well, including Oregon and Washington.
In RGC Gaslamp, LLC v. Ehmcke Sheet Metal Co., Inc.,1 a subcontractor recorded a mechanic's lien of over $250,000 for allegedly unpaid work, and the owner subsequently secured and recorded a bond to release the lien.
Two months later, the subcontractor recorded a second lien in the same amount as the first. Several months later, the subcontractor withdrew the second lien but recorded a third, again in the same amount. The owner responded by obtaining a bond to release the third lien. The subcontractor then withdrew the third lien and recorded a fourth lien, once again in the same amount.
After the fourth lien was filed, the owner filed a lawsuit for slander of title. (The owner asserted other claims, but they were mooted because the subcontractor released the fourth lien.) The subcontractor responded by filing what is known as an "anti-SLAPP" motion—a motion seeking early dismissal of a "Strategic Lawsuit against Public Participation."
The trial court granted the motion, dismissed the owner's slander of title lawsuit, and awarded the subcontractor its attorney fees.
The Court's Ruling
On appeal, the Court of Appeal affirmed. The court's ruling began by giving an overview of the mechanic's lien and anti-SLAPP statutes:
- With respect to mechanic's liens, the court noted that, as a subcontractor on a private construction project, the subcontractor had a right to send a preliminary lien notice to the owner, record a mechanic's lien, and file a lawsuit to foreclose the lien.
- With respect to the anti-SLAPP statute, the court stated that the subcontractor (as the party that filed the anti-SLAPP motion) had to establish that the owner's claim "arose from the [subcontractor's] protected activity." If the subcontractor succeeded in doing so, the owner then had the burden to prove that its claim had at least "minimal merit."
Addressing the first step in the anti-SLAPP analysis, the court stated that "[s]tatements made in preparation for litigation or in anticipation of bringing an action" are protected statements. The court held that because recording a mechanic's lien is a prerequisite to filing a foreclosure lawsuit, recording a lien is a "protected prelitigation statement." Significantly, the court held this was true regardless whether the subcontractor had any right to file the liens or actually intended to foreclose them.
Moving to the second step in the anti-SLAPP analysis, the court concluded that the owner had not shown that its slander of title claim had even "minimal merit." California Civil Code § 47(b) provides a "litigation privilege" for communications made in a "judicial proceeding."
Because recording a mechanic's lien is a prerequisite to filing a foreclosure action, the lien recording falls within the litigation privilege, absent evidence that the party recording the lien had no intention of actually foreclosing it. Because the owner produced no such evidence, the litigation privilege applied, the owner's claim lacked even minimal merit, and the Court of Appeal affirmed the trial court's ruling. This resulted not only in dismissal of the owner's lawsuit but also an award of attorney fees to the subcontractor.
Although it rejected the owner's slander of title claim, the Court of Appeal did provide guidance on steps an owner can take in the face of an invalid lien. The court noted several options:
- After receiving a preliminary notice of the lien, an owner can "seek declaratory and injunctive relief challenging the validity of the lien."
- If a contractor files duplicative liens before the owner files a release bond, the owner can ask a court to order the contractor "to post a single bond to release all duplicative liens."
- If a contractor files a lawsuit to foreclose an invalid lien, the owner can file a motion in response, seeking a court order releasing the lien.
As RGC demonstrates, an owner must proceed carefully before suing a contractor over an invalid lien. Otherwise, the owner might face an anti-SLAPP motion, early dismissal of the lawsuit, and a money judgment awarding the contractor its legal fees.
Contractors faced with such a lawsuit, on the other hand, should consider whether to file an anti-SLAPP motion in response. Notably, while RGC is not binding outside of California, California decisions on anti-SLAPP matters are often considered persuasive authority in states (such as Oregon and Washington) that modeled their anti-SLAPP statutes after California's.2
1 56 Cal.App.5th 413, 270 Cal.Rptr.3d 425 (4th Dist., 2020).
2 See, e.g., Handy v. Lane County, 360 Or. 605, 618-19 n. 12, 385 P.3d 1016 (2016); Alaska Structures, Inc. v. Hedlund, 180 Wash. App. 591, 599, 323 P.3d 1082 (2014).
This article was originally featured as a construction advisory on DWT.com on February 08, 2021. Our editors have chosen to feature this article here for its coinciding subject matter.