A recent Michigan case serves as a pretty fair tutorial on Michigan lien law, maybe even moreso than what we’ve provided with our 5 things to know. The property here was actually a law office, and the owners’ unfamiliarity with mechanics liens was glaring. In the end, the mechanics lien was enforced on appeal, but not before the property owners asserted a bevy of claims that were quickly shot down, including a claim that the contractor and subcontractor’s pay-when-paid supply contract constituted a “secret side-deal.”
Facts
This case comes out of Michigan with a fairly pedestrian fact pattern. The Dubucs, who owned the property, contracted with Copeland to pave a parking lot for their law office. Copeland contracted Ajax to provide asphalt for the project. The Dubucs provided Copeland with a down payment of just under $26,000, and the total price of the contract was $50,440.
As they often do, relationships under this construction contract began to deteriorate. The owners refused to release the rest of Copeland’s payment, claiming that the parking lot was improperly graded and that the amount of asphalt Copeland received from Ajax was overstated. As a result of the Dubucs’ refusal to pay, Copeland did not pay Ajax’s contract price of $32,574. Both Copeland and Ajax filed liens to recover their unpaid sums. Mechanics liens grab the attention of property owners, and in response, they filed a breach of contract claim and a fraud claim for the deficient work and the dispute over the amount of asphalt used, respectively. Copeland and Ajax then foreclosed their liens, and Copeland threw in a breach of contract claim against the Dubucs for good measure. Ajax also filed a cross-complaint against Copeland for payment under the contract.
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Initial Ruling
The trial court found in favor of Ajax, and ordered the owners to pay the entirety of Ajax’s damages. The court also ordered that the owners pay Ajax’s attorney fees after the Dubucs frivolously challenged the award. Having received payment, Ajax dropped its cross-claim against Copeland for payment under the contract. Months later, the remaining parties, Copeland, the Dubucs, and their law office, dismissed their claims against each other.
Appeal
The owners appealed the ruling, specifically challenging the validity of Ajax’s lien. Through the appeal process, the Dubucs displayed their understanding of lien laws rather expertly. Going through their claims and the subsequent dismissals should serve as a solid primer on the basics of a mechanics lien.
The first contention was that Ajax’s lien was invalid on its face because the amount of Copeland’s lien and Ajax’s lien, when taken together, was greater than the contract price. There is some language in Michigan law that supports this notion. The Dubucs relied on MCL 570.1107 which states, “A construction lien acquired pursuant to this act shall not exceed the amount of the lien claimant’s contract less payments made on the contract.”
The court noted that the plain language of the provision appeared to be relevant, but immediately chided the appellants for failing to take it within the greater context of the statute. Michigan lien law provides that concurrent liens may be filed on a property by different parties working on the same project, so long as the amount of each lien does not exceed the lienor’s contract price less the amount of payments already made. MCL 570.1107(6). The court began the property owners’ expensive lesson in lien law by plainly stating there was no precedent for holding a lien invalid because when combined with another independent lien action, it exceeded the total contract price. Ajax received no down payment and thus did not need to reduce the amount of its lien to an unpaid balance. Copeland did receive a down payment and actually reduced the amount of its claim accordingly, but that is largely irrelevant as it was a claim by a separate party which has since released its claim.
The Dubucs claimed that when Copeland included the amount of the downpayment, this constituted a waiver of claim for that portion of the contract. They contend that this should reduce the amount of Ajax’s claim. The court again reminded the Dubucs that Ajax and Copeland are separate entities, and any waiver would have come from the lienholder. Copeland’s concession of the down payment had no legal effect on Ajax, as Ajax made no voluntary concession.
The property owners also argued that Ajax had no claim because they had no direct contract with Ajax. This assertion flies in the face of Michigan’s lien law, as subcontractors of any tier have mechanics lien rights in Michigan.
Next, the property owners asserted that Ajax had no expectation of payment and thus no basis for the lien due to Ajax’s pay-when-paid contract with the general contractor. In Michigan, a lien may be filed regardless of such a clause. The Dubucs went on to claim that the pay-when-paid supply clause was a “secret side-deal” under which Copeland and Ajax formed “…an improper alliance to harm them that was only discovered at trial. This assertion was blatantly unfounded as Ajax served a notice of furnishing to the property owners declaring its work on the project.
In another flailing attempt, the owners asserted that the claim was improperly pursued because Ajax could have recovered the contract price under its cross-claim against Copeland. The court quickly dismissed this claim by noting that a concurrent action may be brought while another action is pending. When the court originally found for Ajax in the lien action, Ajax’s claim of nonpayment against Copeland fell away.
On the ropes, the Dubucs final attempt at beating the judgment was claiming that this was all one big conspiracy to defraud the property owners. They claim that Copeland and Ajax worked together in “trying to get rid of Copeland’s duty to pay for the asphalt.” Specifically, they claimed that 1) Ajax chose a more protracted route of litigation to take payment from the owners, 2) Ajax failed to question Copeland about its failure to pay Ajax from the proceeds of the downpayment, 3) that Ajax could have secured attorney fees from the Dubucs to ensure reimbursement under the contract, and lastly 4) that Copeland was a valued Ajax customer. The court found that this general fraud claim lacked support in the record, noting that this should have been raised in a civil conspiracy claim.
Takeaway
Where to begin? This decision lays out a good number of mechanics lien law principles, briefly explaining many principles of lien law. The appellants here, who are attorneys, were grasping at straws throughout the entire proceeding. This begs the question: were they really this ignorant of Michigan’s lien laws, or were they merely attempting to throw everything at the wall to see what would stick. Either way, when this law office failed miserably against lienors, it provided an excellent refresher on how lien laws operate for subcontractors and suppliers.