Mechanic's Lien Law "Cram Down" Provision Enforced Again
Tuesday, August 30, 2011 at 11:28AM
Jack DiNicola

On August 29, 2011, the Massachusetts Appeals Court issued a decision enforcing the "cram down" provision of the Mechanic's Lien Law, M.G.L. c. 254, section 4.  The case is Maverick Constr. Mgmt. Svcs., Inc. v. Fidelity & Deposit of Maryland, Inc., No. 10-P-998.  The "cram down" provision states that a subcontractor's lien is limited to the "amount due or to become due" the general contractor from the owner as the time the subcontractor's Notice of Contract is recorded.

The leading case on this issue is BloomSouth Flooring Corp. v. Boys' & Girls' Club of Taunton, Inc., 440 Mass. 618 (2003), issued by the Supreme Judicial Court.  In BloomSouth, the general contractor abandoned the project, and the subcontractors recorded their liens after the abandonment.  The SJC ruled that, once the general contractor abandoned the project, there was nothing due or to become due the general contractor and, as a result, the subcontractors' liens were valued at zero because they were recorded after the abandonment.

Maverick presented different facts.  In this case, the general contractor did not abandon the project.  Rather, the owner alleged that the general contractor's work was significantly deficient and withheld final payment.  The owner never formally terminated the general contractor, but did engage others to correct the deficient work.  The subcontractor recorded its Notice of Contract after the issues of defective work were raised by the owner with the general contractor.  The owner then recorded and served a lien bond to remove the lien from record

The dispute took two different paths.  Maverick sued the lien bond surety on its mechanic's lien.  The owner initiated arbitration against the general contractor.  The arbitration panel determined that the general contractor breached the contract and awarded damages to the owner.  The owner confirmed the arbitration award in court.  After that, the lien bond surety moved for summary judgment in Maverick's action to enforce the mechanic's lien, arguing that, pursuant to the Lien Law and the arbitration award, there was nothing due or to become due Maverick as of the date its Notice of Contract was recorded.  The Superior Court agreed and allowed the surety's motion.

On appeal, the Appeals Court affirmed the Superior Court's decision.  There are a few key issues in this decision.  First, the arbitration award was deemed to be final and conclusive as to the merits of the underlying matter between the owner and the general contractor.  Second, the fact that the general contractor did not abandon the project or the fact that the owner did not formally terminate the general contractor did not affect the analysis.  Third, even though the arbitration award did not specify the date of breach, the Court determined that the breach occurred prior to Maverick's recording of the Notice of Contract.  Since the general contractor breached the contract prior to Maverick's recording of the Notice of Contract, the Appeals Court affirmed the Superior Court's decision that there was no money due or to become due the general contractor at the time the Notice of Contract was recorded.

There are also practical considerations highlighted by this decision.  First, it was important that the arbitration concluded  before Maverick's mechanic's lien enforcement action concluded.  Depending upon whether you are an owner, general contractor, or subcontractor, the choice of forum (court or arbiration) can greatly impact the case.  Second, parties should consider joining in litigations or arbitrations (to the extent possible) so that all issues are resolved in one proceeding.  The viability of Maverick's mechanic's lien claim was unquestionably impacted by a private arbitration to which it was not a party.  

Article originally appeared on DiNicola Seligson & Upton (http://dsu-law.com/).
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