Litigation/Sep 29, 2014

Lien Claimants May Recover Attorneys’ Fees For Claims Settled Through Arbitration

A lien claimant who brings a claim under Michigan’s Construction Lien Act, MCL 570.1101 et seq., may recover attorneys’ fees, even if the claim is never adjudicated in a lien foreclosure trial. This expansive interpretation of the statute came from a Michigan Court of Appeals panel that recently remanded a case, instructing the trial court to consider awarding attorneys’ fees to the plaintiff who substantially prevailed in the settlement of a lien claim through arbitration. Ronnisch Const Group, Inc v Lofts On The Nine, LLC, __ NW2d __ (July 24, 2014).

In this case, the plaintiff filed a claim for foreclosure of lien against the defendant in the amount of $626,163.72. The parties agreed to stay the proceedings at circuit court because their construction contract called for arbitration. At arbitration, the defendant asserted damage claims totaling between $1.1 and $1.5 million. The arbitrator awarded the plaintiff its entire claim, plus an additional claim in the amount of $9,895.00. The defendant was awarded $185,238.36, resulting in a net award of $450,820.36 to the plaintiff. The arbitrator declined to address the plaintiff’s request for attorneys’ fees, reserving that issue for the circuit court.

Normally, the prevailing party in a lawsuit is not awarded its attorneys’ fees unless there is an exception to this general rule under a statute, court rule or common law. The Construction Lien Act provides such an exception. Specifically, MCL 570.1118(2) provides that the court “may allow reasonable attorneys’ fees to a lien claimant who is the prevailing party.” Previous to this case, there was a presumption that, to be awarded attorneys’ fees, it was necessary to prevail in an action to enforce a construction lien through foreclosure. Because the lien claim in this case was resolved in arbitration rather than litigation, the trial court concluded that it did not have the discretion to award the attorneys’ fees requested by the plaintiff. The appeals court, however, disagreed.

Contrary to the trial court’s conclusion, the Court of Appeals concluded that it was “not pertinent” that no foreclosure ever occurred. The mere fact that the plaintiff “substantially” prevailed on the amounts it sought under the claim of lien made it a “prevailing party” for purposes of the Construction Lien Act. According to the Court of Appeals, “the statute is to be construed liberally in order to carry out its intended purpose of protecting lien claimants.” The Court further cautioned that the Construction Lien Act could be “thwarted” if lienors were able to fight valid liens, causing lien claimants to exhaust their resources and then pay just before trial in an attempt to circumvent the attorney fee provision.

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