John Lande | Dickinson, Mackaman, Tyler & Hagen
Construction disputes can be complicated. There are often disputes between the parties about the quality of work and the amount that is due. Many contractors rely on mechanics’ liens as leverage to try to get their final payment. A case from the Iowa Court of Appeals suggests that contractors need to get their facts straight before they try to enforce a mechanics’ lien.
Olmstead Construction, Inc. v. Otter Creek Investments, LLC began as so many construction disputes do. The owner, Otter Creek Investments (“Otter Creek”), hired Olmstead Construction (“Olmstead”) to build a convenience store. The parties entered into a cost-plus contract, which required Otter Creek to pay Olmstead the actual costs of construction plus seven percent. A dispute arose at the end of the project between Otter Creek and Olmstead over the final amount due. In February 2016, Olmstead sent Otter Creek three different invoices that showed three different amounts due. In March 2016, Olmstead sent a final invoice with a fourth final amount due. Otter Creek requested backup support for the charges, but never received it.
Instead, Olmstead filed a mechanics’ lien and initiated a foreclosure. Otter Creek filed a counterclaim for defective construction. The District Court ultimately found in favor of Olmstead on its breach of contract claim, but denied Olmstead’s request to foreclose its mechanics’ lien. The district court explained:
[A] plaintiff should not be permitted to invoice a defendant for an unsubstantiated amount of money and then subsequently foreclose on the defendant’s property without providing the defendant with proof that the amount invoiced is actually valid.” . . . [Olmstead Construction] is largely responsible for creating this dispute due to their confusing and inaccurate billing. [Olmstead Construction] proposes foreclosure on the mechanic’s lien. If the Court granted such foreclosure, it would amount to an extremely inequitable solution to a problem that is largely of [Olmstead Construction]’s own making.
The Court of Appeals did not set aside the District Court’s rationale, instead noting that a mechanics’ lien foreclosure is an equitable remedy. This means courts ultimately have the discretion to determine whether a particular equitable remedy, like foreclosure, serves the interests of justice.
Olmstead did not get to foreclosure its lien because it sent four different payoff amounts to Otter Creek without providing any supporting documentation. Property owners should not, however, count on courts refusing to enforce mechanics’ liens because of inequitable conduct by the contractor. Most of the time, if a contractor meets the statutory requirements for foreclosing a mechanics’ lien courts will foreclose the lien. That being said, contractors should take time to make sure they know their costs and can support those costs before invoicing property owners. Having accurate invoices will reduce confusion and make it easier to get paid in a timely manner. In addition, having backup material organized will make it much easier for contractors to enforce their rights if they need to.