Jennifer R. Phillips and Nicole Sornsin – April 4, 2013<\/p>\n
This past month, the Arizona Court of Appeals issued two decisions that could have significant implications for mechanics\u2019 lien claimants.<\/p>\n
In\u00a0Summers Group Inc. v. Tempe Mechanical, LLC<\/em>, the Court of Appeals eased the burden on lien claimants who are the parties initiating an action on their lien. The Court held that, in a lien priority contest, all unsuccessful lien claimants are liable for paying the successful lien claimant\u2019s attorney\u2019s fees. In other words, where a court awards attorneys\u2019 fees to a successful claimant, the party who initiated the lien foreclosure action need not pay the entirety of the successful claimant\u2019s fees. Instead, the burden is shared among all unsuccessful claimants.<\/p>\n In\u00a0Summers Group<\/em>, an electrical supply company, Rexel Phoenix Electric, filed a mechanics\u2019 lien on a property for which it supplied materials, but was never paid. Rexel named all the other mechanics\u2019 lienholders as defendants in its suit to foreclose on its lien, as is required in Arizona. The Court found that one of the other lienholders, ML Manager, had lien priority, and thus was a \u201csuccessful party\u201d entitled to its attorneys\u2019 fees.[1]<\/a><\/sup><\/a>Rexel, as the party who initiated the suit, was ordered to pay all of ML Manager\u2019s fees. Rexel appealed, arguing that all the other unsuccessful lien claimants should have to pay a portion of ML Manager\u2019s attorneys\u2019 fees award in proportion to their respective lien claims. The Court of Appeals agreed, reasoning that: \u201c[a]ll lien claimant parties are treated on equal footing in the sharing of the income collected after a mechanics\u2019 lien foreclosure sale and should also share in the potential expenditures,\u201d which includes the successful claimant\u2019s attorneys\u2019 fees.\u00a0 Thus, potential lien claimants should be aware that, even if they do not initiate a lien foreclosure action, they may still be liable for paying their share of the successful party\u2019s attorneys\u2019 fees.<\/p>\n Shortly after\u00a0Summers Group,<\/em>\u00a0the Court of Appeals in the memorandum decision\u00a0Archicon, L.C. v. TPI Properties<\/em>,[2]<\/a><\/sup><\/a>\u00a0held that a successful lien claimant could not recover its attorneys\u2019 fees while withholding its fee descriptions on the basis of privilege.<\/p>\n In\u00a0Archicon<\/em>, Technology Providers, Inc. (TPI) sought to build a company building on a piece of vacant, unimproved property it owned in Chandler, Arizona. Archicon was a subcontractor hired to provide design services for the project. After doing substantial work on the project without getting paid, Archicon stopped work and sought to enforce its mechanics\u2019 lien on the property.\u00a0 TPI challenged the enforceability of Archicon\u2019s lien on numerous grounds.<\/p>\n In considering the enforceability of the lien, the Court considered and rejected a number of TPI\u2019s arguments and held that: (1) Archicon\u2019s \u201csubstantial compliance\u201d with the professional licensing statute was sufficient for Archicon to maintain a valid mechanics\u2019 lien; (2) mechanics\u2019 liens for professional services extend to vacant land that has been \u201cimproved\u201d by such services; and (3) for the purposes of the mechanics\u2019 lien statute,[3]<\/a><\/sup><\/a>\u00a0a professional has \u201cadded value to the property\u201d by doing \u201centitlement work\u201d such as developing the site plan, the dumpster locations, the parking orientation, the fire lane locations, the building footprint, the colors of the building, the landscaping, etc. The Court thus held that Archicon\u2019s mechanics\u2019 lien was enforceable, and that Archicon was entitled to recover its attorneys\u2019 fees as the \u201csuccessful party.\u201d[4]<\/a><\/sup><\/a><\/p>\n In seeking to recover its attorneys\u2019 fees, Archicon submitted its fee statements while withholding from TPI the description of the work performed on the basis of attorney-client privilege. The Court did not find this argument persuasive, and held that Archicon could not recover its fees while withholding the fee descriptions. The Court reasoned that Archicon could not use the attorney-client privilege as both a \u201csword and a shield.\u201d In the words of the Court, \u201c[w]ithout a full description of the fees incurred, TPI was left without any meaningful way of arguing that the time spent on various matters was unreasonable. It was unfair [for Archicon] to seek payment for all [its] fees but to allow only the court to see the descriptions of all the work.\u201d<\/p>\n Lien claimants should be aware that, if they are a \u201csuccessful party\u201d in an action to enforce a mechanics\u2019 lien and they seek to recover their attorneys\u2019 fees, they must be willing to disclose to the unsuccessful parties in the action all billing descriptions of the work performed by their attorneys. If not, courts may deny recovery of attorneys\u2019 fees to lien claimants, even when they are the successful party in the foreclosure action.<\/p>\n __________ <\/a>[1]<\/sup>\u00a0A.R.S. \u00a7 33-998(B) provides that \u201cIn any action to enforce a lien \u2026 the court may award the successful party reasonable attorney fees.\u201d\u00a0 ML Manager was the \u201csuccessful party\u201d for purposes of the fee statute because the Court determined that its lien had first priority over all the other mechanics\u2019 liens on the property.\u00a0[back]<\/a><\/p>\n <\/a>[2]<\/sup>\u00a0Court rules limit the ability to cite unpublished memorandum decisions as precedent.\u00a0 Refer to Ariz. R. Sup. Ct. 111(c) and Ariz. R. Civ. App. P. 28(c) regarding in what circumstances unpublished memorandum decisions may be cited.\u00a0 These unpublished decisions nonetheless communicate the appellate court\u2019s reasoning on legal issues that may ultimately be covered in published decisions to come.\u00a0[back]<\/a><\/p>\n <\/a>[3]<\/sup>A.R.S. \u00a7 33-992(C).\u00a0[back]<\/a><\/p>\n <\/a>[4]<\/sup>A.R.S. \u00a7 33-998(B).\u00a0[back]<\/a><\/p>\n<\/div>\n
\nNotes<\/p>\n