This past month, the Arizona Court of Appeals issued two decisions that could have significant implications for mechanics’ lien claimants.
In Summers Group Inc. v. Tempe Mechanical, LLC, 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’s attorney’s fees. In other words, where a court awards attorneys’ fees to a successful claimant, the party who initiated the lien foreclosure action need not pay the entirety of the successful claimant’s fees. Instead, the burden is shared among all unsuccessful claimants.
In Summers Group, an electrical supply company, Rexel Phoenix Electric, filed a mechanics’ lien on a property for which it supplied materials, but was never paid. Rexel named all the other mechanics’ 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 “successful party” entitled to its attorneys’ fees. Rexel, as the party who initiated the suit, was ordered to pay all of ML Manager’s fees. Rexel appealed, arguing that all the other unsuccessful lien claimants should have to pay a portion of ML Manager’s attorneys’ fees award in proportion to their respective lien claims. The Court of Appeals agreed, reasoning that: “[a]ll lien claimant parties are treated on equal footing in the sharing of the income collected after a mechanics’ lien foreclosure sale and should also share in the potential expenditures,” which includes the successful claimant’s attorneys’ fees. 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’s attorneys’ fees.
Shortly after Summers Group, the Court of Appeals in the memorandum decision Archicon, L.C. v. TPI Properties, held that a successful lien claimant could not recover its attorneys’ fees while withholding its fee descriptions on the basis of privilege.
In Archicon, 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’ lien on the property. TPI challenged the enforceability of Archicon’s lien on numerous grounds.
In considering the enforceability of the lien, the Court considered and rejected a number of TPI’s arguments and held that: (1) Archicon’s “substantial compliance” with the professional licensing statute was sufficient for Archicon to maintain a valid mechanics’ lien; (2) mechanics’ liens for professional services extend to vacant land that has been “improved” by such services; and (3) for the purposes of the mechanics’ lien statute, a professional has “added value to the property” by doing “entitlement work” 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’s mechanics’ lien was enforceable, and that Archicon was entitled to recover its attorneys’ fees as the “successful party.”
In seeking to recover its attorneys’ 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 “sword and a shield.” In the words of the Court, “[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.”
Lien claimants should be aware that, if they are a “successful party” in an action to enforce a mechanics’ lien and they seek to recover their attorneys’ 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’ fees to lien claimants, even when they are the successful party in the foreclosure action.