California Subcontractor Gets a Kick in the Rear (or Perhaps the Front) for Prematurely Recorded Mechanics Lien
California provides three statutorily recognized construction payment remedies: (1) mechanics liens; (2) stop payment notices; and (3) payment bond claims. Each is intended to provide payment protections for those who furnish labor, materials and services on a construction project. However, each is also different in important ways.
One of those differences has to do with timing. Specifically, when the statutory payment remedy may be used by a claimant. Stop payment notices can be served at any time during a project even before a claimant has completed its work. However, mechanics liens may only be recorded and payment bond claims may only be made after a claimant has completed or ceased performing its work.
In Precision Framing Systems, Inc. v. Luzuriaga, Case No. E069158 (August 29, 2019), the 4th District Court of Appeal examined whether a subcontractor had prematurely recorded a mechanics lien and, thereby, was prevented from filing a lawsuit to foreclose on its mechanics lien.
Precision Framing Systems, Inc. v. Luzuriaga
Precision Framing Systems, Inc. was a framing subcontractor on a veterinary hospital project in Wildomar, California. Precision’s scope of work was to supply and install trusses on the project. Precision hired Inland Empire Truss, Inc. for the fabrication of the trusses.
In late July 2013, Precision started working on the framing. Later that month, Inland delivered the trusses to the site. And by the beginning of August Precision began installing the trusses.
Shortly after the trusses were installed, the city issued a correction notice stating that “[t]russ bearing points are not per plan.” Precision notified Inland and Inland carried out some repairs.
In early December 2013, the city issued a second correction notice. A walk through of the project was conducted between Precision and the general contractor, and the general contractor found that Precision’s work was complete and fully in compliance with the plans and specifications. The city later approved the framing work.
However, Precision never received full payment for tis work. The project owner, Deborah Luzuriaga told the president of Precision that “she was not interested in paying Precision and told [him] to sue her.” He did.
On January 2, 2014, Precision recorded a mechanics lien in the amount of $53,268.16. That same month, the Luzuriagas changed the locks on the building, locking all contractors out. Precision later met with project architect and building inspector and, at this meeting, learned for the first time of additional correction notices.
Ms. Luzuriaga took the position that Precision’s mechanics lien was premature because it had not yet completed its scope of work and, in particular, had not corrected its work as required by the outstanding correction notices. A site inspection was conducted and, in mid-February 2014, Inland performed additional repairs. The repairs took two to three hours.
Precision later filed suit to foreclose on its mechanics lien. During pendency of the case, the Luzuriagas moved for summary judgment on the ground that Precision’s mechanics lien was prematurely recorded because it was recorded before it had ceased its work in February 2014. The trial court agreed and Precision appealed.
The Court of Appeal Decision
The Court of Appeals began by citing the mechanics lien statute, specifically, Civil Code section 8414 which provides:
A [mechanics lien] claimant other than a direct contractor may not enforce a lien unless the claimant records a claim of lien within the following times:
(a) After the claimant ceases to provide work.
(b) Before the earlier of the following times:
(1) Ninety days after completion of the work of improvement.
(2) Thirty days after the owner records a notice of completion or cessation.
The Court of Appeals, noting that Precision’s subcontract required that Precision supply and install “trusses . . . necessary to complete the . . . project,” held that the repairs performed in February 2014 were part of Precision’s “work” and that because Precision had recorded its mechanics lien in January 2014 it had done so prematurely.
The Court of Appeals also explained that the fact that the general contractor deemed Precision’s work to be complete is irrelevant, since the scope of Precision’s work was established by its contract not by “the factually unsupported legal opinion of two witnesses.”
Finally, explained the Court of Appeal, while “it may seem unfair to hold that [Precision] recorded its claim prematurely” when “it did not know that it had any work left to do” that the Court had “not found any case law suggesting that a claimant’s subjective knowledge or belief as to whether it has ceased to provide work is relevant” and further that “nothing in the Mechanic’s Lien law prohibited [Precision] from recording its claim again after the repairs were prepared.”
Timing issues related to mechanics liens typically arise as to whether a mechanics lien was timely recorded rather than whether a mechanics lien was prematurely recorded. Precision Framing is a cautionary tale for contractors, subcontractors, suppliers and equipment lessors that they can get caught not only by mechanics lien deadlines but also by the premature recording of a mechanics lien.
The case does give me some concerns though, as the earliest time a mechanics lien can be recorded and the deadline by which a mechanics lien can be recorded are both based on the date of completion or cessation of labor. They are, in short, part of a larger whole, and can’t be viewed in isolation. Most lien claimants, in order to not get caught having recorded a mechanics lien past the statutory deadline, view completion as not including repair or punchlist work.
One Response to “California Subcontractor Gets a Kick in the Rear (or Perhaps the Front) for Prematurely Recorded Mechanics Lien”
Garrett, I agree with your concern. It seems to me that one of the consequences of this decision will be to burden a trier of fact with distinguishing between completion of small tasks (punch list) and call-backs for minor repairs under warranty.
And a clever owner could record a notice of completion, allow liens to be filed and then demand corrective work to defeat the liens under Luzuriaga.