How Dare They Record That Mechanic's Lien:
Summary Methods To Remove Erroneous and Invalid Mechanic's Liens and Stop Notices
By: William C. Last, Jr.
It is not uncommon for a party to contest the validity of a mechanic's lien or a stop notice. However, most contractors are unaware that the party claiming that a lien or stop notice is invalid may be able to undertake a summary proceeding to remove the contested lien or stop notice. This article shall discuss the legal procedures that are available to summarily remove an erroneous or invalid lien or stop notice.
Private Works Remedies
In the landmark California Supreme Court case of Connolly Develop., Inc. v. Sup. Court of Merced City (1976) 17 Cal. 3d 803, the Court considered the constitutionality of California's Mechanic's Lien statutes. In finding that the statutes were sufficient to comply with both state and federal due process requirements, the Court upheld the validity of the statutes because they accommodated the competing interests of both the land owner and the lien holder. (17 Cal. 3d at 821-822.) Thus, while the lien holder was permitted to assert his lien without a formal hearing, the land owner was entitled to a speedy hearing to determine the validity of the lien. (Id. at 822-823.) In fact, the Court held that the lien holder's right to assert the lien without any prior hearing is constitutional precisely because it is balanced by the landowner's remedies in promptly challenging the lien in court. (Id. at 827-828.)
Following Connolly, in Lambert v. Superior Court (1991) 228 Cal. App. 3d 383, it was held that a Motion To Remove the Mechanic's Lien is the proper manner in which to challenge the validity of a mechanic's lien once a contractor has filed an action to foreclose on the lien. Citing Connolly, the Lambert court held that Connolly is premised on the availability of speedy remedies. An owner's right to use the speediest remedy should not be lost because a claimant has won the race to the courthouse. (Id.) The Lambert court further reasoned that if a claimant may use a mechanic's lien to protect the eventual award of an arbitrator, it follows from the due process discussion in Connolly that an owner may ask the court to remove an improper lien while arbitration is pending. (Id. at 388.) When a claimant has recorded a mechanic's lien and then secured a stay of an action to foreclose the lien, an owner must have a speedy court remedy for showing that the lien is invalid. (Id.) As a consequence, a party may move to remove an invalid lien whether or not the case has been sent to binding arbitration.
Public Works Remedies
The Mechanic's Lien remedy is not available on California state and local public works projects. The Stop Notice or Notice to Withhold combined with an action against the Payment Bond, or for breach of contract against the prime contractor, are the usual remedies available to subcontractors, laborers and materialmen on state and local public works.
When the prime contractor disputes the validity of any or all of the Stop Notice claims, there are two procedures which it may use to attempt to have the withheld funds released in an expedited manner.
1) Bond: The public entity may, in its discretion, allow the contractor to file a proper bond to obtain release of the withheld amounts. The bond must be issued by a corporate surety, and be in an amount equal to one hundred twenty five percent (125%) of the claim stated in the Stop Notice. The bond must provide that if the claimant eventually recovers, he may also recover the costs of bringing the action. (Civil Code sec. 3196).
2) Affidavit: If the prime contractor claims that the Stop Notice is invalid due to one of the four following reasons, he may attempt to obtain release of the money by serving an affidavit on the public entity demanding release of the withheld funds and stating the legal grounds and factual support upon which he bases his claim. The four grounds are:
(1) That the claim upon which the Stop Notice is based is not one which is a proper ground for a Stop Notice on a public work;
(2) That the person claiming the Stop Notice is not a person who is entitled to a Stop Notice on a public work;
(3) That the amount of the claim in the Stop Notice is excessive; or
(4) That the claim as set out in the Stop Notice has no proper basis in law. (Civil Code sec. 3197).
This affidavit, and one copy, is served on the public entity. (Civil Code sec. 3198). The public entity then serves a copy of the affidavit with the demand for release along with a written notice on the Stop Notice claimant stating that it will release the money as demanded unless the claimant files a counter-affidavit within a designated period of time which is 10-20 days after service. (Civil Code sec. 3199). If the claimant desires to contest the contractor's affidavit, he must, within the time specified in the public entity's notice, serve upon the public entity a counter-affidavit and serve a copy on the prime contractor. This counter-affidavit must contain, in detail, the facts which support the claim in his Stop Notice, as well as facts which rebut the allegations of the prime contractor's affidavit. The claimant must also include proof that he has served a copy of the counter-affidavit upon the prime contractor. If the claimant fails to file the counter-affidavit and proof of service within the proper time, the public entity may immediately release the funds to the contractor as demanded in the original affidavit. (Civil Code sec. 3200). If a proper counter-affidavit is timely filed, either the prime contractor or the claimant may file an action in Superior Court for an expedited hearing on the validity of the Stop Notice. If the prime contractor does not use the affidavit process to obtain an expedited hearing, the Stop Notice claimant must file a lawsuit within the prescribed period to enforce its Stop Notice.
The recording of an invalid mechanic's lien or filing of a stop notice sometimes has the effect of denying a party funds to which it is entitled throughout the course of a lengthy litigation, or alternatively, forcing such a party to agree to an unfavorable settlement to obtain funds sooner. However, by being aware of the summary methods for removing invalid mechanic's liens and stop notices, a party may be able to gain access to disputed funds during the course of a litigation without waiting months or even years, and without giving in to the other party's demands to settle the dispute.
This article, ©1999, was written by William C. Last, Jr. Mr. Last is an attorney specializing in Construction Law. He can be contacted at 415-764-1990 or 650-425-7679. This bulletin is published periodically to provide general information about current legal issues. The articles are not intended to be a substitute for the advice of an attorney as to a specific problem. If you have a specific legal question or need legal advice, you should contact an attorney.