by James T. Rohlfing
This was published as an article called, “Courts Put Teeth in Attorney Fee Section of Illinois Mechanics Lien Act” in the December 2016 issue of SubStance Magazine.
Two recent Illinois cases have strengthened the section of the Illinois Mechanics Lien Act (the “Lien Act”) which, in essence, provides that if a party in a mechanics lien case acts in bad faith, that party must pay the attorneys’ fees of the winning party. In the recent case of Roy Zenere Trucking & Excavating, Inc v. Build Tech, Inc., 2016 Ill. App (3d) 140946, August 2, 2016, the court decided to put teeth into section 17 of the Lien Act in holding that an owner who wrongfully withheld payment for work performed must pay the contractor’s attorneys’ fees. And, in Father & Sons Home Improvement II, Inc. v. Stuart, 2016 IL App (1st) 143666, the court ordered a contractor that had litigated a fraudulent lien claim to pay the attorneys’ fees of the property owner. Although section 17 of the Lien Act has been law since 1995, few courts have been willing to enforce that section to discourage bad conduct on either side of lien litigation. These two cases are a positive development both for good faith lien claimants as well as property owners subjected to overreaching lien claims. The new law means property owners may pay a price for refusing to pay a contractor when there is no basis for withholding payment, and, in addition, wrongfully prosecuting or overstating a lien claim could be a risky proposition for contractors.
In the Roy Zenere case, the owner failed to pay amounts requested as change orders as well as a balance due under the base contract. The trial court found the property owner did not approve and, as a result, was not obligated to pay disputed change order requests. Therefore, the lien claimants were not entitled to be paid the amounts requested as change orders. The trial court did, however, award the lien claimants the unpaid amount due under the original contracts. Thus, the lien claimants received some but not all of what they were asking for in the case. The trial court decided there was no justification for not paying the balance of the original contracts, but it still denied the lien claimants request for attorneys’ fees.
The appellate court reversed the lower court’s decision not to award attorneys’ fees. The appellate court wrote that Section 17 of the Lien Act, specifically allows for attorneys’ fees where the owner’s failure to pay was “without just cause or right.” The evidence did not show any justification for the owner’s failure to pay the original contract amounts. The appellate court acknowledged that the owner may have had “just cause or right” not to pay the unapproved extras portion of the lien claim, but this did not preclude the claimants’ right to receive attorney’s fees for the owner’s failure to pay the undisputed amount. Therefore, even though the owner was justified in not paying the extras, the owner was not entitled to withhold payment for the amounts that were essentially uncontested, and therefore, the owner was required to pay the lien claimant’s attorneys’ fees.
Unfortunately, it is all too common that an owner will withhold all payments due under a contract, even when everyone knows at least some amount is due. The owner’s strategy, of course, is to use financial leverage to force a contractor to capitulate by not paying anything unless the contractor agrees to accept a lesser amount. In light of the Roy Zenere case, an owner should think twice about withholding payments that it knows are due because it might end up paying a lien claimants’ attorneys’ fees if the failure to pay is without good reason.
Section 17 of the Lien Act works both ways – it also provides that a lien claimant who wrongfully asserts or unjustifiably overstates a claim risks having to pay the owner’s attorneys’ fees. In another recent case, the appellate court decided that property owners were entitled to recover their attorney fees for defending a mechanics lien claim that was brought without just cause or right. In Father & Sons Home Improvement II, Inc. v. Stuart, 2016 IL App (1st) 143666, 52 N.E.3d 581, a contractor recorded a lien claim eight months before completing construction, which claimed that all of the work required by the contract was completed and that the claimant was owed $46,200. Though it is permissible to file a lien claim before the work is complete, it is not permissible to assert that the work is complete when, in fact, it is not even close to complete. The court held that the claimant’s misrepresentation was sufficient to prove constructive fraud. Thus, not only was the entire lien unenforceable, but the lien claimant was ordered to pay the attorneys’ fees incurred by the owner who had to defend the fraudulent claim. The trial court found several false statements were made by the lien claimant and the appellate court held that the trial court’s imposition of attorneys’ fees was justified.
These two cases demonstrate that under the right circumstances, a lien claimant or an owner may recover attorney fees in connection with a mechanics lien case if there is bad faith conduct involved. In light of these cases, owners would be well served to pay any undisputed amounts owed to lien claimants, even where there are separate amounts that are legitimately disputed. On the other hand, lien claimants must be careful to assert only those amounts in a lien claim that are supported by a good faith belief that they are entitled to payment.
James T. Rohlfing is a partner in the Chicago based law firm of Arnstein & Lehr LLP. He serves as chair of the firm’s Construction Practice Group. Mr. Rohlfing is a Martindale-Hubbell AV rated attorney, whose practice is focused in the areas of construction law and business litigation. Mr. Rohlfing is the editor and a chapter author of the West Publication Illinois Construction Law Manual. Please send any questions or comments to email@example.com.