Liens represent one of the primary mechanisms by which contractors, subcontractors, and other downstream parties secure payment rights under a construction contract. When utilized properly, filing a lien may induce an owner to release funds that are undisputedly owed to the lienor. However, when a party’s lien filing is delinquent or defective, and the party refuses to discharge or withdraw the defective filing, that party may be liable to the owner of the liened property. Potential lienors must avoid any knowing misrepresentations when filing liens, as the decision may come back to haunt them. The Florida Second District Court of Appeal’s recent opinion in Witters Contracting Co. v. West describes some of the pitfalls that may befall a contractor who is found to have abused the lien filing process.
In that case, a couple entered into a cost-plus agreement with a contractor, Witters Contracting Company, to build a new home. Nine months into the build, the relationship soured, and Witters sent a demand for $30,000 to the new homeowners. Witters coupled the demand with a threat to file a lien for $100,000. Witters followed up this demand with a letter from its lawyer asking the homeowners to pay $59,706 and enclosing supporting documentation. Six days later, Witters filed a lien stating an unpaid balance of $75,000.
The homeowners filed a complaint against Witters alleging fraud and slander of title. Witters counterclaimed for breach of contract and quantum meruit. The homeowners then moved for summary judgment on their claims and Witters’ counterclaims. The trial court granted the summary judgment motion finding:
[T]he liens filed by Defendants were compiled with such gross negligence as to the amounts claimed therein to constitute willful exaggerations. The willful exaggerations were material and substantive in nature and the liens are deemed fraudulent by the Court. …The Defendants’ filing and recording of the fraudulent liens constitutes a slander of title upon Plaintiffs’ real property.
After a trial on damages, the trial court awarded the homeowners over $180,000, which included punitive damages, attorneys’ fees, and costs. The contractor appealed.
On appeal, the Second District Court of Appeal affirmed the trial court’s summary judgment ruling and damages judgment. However, the court did reverse the trial court’s finding that the owner of Witters was personally liable for the judgment.
Takeaways from Witters Contracting
The proliferation of lien forms and software/applications to simplify completing those forms has made the process of filing liens more accessible throughout the construction industry. However, increased accessibility may come at a cost if companies do not fully appreciate the legal implications of filing liens.
Filling out a form with incorrect information or filing a lien after your rights have expired may subject you to substantial liability if, like Witters Contracting, you are found to have fraudulently filed and/or slandered the title of an owner through the defective filing. Whatever leverage you hope to create by filing a lien may not offset the consequences of a defective filing.
Additionally, for upstream parties facing improper liens, the decision in Witters Contracting should provide some insight on how to navigate a dispute with a subcontractor or supplier who refuses to discharge a defective lien. If the lien is holding up a transaction or otherwise threatening the use of your property or the owner’s property (if you are a contractor), you may have an action for fraud or slander of title that ‘has some teeth.’ Consider all your options before bonding the lien off or succumbing to the demands of the lienor.