A Recent Superior Court Decision May Affect Subcontractor/Supplier Mechanic’s Liens
In a recent decision, the Superior Court discharged the mechanic’s liens of several subcontractors, because the general contractor had already filed a lien for the unpaid contract balance. Wegrzyniak v. Hanley Constr., LLC, WL 5706192 (Conn. Super. Ct. Oct. 30, 2017). Insofar as any substantial construction project will involve a general contractor, subcontractors, sub-subcontractors, and suppliers, there are obviously many potential lien claimants. Nonetheless, the court said that “[f]or good reasons, the mechanic’s lien statutes don’t permit multiple liens,” and with regard to the subcontractor whose lien included a claim for extra work, the court said that “[w]ithout an agreement to support the additional work…, [the subcontractor’s] lien must be discharge.” Id. In light of the foregoing, Wegrzyniak may stand for the proposition that subcontractors, sub-subcontractors, and/or suppliers are precluded from filing mechanic’s liens when the general contractor files a mechanic’s lien covering the entire project, but, in my opinion, subcontractors, sub-subcontractors, and suppliers should continue filing their own mechanic’s liens.
To summarize the reasoning of the Wegrzyniak decision in plain English, because the court understood that the property owner should not be held liable for more than the amount it agreed to pay the general contractor, the court extended that reasoning to say that the number of mechanic’s liens and their total value may be limited as well. The court believed that subcontractors, whose claims were included in the general contractor’s mechanic’s lien, would be protected by virtue of the general contractor’s lien. Of course, because the general contractor and its subcontractors may not always be aligned once disputes arise, subcontractors, sub-subcontractors, and suppliers need to protect their own interests.
Because Wegrzyniak is a Superior Court decision, it is only persuasive authority, which means that the next court to consider this issue may reach a different conclusion. My analysis of the Wegrzyniak decision leads me to believe there are good faith arguments to be raised in support of a different result. Arguments that may be raised, include, but are not limited to, an alternative statutory interpretation, a review of additional case law, and an argument based upon fundamental fairness.
With regard to statutory interpretation, the court in Wegrzyniak decided that no subcontractor liens may attach once a general contractor files a mechanic’s lien based upon its understanding of Conn. Gen. Stat. §§ 49-33(e) and 49-36, but these statutes can be viewed differently. Conn. Gen. Stat. § 49-33 states that “any person” that has a claim for supplying labor, materials, and/or services may file a lien. There is no limitation to the “any person” language. Thus, one could argue that the law allows multiple mechanic’s liens to be filed against the same property by multiple contractors, and that reasoning has been supported by our Supreme Court. The Supreme Court recognized the rights of “second tier subcontractors,” i.e. sub-subcontractors, when it said “[i]t is not necessary to their lien status that they have any direct contractual relationship either with the owner or with the general contractor.” Seaman v. Climate Control Corp., 181 Conn. 592, 596 (Conn. 1980). Therefore, the real issue appears to be whether the total amount of the various liens may exceed the amount the owner agreed to pay, but that issue can also be resolved by an alternative statutory interpretation.
Conn. Gen. Stat. § 49-36 does state that no individual lien may attach in an amount greater than the contract price the owner has agreed to pay, but it also provides a procedure by which the “lienable fund,” that is the monies for which the owner is liable, shall be apportioned between and among the various lien claimants, if the total amount of the various liens exceeds the amount that the owner had agreed to pay. In addition, this statutory limitation applies to an “individual lien,” and not the total of all liens. Moreover, there is nothing in this statute or any other statute that expressly precludes more than one lien per project. Thus, the general contractor and all its subcontractors could file their own liens, and the court could protect the property owner by limiting the total amount that the lien claimants are allowed to recover.
With regard to the Appellate Authority cited by Wegrzyniak, there is no such case as “AM Enterprises, LLP v. Jean-Charles.” There is a case with a similar name, which had the language quoted by the court in Wegrzyniak, but that case is not on point. See AJJ Enterprises, LLP v. Jean-Charles, 160 Conn. App. 375, (2015). AJJ Enterprises, LLP “concern[ed] the trial court’s application of the doctrine of equitable subrogation to reorder the priorities of interest of existing liens on a residential property” with regard to the foreclosure of a mortgage. Id. at 378.
As the subcontractors in Wegrzyniak argued, their claims were severable and could be apportioned according to Conn. Gen. Stat. § 49-36. Instead, the court in Wegrzyniak decided that property owners should not face multiple liens and that, after discharging the subcontractor mechanic’s liens, the court said that the subcontractors were adequately protected by the general contractor’s mechanic’s lien under a subrogation theory. However, as indicated above, there are also often disputes between the subcontractors and their general contractor. Therefore, the expectation that the subcontractors’ interests would be adequately protected by the general contractor’s mechanic’s lien may be more aspirational than realistic.
In order for subcontractors to be able to properly protect their rights, each party needs to be able to assert its own lien claim, which then can be apportioned, if necessary. No one disputes that the owner is only liable for the amount due under the contract between the owner and the general contractor. However, the owner can still be properly protected regardless of the number of mechanic’s liens that are filed, but subcontractors, who are prevented from asserting their individual lien rights, may have their claims put in jeopardy. Thus, allowing multiple mechanic’s liens has virtually no adverse impact on the property owner, but is vitally important to those providing labor, materials, and/or services. Therefore, fundamental fairness would weigh in favor of allowing multiple mechanic’s liens to be filed by the general contractor and its subcontractors, regardless of the total aggregate lien amount.
Similarly, mechanic’s liens that exceed the amount of the contract between the owner and general contractor should be allowed until claims for extra work have been adjudicated. The court in Wegrzyniak said that, because the written contract required an agreement for extra work to be in writing, then, if there is no agreement to support the additional work, the lien must be discharged, but there are reasons a future court may not follow this approach. First, Conn. Gen. Stat. § 49-33 does not only permit liens for work performed “by virtue of an agreement with” the owner, but also for work performed “by the consent of the owner.” Conn. Gen. Stat. § 49-33. Certainly there was no reason for the legislature to include the word “consent,” if an “agreement” was an absolute minimum requirement. That position is consistent with the Supreme Court decision cited above, which states that there is no requirement for a direct contract with the owner or the general contractor for a “second tier” subcontractor to file a mechanic’s lien. Second, the Wegrzyniak decision denied the lien claims without making a determination on the merits of the underlying claims. The decision expressly stated that “[t]he court hasn’t decided any of the underlying claims of any party.” However, if a subcontractor was entitled to payment for extra work, and that claim translated into a claim for extra work by the general contractor against the owner, then there would be an increase in the amount for which the owner would be liable. See ProBuild E., LLC v. Poffenberger, 136 Conn. App. 184, 191–93 (Conn. App. 2012)(holding that a contractor was entitled to include the amount it claimed for extra work in its mechanic’s lien.) Thus, it would appear that a claim for extra work should be decided on the merits before the related mechanic’s lien should be discharged.
In light of the foregoing, the Wegrzyniak decision may raise difficult issues for subcontractors and suppliers. If you would like to discuss filing a subcontractor or supplier mechanic’s lien, and/or the other options that are available to protect your interests, please give me a call.