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Summers Group, Inc. v. Tempe Mechanical - 3/19/2013

Arizona Court of Appeals Divison One Holds That A Fee Award Against Mechanics’ Lien Claimants Must Be Apportioned Among All Lien Claimants That Have Asserted Their Lien Rights.

Summers Group supplied electrical materials for a construction job.  After not getting paid, Summers recorded a mechanics’ lien on the property in June 2008.  Summers was the first of several entities to record a mechanics’ lien on the same property.  In December 2008, Summers sued multiple defendants for various claims, including for foreclosure of the mechanics’ lien.  Tempe Mechanical and a handful of other lien-recorders filed answers in the litigation.  Several other lien-recorders opted not to answer.  The Court calls the group of lien claimants that filed answers the “Remaining Lien Claimants.”

One of the defendants was Mortgages Ltd, an entity that soon after filed for bankruptcy.  The case was removed to the bankruptcy court, and the court determined that ML Manager had priority over all liens.  ML Manager is the investor group formed as part of the Mortgages Ltd. bankruptcy.  The case then transferred back to the superior court.

ML Manager sought and received fees under A.R.S. § 33-998.B, which allows the successful party to be awarded fees in an “action to enforce a lien.”  The lower court concluded that only Summers should pay the fees to ML Manager.  The superior court reasoned that Summers was the only party to cause ML Manager to have to challenge its lien priority.  Summers appealed, arguing that the Remaining Lien Claimants should have to share in the expense.

The Court of Appeals reversed.  To foreclose a lien under Arizona’s mechanics’ lien statute a claimant must “sue each party against whom it seeks to assert its lien within six months after recording its lien.”  Any party wishing to assert its lien priority must file an answer or counterclaim.  See A.R.S. § 33-998.A.  Finally, if a party submits an answer to another lien-claimant’s lawsuit within six months of its own recording, then that answer is considered “commencing an action” to enforce its own lien.  Id.

Accordingly, when it wanted to assert its lien priority, Summers sued all of the other entities that had recorded mechanics’ liens.  When the Remaining Lien Claimants answered the Summers complaint, they were deemed to have commenced an action to assert the priority of their own liens.  The Court thus held that the Remaining Lien Claimants also “caused ML Manager to defend its lien priority.”

Given that conclusion, the Court next considered whether § 33-998.B required the apportionment of attorneys’ fees among all lien claimants.  Although the statute does not address the issue of multiple parties, the Court reasoned that a purpose of the mechanics’ lien statutes “is for all lienholders to be treated on equal ground with one another regardless of the date the work was performed.” For example, if there is a foreclosure sale, Section 33-1000.B requires the proceeds to be prorated among all lien claimants on equal footing.  Because the statute requires lien claimants to split up income in this way, the Court was persuaded that the expense of attorneys’ fees should also be shared on a prorated basis.  Consequently, just the Court held that fees should have been apportioned among Summers and the Remaining Lien Claimants.

Judge Orozco authored the unanimous opinion.  Judge Swann and Judge Pro Tempore Paul Eckstein concurred.

Posted by: Joseph Roth

Posted On: 4/1/2013