Colorado-Real-Estate-Journal_429146

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Reinhart, a nationally recognized law firm with strong ties to Denver’s development community, is dedicated to helping clients successfully navigate today’s most important commercial real estate issues. F iling mechanic’s liens for disputed claims on con- struction projects in Colorado, especially when damages for delays, disruptions and impacts are at issue, just got murkier fol- lowing a decision of the Colorado Court of Appeals that erased a $5.7 million judgment in a public works project. The case, Ralph L. Wadsworth Construction Company, LLC v. Regional Rail Partners, concerned the construction of a regional commuter rail line north of Den- ver. The project suffered from numerous disputes and delays, with the parties disagreeing over who was to blame. One contrac- tor, Wadsworth, claimed it was entitled to $12.4 million in addi- tional compensation for “ongoing delays, disruptions and changes” it had suffered. When the project owner did not pay, Wadsworth filed the public project equivalent of a mechanic’s lien and subse- quently filed suit. The case went to trial, and the court awarded Wadsworth nearly $3.8 million in damages plus $1.9 million in unpaid construction funds. The owner appealed, claiming Wad- sworth’s lien was excessive, among other things. The Colorado Court of Appeals agreed with the owner, and in so doing made it easier for public – and likely private – project own- ers to dispute m e c h a n i c ’ s liens. Both the Colorado Public Works Act and C o l o r a d o ’ s m e c h a n i c ’ s lien statutes contain pro- visions prohibiting the filing of excessive claims. These provi- sions are “remedial” in nature, meaning they are “aimed at punishing and deterring those who abuse the protective pro- cesses by knowingly claiming amounts that are not yet due.” Under the Public Works Act, if a party (such as a contractor) files an excessive lien, it loses the right to recover the entire claim. On the other hand, under Colorado’s mechanic’s lien stat- utes, if a party files an excessive lien, it loses only the right to the lien itself. It can still seek to recover the claimed amounts through other means, such as a claim for breach of contract. Nevertheless, overstating a mechanic’s lien on public or private projects carries another big risk: The party that succeeds in proving a lien is overstated is awarded its attorneys’ fees and costs. But when is a lien considered “excessive?” That is where the Wadsworth decision breaks new ground. Under the Public Works Act, a government contractor can file a lien for “furnished labor, materials, sustenance, or other supplies used” on the project or for “laborers, rental machin- ery, tools, or equipment to the extent used in the prosecution of the work.” This is similar to the mechanic’s lien statute, which allows private contractors to file liens for the “value of ... services rendered or labor done or labor- ers or materials furnished.” In both cases, under the Public Works Act and the mechanic’s lien statutes, a contractor can only file a lien for amounts that are “due,” which means the amount that is “owing and payable.” In the Wadsworth case, the con- tractor (Wadsworth) filed a lien for damages caused by “impacts, delays, disruptions, interference, design issues, access issues, and other problems associated with the Project.” In its lien, it includ- ed lost profits, markups and “extended overhead.” These are typical damages sought in con- struction disputes. Project delays can increase costs, equipment may sit idle – and thus lose rev- enue – and design changes can incur more overhead expense. The Colorado Court of Appeals concluded that while these dam- ages may be recoverable in other contexts, such as breach of con- tract, they are not lienable. This is because these costs do not fall “within the ambit of labor, mate- rials, sustenance, or other sup- plies used or consumed” on the project. The Court of Appeals also found that the amounts Wad- sworth claimed it was owed were not yet “due.” When it filed its lien, Wadsworth and the owner “vigorously disputed who had caused the delays” that alleg- edly resulted in Wadsworth’s damages. Wadsworth had pro- posed change orders reflecting these increased amounts, but the owner had not agreed to them. Thus, the amounts Wadsworth claimed were not “due” because they were still disputed. The Court of Appeals reversed the trial court’s judgment in Wad- sworth’s favor, wiping out a mul- timillion-dollar judgment because Wadsworth’s public project lien had been overstated. According to the Court of Appeals, the mes- sage was clear: “The purpose of the verified statement of claim [public lien] process is to secure reimbursement for labor and materials actually provided, not to give a claimant pre-litigation leverage in an unresolved dispute over delay damages – particu- larly where those damages do not relate to amounts due for actual labor, materials, sustenance, or other supplies.” The Wadsworth decision warns potential public or private lien filers to tread carefully when it comes to claiming unliquidat- ed delay, disruption or impact damages in a lien. While the Wadsworth case ostensibly only applies to public project liens governed by the Public Works Act, Colorado’s mechanic’s lien statutes are similarly phrased and constructed, and the court’s decision in Wadsworth may get extended to private mechanic’s liens as well. Under Wadsworth, the safest course is to exclude delay, disrup- tion and impact damages from a public or private lien – assum- ing the owner has not express- ly agreed to pay them – and to include only those amounts that are expressly lienable. Certainly, when determining whether to file a lien, contractors should engage experienced counsel to ensure it is not overstated. s Ryan.Sugden@stinson.com Mechanic’s lien filers should beware of excessive claims Ryan Sugden Partner, Stinson LLP