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Enforcing a Lien When You Have to Arbitrate

Proceed with Caution when filing a lien action - don't forget your arbitration rights

I read a post yesterday that conjured up the old arbitration v. lien enforcement battle. This is a battle that many a construction attorney has had to battle. What do you do when you have an obligation to arbitrate your dispute, but you have to enforce a lien as well?

Here is the dilemma in a quick snap shot:

(1) The Dispute

 

As a contractor or supplier, you have a claim for payment from your customer. Typically this dilemma springs free when the contractor or supplier is lower down the contractor chain. Their contractual dispute is typically with a subcontractor or general contractor, but they have a lien against the property, giving them a claim against the property’s owner.

You have a claim against multiple parties, but some claims are contractually based and some are based on statute. The Dilemma here is: Can you lump them all into one action?

 

(2) The Arbitration Clause

 

As contractor or supplier you may (and should) have a written contract with your customer. In that contract, you might find that you have the duty to arbitrate your disputes with the customer.

The clause means that you will not bring the action to court, instead moving directly to a particular (if set in the contract) arbitration outfit. But, here you have claims against someone (the property owner) who is not a party to the contract.

 

(3) The Enforcement of Your Lien

 

In order to enforce your lien, you are obligated to bring an action in a Washington superior court within 8 months from the date of filing (See RCW 60.04.141). Of course, you cannot demand that the owner submit to arbitration if it is not a party to the contract.

A common concern is whether or not you would waive your right to submit the claim to arbitration by filing a lawsuit, in order to enforce your lien claim. So then, how do you fit everyone in to one efficient and effective legal action?

 

Enforcement of Liens When You Are Bound to Arbitration

 

The article I was referring to above was posted on the Georgia Construction Law Blog, published by the Cobb Law Group in Atlanta, Georgia. The blog’s article discusses how a recent Georgia Court of Appeals case dealt with a similar situation.

In the Georgia case, the defendant opposed being sent to arbitration after the lien claimant had already filed a lawsuit to enforce their lien. The defendant in that case presumably argued that the contractual right to submit to arbitration had been waived by the claimant, who filed the action in court.

The Georgia court sided with common sense and held that the claimant’s right to compel arbitration was secure. The blog article provides that the court agreed that other claims were expressly alternative to the lien claim.

This type of holding is most likely the norm across the board in the U.S. It simply makes sense to permit a claimant to file its enforcement action and stay (pause) the proceedings pending the arbitration of the dispute. The claimant’s contractual claims against its customer can then be heard in an arbitration, while the lien remains timely enforced and ready for adjudication.

In Washington state, you will typically see a claimant raise a lawsuit against all parties involved, in order to enforce its lien. The parties will then stipulate to a “stay” of the proceedings to allow arbitration to ensue.

While this is the norm, it does not mean that you cannot waive your right to arbitration by filing your lien action first. In fact, the rule clearly states that if your arbitration clause is not timely invoked, you will waive the right to arbitrate (See Ives v. Ramsden, 142 Wn. App. 369, 382-83, 174 P.3d 1231 (2008)). A recent Washington case has a great discussion of the cases which have delved into this issue, including the factual analysis used to determine whether or not there was an intention to waive the clause. (See Shepler Construction v. Leonard).

Perhaps the solution is to ensure that you raise your right to arbitration from the outset of your lawsuit. A complainant would be wise to include a reservation of your right to arbitrate your dispute. You may also want to motion the court to stay the proceedings pending arbitration.

Your right to arbitrate your dispute is extremely valuable…..but so is your lien. Finding the delicate balance between the two rights can put you in the best place to navigate your dispute.

 


2 Comments Add Yours ↓

  1. 1

    Interesting coincidence. In NC, the business court just ruled that a company could have their motion to dismiss heard in court, and still enforce the right to arbitration after.

    (for a good summary, see this link http://www.ncbusinesslitigationreport.com/2010/07/articles/arbitration-motion-to-dismiss-lets-do-both/)

    Judge Tennille made some good points about it being bad public policy to discourage early motion practice.

  2. 2

    Thanks for the comment Melissa.

    It just seems to be good common sense not to deny someone their ADR because they have to do something in a court of law.

    Unless someone crafts a ruling to compel third party non-signatories (such as lien targeted property owners) to arbitration, a “no waiver” ruling is fair.
    .-= Douglas ReiserĀ“s last blog ..Enforcing a Lien When You Have to Arbitrate =-.


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  1. More on Waiving Arbitration and Using Your Contract to Prevent Arbitration Confusion  /  The Builders Counsel Blog :: Washington Construction Law :: Seattle Construction Lawyer 22 07 10

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