Contractor Waives Right to Compel Arbitration by Seeking to Foreclose Mechanic’s Lien

One of a contractor’s most valuable statutory rights in a dispute with an owner is the right to record and foreclose a mechanic’s lien.  Because a mechanic’s lien makes it more difficult to sell or refinance the liened property, this provides additional leverage to obtain payment from a reluctant owner during the entire pendency of the dispute.

One of a contractor’s most valuable contractual rights is the right to compel the owner to arbitrate disputes.  Contractors want to be paid quickly and without the delay and uncertainty of the court system, including jury verdicts.  Arbitration allows the contractor to seek resolution of its claims though a more expeditious and efficient process with a binding decision made by an experienced professional, usually a retired judge.

Normally, filing a lawsuit instead of compelling arbitration can be construed as a waiver of the right to arbitrate.  But, the mechanic’s lien law requires a contractor to file a lawsuit within ninety (90) days of recording or lose its mechanic’s lien under Civil Code section 8460.  How can a contractor do both?

Fortunately, the legislature enacted Code of Civil Procedure section 1281.5 in 1977, which provides clear guidance to allow contractors to preserve the mechanic’s lien and the right to arbitrate.  But, as the recent case of Von Becelaere Ventures, LLC v. Zenovic (2018) 2018 Cal.App. LEXIS 525, makes clear, the contractor must follow section 1281.5 exactly or risk losing the right to arbitrate.

In Von Becelaere Ventures, the contractor and owner had a garden-variety construction dispute.  The owner alleged that the contractor had overcharged for work and filed a lawsuit against the contractor.  In response, the contractor filed a separate lawsuit for various claims, including foreclosure of a mechanic’s lien.

About a month later, the contractor filed a motion to compel arbitration.  The court denied the motion, finding that the contractor had waived the right to compel arbitration under section 1281.5, which provides in pertinent part as follows:

(a) Any person who proceeds to record and enforce a claim of lien by commencement of an action pursuant to Chapter 4 (commencing with Section 8400) of Title 2 of Part 6 of Division 4 of the Civil Code, does not thereby waive any right of arbitration the person may have pursuant to a written agreement to arbitrate, if, in filing an action to enforce the claim of lien, the claimant does either of the following:

(1) Includes an allegation in the complaint that the claimant does not intend to waive any right of arbitration, and intends to move the court, within 30 days after service of the summons and complaint, for an order to stay further proceedings in the action.

(2) At the same time that the complaint is filed, the claimant files an application that the action be stayed pending the arbitration of any issue, question, or dispute that is claimed to be arbitrable under the agreement and that is relevant to the action to enforce the claim of lien.

Sections 1281.5(a)(1) and (2) require that the contractor either include an allegation in the complaint that the contractor does not intend to waive arbitration or simultaneously file an application to stay the action pending arbitration.  Because the contractor did neither, he was found to have waived his right to compel arbitration.

The contractor argued that non-compliance with section 1281.5 did not waive his rights to arbitrate claims other than the mechanic’s lien claim.  The court rejected the argument, finding the waiver was absolute as to all claims – “a party who commences a mechanic’s lien action without complying with either of the stay provisions waives any such right to arbitration.”

The contractor also argued that the “title” of section 1281.5 supported his argument.  However, the court noted that the version of section 1281.5 as adopted by the legislature had no “title” and the “title” was simply a creation of the commercial publisher of the statute.  This is a good reminder for attorneys that some of the features of your Lexis or Westlaw subscriptions may not actually be part of the statute.  And, in any event, the court found that a “provision’s title is never allowed to enlarge or control language in the body of the provision.”

Of note, section 1281.5 applies to all parties to the mechanic’s lien lawsuit, requiring owners to seek to compel arbitration prior to answering the contractor’s complaint.

The law isn’t often this simple, but, as the court summarized, “section 1281.5 means what it says.”  Fail to follow it and lose your right to arbitrate.

 

Tahoe Truckee Business Law/Entity Practice, Homeowners’ Association Practice, Real Estate Practice; Trust, Estate Planning and Elder Law

Brian C. Hanley is an attorney practicing in California and Nevada, and is a principal in the Porter Simon law firm located in Truckee, with offices in Reno and Tahoe City.  He practices primarily in the areas of real estate, business, estate planning and homeowners’ association law.  Brian may be reached at hanley@portersimon.com or at the firm’s web site www.portersimon.com.

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The content contained and opinions expressed in this blog are solely those of the author. This blog contains content and opinions concerning the law generally, and is not intended to constitute legal advice or to create any attorney‑client relationship with the reader. The reader should consult with an attorney about any specific legal issues prior to embarking on any course of action or inaction involving legal matters.