The Lessor of Two Evils: Iowa Supreme Court Holds That Mechanic’s Liens Will Not Attach to the Property of a Lessor for Work Authorized by a Lessee

Winger Contr. Co. v. Cargill, Inc., No. 17-1169, 2019 BL 132092 (Iowa Apr. 12, 2019).

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Zachary Torres-Fowler

On April 12, 2019, the Iowa Supreme Court affirmed a lower court ruling which held that, inter alia, the Iowa mechanic’s lien statute would not permit the attachment of mechanic’s liens to the property of a lessor in connection with a contract to supply materials and labor to a lessee.

The Defendant, Cargill, Incorporated, entered into a 50-year lease with HF Chlor-Alkali, LLC (“HFCA”) to permit HFCA to construct a chlor-alkali manufacturing facility on a property that Cargill owned in Eddyville, Iowa.  HFCA then contracted with a pair of general contractors, who in turn hired several subcontractors, including the Plaintiffs.  None of the general contractors or the Plaintiffs had any contracts with Cargill in connection with the construction of the chlor-alkali manufacturing facility.  Eventually, the project unraveled and the Plaintiffs were not paid in full.

The Plaintiffs filed mechanic’s liens on Cargill’s property, and later sought to foreclose the liens, based on their work for HFCA to construct the facility.  Cargill resisted the mechanic’s liens on the ground that amendments to the Iowa mechanic’s lien statute in 2007 and 2012 established that a mechanic’s lien may only arise out of a contract with the property owner, not a contract with an agent of the owner.

Specifically, in 2007, the Iowa legislature removed contracts with “the owner’s agent” as a basis for permitting a mechanic’s lien to attach to the owner’s property.  In 2012, the Iowa legislature further revised the mechanic’s lien statute to narrow the definition of “owner” to exclude persons “for whose use or benefit any . . . improvement is made.”  According to Cargill, the Plaintiff’s mechanic’s liens attached only to a building, improvement, etc. specifically owned by HFCA, and not to the land owned by Cargill.  The lower court agreed, and the Plaintiff’s appealed the decision.

On appeal, the Plaintiffs advanced a number of arguments to challenge Cargill’s and the lower court’s interpretation and application of the Iowa mechanic’s lien statute.  Chief among them was that the 2007/2012 amendments were administrative in nature and did not substantively alter the law of mechanic’s liens to prevent the attachment of a mechanic’s lien on a lessor’s property where the lessee contracts for property improvements.  The Plaintiffs cited two Iowa Supreme Court cases—Denniston & Partridge Co. v. Romp, 56 N.W.2d 601 (Iowa 1953) and Stroh Corp. v. K & S Development Corp., 247 N.W.2d 750 (Iowa 1976)—which held that mechanic’s liens could attach to a lessor’s property by virtue of a contract with a lessee if the lessee was a joint venture partner or agent of the lessor.

Like the lower court, the Iowa Supreme Court disagreed with Plaintiffs.  According to the Iowa Supreme Court, “[a] mechanic’s lien is a creature of statute . . . [t]he amendments of 2007 and 2012 narrow the definition of owner and eliminate contracts with agents as a basis for a mechanic’s lien against an owner.”  The Iowa Supreme Court also explicitly overruled Romp and Stroh, holding that under the court’s interpretation of the Iowa mechanic’s lien statute, neither case remained good law.

This case is a reminder that parties who intend to rely on state mechanic’s liens statutes to protect against the risk of non-payment, must ensure they fully understand the nuances and complexities of the statute.  If not, the parties risk forgoing their right to secure payment during project disputes.

To view the full text of the court’s decision, courtesy of Bloomberg Law, click here.