Recent Decisions Recognize Limits on Lien Amounts Properly Includable Under Michigan and Connecticut Lien Statutes

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Stephen W. Kiefer

  1. Lost profits, not part of unpaid contract balance, may be recoverable as consequential damages in contract claim, but cannot be included in lien. TSP Services Inc. v. National-Standard, LLC, 2019 BL 340267 (Mich. Ct. App. Sept. 10, 2019)

National-Standard, LLC contracted TSP Services, Inc. for asbestos abatement, demolition, restoration, and disposal of scrap steel and other waste from work at National-Standard’s facility.  TSP planned to sell the extracted steel after removing it.  National-Standard was aware of TSP’s plans, though the contract made no mention of them or TSP’s potential profits from that activity.

The project encountered delays, and National-Standard suspended TSP’s work at a point when TSP had extracted only 9% of the steel.  TSP commenced arbitration and filed a lien against the National-Standard’s property.  It liened for the contract balance, plus the scrap value of the remaining steel that TSP was prevented from extracting and reselling.  The arbitrator concluded that National-Standard’s suspension order had breached the contract and awarded TSP the contract balance plus its lost profits on the un-extracted scrap steel, and ruled that the TSP’s lien was valid in its full amount.

National-Standard moved to vacate the arbitrator’s award, arguing that TSP had no right to recover the scrap steel lost profits as consequential damages and that it could not validly include the lost profit amount in its construction lien.  When the trial court denied its motion, it appealed to the Michigan Court of Appeals.  Although the appellate court agreed that lost profits were foreseeable, recoverable consequential damages for breach of contract, it vacated that portion of the award that found TSP’s lien valid in its full amount.  The court found that Michigan’s construction lien act limits the amount of a lien to the value of the claimant’s contract minus any payments already made under the contract.  Under that statutory language, the lien amount thus cannot exceed the remaining unpaid contract balance.  TSP’s lost profits from its planned scrap sale to others were not part of National-Standard’s payment obligations under the contract and were separate from the amount constituting the unpaid contract balance.  So although TSP’s lost profits were recoverable as consequential damages in a claim for breach of contract, they were not a part of the unpaid contract balance, and TSP invalidly included those amounts in its lien.

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

  1. Subcontractor can only lien to the extent that there remains unpaid amounts by owner to general contractor. SHD Glenbrook Gardens, LLC v. D.S.O. Mechanical Corp., 2019 BL 342518 (Conn. Super. Ct. Aug. 15, 2019)

Project owner SHD Glenbrook Gardens, LLC filed an action to remove a mechanic’s lien filed by a subcontractor on its project, D.S.O. Mechanical Corporation.  DSO liened SHD’s property for, among other amounts, the retainage that the general contractor was withholding from DSO.  Connecticut’s mechanic’s lien statute places certain limitations on subcontractor liens, including that a subcontractor can only lien to the extent that there remains unpaid amounts by the owner to the general contractor.  Thus, the “lienable fund” that a subcontractor can access is diminished by payments the owner made to its general contractor before receiving notice of the subcontractor’s lien.

Because SHD had paid its general contractor, the court found that DSO had no right under the Connecticut statute to enforce a lien for the amount the general contractor received, but withheld from DSO as retainage.  Instead, the court found that DSO’s right to recover retainage could lie only in a breach of contract action against the general contractor.

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