In a unanimous decision, the Arizona Court of Appeals held that, under Arizona’s Mechanics’ Lien Act (the “Act”), all mechanics’ lien claimants participating in an action to foreclose upon their liens shall be liable for their proportionate share of any attorneys’ fees award assessed against the class of lien claimants.
In Summers Group, Inc. v. Tempe Mechanical, LLC et. al, 1 CA-CV 12-0086 (March 19, 2013), the Court considered whether, under A.R.S. § 33-998.B, the class of mechanics’ lien claimants should be responsible for paying the prevailing party’s attorneys’ fees award in proportion to their respective lien claim.
At the trial court, the class of mechanics’ liens lost in a priority challenge. The prevailing party filed an application for an award of attorneys’ fees, and the trial court granted the application, but against only Summers Group.
A.R.S. § 33-998.B provides that a court may award the successful party reasonable attorneys’ fees in any action to enforce a lien. The statute is silent as to who is responsible for paying the fees when there are multiple lien claimants who do not prevail. The Summers Court reasoned that the intent of the Act is that lien claimants share and share alike. Mechanics’ lienholders seeking to enforce their rights under the Act are treated on equal footing with one another regardless of the date the work was actually performed. Accordingly, when there are sale proceeds from the foreclosure of a mechanics’ lien, the sale proceeds are prorated among the respective liens.
The Summers Court concluded:
“The trial court erred in holding [Summers Group] solely responsible for the payment of [the Prevailing Party’s] attorneys’ fees. Similar to prorating sale proceeds, attorneys’ fees for resolving [enforcement of a lien] should be prorated between the lien claimants. The intent of the Legislature in adopting the mechanics’ lien statutes was to create an even playing field for all laborers and materialmen who provide services and materials to enhance the value of another’s property, regardless of the date that the work was performed. All lien claimant parties are treated on equal footing in the sharing of the income collected after a mechanic’s lien foreclosure sale and should also share in the potential expenditures.“
Summers Group, 1 CA-CV 12-0086, ¶ 16 (March 19, 2013) (emphasis added).
As a result of the Court’s holding, holders of mechanics’ lien claims should now assess their likelihood of success with respect to the enforcement of a lien because they may be required to pay a portion of a prevailing party’s attorneys’ fees award. Summers Group will have the practical effect of preventing passive mechanics’ lien claimants from free-riding on the efforts of others in the class without being exposed to the risk of financial loss. Put simply, the holder of a mechanics’ lien claim cannot claim a potential benefit from sale proceeds without being exposed to the downside risk of the litigation, which now includes contributing to any potential attorneys’ fees award.
Margaret Gillespie, Justin Niedzialek, and Oliver Davis successfully briefed Summers Group. If you would like Ms. Gillespie, Mr. Niedzialek, or Mr. Davis to speak with your group or provide a CLE presentation about this appeal, Arizona’s Mechanics’ Lien Act, or other applicable areas of business or construction law, please contact them at 602-252-1900 or by email at MGillespie@maypotenza.com, JNiedzialek@maypotenza.com, or ODavis@maypotenza.com.
A copy of the courts written opinion in Summers Group can be found here.
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