In Arizona, the prevailing party in a mechanics lien lawsuit is entitled to have their reasonable attorney’s fees paid by the losing party. But, if multiple liens are filed against a property but only one is determined to have priority, how should that lien claimant’s attorney fees be divided up amongst the losing parties? A recent case heard by an Arizona Court of Appeals provides an answer.
Arizona Attorney Fees Law
Under Arizona mechanics lien law, the prevailing party in a mechanics lien action may recover its cost of reasonable attorney fees from the losing party.
Since the grant of attorneys fees is made at the discretion of the court and not a jury, decisions regarding attorney fees will only be overturned by an appeals court if the lower court’s determination was unreasonable. Decisions regarding attorney fees will only be overturned by an appeals court if the lower court’s determination was unreasonable.
Arizona law is silent, however, as to how attorney fees should be divided if multiple liens are filed against a property, and only one is successful in a lawsuit to determine lien priority. Should only the first party who filed the lien be responsible for the attorney fees? Should courts determine which party or parties “caused” the prevailing party to defend its priority and then only make those parties pay? Or should attorney fees be divided up proportionately amongst all the losers?
Attorney Fees in Class Action Arizona Mechanics Lien Lawsuits
In Summers Group, Inc. v. Tempe Mechanical, the Court of Appeals of Arizona, Division One finally gave us an answer just a few weeks ago.
In Summers, after a construction project fell apart financially, multiple liens were filed against the property by suppliers, subcontractors, and a construction lender. When one of the suppliers, Rexel, cross-claimed against the other seven plaintiffs and then sued to foreclose on its own lien, the case was removed to bankruptcy court in order to determine which parties, if any, had lien priority over the other lien claimants.
The bankruptcy court determined that one of the claimants, ML (the construction lender), had priority over all the other suppliers and subcontractors. As the prevailing party, ML Manager then moved for attorney fees. Because the trial court determined that “only Rexel caused ML Manager to challenge its lien priority,” the court held that only Rexel, and not any of the other parties, were responsible for paying ML Manager’s attorney fees.
Rexel appealed the ruling that only it and not any of the other losing parties had to pay ML’s attorney fees. Instead, Rexel argued that the court should have divided the fees proportionately amongst all the other non-prevailing parties. The court should have divided the fees proportionately amongst all the other non-prevailing parties.
In its holding, the appeals court agreed with Rexel. The court first noted that both prior Arizona cases and Arizona law itself was silent as to how attorney fees should be divided amongst multiple lien claimants. However, the court reasoned that other matters involving multiple parties and mechanics liens could be instructive.
For example, Arizona mechanics lien law dictates that when a property is foreclosed to satisfy a mechanics lien, the proceeds of the sale are “prorated over the respective liens that have equal footing with the foreclosing lien.” That is, that all properly filed and valid mechanics liens against a property have equal priority in a foreclosure action.
The court applied the same line of logic to Summers: if all mechanics lien claimants share proportionately when they prevail in a foreclosure suit, then they also must share proportionately if they lose. In this case, since there were other mechanics lien claimants besides Rexel who were unsuccessful in the lien priority matter, they were all held to be proportionately responsible for ML’s attorneys fees.
Moving Forward From Summers
Although there is still the possibility of further appellate review, the general takeaway of Summers is that the same general “apportionment” rule applies to all mechanics lien claimants whether they are successful or unsuccessful in a mechanics lien lawsuit; all mechanic’s lien claimants have equal priority. If the property is sold to satisfy multiple mechanics liens, then each party that filed gets a proportionate share of the proceeds. On the other hand, if all the Arizona mechanics lien claimants fail in a suit to foreclose on a lien or if only one party prevails in a lien priority suit, the losing parties share in the expenses proportionately.