When a mechanics lien is filed and the lien claimant moves to enforce that lien in court, the owner or other parties of interest have the opportunity to discharge this lien by depositing a certain amount with the court. The amount that must be paid into court to discharge the lien is equal to the undisputed amount owed. Problems arise if a party overstates the disputed amount. Many states offer additional damages up to double the undisputed amount owed when a bad faith claim like this arises. Delaware happens to be one of those states.
The background of this case pertaining to this issue is rather simple. The subcontractor, D.W. Burt Concrete Construction, Inc. (“Burt”), has a mechanics lien dispute with multiple parties including Daystar Sills, Inc, the general contractor, and the associated owners/development companies (collectively “Daystar”). Daystar agreed to pay Burt $2.3 million for its work on the construction of the Hyatt Hotel in Dewey Beach, Delaware. After completion of its portion of the construction, Burt submitted a payment requisition form for the balance of the contract price withheld as retainage in the amount of $224,935. Daystar refused to pay. Burt filed a mechanics lien and a dispute arose involving many moving parts including disputes of amount owed, dates, and breach of contract.
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Many issues were argued, but the main one we are concerned with is that Daystar allegedly gross overstatement of the amount of the disputed claim when it posted bond to discharge the mechanics lien. In D.W. Burt Concrete Construction, Inc. v. Dewey Beach Enterprises, Inc., 2016 WL 639653, Burt argues that Daystar grossly overstated the disputed amount when it posted the bond to discharge the mechanics lien. This gross overstatement would allow Daystar to post a significantly lower amount to discharge the mechanics lien. The Court offered this explanation as a distinction between good faith and bad faith:
Therefore, a finding by the Court that defendants withheld payments due because of an honest dispute about the acceptability of the work performed or legitimate potential set-offs against claims plaintiffs were asserting under the contract would augur in favor of good faith. A determination, however, that defendants were instead holding payments “hostage” as bargaining leverage against plaintiffs in disputes unrelated to the contract or generally as a sharp-elbowed negotiation tactic would lead to the opposite conclusion.
Daystar disputed all of Burt’s claims, which totaled $224,935. However, evidence was admitted at trial that $89,229.81 of this total was not in dispute. This amount should have been paid by Daystar before the mechanics lien was discharged. The court was thoroughly convinced that Daystar grossly overstated the disputed amount of the claim. Section 2729(a) was designed to prevent this type of leverage bargaining. An additional award of damages was awarded to Burt. The court is left with the discretion to decide the amount of damages. The statutory provision allows for up to double damages.
What to Learn
Section 2729 mentioned above allows owners or any other parties of interest to deposit a certain amount with the court to have a mechanics lien discharged. This provision is very common among most mechanics lien statutes. It is intended to benefit both parties. The parties with interest in the property gets the lien discharged. The lien claimant is guaranteed a certain amount of undisputed payment. As time went on, the courts and legislatures realized that many parties were using this as leverage in order to bargain with lien claimants. This unfair leverage is the reason why many states have implemented statutory damages for interested parties that grossly overstate disputed amounts. The determination of the bad faith and damages if necessary is left of to the court, but rest easy in knowing that most mechanics lien statutes contain safeguards against bad faith practices as such.