Construction professionals at work

Division I of the Washington Court of Appeals published an opinion last week in Diversified Wood Recycling, Inc. v. Harold Johnson, et al, which addresses some nuances of Washington’s mechanics lien laws.

Warning: Reading this opinion will (i) Confuse the hell out of you; and (ii) Make you laugh our loud.  You’ll be confused because very detailed components of the state’s construction lien laws are scrutinized by the court. You’ll laugh out loud because this controversy arises out of a foreclosure action against Harold Johnson, who insists he is not the same “Harold Johnson” who owns the property. The court’s discussion of the ambiguous Harold Johnson reminded me of a “Who’s on First” sketch.

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From reading this case, you get the feeling that Harold Johnson was using the ambiguity between himself and his father (also Harold Johnson, both of whom refuse to use “junior” or “senior” to distinguish themselves) to his benefit, and because of this, it feels like the trial and appellate court really went out of their way to find the defendants liable in this case.  As a result, a lot of the opinion appears to me to have extremely limited application, as there just aren’t that many circumstances when this dual identity problem would present itself.

That’s not to say it doesn’t have large implications.  To the contrary. Some are discussed below.

Rough Facts

Here’s what happened:  Like the court, I will use “junior” when talking about the son, “senior” when talking about the father, and “Harold Johnson” when everyone’s unsure.

Junior hired Diversified Wood to perform construction services on property owned (at the time) by Harold Johnson, racks up a bill of $10k, and leaves Diversified Wood on the hook without payment.  Diversified Wood filed a mechanics lien, and when payment still wasn’t made, filed a foreclosure action against Harold Johnson.  Junior was served with process.

At trial, junior argued that senior always owned the property, and he only arranged for the construction work through his own construction company. Plus, before the foreclosure action was filed, junior testified that the property was sold to to “Kuleana, LLC,” a company owned by senior.  As a result, junior argued the foreclosure action did not name, join or get served upon the owner, and therefore, the lien was expired.

Harold Johnson was Kuleana’s registered agent, which junior alleged referred to senior, although the registered address was at junior’s  property.

Statutes Construed and Decision

So, how do you foreclose on a mechanic’s lien in Washington?  Here are the two statutes:

RCW 60.04.141:
No lien created by this chapter binds the property subject to the lien for a longer period than eight calendar months after the claim of lien has been recorded unless an action is filed by the lien claimant within that time in the superior court in the county where the subject property is located to enforce the lien, and service is made upon the owner of the subject property within ninety days of the date of filing the action…

RCW 60.04.171
The lien provided by this chapter, for which claims of lien have been recorded, may be foreclosed and enforced by a civil action in the court having jurisdiction in the manner prescribed for the judicial foreclosure of a mortgage. The court shall have the power to order the sale of the property. In any action brought to foreclose a lien, the owner shall be joined as a party. The interest in the real property of any person who, prior to the commencement of the action, has a recorded interest in the property, or any part thereof, shall not be foreclosed or affected unless they are joined as a party…

The Court was called upon to resolve some tension between these two statutes. In this case, a claimant sought to foreclose a mechanics lien, but did not name the owner (Kuleana) as a party.  §60.04.171 required that “the owner shall be joined as a party,” and §60.04.141 required that “service [of the foreclosure action be] made upon the owner” of the property.

The court held that a foreclosure could proceed even if an owner was not made a party, so long as the owner was served. However, the court noted that “if the owner or anyone else with a recorded interests in the property is not made a party, the consequence is that his or her interest will not be foreclosed or affected.”

Huh?   What does this mean?

If the owner need not be a party, but if not named, a foreclosure will not affect that owner’s interest, what is the point of this opinion? Here are some things I got out of this opinion.

Division I Says Foreclosure Can Take Place…But Against Who?

At the end of the day, Division I held that foreclosure could move forward even through the owner was not joined as a party.  The owner of the property in this case was Kuleana, who the trial court found (and appeals court affirmed), was the actual owner of the property at the time the foreclosure action was filed. But, as mentioned above, also affirmed that foreclosure would have no effect against non-parties.

I had to read this portion of the decision two or three times, trying to figure out its consequence, and am still a bit confused. I really can’t make heads or tails as to whether plaintiff Diversified is actually able to foreclose against the Kuleana property or not.

This opinion seems to suggest that the mechanic lien has been properly foreclosed upon because the owner (Kuleana) was served (through Hal Johnson), as service is the only thing required to foreclose on the lien. The owner (Kuleana) need not be joined in as a party. However, if the unjoined party’s interest in the property is not affected, what difference does it make? The court goes through all this trouble to distinguish 60.04.141 from 60.04.171, but it makes no difference as the factual finding is that Kuleana is the owner of the property and Kuleana wasn’t joined as a party.

Thus, my take is that Diversified cannot foreclose against Kuleana’s interest (although they may be able to foreclose against any portion intentionally or accidentally remaining with Hal Johnson because there is some legal property description discrepancies and Harold Johnson may still own a portion of the property). This is a hard interpretation to make in the face of the long court discussion that appears to suggest the opposite conclusion.

Can Diversified Amend and Add Kuleana to Foreclose Against Its Interest?

As a result of the separation Division 1 placed between 60.04.141 and 171, it seems possible to me that Diversified might be able to amend their complaint to seek foreclosure against Kuleana now.

Kuleana would argue that the lien expired, but this would be rejected based on this decision because expiration was prevented by meeting the criteria of 60.04.141. While this Hal Johnson v. Hal Johnson identity issue rarely comes up, this could have further reaching effects in those situations when a property has multiple owners and the lien claimant leaves an owner or two out of the foreclosure action.

Service on Person = Service on Registered Agent?

Another interesting component of this decision is how Division I concluded that Kuleana was served with the complaint. It was really just matter of fact, essentially finding that regardless of whether the property was owned by Hal Johnson or Kuleana (whose reg. agent was Hal Johnson) the required party had been served: Hal Johnson.

Recently, I had something like this come up in a case. We were suing a company and the member of the company, and the member was the company’s registered agent. Instead of serving both the member individually and the member as registered agent of the company, we accidentally only served the member individually without the registered agent designation. Our adversaries claimed there was no service on the company, even though service was actually made on the company’s registered agent. We didn’t litigate the point, we simply re-served the complaint.

From my take of Division I’s opinion, they equated service on Hal Johnson, individually, to service on Hal Johnson as an individual and/or as registered agent of Kuleana.

Did Division I Change The Meaning Of The Term “Owner?”

It seemed pretty clear before this decision that when you file a lien, you can file against the owner or reputed owner. But, when you file a lawsuit, the claimant better file against the actual property owner. The court’s wiggling around this rule is a significant consequence of this decision.

Even though the owner at the time Diversified Wood performed the title search was Kuleana (deed recorded 2/2 and search on 2/7), that mistake was somehow forgiven, as the court found there was enough in the record to support their mistake. I don’t know of any other circumstance like this. It seems Division I watered down the requirement that the suit be filed against the “owner,” creating some gray matter between “reputed owner” and “owner,” that forgives claimants for title search mistakes.

Tip Of The Hat To Jordan Foster

Thank you to Jordan K. Foster of the Grit City Law Blog for giving me a heads up about this new Washington appeals decision. He sent me an email last week with his own thoughts on the case, and we had a great exchange trying to figure out the effect of this decision. Check our Jordan’s blog discussing Washington State Real Estate, Business and Construction Law, with a focus on Tacoma, the Grit City.