Attorneys fees are an important aspect of mechanics lien statutes. Many state lien statutes allow for the recovering of attorneys fees to prevent owners and general contractors from gaining all the leverage when a mechanics lien is filed and/or payment is withheld. If contractors were not able to recover for attorneys fees, then certain mechanics liens would not be worth filing because the liens would be worth little to nothing. Some scenarios would even arise where filing the lien would end up costing the contractor money. For example, if a subcontractor is filing a mechanics lien to recover $300,000, but it will cost the subcontractor $350,000 in attorneys fees in order to foreclose on that mechanics lien, the lien becomes worthless. The subcontractor is left without remedy and even ends up paying $50,000. This is why the award of attorneys fees is so important. Recently, the Indiana Supreme Court allowed subcontractors to recover attorneys fees, despite some respectable challenges from the opposition.
The Case Progression
Goodrich Quality Theaters, Inc. hired Roncelli, Inc. to be the general contractor for a project building an IMAX movie theater in Porter County, Indiana. Of course, several subcontractors were then hired. Three of which are parties to this case: Fostcorp Heating and Cooling, Inc., Wilson Iron Works, Inc., and Johnson Carpet Inc. After delays and countless problems on the project, all three subcontractors were not fully paid for their services. In response, they all filed mechanics liens pursuant to Indiana Code § 32-28-3-1. The three subcontractors then sued Roncellie and Goodrich to foreclose on each lien, and each requested attorneys fees.
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Roncelli got the mechanics liens released from the property by posting a surety bond pursuant to Indiana Code § 32-28-3-11. The bond required Roncelli and/or Hartford Fire Insurance Company (surety) must pay in full any judgment recovered in an action to foreclose on a lien, “including costs and attorneys fees allowed by the court.” Eventually, the trial court awarded Fostcorp $489,962.81, Wilson $373,888.22, and Johnson $55,420.20. Fostcorp and Wilson were awarded attorneys fees of $97,173.13 and Wilson $355,488.67, respectively. Johnson was also awarded attorneys fees, but the record does not include the amount awarded.
Roncelli appealed, challenging the attorneys fees awarded. The claim was that § 32-28-3-14 did not provide for attorneys fees in this scenario for three reasons. First, Good rich paid Roncelli in full for the contract, fulfilling the sole purpose of the mechanics lien statute provision and left the subcontractors with contractual remedies against Roncellie. Second, Roncelli claims that § 32-28-3-14 does not cover a dispute between a general contractor and a subcontractor because it was enacted to “prevent the inequity of a property owner enjoying the benefits of the labor and materials furnished by others without recompense. (Appellant’s Br. at 54-55 (quoting Premier Investments v. Suites of America., Inc., 644 N.E.2d 124, 130 (Ind.1994).)).” Finally, Roncelli believes that filing a bond under § 32-28-3-11 does not obligate it to pay attorneys fees because there was no statutory authorization to award said attorneys fees.
The Saving Grace
These arguments had some merit, and the appellate court agreed with Roncelli, but the Indiana Supreme Court did not. In Goodrich Quality Theaters, Inc. v. Fostcorp Heating and Cooling, Inc., 39 N.E.3d 660 (Ind. 2015), the Indiana Supreme Court ruled in favor of the subcontractors almost turning Roncelli’s arguments against it. The first was a question of whether § 32-28-3-14 entitled the subcontractors to collect attorneys fees from Roncelli. The simple answer was yes. Although Roncelli contended that this provision applies only to the property owner, the Court disagreed stating that the provision applied to all circumstances. The specific subsection of 14(b) was an exclusionary provision solely applying to the property owner. In other words, the property owner fully paying the contract price to the general contractor frees the property owner from paying attorneys fees but not the the general contractor.
The Court did not consider whether the above provision mandated attorneys fees because of the bond posted by Roncelli. Pursuant to Indiana Code § 32-28-3-11:
(b) An undertaking filed under this section must provide that the person filing it will pay any judgment that may be recovered in the action to foreclose the lien, including costs and attorneys fees allowed by the court, if the claim on which the judgment is founded is found by the court to have been a lien on the property at the time the action was filed. (Emphasis Added.)
The bond Roncelli posted completely matched up with this statutory language:
NOW, THEREFORE, the condition of this obligation is such that if [Roncelli]. . . and the Surety, Hartford Fire Insurance Company, jointly and severally, shall well and truly pay in full any judgment that may be recovered by [subcontractors] in its action to foreclose its lien, including costs and attorneys fees allowed by the court . . . (Emphasis Added.)
It was clear and obvious to the Court that Roncelli was required to pay attorneys fees by both the statutory provision and its own bond. The Court also stated that it would be unfair to allow a general contractor to escape paying attorneys fees for posting a surety bond. Subcontractors would be put in a worse position than if it had foreclosed, and they cannot object to the posting a surety bond. The Court also made a point of holding that the subcontractors would have been entitled to recover attorneys fees even if a bond was not posted because of § 32-28-3-14.
The Bottom Line
Lienholders can collect attorneys fees when successful in foreclosing under the Indiana Mechanics Lien Statute. They can recover attorneys fees even if a surety bond is posted to release the mechanics liens. This ruling may not seem like much, but it truly is a huge win for subcontractors in Indiana. The court decision provides a significant amount of protection for subcontractors, preventing them from being leveraging out of exercising their lien rights. This ruling may also have a significant impact on how many mechanics liens will actually have to go to a foreclosure battle. In other words, the Indiana Supreme Court may have just prevented many subcontractors from having to litigate to receive payment for their services. The benefits of mechanics liens are strong. The Indiana Supreme Court just made those benefits that much stronger, specifically the leverage liens give to subcontractors.