Arbitration, mediation and other alternative dispute resolution (ADR) clauses are common in construction contracts, and clearly, filing a mechanics lien is a legal action of some character outside of the ADR framework. Does this mean that you cannot file a mechanics lien if you have some sort of arbitration or mediation clause in your contract?

As we’ve stated in the past on this blog, Arbitration Clauses Create A Mechanics Lien Mess. Nevertheless, most states will not allow an arbitration or mediation clause to eliminate a parties rights to file a mechanics lien. After all, mechanics lien rights have strong public policy purposes and are even sometimes rooted in the state’s constitution.

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This doesn’t stop people (attorneys and contractors alike) from making sweeping statements that a party does not have mechanics lien rights due to an arbitration or mediation clause. Just ask Vincent Pallaci of the New York Mechanics Lien blog about this topic. He published a fiery post inspired by an “irate caller” who was challenging a mechanics lien claim based on an arbitration clause. “Next time you get an irate phone call claiming you cannot file a mechanics lien because of an arbitration clause,” Pallaci states, “politely tell them to go read the Lien Law.”

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In New York’s case he is referring to Lien Law Sections 34 and 35 which specifically provide that mechanics lien rights are not impaired by a duty to arbitrate or mediate.

This provision, the court held, was nearly identical to language used in the 2007 and 1997 versions of AIA Document A-201, which courts have routinely interpreted to allow for mechanics lien claim filings parallel to mediation or arbitration. No such specific statutory direction exists in Maryland’s mechanics lien laws, and the United States District Court for the State of Maryland was called upon to decide whether a mediation requirement prohibited a party from filing a mechanics lien claim. Specifically, since the mechanics lien was already filed by the claimant, the court had to decide whether to dismiss the lien claim completely or “stay” the claim pending the results of the alternative dispute resolution method.

In the Maryland case decided last month, Kane Builders S&D Inc. v. Maryland CVS Pharmacy, LLC, the court acknowledged that the claim for a mechanics lien did “constitute a claim that is subject to the contract’s mediation clause,” but ruled that the mechanics lien action itself should be “stayed” and not “dismissed” pending the other proceedings.

The primary reason behind the ruling was a contract provision that provided “[i]f a Claim relates to or is subject to a mechanic’s lien, the party asserting such Claim may proceed in accordance with applicable law to comply with the lien notice or filing deadlines.”  This provision, the court held, was nearly identical to language used in the 2007 and 1997 versions of AIA Document A-201, which courts have routinely interpreted to allow for mechanics lien claim filings parallel to mediation or arbitration.

The secondary reason behind allowing a stay is more far-reaching to potential claimants in Maryland, even though the court rested firmly on the first reason and only mentioned the second reason as dicta.  The second reason was stated as follows:

[W]hen enforcing agreements to mediate, “district courts have inherent, discretionary authority to issue stays in many circumstances, and granting a stay to permit mediation (or to require it) will often be appropriate.” … Here, granting a stay to require the parties to mediate is more appropriate than dismissal because it puts the parties in the position that they bargained for, and results in little or no prejudice to either party.

We’ll see how this decision plays out in the future in Maryland. It would be especially interesting to see a court decide this issue without such an easy to interpret contract provision allowing the mechanics lien claim. Personally, I think that the second reason stated by the court should prevail to allow the lien claim parallel to any alternative dispute resolution (and this is the majority rule across the United States), but nevertheless, I wouldn’t say that this jurisprudence is comfortable for anyone in the predicament.