Depending on who you ask, alternative dispute resolutions are considered either an efficient tool to avoid the court system, or an unpredictable beast that can be just as slow and costly as the judicial system. Nevertheless, with the potential benefits of arbitration and mediation, many contracts have alternative dispute resolution (ADR) clauses built in. Such was the case in a recent dispute under Michigan lien law. The fallout from an arbitration decision eventually led to a decision by the Supreme Court of Michigan. For more on the intersection of ADR and lien laws, here’s an article on understanding ADR contract clauses.
Ronnisch Construction Group (Ronnisch) and Lofts on the Nine, LLC (LOTN) entered into a contract on a condominium project. Under the contract, Ronnisch was owed $6.1M, and all disputes were to be arbitrated. At the end of the project, Ronnisch was paid only $5.5M which lead to them placing and foreclosing mechanics lien on the property. LOTN then filed counterclaims, and the parties stayed proceedings during contractually mandated arbitration. Ultimately, Ronnisch was awarded just over $626K by the arbitrator. LOTN prevailed on some counter claims, and Ronnisch’s net award was about $450K.
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Boom. Case closed, right?
Of course not!
Trial Court and Court of Appeals
The arbitrator refrained from addressing the subject of attorney fees, electing instead to leave that to the judgement of the court. Once the arbitration award was made, Ronnisch filed a motion to lift the stay on their proceedings, confirm the arbitration award, and to award attorney fees to Ronnisch as the prevailing party. The trial court denied Ronnisch’s request for attorney fees, finding that the lien was satisfied upon acceptance of LOTN’s payment of the arbitration award. The court also found that Ronnisch was not a “prevailing party” under Michigan’s Construction Lien Act. Ronnisch appealed, but the appellate court found that the awarding of attorney fees was within the discretion of the trial court. Undeterred, Ronnisch brought their claim to the Supreme Court of Michigan.
Supreme Court of Michigan
The Supreme Court proved to be a little more friendly. The court boiled its decision down to these three elements: “whether RCG was (1) a lien claimant, (2) in an action to enforce a construction lien through foreclosure, (3) who was the prevailing party.” The court found that Ronnisch was a lien claimant at the time of the arbitration award, that the contractor was in an action to force its lien rights via foreclosure, and that because Ronnisch received a favorable arbitration award, the contractor was the prevailing party. The decision was far from unanimous, and attached to the decision was a vigorous dissent.
The takeaway is pretty obvious I suppose – attorney fees are recoverable after winning an arbitration award. This is great news for contractors. Arbitration clauses can create a mess of lien laws, but it appears contractors should not be afraid of alternative dispute resolutions mixing with Michigan lien law.
We have previously covered other issues regarding the intersection of arbitration and lien law. For more information on Michigan lien law, here are some other considerations we have covered in the past, as well as our Michigan Lien Law FAQs.