The 2014 General Session in  Utah includes a bill proposing “Mechanics Lien Revisions,” in House Bill 56.  This bill was introduced by Rep. Mike McKell, and it purports to amend the lien law related to “unauthorized and excessive claims of preconstruction and construction liens.”  The general description undersells its full effect, as we’ll explore in this article.

The Proposed Revisions

It’s hard to find anyone who wants to help “unauthorized and excessive claims” proliferate in the marketplace, and perhaps that explains why this bill’s general description uses this language to explain its effect. This general description, however, undersells the bill’s true effect, which would have a much greater impact on Utah’s construction lien landscape than simply helping to prevent “unauthorized and excessive” claims.

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Utah 2014 House Bill 56 would amend the state’s mechanics lien law in two significant ways:

  1. It would enable parties to demand binding arbitration on disputes about lien claims; and
  2. It would statutorily define what constitutes a “wrongful lien”

The legislation relates only to the “criminal and civil” penalties established by Utah Code § 38-1a-308, wherein it pretty much creates a more specific definition of what types of filings would be “wrongful” and enables the parties to arbitrate to receive the civil penalties instead of getting mired in an extended court battle.  You can read the full text of HB 56 as introduced here.

Thus far, the new mechanics lien bill hasn’t gotten very far.  We will of course continue to monitor it.

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The Bill’s Applicability Is Pretty Limited and May Be Beating A Dead Horse

The thing about this proposed bill is that it’s only applicable when Utah Code § 38-1a-308 applies, which is both rare and too often.

Let me explain that.

The Bill’s Applicability Is Limited Because The True and Legitimate Applicability of §38-1a-308 Is Rare

The Utah Code provision applies when a person intentionally files a mechanics lien for “a greater demand than the sum due” with the specific additional intention of either clouding the title, exacting more from the owner than is actually due, or procuring any  unjustified advantage of benefit.

Anyone who files a mechanics lien in the state now with such an intention, under the current statute, is already subject to being charged with a “class B misdemeanor” and paying substantial civil penalties.

The applicability of Utah Code §38-1a-308 and all similar penalty statutes across America is both rare and too often. It is rarely truly applicably, and too often inappropriately claimed as applicable.
This “criminal and civil penalties” statute is not unlike the statutes that exist in nearly every state to punish “excessive and unauthorized” liens. However, since the intent element is required, and almost every construction lien dispute involves a pile of nuanced factual disputes between the parties, it is rare that the statute will ever actually apply and successfully punish a claimant.

However, since every construction lien dispute involves a pile of nuanced factual disputes, the property owner, lender, title company, or general contractor usually whines that the lien claimant is filing an “unauthorized” or “excessive” lien claim, and cites these penalty statutes.The owner or general contractor then uses these penalty statutes as leverage to extort the lower tiered claimant to walk away from the claim, or a portion of it. The claimant, unfortunately, is left without any way significant retort, except to hold onto his position and hope for justice (good luck).

After originally publishing this post, here is what one construction attorney on Twitter had to say about the bill:

 

So, as I said, the applicability of Utah Code §38-1a-308 and all similar penalty statutes across America is both rare and too often.  It is rarely truly applicably, and too often inappropriately claimed as applicable.

The Bill Is Beating A Dead Horse Because §38-1a-308 Is Strong Enough To Serve Its Purpose

It’s important to look at the proposed rule and ask “what is being improved?” The bill’s description suggests that it is designed to prevent “unauthorized and excessive” lien claims, but it is simply amending an existing statute that is designed to already do this.  Hell, the statute being amended already makes filing “unauthorized and excessive” claims a crime.  It already establishes significant legal penalties.

Interestingly, the bill doesn’t change the total penalties, nor does it change the character of the crime.  The bill also doesn’t change the quirky “intent” required by claimants to qualify for enforcement. The changes it proposes are really bizarre, actually.

It would be useful for the Utah legislature to study whether the statute, as currently written, is failing in some way that this amendment would cure. How often is the crime established by this statute prosecuted?  How often is the civil claim made against claimants?  And when this happens, how often is it that a truly “unauthorized and excessive” lien, as defined by the statute, slips through the cracks without punishment?  I would bet a lot that the number of qualifying cases is tiny, and would take the odds that the total number is 0.

How often is it that a truly ‘unauthorized and excessive’ lien, as defined by the statute, slips through the cracks without punishment? I would take the odds that the total number is 0.
The Utah legislature and those in the construction industry, therefore, must inquire as to the real intent and effect of this bill.  As I explain in the next section, the only effect of this bill will be more inappropriate use of leverage by general contractors and owners, and more unnecessary administration.

Who Benefits and Who Gets Burned If This Becomes Utah Mechanics Lien Law

When mechanics lien legislation is introduced, it’s typically a battle between owners, lenders, GCs, and title insurers, against those who do the work on projects (subcontractors / suppliers). That seems to be the case here, as well.

There is nothing about Utah Code §38-1a-308 that favors a party filing a mechanics lien claim. The statute offers nothing other than ammunition to other parties who are interested in disputing a mechanics lien claim. Accordingly, it will be difficult to find anything about this amendment that favors anyone who could potentially file a mechanics lien claim.

Instead, the value here all falls to the top of the contracting chain on a construction project, who will use these amendments to make more robust threats against claimants when perhaps the parties simply have a legitimate civil dispute.

The Arbitration Requirement Is Less Valuable Than It Would Initially Appear As Currently Drafted

One potential value to all parties is the incorporation of an alternative dispute resolution requirement. Generally speaking, arbitration, mediation, and ADR requirements are valuable to all parties, and a streamlined way to deal with disputes. Furthermore, in the construction industry, it is an additional benefit to have an arbitrator who is familiar with construction, which is usually lacking with state and federal judges.

With that said, mechanics lien disputes are a terrible subject for alternative dispute resolution under most circumstances. That is because “Arbitration Clauses [or requirements] Create A Mechanics Lien Mess.”

If this bill were to become law, parties would be required to arbitration the “unauthorized or excessive” nature of the lien through this procedure, but the underlying construction or payment dispute about all the nuanced facts that will dictate whether the lien is or is not valid would probably be litigated simultaneously in a court. Further, each of the unique procedures would likely involve different parties (the owner, for example, may be proceeding under §38-1a-308, while the contractor may be in a contract lawsuit in court).

Who Is Representative Mike McKell?

We frequently write about legislation pending in the states that affect mechanics liens and payment bond claims, but we rarely go into the legislators behind the laws. That is something we’re going to start doing more frequently, because it is sometimes interesting to see the perspective of the drafter and the interests behind the same.

Regarding Utah HB 56, the representative behind the bill is Mike McKell, a Republican from Spanish Fork.  In McKell’s Conflict of Interests disclosures he states that he is involved as “Manager” in two different property management companies, Sustainable Holdings, LLC and Sockeye Holdings, LLC.  Accordingly, his personal experience with mechanic liens may come from his role with these companies.

Notwithstanding any experience with liens involving his companies’ properties, his contribution disclosures also hint at some interests on the owner / lender / title company side of the mechanics lien law aisle, with his largest contributor from 2014’s disclosures being the Utah Association of Realtors ($2000).

View and Track the Bill on Utah’s Government Site.