Recent Washington Court Decision Examines Whether Lien Claim on Condominium Unit Was Frivolous (Subject to Release) or Excessive (Subject to Reduction)

On February 11, 2019, Division One of the Washington Court of Appeals issued an opinion in the case of Woodley v. Style Corp. d/b/a Servpro of Shoreline/Woodinville, No. 77352-6-I (Wash. Ct. App. Feb. 11, 2019).  The case highlights the care that should be exercised in filing a lien claim for services furnished to improve a condominium and the consequences that may befall a claimant under Washington’s frivolous lien claim statute, RCW 60.04.081.

The case arose from water intrusion at a unit in the Bellevue Park condominium complex. After discovery of the condition, the condominium’s property management company contacted Servpro and executed a work authorization for the contractor to clean up the water and perform restoration work.  Servpro was not paid for its work and filed a claim of lien.  The lien named the association as the indebted person, recited that it applied to the 20 specific units and a common storage area of the condominium, and named each owner of the 20 units but did not allocate a specific portion of the total debt to each unit.

One of the unit owners, Denise Woodley, filed a motion to release the lien under RCW 60.04.081. The trial court granted the motion, finding the lien both frivolous and clearly excessive, and released the lien.

On appeal, Division One disagreed with the trial court’s ruling and found that the lien, although possibly invalid in a number of respects (e.g., whether (a) the work was authorized by the owner or its agent, (b) the lien was timely filed, and (c) the lien had factual inaccuracies) and subject to debatable legal and factual issues, was not frivolous.

The Court of Appeals next examined whether Servpro’s lien claim was “clearly excessive.” On appeal, Servpro argued that its lien was not clearly excessive because it was not filed in bad faith or with an intent to defraud, relying on Pacific Industries, Inc. v. Singh, 120 Wn. App. 1, 10, 86 P.3d 778 (2003) (where the court held that “[a] materialman’s lien will be declared invalid because it is excessive only if the amount is claimed with an intent to defraud or in bad faith”).  The court in Woodley noted that the standard articulated in Singh “relies on cases that predate RCW 60.04.081 and consequently, fail to account for the statute.” Id. at 8.

Relying on the plain meaning of the statutory language to give effect to the legislative intent, the court interpreted RCW 60.04.081 to delineate between a frivolous lien (one made “without reasonable cause” and “beyond legitimate dispute”) and a clearly excessive lien (where “the face value of the lien is unquestionably far greater than the value of the goods or services provided”).  Id. at 15 (emphasis in original).  Under the limited summary proceeding authorized by the statute, the only remedy for a frivolous lien, according to the court in Woodley, is release, while the only remedy for a clearly excessive lien is reduction of the lien amount. Id. at 11.

Based on the facts of the case and the “plain meaning” of the statute, the Woodley court could not “read RCW 60.04.081 to allow release of a non-frivolous, excessive lien even if made in bad faith or with intent to defraud because it would read additional terms into the statute and undermine the statute’s mandatory language limiting each remedy to a particular problem.” Id. at 12-13.

Without a solid explanation of how a lien might actually be considered “frivolous” under the statute, the court focused its examination on whether the lien claim in Woodley was “clearly excessive.”  For this analysis, the court considered the dictionary definition of the operative terms of the statute, ruling that a “clearly excessive” lien “must be unquestionably characterized by being far above the usual or agreed amount.” Id. at 14.  This definition comports with RCW 60.04.021, which authorizes a lien only “for the contract price”—defined as “‘the amount agreed upon by the contracting parties, or if no amount is agreed upon, then the customary and reasonable charge therefor.’” Id. (quoting RCW 60.04.011(2)).

Based on this construction of the statute, the court then turned its attention to Servpro’s lien claim against the condominium. In Woodley, the lien encumbered 20 specific units and a common storage area of the condominium complex.  “This approach,” ruled the court, “failed to properly account for how lien statutes and condominium statutes interact.” Id. at 15.

The court distinguished between a condominium’s common elements (all parts of a condominium other than the units) and the individual units (subject to individual ownership and separately owned, taxed, and financed) and the approaches available to an unpaid contractor for improvements furnished to a condominium complex.

On the one hand, a contractor may file a lien claim against the entire complex, just as it could against an individual property, by naming an owner’s association as the indebted person (since it has authority to maintain and repair, but not typically own, the condominium property) and listing the whole condominium as the property subject to the lien. In that instance, any judgment enforcing the lien extends to all units in the condominium and each owner’s interest in the common elements.  The collective lien is released if the association pays the total balance due or an individual unit is released if that unit owner pays the lien claimant his or her proportionate share of the total amount owed by the association.  This proportionate share, the court noted, “is not based on the value of the benefit to a unit but on the ‘fractional and proportionate amounts attributable to each of the [units] affected,’” which are based on “the unit owner’s ownership percentage of the entire condominium ‘appearing on the declaration.’” Id. at 18 (brackets in original) (quoting RCW 64.32.070(2)).

On the other hand, a contractor can also file a lien against an individual unit to the extent the unit owner authorized or “‘expressly consented’” to the services. Id. (quoting RCW 64.32.070(1)).

The court found that Servpro in this case improperly conflated these two approaches. Servpro’s lien listed the individual units where it performed services, named the individual owners of the 20 units, and provided a value of work benefitting the individual units and the common elements. Id.  The face value of the lien was $183,945.09, but Servpro conceded that the maximum value of the services provided to Ms. Woodley’s unit was only $6,001.90 and the lien claim was unclear regarding the amount owed by each individual owner or by the association.  Accordingly, the court ruled that the lien was clearly excessive, awarded attorneys’ fees to the movant as mandated by statute (RCW 60.04.081(4)), and remanded the case for further proceedings on the factual issues and reduction of the lien amount.

The Woodley case informs—and cautions—practitioners on the scope of Washington’s frivolous lien statute and the nuances associated with preparing and filing lien claims against condominiums.  Incorrect lien claims—including those characterized as “clearly excessive” under the statute—may result in harsh consequences, like those that befell the lien claimant in the Woodley case (i.e., a reduction in the lien claim and liability for attorneys’ fees).

Here’s what building owners need to know following last year’s wildfires, earthquakes

California’s 2018 wildfire season — the most damaging and deadly on record — and a pair of earthquakes in Alaska can serve as case studies for Northwest property owners as to steps they can take to mitigate their risks in the event such disasters strike closer to home. In my latest article for the Seattle Daily Journal of Commerce, I provide examples of the most common types of damages incurred by property owners and types of insurance that are available to cover those damages, and look at other tools owners should consider implementing, including emergency response and business continuity plans. Read the full article here.

Originally published on January 31, 2019, by the Seattle Daily Journal of Commerce.

California Employers: Ignore Piece-Rate Compensation Rules at Your Peril

A recent California Court of Appeal decision upheld the state’s complex rules for compensating piece-rate employees.  In Nisei Farmers League v. California Labor & Workforce Dev. Agency, 2019 Cal.App. LEXIS 10 (Cal.Ct.App. Jan. 4, 2019), the Court held that the Labor Code’s requirement that piece-rate employees be separately compensated for “nonproductive time” was not unconstitutionally vague.  With California’s “productive vs. non-productive time” rubric firmly in place, employers must take great care to track and compensate piece-rate employees’ time, or face stiff penalties.

What Does “Piece-Rate” Mean, And Why Might An Employer Chose It?

Piece-rate compensation plans are very popular in some industries.  They can incentivize employee productivity, while giving an employer greater control over labor costs. Under a piece-rate compensation system, the worker is paid a fixed amount of money for each unit produced or action performed, regardless of the number of hours worked. Industries that pay employees on a piece-rate basis include: Continue Reading

Update on Alaska Way Viaduct Replacement

Occasional visitors to Seattle may be surprised to discover that their favorite route from the airport to downtown has changed. State Highway 99 no longer links to the Alaskan Way Viaduct into downtown Seattle.  The waterfront viaduct has been closed and demolition has begun.  The Battery Street tunnel that connected viaduct traffic to Aurora Avenue North will also be demolished.

Closure of the viaduct is the culmination of planning that began when the viaduct was damaged by an earthquake in 2001. After considering many engineering and financial studies, the Washington State Department of Transportation decided to replace the viaduct with a highway tunnel.  WSDOT signed a design-build contract in 2011 and tunnel mining began in July 2013. Unfortunately, the tunnel boring machine stopped advancing in December 2013.  After dramatic efforts that included building a shaft 120 feet deep and lifting huge pieces of the TBM to the surface for inspection and repairs, the contractor resumed mining in January 2016.  The tunnel is now completed.  There will be a grand opening ceremony on February 2 and 3, 2019.  The tunnel will open to traffic shortly after that.  It will be free at first, with tolls phasing in later this year.

Once the viaduct is gone, the City of Seattle has big plans for expanding the Alaskan Way surface street and revitalizing the near-waterfront area.

Further information about this mega project can be found by googling any of the following:

Alaskan Way Viaduct – Tracking Progress
Seattle Waterfront Project

Three “Basic Best Practices” New Year Resolution Tips for Construction Projects

Ultimately, improving our companies, like improving ourselves, is up to us and our own diligence and persistence in identifying and implementing improvements on an ongoing basis. A strong market as we start 2019 means a great opportunity to review for and ensure solid implementation of legal compliance and financial goals for your construction projects – before the next down cycle hits our industry. In my latest article for the Daily Journal of Commerce, I identify three prime areas to review as you start the new year. Read the full article here.

Originally published as “Three basic best practices for construction companies” on January 17, 2019, by the Daily Journal of Commerce.

Practical Law and Stoel Rives LLP Publish New Lien Law Resources for Washington

Practical Law, a Thomson Reuters company and division of West Publishing Corporation that produces online legal resources for attorneys, is pleased to partner with Stoel Rives LLP to present its Washington Construction Lien Practice Note and Workflow Checklist.

The resources, now published and available through Practical Law’s online services, afford access to valuable content about construction liens in Washington for attorneys practicing nationally and globally in law firms and corporate legal departments.  Practical Law employs unique formats to present the material in an easily readable manner and to aid attorneys’ access to critical information about construction lien claims (e.g., required notices, deadlines, procedures, and notable cases).

Practical Law recognized and invited members of the Construction & Design Group of Stoel Rives’ Seattle office to provide construction lien resources for Washington.  According to Kate Kruk, Practical Law’s Content Acquisition Editor, “[s]erving as a Practical Law contributor showcases [Stoel Rives’] expertise and drives home [its] position as a legal thought-leader in the northwest.”

The contributing authors for the Practical Law resources on construction lien claims in Washington are three construction lawyers from Stoel Rives’ Seattle office: Karl Oles, Bart Reed, and Loni Hinton.  They value the opportunity to present a unique set of reference materials that highlight their group’s experience and expertise in this area.

PDF copies of the Practice Note and the Workflow Checklist for construction lien claims in Washington can be found here:  Practice Note Workflow Checklist

Reimagining the Dispute Resolution Provision in Construction and Design Contracts

In construction projects, experienced owners, contractors, or designers know that disputes will almost invariably arise — even when the parties have the best of intentions. And they understand that detailed contract provisions to resolve those disputes can have major benefits if they are properly drafted to suit the project, parties, and types of dispute most likely to occur. In my latest article for the Daily Journal of Commerce, I look at how concepts like mediation, arbitration, and attorney fee shifting — firmly established in the world of construction and design contracting and contained in almost every form contract — can be reimagined in small ways for use in those documents to save the parties time and resources during the course of the project. Read the full article here.

Originally published as “Reimagining the dispute resolution provision in contracts” on December 19, 2018, by the Daily Journal of Commerce.

When “Art” Strikes Development

A 2018 legal case in New York arose over the disposition of a collection of run-down warehouses in Long Island City, Queens, New York, which graffiti artists began to use as a canvas for their work after the buildings went undeveloped by the owner for many years. When the owner announced that he would demolish the buildings to make way for luxury condominiums, 21 of the graffitists sued for an injunction to prevent the destruction of the buildings and their artwork. The owner whitewashed the walls, destroying most of the graffiti, and after a trial, the Court found the owner liable of violating the Visual Artists Rights Act of 1990 in obliterating the graffiti and awarded the maximum statutory damages, $150,000 per work, for a total of $6.75MM. In my latest article for the Daily Journal of Commerce, co-authored with Stoel Rives law clerk Antonia Krizanec, I discuss a few steps an owner-developer might take in the face of a similar situation. Read the full article here.

Originally published as “A case of New York City graffiti becoming art” on November 16, 2018, by the Daily Journal of Commerce.

Reminder of January 1, 2019 Mandatory New Notice Requirement by CA Residential Solar Contractors

In 2017, the California Legislature passed a bill that resulted in Business and Professions Code (BPC) section 7169, which ultimately would require Home Improvement Contractors, which include contractors that install solar systems on residences, to issue specific disclosures to any residential consumers who may want to purchase, finance or lease, and install a solar system on their property. Recently in August, the California Public Utilities Commission “endorse[d] the solar energy systems disclosure document as being compliant with [BPC section 7169]….” The Disclosure terms include:

  • The total cost for the solar system, including financing and energy/power costs (if applicable);
  • The statutory License Board Disclosure statement for contractors and / or the home improvement salesperson who sold the system information regarding with whom to file if there are complaints; and
  • The statutory Three-Day Right to Cancel Disclosure if the contract is not negotiated at the contractor’s place of business.

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New Fall Protection Regulations Being Studied

The Washington Department of Labor & Industries, Division of Occupational Safety and Health, is considering changes to Washington’s fall protection regulations. These are rules intended to protect construction workers from injury caused by falls on a jobsite.  The Division has been interested in this topic since 2013, when the federal Occupational Safety and Health Administration expressed concerns about our state regulations, particularly as they apply to residential construction.  The Division has held meetings around the state and has found widespread support for a uniform set of regulations that would apply throughout the state.  It also learned that some industry participants were not aware of the current regulations.

Further meetings have been scheduled (December 11 in Spokane and December 18 in Tukwila) at which attendees can learn more about the current regulations. For more information about these meetings or the regulatory process leading towards amendment of the regulations, consult this state website.

Injuries from falls can be very serious and many can be prevented. The Division’s website is a good source of information about construction injury risks and prevention strategies.  Keeping up to date on these and other safety rules is not only important for success in the construction business, it’s the law.