by Michael Barnhill
Many litigators have had the experience of receiving a demand letter informing them that a client’s lien is wrongful and that it must be removed. Many of those same attorneys have responded to complaints and petitions to nullify the supposedly wrongful lien. In Utah, many practitioners and jurists alike misapply Utah’s wrongful lien statute found in the Utah Code see Utah Code Ann. § 38-9-1 et seq. The confusion occurs when the unenforceability of a lien becomes synonymous with “wrongful.”
“Unenforceable” and “Wrongful” are Synonymous.
Prior to 2009, courts often held that unenforceable liens were wrongful. For example, in Russell v. Thomas, 2000 UT App 82, 999 P.2d 1244, a recorded notice of interest was held to be a wrongful lien because the agreement upon which the defendant relied when he filed the notice of interest did not give him an interest in the real property at issue. See id ¶¶14-15. Similarly, in another case, a notice of interest recorded by a lien claimant was held to be wrongful because the notice of interest included land in excess of what the lien claimant could arguably claim it had a right to under the real estate contract. See Commercial Inv. Corp. v. Siggard, 936 P.2d 1105 (Utah Ct. App. 1997).
Courts have also held that purported mechanic’s liens can be wrongful. In Packer v. Cline, 2004 UT App 311, 2004 WL 2021277, Cline filed a mechanic’s lien that failed to substantially comply with the mechanic’s lien statute because he did not include several elements required by statute. See id *2-*3. Because of these deficiencies, the trial court held that the lien was not actually a mechanic’s lien, was not expressly authorized by statute, and was wrongful. Id. *3. The Court of Appeals agreed on appeal. Id. *3-*4.
In each of these cases, the Utah Court of Appeals held that various liens were wrongful because they were somehow defective. These defects clearly make the liens unenforceable, but do they also make them wrongful? Prior to 2009, the answer was not clear. The case law shows that if there was a procedural defect, or if it turned out that the party filing the lien or notice of interest somehow overstepped its bounds, courts could not only declare the lien unenforceable, but they could also find the lien to be wrongful. This subjected the lien’s filer to the damages statutorily allowed in Utah Code section 38-9-1. See Utah Code Ann. § 38-9-1 (2010). Now, however, the Utah Supreme Court has stepped into the fray and issued two opinions that clarify the breadth of the Wrongful Lien Act as codified in section 38-9-1.
Separating Wrongfulness from Unenforceability
The first of these cases is Hutter v. Dig-It, Inc., 2009 UT 69, 219 P.3d 918. This case, like the others, involved a defective lien. See id. Dig-It, Inc. failed to file a preliminary notice as required by the mechanic’s lien statute, and this failure rendered the mechanic’s lien unenforceable. See id. ¶ 43. The Hutters believed that the unenforceability of Dig-It’s mechanic’s lien made it wrongful, and they had plenty of case law to support their position. See id. ¶ 10. Despite the fact that the Hutter court agreed with the trial court that the lien was unenforceable and therefore void, making it unnecessary for the Hutter court to address the wrongful lien issue, the Hutter court took the “opportunity to clarify the reach of the Wrongful Lien Injunction Act.” Id. ¶ 45.
On appeal, the parties agreed that a lien is wrongful under section 38-9-1 if it is not “expressly authorized” by statute; however, the parties disagreed as to the meaning of “expressly authorized.” Id. ¶ 46. Dig-It believed that “because the right to file a mechanic’s lien is granted by statute, all mechanic’s liens – even if they ultimately prove unenforceable – are expressly authorized by statute and therefore are not wrongful liens.” Id. The Hutters argued that the statute only authorizes liens that comply with the statute at issue and that unenforceable mechanic’s liens are not expressly authorized because they do not comply with the mechanic’s lien statute. See id. The Hutter court found that both interpretations were plausible, and held that Utah Code section 38-9-1 was ambiguous. See id. ¶ 49. Because of this ambiguity, the Hutter court examined the Wrongful Lien Act’s legislative history.
The Hutter court quoted three state senators who addressed the scope of the Wrongful Lien Act. Senator Carling identified a problem with the proposed language of the Wrongful Lien Injunction Act, which initially included the phrase “or otherwise invalid” when defining wrongful liens. See id. ¶ 50. Senator Carling brought up the example of a person who thought he had filed a valid lien that actually turned out to be invalid, and said that the “or otherwise invalid” language was too broad because it could be interpreted that such a lien was wrongful under the Wrongful Lien Act. See id. In response to Senator Carling’s concern, there were discussions regarding the Wrongful Lien Act’s intended purpose. See id. The quotations from other senators make it clear that the Wrongful Lien Act was directed only at common law liens because various groups who did not like the actions of some state legislators had filed common law liens against their property. See id.
Because of these statements, the Hutter court said, “This legislative history makes clear that the legislature intended that the definition of ‘wrongful lien’ should encompass only common law liens. Therefore, we conclude that the phrase ‘not expressly authorized by…statute’ in the Wrongful Lien Act does not include statutorily created liens that ultimately prove unenforceable.” Id. ¶ 52. The Utah Supreme Court confirmed this interpretation two years later when it said, “We note that even if there were untimely liens here, those liens would not be wrongful under the Wrongful Lien Act.” Gen. Constr. & Dev. v. Peterson Plumbing Supply, 2011 UT 1, ¶ 6 n.4, 248 P.3d 972.
The Utah Supreme Court has recognized that an unenforceable lien is not necessarily synonymous with a wrongful lien. It is entirely possible that a person who has filed a lien that turns out to be unenforceable and void had good reason to believe that he had a right to file a lien against property and that the lien was “expressly authorized” by statute. After Hutter and Peterson Plumbing, parties that file such liens authorized by statute will not be punished for filing a lien that they, in good faith, believed they had a right to file. These holdings will also allow parties to better analyze liens that they believe to be wrongful.
Issues involving claims of wrongful lien often occur when a mechanic’s lien or notice of interest are recorded. Property owners who believe that the lien claimant is not entitled to record a lien often threaten to enforce various claims they believe they have, including claims for wrongful liens. Attorneys advising plaintiffs regarding wrongful liens should be sure to point out that Utah Code section 38-9-7(5)(c) provides that if the court determines a lien to be valid, the court may award attorney fees and costs to the lien claimant. See Utah Code Ann. § 38-9-7(5)(c) (2010). When attorneys are presented with facts that may support a wrongful lien claim, they should carefully analyze the facts and consider the holdings of Hutter and Peterson Plumbing to ensure that they bring wrongful lien claims only in the proper circumstances. Otherwise, their clients are exposed to potential liability for the lien claimant’s attorney fees and costs.