If Your Mechanic’s Lien is Discharged, You’ve Lost the Battle But Not the War

After a mechanic’s lien is filed, an owner has two options.  The owner can wait because, if the lien is not foreclosed within a year, it evaporates by operation of law; or, the owner can file an application with the court seeking an order discharging the lien.  If the owner files an application for discharge, the court will hold a hearing during which the contractor “shall first be required to establish that there is probable cause to sustain the validity of his lien,” and, if that occurs, the owner must “prove by clear and convincing evidence that the validity of the lien should not be sustained or the amount of the lien claimed is excessive and should be reduced.”  Conn. Gen. Stat. §49-35b.  Thus, if a lien is discharged, either there was not “probable cause” to sustain the lien or the owner was able to present “clear and convincing evidence” that the lien should be discharged.  In either case, it is evidence that the contractor’s claim for the underlying debt was weak.

The question then is whether a contractor may commence its own action against the owner to the collects the amounts that had been secured by a mechanic’s lien that had been discharged after a hearing.  That issue was analyzed in the case of PEI Enterprises, Inc. v. Emmanuel Baptist Church of Newington, 2003 WL 22234406.  That decision involved a review of the doctrines of res judicata, i.e. claim preclusion, or collateral estoppel, i.e. issue preclusion, which “express no more than the fundamental principal that once a matter has been fully and fairly litigated, and finally decided, it comes to rest.  Id. In other words, you don’t get two bites at the apple.

There are important public policy reasons behind the doctrines of claim preclusion and issue preclusion.  “These underlying purposes are generally identified as being (1) to promote judicial economy by minimizing repetitive litigation; (2) to prevent inconsistent judgments which undermine the integrity of the judicial system; and (3) to provide repose by preventing a person from being harassed by vexatious litigation.”  Id.  Nonetheless, the court in PEI Enterprises, Inc. decided that there was also “a public policy interest in granting the parties at least one opportunity for a full hearing of the underlying issues concerning such liens on the merits,” and a hearing on an application to discharge a mechanic’s lien was “not designed to give such a hearing nor do the parties anticipate that it will.”  Id.  A hearing on an application to discharge a mechanic’s lien is “a pretrial procedure designed to promote and relatively inexpensive determination of the validity of the lien prior to trial.”  Id.  Thus, a contractor that loses a hearing to have its mechanic’s lien discharged may turn right around and sue the owner for the same contract balance that the mechanic’s lien was intended to secure.

The question, however, is whether such an action should be brought. As stated above, for the lien to be discharged, the contractor has to fail to establish probable cause to sustain the lien or the owner has to establish by clear and convincing evidence that the lien should be discharged.  Probable cause “is a weighing of the probabilities to try to do justice to the parties” and is considered a very low burden.  Id.  Conversely, clear and convincing evidence is a very high standard that is actually much higher than the burden of proof the plaintiff faces in a civil trial.  Thus, careful consideration must be given as to whether there is a good faith basis to pursue such a claim.  If the subsequent action is lost, the contractor and its attorney may subsequently face a claim for vexatious litigation.  If, however, there is a good faith basis to assert that the judge that discharged got the initial decision wrong – as I did in PEI Enterprises, Inc. – then not only should you bring the claim but you may prevail.

If you should have any questions about how to handle your specific situation, please give me a call at (860) 760-3317.

Scott Orenstein

 

 

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