Contractors in the State of Washington have been watching closely a case involving prelien notice by subcontractors. On December 6, 2022, the Washington Court of Appeals, Division Two addressed the issue in the decision of Velazquez Framing LLC v. Cascadia Homes, Inc., (2022) Case No. 56513-7-II. In this matter, a second-tier subcontractor’s failure to provide prelien notice to the general contractor prevented enforcement of its lien. The court held that allowing an unknown subcontractor to file a lien against a general contractor's property when the general contractor was not aware of the second-tier subcontractor’s hiring or participation in the project is against legislative policy to protect both laborers and owners.
Facts
Cascadia Homes is a general contractor for a residential home project in Lakewood, Washington. High End Construction LLC submitted a bid to Cascadia to do the framing on the Lakewood home. High End's bid was accepted and it began work soon after. High End entered an oral agreement with Velazquez Framing, a subcontractor framing company, to provide the framing work. Cascadia was not made aware of the agreement between High End and Velazquez, and had no knowledge that Velazquez was doing any work on the Lakewood house.
Velazquez worked on the home for approximately two weeks. High End sent Cascadia a request for payment and was paid. Velazquez Framing requested that High End submit payment for their work as agreed, but High End never paid them. Velazquez then submitted an invoice to Cascadia seeking payment. Cascadia refused to pay. Subsequently, Velazquez filed a lien for both labor and materials on the Lakewood Home. It also filed a complaint against Cascadia, requesting payment and foreclosure on its lien. Cascadia and Velazquez agreed to file a stipulated order for a cash deposit and release of lien. Cascadia deposited $37,462,67 into the court registry and the lien was released.
Cascadia filed a motion for summary judgment asking the court to dismiss Velazquez's complaint and citing the fact that Velazquez failed to provide prelien notice. The court granted the motion for summary judgment, finding that Velazquez's failure to file a prelien notice rendered the lien unenforceable under RCW 60.04.021 and RCW 60.04.03(1). Velazquez filed a motion for reconsideration, which the court denied. Velazquez then filed an appeal of that judgment.
When is Prelien Notice Required?
RCW 60.04 provides the legal parameters for mechanics and materialmen's liens, as well as generally providing the rules for construction liens. It states in relevant part, "[a]ny person furnishing labor, professional services, materials, or equipment for the improvement of real property shall have a lien upon the improvement for the contract price of labor, professional services, materials, or equipment furnished at the instance of the owner, or the agent or construction agent of the owner." Furnishing labor, professional services, materials, or equipment is "the performance of any labor or professional services, the contribution owed to any employee benefit plan on account of any labor, the provision of any supplies or materials, and the renting, leasing, or otherwise supplying of equipment for the improvement of real property." RCW 60.04.011(4).
The statute goes on to define labor as "the exertion of the powers of body performed at site for compensation." Every company hired to perform work is required to give the owner or reputed owner notice in writing of the right to claim a lien." RCW 60.04.031(1). If the subcontractor fails to provide prelien notice, the court will not enforce the lien. The statute also provides for several exceptions to this general rule.
Notice of a right to claim a lien shall not be required of:
- "Persons who contract directly with the owner or the owner's common law agent;
- Laborers whose claim of lien is based solely on performing labor; or
- Subcontractors who contract for the improvement of real property directly with the prime contractor." RCW 60.04.031(2).
Velazquez Framing argued that subcontractors are not required to give prelien notice as to any type of labor, and contended that the legislature intended labor to be excluded from the prelien notice requirement. Cascadia countered that the law would not provide for specific exceptions to the lien notice requirement if that were the case.
The statute clearly identifies who may seek a lien. Chapter 60.04 includes:
- Labor;
- Professional services;
- Materials; and
- Equipment
In contrast (as is the crux of Velazquez's argument), RCW 60.04.031(1) requires that persons furnishing things in the following four categories must give prelien notice unless one of the aforementioned exceptions is applicable:
- Professional services
- Materials, or
- Equipment.
Labor is not mentioned in this portion of the statute. RCW 60.04.031(2) also lists who is not required to file a prelien notice:
- "Persons who contract directly with the owner or the owner's common law agent;
- Laborers whose claim of lien is based solely on performing labor; or
- Subcontractors who contract for the improvement of real property directly with the prime contractor."
The court acknowledged inconsistency in these code sections and, in particular, the fact that "labor" is not listed as a category that requires prelien notice. Because the court could not determine a plain meaning of the statute due to these inconsistencies, it looked at the legislative intent and found that one purposes was to protect homeowners from liens by subcontractors that fail to make their work known to the owner. The final bill report noted the problem and stated that"[i]n commercial construction, those who contract directly with the owner are not required to give preclaim notice. Subcontractors who contract directly with prime contractors are not required to give preclaim notice. All other participants are required to give preclaim notice, which may be given at any time, but only protects lien rights for activity occurring after a date which is 60 days prior to giving notice. Laborers are not required to give notice." Final B. Rep. on Substitute S.B. 5497, at 2, Legl Reg. Sess. (Wash. 1991).
The court noted that in reading the law as well as the legislative intent as a whole, it was convinced that the legislature primarily sought to protect consumer interests. In particular, the legislature wanted to protect property owners from being liable to second-tier subcontractors and essentially paying twice for a single service. Also, the legislative report refers to "laborers" and does not mention specifically subcontractor labor. Laborers are exempt from filing prelien notice, but the court did not find here that laborers and second-tier subcontractors are one and the same.
Despite the differing interpretations of the statutes by the parties in this case, the court found that some liens for labor do in fact require prelien notice. Not requiring second-tier subcontractors, especially those that the primary contract is not aware of, to file a lien without notice does not support the goal of the statute. Further, laborers can still achieve their objective of filing a lien and obtaining payment, provided they give proper notice. Laborers’ rights are not precluded by being asked to take an additional step, and the property owners and/or prime contractors can be properly protected as well. Therefore, the court held that RCW 60.04.031 does mandate that second-tier contractors must provide prelien notice for their labor.
Velazquez did not give Cascadia notice of their intent to file a lien for the work it performed at its property. Due to this fact, the lien filed by Velazquez was unenforceable. The lower court was correct in granting Cascadia's motion for summary judgment. Thus, the court was also correct in denying Velazquez's motion for reconsideration. Cascadia was entitled to reasonable attorney fees for the appeal.