The Michigan Supreme Court recently expounded on the definition of a prevailing party under the Construction Lien Act (CLA) in the case of Ronnisch Constr Group, Inc v. Lofts on the Nine, LLC. Pursuant to Section 118(2) of the CLA, prevailing parties are eligible for reasonable attorney’s fees and costs. Whether Ronnisch Construction Group (RCG) was a prevailing party eligible for such attorney’s fees and costs was at issue in this case.
The dispute arose from an agreement between Lofts on the Nine, LLC (LOTN) and RCG to construct a condominium building in return for payment. However, after construction, LOTN withheld payment to RCG based on a claim of a defective construction, dishonesty in pricing, and failure to finish the project on time. Ronnisch responded by filing a claim of lien on the property and subsequently filing an action to foreclose on that lien along with claims for breach of contract and unjust enrichment. The contract binding the parties mandated arbitration and, therefore, the proceeding in circuit court was stayed pending the decision of an arbitrator.
Following arbitration, the arbitrator granted RCG a net award of $450,820.36 resulting from both RCG’s and LOTN’s successful claims against each other for $636,058.72 and $185,238.36, respectively. Ronnisch Construction Group prevailed only on its breach of contract claim. LOTN paid the arbitration award in full and RCG then filed a motion requesting that the trial court lift the stay of proceedings, confirm the arbitration award, and award RCG its actual attorney’s fees and costs under CLA section 118(2).
The trial court denied RCG’s request for reasonable attorney’s fees and costs under Section 118(2), determining that the arbitrator/trial court had not adjudicated RCG’s foreclosure of lien claim as required by the statute. Furthermore, the court determined RCG’s lien was satisfied when it accepted LOTN’s payment. RCG appealed to the Michigan Court of Appeals which vacated the trial court’s order denying RCG’s request for attorney fees. The Court of Appeals found that RCG was an eligible prevailing party under the CLA. LOTN appealed to the Michigan Supreme Court.
The Michigan Supreme Court granted LOTN’s leave to appeal to determine whether RCG was a prevailing party under Section 118(2) of the CLA. The court felt obligated to delineate the proper outcome of a case where a lien claimant prevailed in binding arbitration on its breach of contract claim, but did not prevail on it foreclosure of lien claim.
In order to receive reasonable costs and attorney’s fees under Section 118(2) of the CLA, one must (1) be a lien claimant, (2) in an action to enforce a construction lien through foreclosure, (3) who was the prevailing party.
The Michigan Supreme Court began its analysis with the definition of a lien claimant. A lien claimant is simply a person having a right to a construction lien under the Act. The Michigan Supreme court determined RCG had a valid claim of lien that attached to LOTN’s property due to LOTN’s failure to tender payment under the contract.
The remainder of the analysis is a bit more complex. The court interpreted Section 118(2)’s phrase “in an action to enforce a construction lien through foreclosure”, to include any claims brought in conjunction with a construction lien foreclosure claim. Thus, the action in this case involved not only the lien of foreclosure claim, but also the breach of contract claim.
The resulting conclusion was that it is not necessary for the lien claimant to prevail on its foreclosure claim to be considered a prevailing party. Instead a lien claimant might prevail on its related breach of contract claim and be awarded the full amount sought under the lien foreclosure claim. In such an event, the party should still be considered to have prevailed in its action to enforce the construction lien, despite not winning its specific lien foreclosure claim. Thus, RCG was, in fact, the prevailing party in an action to enforce a construction lien through foreclosure.
The court determined that RCG was a prevailing party in its action based on their net positive award in arbitration, an enforceable alteration of legal rights between the parties. Furthermore, the court determined that under the CLA, a lien claimant becomes the prevailing party when the rights and obligations of the parties that are at the heart of its lien claim are conclusively determined in its favor. Clearly, RCG was successful in prosecuting and in return receiving the bulk of payment that it had sought from the lien.
Thus, the Michigan Supreme Court affirmed the appellate court’s decision to vacate the denial of attorney’s fees to RCG and remanded the case back to the trial court for further proceedings to determine such fees.
This article was written by John Toth, law clerk.
