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New Mechanic's Lien Opinion Shows Need for Additional Care When Drafting Construction Contracts

Those in the DC metro area construction industry should take heed of a recent District of Columbia Court of Appeals opinion that sheds additional light on the District’s mechanic’s lien statute – King Carpentry Inc. v. 1345 K Street LLC, ADI Construction of Virginia, LLC, and Great American Insurance Company. It demonstrates the importance of carefully reviewing forum selection clauses.
On

The Project

The property owner and developer, 1345 King Street SE, hired ADI Construction of Virginia (ADI) as its general contractor on a condominium project. ADI, in turn, hired King Carpentry as one of its subcontractors. Their subcontract contained a forum selection clause stating that the parties “consent[ed] to personal jurisdiction and venue, for any action arising out of breach or threatened breach of this Agreement in the Circuit Court in and for Fairfax County, Virginia.”  

The Mechanic’s Lien

Due to a payment dispute, King Carpentry filed a Notice of Mechanic’s Lien against the Project with the DC Recorder of Deeds pursuant to DC Code § 40-303.03. In response, 1345 K Street and ADI filed a consent petition to replace the lien with an undertaking and bond, pursuant to DC Code § 40-303.17.  

The Litigation

King Carpentry subsequently started litigation in the Superior Court of the District of Columbia (1) for breach of contract against ADI and (2) to enforce the mechanic’s lien against the undertaking as to ADI, 1345 K Street, and the surety.  

In response, ADI filed a motion to dismiss the complaint, arguing that (1) Fairfax County, Virginia was the proper forum for the contract claim and that (2) King Carpentry had failed to follow the procedural requirements of the lien statute by failing to file a notice of lis pendens within ten days of filing suit under DC Code § 40-303.13.  

The trial court agreed with ADI and dismissed the complaint.  

The Appeal

On appeal, King Carpentry argued that the trial court erred in determining that (1) the forum selection clause was mandatory rather than permissive, and that (2) a lis pendens was necessary even where a mechanic’s lien has been replaced by an undertaking and bond.  

The District of Columbia Court of Appeals agreed, noting that the forum selection clause did not state that litigation “shall” be brought in Fairfax County, but rather that the parties “consented to” venue in Fairfax County. This language was permissive and not mandatory – it did not preclude litigation in other venues.  

The Court of Appeals also determined that King Carpentry was not required to file a notice of lis pendens – at the time it filed its complaint, it was not a “person with a lien” as referenced in DC Code § 40-303.13(a)(1)(B). The lien had already been replaced by an undertaking and bond, transforming the cause of action from a proceeding against the property to a proceeding against the property owner and surety.

Considerations

This case highlights a few important considerations for property owners and general contractors.

1. Be careful in drafting a forum selection clause. If you want to limit suit to a certain venue, ensure the language is mandatory rather than permissive.

2. Owners need to think beyond the general contract with the general contractor and consider whether to require the general contractor to include a forum selection clause in its subcontract that mirrors any forum selection clause in the general contract. Had the forum selection clause in the King Carpentry case been mandatory, the subcontractor would have been precluded from bringing the complaint related to the mechanic’s lien against the owner (which must be filed in the county in which the property is located) and the complaint about a breach of contract against the general contractor (which would have been Fairfax County, VA) in the same court.

3. Evaluate litigation strategy before obtaining an undertaking and bond. Some subcontractors are not aware of the need to file a lis pendens within 10 days of filing suit. Owners can use the failure to obtain a lis pendens as a basis for seeking dismissal of an action on a mechanic’s lien. By replacing a lien with an undertaking and bond prior to suit, the subcontractor is no longer required to file a lis pendens.  

Contacts

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