In Florida, construction liens provide a valuable remedy to contractors. In order to be entitled to a construction lien, a contractor must strictly comply with the conditions precedent set forth in Sections 713.001 – 713.37, Florida Statutes. One such condition precedent is the commencement of an action to enforce the lien in a court of competent jurisdiction before the lien expires. See Section 713.22. This blog examines a particular nuance of this requirement – enforcing the lien when the contract contains an arbitration provision.
Arbitration provisions are common in construction contracts. Therefore, it is important to understand the impact of an arbitration provision on procedures to enforce a construction lien. The critical thing to understand is that a contractor cannot rely solely on arbitration. Regardless of arbitration, a contractor’s first step should be to file a complaint or counterclaim in a court of competent jurisdiction, seeking to foreclose the lien pursuant to statute. Failure to take this step could (and likely will) render the lien unenforceable. Arbitration does not satisfy the court action condition precedent.
A recent case highlights the drastic effect of failing to satisfy this requirement. In Snell v. Mott’s Contr. Servs., 2014 Fla. App. LEXIS 7649 (Fla. 2d DCA May 21, 2014), a contractor lost his lien rights because he skipped this step. Here is a short summary of the case: Construction contract contained arbitration provision. Contractor recorded claim of lien. Two weeks later, homeowner filed lawsuit in court contesting the validity of the lien and recorded a notice of contest of lien. Without taking the aforementioned first step, contractor moved to stay the case and compel arbitration. The court granted the motion – compelling arbitration. In arbitration, the contractor successfully enforced his lien. The arbitrator’s award, dated eight months after notice of contest of lien was recorded, determined that contractor was entitled to attorney fees (under s.713.29) as prevailing party in the lien enforcement. Contractor then filed the arbitration award with the court and moved for final judgment enforcing the award. The court denied the award because contractor had failed to commence an action in “court” to foreclose the lien within 60 days of the recorded notice of contest of lien. The Second District Court of Appeals agreed: holding that “court” does not include “arbitration” for purposes of the construction lien law. Enforcing a lien in arbitration does not satisfy the Section 713.22 condition precedent that an action must be brought in a court of competent jurisdiction before expiration of the time period.
Mott’s Construction Services’ fatal flaw was skipping the first step. It skipped the first step and went straight to compelling arbitration. Instead, Mott’s Construction Services should have filed a counterclaim in the lawsuit at the same time that it filed its motion to compel arbitration. See e.g. Mainlands Const. Co. v. Wen-Dic Constr. Co., 482 So.2d 1369 (Fla.1986); Vill. at Dolphin Commerce Ctr., LLC v. Constr. Serv. Solutions, LLC, 2014 Fla. App. LEXIS 7703 (Fla. 3d DCA May 21, 2014). If it had done so, it would have been awarded attorney’s fees for enforcement of its lien in arbitration.
When taking the first step, the contractor can waive (or protect) its rights to arbitrate. See e.g. Hough v. JKP Development, Inc., 654 So. 2d 1241 (Fla. 3d DCA 1995). Therefore, to avoid waiver, a contractor should take the following steps. In the lawsuit, the complaint or counterclaim should allege that there is an arbitration clause which is not waived. In addition, a stay of the proceedings pending the arbitration should be requested in the prayer for relief. Simultaneously with the complaint/counterclaim, contractor should file a motion to stay the proceedings and compel arbitration. Where the complaint is filed and there is no simultaneous or prior demand for arbitration, the party filing the complaint is waiving arbitration. Taking these steps protects contractor’s right to arbitrate. See e.g. Brookshire v. GP Const. of Palm Beach, Inc., 993 So. 2d 179, 180 (Fla. 4th DCA 2008); Zager Plumbing, Inc. v. JPI Nat’l Constr., Inc., 785 So.2d 660 (Fla. 3d DCA 2001).
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