Mechanics Liens on Multiple Structure, Multiple Owner Project
by John S. Mrowiec

In a past column, we have discussed the difficulties surrounding mechanics liens on a lessor's property arising from tenant work, The Pitfalls of Mechanics Liens for Tenant Work (April 2004) and the impact of failure to satisfy some of the technical requirements of a mechanics lien statute, Unrepresented Mechanics Lien Claimants Committed Fatal Errors (Oct. 2003). A new case involves another difficult problem - perfecting a mechanics lien on a multiple-structure, multiple-owner project.

The case of Ehlers Construction, Inc. v. Timbers of Shorewood, L.P., 2004 U.S. Dist. LEXIS 3886 (N.D. Ill. March 11, 2004) involved construction of two attached structures on adjoining parcels owned by different legal owners but with a common street address. The general contractor, Ehlers Construction Inc., entered into two separate construction contracts.

The first was to construct a 90-unit assisted living project on land known as Lot 147A (the "AL Project"). The owner of the AL Project was "Timbers of Shorewood - AL, L.P."

The second contract was to construct a 96-unit senior citizen independent living facility on land known as Lot 147B (the "IL Project"). The owner of the IL Project was "Timbers of Shorewood, L.P."

The AL and IL projects were attached. Not only were the two projects owned by owners with almost identical names but the two projects had the identical street address of 1100 N. River Rd.

The general contractor entered into eight separate subcontracts with a subcontractor, Avenue Inc. Some of the subcontracts related to the AL Project, some to the IL Project.

The subcontractor claimed an amount due and recorded a single mechanics lien claim. The subcontractor's mechanics lien claim was a "blanket lien" on both of Lots 147A and 147B. The lien claim did not allocate separate amounts owing to each lot.

The general contractor also claimed amounts due from the owners under the two prime contracts and recorded two separate mechanics lien claims, one for each separate contract and appropriate lot. The general contractor filed suit against the two owners to foreclose its two lien claims.

The subcontractor intervened and sought to foreclose its single lien claim. The subcontractor's complaint said it was owed under "contract or contracts" but did not specify under which subcontract or subcontracts the amount was owed.

The general contractor moved to dismiss the count of the subcontractor's complaint that sought to foreclose the subcontractor's lien claim. The general contractor argued that the subcontractor's mechanics lien claim was invalid because the subcontractor's lien claim (1.) was an improper blanket lien on two parcels owned by two separate owners; (2.) was a single lien relating to eight separate subcontracts on two separate projects; (3.) did not set forth the proper legal description; (4.) misdescribed the owners; and (5.) did not set forth the last date of work associated with each project.
The subcontractor apparently did not deny these issues but argued they were innocent errors with no effect on the validity of the subcontractor's lien.

The suit had been filed in federal court. The federal court applied the Illinois Mechanics Lien Act as the governing substantive law on the mechanics lien foreclosure issues.

Court's Ruling

As a touchstone, the federal court noted that the Mechanics Lien Act is strictly construed regarding the requirements for establishing a valid mechanics lien.
Applying the Mechanics Lien Act, the court held that the subcontractor's unallocated, blanket lien on two parcels in this case was invalid.

The Ehlers Construction court recognized that blanket liens are appropriate when a single owner enters into a single contract to construct or improve more than one building on one or more lots. However, here, the subcontractor's lien failed because the subcontractor performed work under multiple subcontracts on two separate parcels owned by two separate entities.

Next, the Ehlers Construction court held the subcontractor's lien claim also was invalid because it failed to include a brief statement of the contract as required by section 7 of the Illinois Mechanics Lien Act. The court's reasoning here is somewhat confusing.
The court conceded that the subcontractor had served notice to both owners. However, the subcontractor's lien claim mentioned only one owner in its description of the contract. Even though the claimant was a subcontractor (whose subcontract is with a prime contract), the Ehlers Construction court held the failure to name the other owner in the description of the contract was a fatal error.

Lastly, the federal court held the subcontractor's lien claim was defective because it purported to attach to both of Lots 147A and 147B when the subcontractor mentioned only one owner in the lien claim's description of the contract. By naming only one owner in the contract description, all the court could assume from the lien claim is that the amount owing related solely to that owner's lot, not the other lot. When the subcontractor liened both lots, the court held that the subcontractor had overliened and according to the court, had misdescribed the property. The subcontractor's mechanics lien claim was ruled invalid on both lots.

The Ehler Construction court decision teaches that a subcontractor needs to perform some investigation about who the owners are when building on a multiple owner, multiple parcel site. The careful claimant liens only the parcel owned by the owner from whose contract amounts remain due. All lien claimants must use special care in the multiple parcel, multiple owner context.

Update on Local 150

In a past issue, we discussed some of the ongoing litigation concerning the efforts of Local 150 of the International Union of Operating Engineers to organize personnel of geotechnical and construction materials engineering firms, Labor Union Disputes Regarding Engineering Firms (Feb. 2004). Recently, the United States Court of Appeals affirmed a National Labor Relations Board order in favor of an employer, Terracon Inc., against Local 150, holding that the employer had not voluntarily recognized the union as the bargaining representative for the employer's drillers and drill helpers. International Union of Operating Engineers, Local 150 v. National Labor Relations Board, 2004 U.S. App. LEXIS 4859 (7th Cir., March 16, 2004).

John S. Mrowiec is a partner with Chicago-based Conway & Mrowiec, a construction and public contracts law and litigation practice. He may be reached at (312) 658-1100. For information, go to the firm's Web site at www.cmcontractors.com.