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A Pyrrhic Victory: Multi/Tech v. Innovative Design and Construction
October 16, 2015

BY JACOB ZAHNISER
OCTOBER 2015

In the Pyrrhic War, King Pyrrhus of Epirus defeated the Romans but suffered tremendous casualties in doing so: he won the battle, but lost the war. Hence, a “Pyrrhic victory” is a victory that inflicts such a devastating toll on the victor that it is essentially a defeat.

On Oct. 14th, the Court of Appeals issued such a Pyrrhic victory to Multi/Tech Engineering Services. In doing so, the Court reminded us that the failure to provide the statutory notice of lien rights required by ORS 87.021(1) has dire consequences. In addition, the Court also reminded us that a less than strategic approach to who a plaintiff names as defendants also has dire consequences when a right to recover attorneys’ fees is on the line.

Multi/Tech contracted with Innovative Design & Construction (Innovative) to provide engineering services in connection with Adler Commercial Properties’ (ACP) property development. At the end of the project, Multi/Tech was unpaid approximately $6,700, so it recorded a lien on ACP’s property and foreclosed the lien. So far a typical construction story: company does work on a project; company does not get paid in full for its work; company liens the project and sues to foreclose the lien.

The problem was that Multi/Tech failed to provide ACP or Innovative, as ACP’s agent, the statutory notice of lien rights required by ORS 87.021(1). Further, the lien identified ACP as the owner of the property, along with ACP’s principal and two affiliated entities. The lien also identified Innovative and its principal as the lien debtor. When the Multi/Tech foreclosed the lien, and alleged breach of contract and quantum meruit theories to recover the amount it was owed, it named as defendants ACP, its principal, its two affiliated entities, Innovative, and Innovative’s principal.

At trial, the court dismissed all the defendants except for ACP and Innovative. The trial court then ruled that Multi/Tech had a valid lien on ACP’s property and was entitled to a judgment of foreclosure of that lien. The trial court also found ACP and Innovative liable for breach of contract and quantum meruit. The court further ruled that Multi/Tech was entitled to recover the unpaid amount from both ACP and Innovative and awarded attorneys fees to the Multi/Tech. The court declined to award attorney fees to the four co-defendants previously dismissed from the case.

All the defendants appealed, and the Court of Appeals reversed. In reversing the lower court’s decision, the Court first noted that in order to perfect a construction lien, the lien claimant must provide the property owner with notice of the person’s right to lien. Simply stated, “Failure to provide the notice – when the notice is required – means that the lien is not perfected and is not valid.” While there is an exception for persons who provide labor and materials for commercial improvements, Multi/Tech did not qualify for that exception; that exception does not apply to persons who work off site and only have “incidental contacts” with the job site. Multi/Tech’s engineering services were performed off site, and Multi/Tech’s personnel had only incidental contact with the job site.

Further, although Multi/Tech’s contract with Innovative contained a fill-in-the-blank notice of right to lien, that empty form did not contain the statutorily required information on the notice, so it was insufficient to satisfy the notice requirement. Consequently, Multi/Tech’s lien was invalid.

Since Multi/Tech’s lien was invalid, the Court instructed that on remand, ACP and Innovative would be entitled to their attorneys’ fees for prevailing on the lien foreclosure action. The Court also instructed that the four dismissed defendants were also entitled to attorneys’ fees for prevailing on the breach of contract claim under ORS 20.082 (entitling prevailing parties to an award of fees where the contract claim is for less than $10,000).

In the end, Multi/Tech was victorious; it is entitled to collect the $6,700 that it was owed. But since its lien was invalid and it named four co-defendants in an action that had a prevailing party fee right, its victory is pyrrhic; on remand all of the defendants may petition for their attorneys’ fees. To avoid winning the battle but losing the war, contractors and design professionals should consult with experienced construction attorneys.
 



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