Caretti, Inc. v. Colonnade Ltd. Partnership

655 A.2d 64, 104 Md. App. 131, 1995 Md. App. LEXIS 60
CourtCourt of Special Appeals of Maryland
DecidedMarch 7, 1995
DocketNo. 1158
StatusPublished
Cited by10 cases

This text of 655 A.2d 64 (Caretti, Inc. v. Colonnade Ltd. Partnership) is published on Counsel Stack Legal Research, covering Court of Special Appeals of Maryland primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Caretti, Inc. v. Colonnade Ltd. Partnership, 655 A.2d 64, 104 Md. App. 131, 1995 Md. App. LEXIS 60 (Md. Ct. App. 1995).

Opinion

WILNER, Chief Justice.

We have before us, for the second time, an attempt by a contractor who performed work on a project in Baltimore City known as the Colonnade to establish a mechanic’s lien against a part of that project.1 This appeal will be decided on a simple, fairly straightforward issue, but, like the earlier one, it spotlights a more serious problem arising from the interplay between the Mechanic’s Lien Law and the Uniform Arbitra[134]*134tion Act. We commented on this problem several years ago in McCormick v. 9690 Deerco Rd., 79 Md.App. 177, 556 A.2d 292 (1989), although, as explained later, our comments there were mere dicta.

BACKGROUND

Prior to its rewriting in 1976, the Mechanic’s Lien Law subjected each building erected or repaired to the extent of one-fourth of its value, and the land on which the building sat, to a lien for the payment of all debts for work done on or materials furnished for the building. Each such debt was declared to constitute a lien until the expiration of 180 days after the work was. finished or the materials were furnished. Continuation of the lien thereafter was conditioned on the creditor filing a “claim” with the circuit court within that 180-day period. Mere filing of the claim continued the lien for an additional year, during which (1) the creditor could file an action to enforce the lien, or (2) the owner could file an action to compel the creditor to enforce the lien. If either action was filed, the lien remained in existence until the action was concluded; otherwise, it expired at the end of the year. The lien had priority over any other encumbrance attaching to the building or land subsequent to the commencement of the building. See Md.Code Real Prop. art. (1974 Vol.). §§ 9-101— 9-110.

In 1976, the Court of Appeals declared certain features of that law unconstitutional on the ground that, by permitting liens to be established before the owner could effectively challenge the claimant’s right to the lien, it deprived owners of their property without due process of law. Barry Properties v. Fick Bros., 277 Md. 15, 353 A.2d 222 (1976). The Legislature immediately rewrote the law to meet the objections raised by the Court of Appeals.

Under the present law, a lien does not attach attach until the court establishes it. A person seeking a lien must file a petition with the court within the 180-day period, setting forth certain requisite information. If the court finds the [135]*135petition facially sufficient, it issues an order directing the owner to show cause why a lien should not attach. From the information and evidence it receives thereafter, the court has three immediate options:

(1) if the court finds that there is no genuine dispute of material fact and that a lien should attach as a matter of law, it will enter a final order establishing the lien, at least for the amount not in dispute;

(2) if the court finds that there is no genuine dispute of material fact and that, as a matter of law, the petitioner has failed to establish his right to a lien, it will enter a final order denying the lien; or

(3) if the court determines that (i) a lien should not attach, or should not attach in the amount claimed, as a matter of law, but (ii) there is probable cause to believe that the petitioner is entitled to a lien in some amount, it will enter an interlocutory order which, among other things, establishes the lien in the amount for which probable cause is found and assigns a date for trial, within six months, of all issues in dispute.

The major change made by the 1976 revision, of course, is that the claimant does not get his lien until the court establishes it, and the court may not establish it until, after considering any response by the owner to the claimant’s petition, the court finds at least probable cause to believe that the claimant is entitled to a lien. That, in turn, may require consideration not only of whether the claimant has satisfied the statutory procedural prerequisites but of the nature and quality of the work allegedly performed or materials furnished, relevant contractual provisions, payments made to the claimant, and any defenses asserted to the claim.

This delay in the establishment of the lien—a by-product of the due process right enunciated in Barry Properties—creates, of itself, one level of disadvantage to the claimant; it allows other creditors of the owner to obtain a priority between the time the work is provided and the lien is established and, during that same interim, allows the owner to dispose of the property to bona fide purchasers free of any lien. This [136]*136aspect of the problem arises from Real Prop, art., § 9—102(d), which directs that property is not subject to a mechanic’s lien if, prior to the establishment of the lien, legal title has been granted to a bona fide purchaser for value.

A second level of disadvantage, which derives from but exacerbates the first, is the overlay of the Uniform Arbitration Act or, when applicable, the Federal Arbitration Act. Those Acts, as judicially construed, make written agreements to arbitrate existing or future disputes enforceable in State courts. Md.Code Cts. & Jud.Proc. art., § 3-209 requires that a court stay any action involving an issue subject to arbitration if a petition seeking arbitration has been filed. Construction contracts often contain broad arbitration clauses, so it is not uncommon now for an owner, faced with a petition to establish a mechanic’s lien, to seek to stay the action in favor of arbitrating the underlying dispute. The grant of such a motion, compelled by § 3-209, further extends the delay suring which other creditors may obtain an advantage over the claimant and during which the owner may convey the property to a bona fide purchaser for value.2

[137]*137This problem was first recognized in Residential Indus. Loan Co. v. Weinberg, 279 Md. 483, 369 A.2d 563, cert. denied, 434 U.S. 876, 98 S.Ct. 227, 54 L.Ed.2d 156 (1977). As noted, we were confronted with it in McCormick v. 9690 Deerco Rd., supra, 79 Md.App. 177, 556 A.2d 292, where a claimant contested the right of a court to stay proceedings on a petition to establish a mechanic’s lien in favor of arbitration. Our actual decision in that case was that the order staying the judicial proceeding was not appealable, and we, in fact, dismissed the appeal. To “provide some guidance to the parties in concluding this case,” however, we addressed McCormick’s substantive argument that the court should have, in effect, ignored the arbitration law and followed only the procedures established in the mechanic’s lien law.

Although sympathetic to McCormick’s dilemma, we rejected that approach and held that the legislative direction in Cts. & Jud.Proc. art., § 3-209 to stay any action involving an issue subject to arbitration had to be followed.

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655 A.2d 64, 104 Md. App. 131, 1995 Md. App. LEXIS 60, Counsel Stack Legal Research, https://law.counselstack.com/opinion/caretti-inc-v-colonnade-ltd-partnership-mdctspecapp-1995.