A Connecticut Court Grants Defendant’s Motion To Stay An Application To Discharge Mechanic’s Lien Pending Arbitration

Construction going on in the city.

As regular readers of this blog know, a mechanic’s lien provides a contractor with a security interest in the real property where its work was performed.  Because, however, it is not the intent of the mechanic’s lien laws to restrict the free transfer of title of real property, there are two statutory procedures by which an owner may obtain a release of a mechanic’s lien.  Specifically, the property owner may seek to substitute a surety bond for the lien or the property owner may seek an order discharging or reducing the lien.  In CDO Properties, LLC v. Bogaert Construction Co., Inc., Docket No. CV 13-6018411 (JD of New London), the Court issued a decision staying the property owner’s application for discharge of a mechanic’s lien.  Based upon this decision, an owner’s attempt to promptly discharge a lien may be thwarted or delayed by a court and an owner may be forced to live with a lien until after arbitration.

The decision was based upon the Connecticut General Statutes, which require the court to stay any legal proceeding if the dispute is subject to an agreement to arbitrate.  Conn. Gen. Stat. § 52-409 states:

If any action for legal or equitable relief or other proceeding is brought by any party to a written agreement to arbitrate, the court in which the action or proceeding is pending, upon being satisfied that any issue involved in the action or proceeding is referable to arbitration under the agreement, shall, on motion of any party to the arbitration agreement, stay the action or proceeding until an arbitration has been had in compliance with the agreement, provided the person making application for the stay shall be ready and willing to proceed with the arbitration.

Thus, it would appear that any legal action subject to an arbitration agreement must be stayed provided the party making the request is ready and willing to arbitrate.  However, a reading of our the statutes’ legislative intent and the public policies they promote might require an application to discharge a mechanic’s lien to be considered outside the scope of the mandatory stay requirement.

In CDO Properties, LLC, the court correctly noted that “Connecticut has a strong jurisprudential policy of favoring arbitration when the parties have agreed to utilize that mechanism to resolve their disputes,” but the court did consider the equally strong policy that has been established favoring the free transfer of title to real property.  Although arbitration was intended to be a faster, more economical way for disputes to be resolved, in many instances, it can become more delayed and costly than a trial.  For example, while in theory there shall be no or limited discovery in an arbitration, most arbitration rules allow arbitrators to issue discovery orders that they believe are in the interest of justice.  Thus, many arbitrators order substantial document production, disclosure of expert witnesses, and even depositions.  In addition, arbitration hearings are not often scheduled in consecutive days.  It may take three months to conduct 2 weeks of actual hearings.  Therefore, if an application for discharge of a mechanic’s lien is stayed pending arbitration, then the mechanic’s lien may prevent the free transfer of title for a substantial amount of time.

In addition to the public policy concerns, the decision in CDO Properties, LLC may not be followed because an application to discharge a mechanic’s lien is not a full hearing on the merits.  In PEI Enterprises, Inc. v. Emmanuel Baptist Church of Newington, the defendant property owner filed a motion for summary judgment seeking to dismiss the plaintiff contractor’s contract action because the property owner had previously obtained a court order discharging the contractor’s mechanic’s lien.     The issues raised by the parties in the motion for summary judgment and the objection to motion for summary judgment can be narrowed to one question: “Did the hearing and decision on the motion to discharge the mechanic’s lien in the previous matter provide the parties with a sufficient forum so as to give them an opportunity to fully and fairly litigate the issues so as to justify giving said hearing and decision a preclusive effect?” Upon completing its review of the facts and law concerning this matter this court has come to the conclusion that they did not. PEI Enterprises, Inc. v. Emmanuel Baptist Church of Newington, 2003 WL 22234406 (Conn.Super.), 3 (Conn.Super.,2003).  Thus, the court held that a court’s job in considering an application to discharge a mechanic’s lien is not to conduct a full hearing to determine the complete merits of the action but merely to determine whether the defendant’s property should be encumbered during the pendency of the full trial on the merits.

In CDO Properties, LLC, the court reasoned that it would have to determine issues that the arbitrator would have to adjudicate.  First, assuming that that were true, PEI Enterprises, Inc. teaches that it is permissible for a subsequent action on the merits – that by its nature would be a more full and substantive proceeding – may conceivably reach a different outcome.  Second, the issue in CDO Properties, LLC was the contractor’s technical compliance with the mechanic’s lien statutes and not the validity of the underlying debt.  Thus, I think it might be possible for a court to adjudicate an application to discharge a mechanic’s lien without running afoul of the arbitrator’s jurisdiction.

If you should have any questions regarding the enforcement of mechanic’s liens, please give me a call at (203) 640-8825.

Scott Orenstein