Considerations for Contesting a Frivolous Lien in Washington

Originally published as an Op-Ed by the Oregon Daily Journal of Commerce on August 18, 2022.

Lien claims can pose serious challenges—and immense frustration—for any owner or developer of a private construction project, particularly for those wishing to refinance or sell the property. An owner with a finance transaction or conveyance on the horizon should consider options to have any lien claim filed against the property discharged and released as soon as practicable—and, hopefully, without incurring tremendous cost or delaying the transaction.

Following is an exploration of the scenario where an owner cannot look to its prime contractor to ensure the prompt release of a subcontractor’s or supplier’s lien claim (through application of indemnity or a lien release bond). Perhaps the contractor has absconded, leaving unpaid subcontractors or suppliers—and thus lien claims—in the wake. And suppose under this scenario there are serious defects with one or more of the lien claims now encumbering the property. Beyond procuring a lien release bond (which are accompanied by unwanted costs), what other legal options should the owner consider in this predicament?

In Washington, like other states, an owner can challenge the validity of a lien claim (but not the underlying debt) by invoking rights under the frivolous lien claim statute found at RCW 60.04.081. This is a summary process, truncated and expedient, for an owner—or any other party contesting lien priority or with competing interests—to challenge a lien that is “frivolous and made without legitimate cause, or clearly excessive.” This procedure may be invoked at any time after a lien claim has been recorded, even before a foreclosure action has commenced.

Under Washington’s frivolous lien challenge statute, the challenger bears the initial and high burden of showing why the lien is frivolous, and that the lien was improperly filed “beyond legitimate dispute.” See Gray v. Bourgette Construction, LLC (2011). Once the challenger satisfies this initial showing, the burden then shifts to the lien claimant to show that the lien was not frivolous. Then, if this level of proof is satisfied from the trial court’s perspective, the burden shifts back to the challenger to prove the lien was frivolous. An important caveat to consider in this summary process is whether the lien dispute presents debatable issues of law or fact. If so, then the lien is likely not to be found frivolous or without reasonable cause. Again, see Gray.

The level of proof required to prove a lien claim is frivolous “beyond legitimate dispute” was illustrated in the case of Intermountain Electric, Inc. v. G-A-T Bros. Construction, Inc. (2003). The lien claimant admitted its lien was filed 94 days after its last active work on the site (Washington law requires liens be filed within 90 days of last furnishing lienable work to improve the property), but argued that: 1, the law should be changed in cases where the owner promised that work would resume, and 2, leaving its trailer on the site counted as “furnishing equipment” (i.e., a lienable improvement) under RCW 60.04.091. The trial court rejected these arguments and ruled that the lien was frivolous. The Court of Appeals agreed the lien was “invalid on its face” but reversed the trial court’s ruling, holding that “not every invalid lien is frivolous.” See Intermountain Electric. The appellate court reasoned that the lien claimant made a good faith argument to change existing law. So, not only may debatable legal issues pose hurdles to a frivolous lien claim challenge, but debatable factual issues also present risk to a lien challenger. See S.D. Deacon Corp. v. Gaston Bros. Excavating, Inc. (2009) regarding whether parties’ contract was integrated was debatable, preventing relief under the frivolous lien statute.

A challenger may also seek to prove not simply that the lien is frivolous, but also that it is excessive in amount. This, too, carries with it a heavy burden, for the challenger must show by clear evidence, without legitimate dispute about material facts, that the amount stated was claimed with an intent to defraud or in bad faith. See Pacific Industries, Inc. v. Singh (2003).

After a hearing on the disputed lien claim, the trial court issues an order discharging and releasing the lien (if frivolous) or reducing the lien (if excessive) or denying the requested relief. The frivolous lien statute mandates, rather than permits, the trial court to award reasonable fees and costs to the prevailing party (i.e., the loser pays). Based on the heavy burden required to show the lien is frivolous or excessive, in conjunction with the risk of paying the prevailing party’s fees and costs, a lien challenger must exercise this statutory remedy with caution.

With the threat of an economic recession looming, contractors and suppliers alike will probably look to safeguard lien rights and mitigate the risk of nonpayment more vigilantly by protecting and, if necessary, enforcing their respective lien rights. This, as we have seen from previous economic downturns, may give rise to an increase in lien claims. An owner or developer would be wise to consider measures to reduce the chance that liens arise in the first instance (e.g., contract provisions and lien waivers). And if liens are filed against the property without legitimate basis or in bad faith, there is a truncated legal procedure that may afford an aggrieved owner relief.