Shields | Mott L.L.P Wins Reinstatement of $15.4 Million Louisiana Private Works Act Lien

In a recent appellate decision obtained by Shields | Mott L.L.P., the Louisiana Fourth Circuit Court of Appeal held that cancellation of a Louisiana Private Works Act lien was manifestly erroneous where a contractor  met all proper lien requirements, particularly the requirement of reasonably itemizing the elements comprising its claim.  In 225 Baronne Complex, LLC v. Roy Anderson Corp., 2016-0492 (La. App. 4 Cir. 12/14/16), — So. 3d —, 2016 WL 7238975, Roy Anderson Corporation (“RAC”) entered into a $61.3 million design-build contract with 225 Baronne Complex, LLC (“the Owner”) for the construction of 192 apartments, a 188-room hotel, and parking garage (“the Project”).  On October 23, 2015, the Owner filed its acceptance of the work.  But as so often occurs, Project payment disputes lingered.  RAC subsequently recorded a $15.4 million lien (“the Lien”) under the Louisiana Private Works Act (La. R.S. 9:4801 et seq.) for unpaid material, labor, equipment, and services rendered to the Project.

On January 12, 2016, the Owner filed suit to remove RAC’s Lien, claiming that it was improper for two main reasons.  First, the Owner contended that the parties’ design-build contract did not authorize the Lien.  Second, the Owner opined that the Lien contained amounts that had not been submitted to the Owner for payment as well as disputed amounts.  The Owner not only sought removal of the Lien, but also damages and attorney’s fees.  Concluding that a lack of prior invoices from RAC to the Owner showed that RAC’s Lien was “unsupported,” the trial court granted the Owner’s removal petition and cancelled the Lien.  RAC devolutively appealed on March 15, 2016.

On appeal, the Louisiana Fourth Circuit reversed the trial court’s ruling and ordered reinstatement of the Lien.  The Fourth Circuit found that RAC had timely filed the Lien within 60 days of substantial completion and had complied with all formal requirements of the Private Works Act.  The Fourth Circuit’s decision stressed the purpose of Private Works Act liens: to adequately place the Owner and third persons on notice that a privilege is claimed on the property.  Although the Owner here claimed that RAC had not “reasonably itemize[d]” the amounts claimed in the Lien per La. R.S. 9:94822(G) or submitted all requests for payment prior to its filing, the Fourth Circuit held that “La. R.S. 9:4822 does not require the sums encompassing the Lien be invoiced or submitted beforehand in order to perfect a valid lien.” The Fourth Circuit further held that RAC had described the nature of the obligation giving rise to the Lien by providing an itemized breakdown of all the costs incurred in the Project’s completion.  The court found that while the parties’ design-build contract did give the Owner a remedy for a lien filed when the Owner was not in default based on submitted invoices, it did not explicitly bar the filing of a general contractor lien.  Thus, the Owner’s contract-based arguments failed.  On April 7, 2017, the Louisiana Supreme Court declined to review the Fourth Circuit’s reversal.

This decision imparts some valuable reminders to contractors and owners alike.  For contractors or other lien claimants, this case reaffirms the importance of following the letter of the law with respect to lien-filing formalities.  While those seeking liens under La. R.S. 9:4822 need not attach invoices to their sworn statements of claim, courts may require highly particularized descriptions of the nature of the outstanding obligations and sums owed.  Meeting the procedural requirements of the La. R.S. 9:4822 remains half the battle. For project owners, too, this decision is instructive.  Here, the Owner did not offer sworn testimony or evidence at the lien removal hearing to dispute the sums claimed by RAC.  In order to get rid of a meritless Private Works Act lien, a project owner must shoulder the burden and prove that the lien was filed without reasonable cause.  As the Fourth Circuit determined in 225 Baronne, the fact that the exact amount owed may be in dispute will not be sufficient to invalidate a lien outright.