Illinois Appellate Decision Highlights Importance of Enforcing Mechanics Liens Against All ‘Known’ Necessary Parties

On March 26, 2021, the Illinois Appellate Court issued an opinion affirming dismissal, with prejudice, of a contractor’s mechanics lien enforcement action. The decision highlights the importance of strict adherence to the statutory framework governing mechanics lien enforcement, and in particular, the requirement to name all known holders of interests affected by the lien as early as possible.

Case Background and Trial Court Decision

The factual background of CB Construction & Design, LLC v. Atlas Brookview, LLC, 2021 IL App (1st) 200924 (1st Dist. 2021) is not uncommon in the world of construction disputes: upon the completion of a nearly $10M renovation project, the owner (Atlas) refused to pay the contractor (CB) approximately $1.4M remaining under the parties’ contract, which prompted CB to file a mechanics lien against the subject property. Atlas then served CB with a demand under Section 34 of the Mechanics Lien Act (770 ILCS 60/34) (West 2018), requiring CB to file a lawsuit to enforce its lien within 30 days, despite the typical two-year period for filing suit required by Section 9 of the Act.   

Although CB filed its enforcement lawsuit within the required 30-day period naming Atlas and others, as well as “other defendants yet to be determined,” CB did not name the construction lender or the bank holding a security interest in the subject property’s leases and rents, both of whom had recorded their interests prior to CB filing its complaint. 

The circuit court granted Atlas’s motion to dismiss the lien claim with prejudice for failure to name necessary parties and ordered CB to release its invalid lien. The court ruled the construction lender and bank were known interest holders that should have been named within the 30-day period required by Section 34, and thus CB forfeited its lien entirely by failing to name them in the lawsuit before the deadline. After various attempts by CB to obtain reconsideration and amend its complaint, the circuit court eventually certified the ruling for interlocutory appellate review.

Appellate Court Decision

The Illinois Appellate Court affirmed, finding Atlas’s Section 34 demand required CB not only file its enforcement suit within 30 days, but that CB ensure it named all statutorily required “necessary parties” within that time too. The Court observed the definition of “necessary parties” in Section 11(b) of the Act includes, in addition to the owner, contractor, and all those in the chain of contracts, “all persons who may have any valid claim to the whole or any part of the premises upon which a lien may be attempted to be enforced under the provisions thereof, or who are interested in the subject matter of the suit.” While Section 11(c) allows use of the label “unknown necessary parties” to name claimants of interests not disclosed by an earlier recorded document, and allows others to be added as “unknown owners,” in this case the construction lender and bank had recorded their interests prior to CB filing its complaint. Consequently, they were known necessary parties, and thus had to be added as such within the time limit set by Section 34. The Court further noted that since the construction lender and bank were not “unknown necessary parties,” and as CB did not attempt to name them as such, the provisions of Section 11(f) allowing for subsequent joinder, with leave of court, of incorrectly named parties was inapplicable. In other words, use of the phrase “other defendants yet to be determined” did nothing to preserve an ability to name additional “necessary parties” later.

Although CB contended Section 9’s two-year period for filing suit generally should apply to naming all necessary parties, the Court rejected this argument on the basis that Section 34, in this context, was the more specific statute. Additionally, although the Court recognized the existence of other cases in which a lien claimant was legally precluded from naming a necessary party due to the pendency of a bankruptcy proceeding, and could proceed without forfeiture, that circumstance was not applicable here. 

Implications

The circumstances and rulings presented in this decision highlight concerns for those in the construction industry seeking to enforce a mechanics lien, or defeat one, in Illinois. For the lien claimant, it is imperative to follow the statutes closely and ensure all requirements are timely met. Where a Section 34 demand is in play, extra caution and attention is required. Avoidance of, or obtaining adequate protection against, a forfeiture may require earlier planning and action, plus additional expense. For the party looking to defeat a lien, a Section 34 demand can be a powerful tool creating additional hurdles and opportunities for enforcement errors, increasing the chances of forfeiture. In either case, it is important to collaborate with counsel experienced with mechanics liens early in the formation of a construction dispute to help identify and develop strategies for achieving client goals.