Don’t Fail to Stay Mechanic's Lien Action While Pursuing Arbitration

In Von Becelaere Ventures, LLC v. Zenovic, Case No. D072620 (June 6, 2018), James Zenovic, doing business as James Zenovic Construction, entered into a construction contract to build a single-family house for Von Becelaere Ventures, LLC in Laguna Beach, California. The construction contract included an arbitration provision that stated:

If any dispute arises concerning this Contract or the interpretation thereof, of concerning construction of the Improvements, or the Limited Warranty, customer service, defects, damages, or obligations therewith (a Construction Dispute), such Construction Dispute will be settled by binding arbitration.

As sometimes happens on a construction project, a dispute arose. The result was that Zenovic recorded a mechanic's lien asserting that Von Becelaere Ventures owed him nearly $450,000 on the project. Zenovic recorded his mechanic's lien on March 20, 2017. As also sometimes happens on a construction project, Von Becelaere Ventures filed a complaint against Zenovic, alleging a host of claims relating to the work performed by Zenovic on the project. Von Becelaere's complaint was filed on April 3, 2017. On April 7, 2017, Zenovic filed a complaint against Von Becelaere Ventures, foreclosing on his mechanic's lien.

About a month later, Zenovic filed a motion to compel arbitration to stay the actions, while the parties arbitrated their dispute pursuant to the arbitration provision of the contract. However, the trial court denied Zenovic's motion finding that he had waived his right to arbitration because he failed to [read and] comply with Code of Civil Procedure section 1281.5.[i]

The Court ruled that because Zenovic had not: (1) included an allegation in his complaint to foreclose on his mechanic's lien that he did not intend to waive his right to arbitration and within 30 days of service of his complaint would seek a stay of the action while he pursued arbitration; or (2) did not file an application to stay the action at the time he filed his complaint to foreclose on his mechanic's lien, he had waived his right to arbitration pursuant to Section 1281.5.

Zenovic appealed. On appeal, Zenovic contended that Code of Civil Procedure section 1281.5 only applied to his complaint to foreclose on his mechanic's lien but did not apply to Von Becelaere Ventures' claims against him.

The Court of Appeals for the 4th District disagreed holding that, under a plain reading of the statute, Section 1281.5 applies not only to actions to foreclose on a mechanic's lien, but also to any arbitrable claim relevant to an action to enforce a mechanic's lien:

Section 1281.5, subdivision (a), contemplates a mechanic's lien action will be separate from an action to resolve otherwise arbitrable disputes. It makes no difference if the arbitration action is initiated in a different venue or which party initiates the arbitration action. By its plain terms, the statute permits a contractor to take advantage of the statutory mechanic's lien process while preserving the contractual right to arbitrate disputes as provided in the arbitration agreement. The purpose of the alternative stay procedures articulated in section 1281.5, subdivision (a), is to hold the mechanic's lien process in abeyance "pending the arbitration of any issue, question, or dispute that is claimed to be arbitrable under the agreement and that is relevant to the action to enforce the claim of lien." However, a party who commences a mechanic's lien action without complying with either of the stay provisions waives any such right to arbitration.

And, here, held the Court of Appeals, Von Becelaere Ventures' claims against Zenovic were arbitrable claims under the arbitration provision of the parties' agreement, but Zenovic failed to preserve his right to arbitration by failing to comply with Code of Civil Procedure section 1281.5 when filing his action to foreclose on his mechanic's lien.

Read the statutes to avoid the risk of spilling coffee all over yourself.

Garret D. Murai is the Construction Practice Group co-chair with Wendel, Rosen, Black & Dean LLP.

[i] (a) Any person who proceeds to record and enforce a [mechanic's'] lien . . . does not thereby waive any right of arbitration the person may have pursuant to a written agreement to arbitrate, if, in filing an action to enforce the claim of lien, the claimant does either of the following:

(1) Includes an allegation in the complaint that the claimant does not intend to waive any right of arbitration, and intends to move the court, within 30 days after service of the summons and complaint, for an order to stay further proceedings in the action.

(2) At the same time that the complaint is filed, the claimant files an application that the action be stayed pending the arbitration of any issue, question, or dispute that is claimed to be arbitrable under the agreement and that is relevant to the action to enforce the claim of lien.

(b) Within 30 days after service of the summons and complaint, the claimant shall file and serve a motion and notice of motion pursuant to Section 1281.4 to stay the action pending the arbitration of any issue, question, or dispute that is claimed to be arbitrable under the agreement and that is relevant to the action to enforce the claim of lien. The failure of a claimant to comply with this subdivision is a waiver of the claimant's right to compel arbitration.

(c) The failure of a defendant to file a petition pursuant to Section 1281.2 at or before the time the defendant answers the complaint filed pursuant to subdivision (a) is a waiver of the defendant s right to compel arbitration.

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Tuesday, 16 July 2019

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