The recent Indiana Supreme Court decision in Goodrich Quality Theaters, Inc. v. Fostcorp Heating and Cooling, Inc., et al was a matter of first impression under the Indiana mechanic’s lien statute. In this case, several subcontractors brought an action against a property owner and its general contractor seeking to foreclose on their respective mechanic’s liens.
In the case at hand, owner Goodrich Quality Theaters engaged a general contractor, Roncelli, Inc., to construct a theater. The general contractor hired various subcontractors to supply materials, labor and various services. Several subcontractors timely filed mechanic’s liens after failing to be paid in full, took action to foreclose on their respective liens, and requested reimbursement of attorney’s fees related to the action.
While the suit was pending, the general contractor filed an undertaking and posted a surety bond complying with the requirements of I.C. 32-28-3-11 of the Indiana mechanic’s lien statute. The scope of the bond provided for judgment, attorney’s fees and costs. The trial court approved the bond, thereby releasing the owner’s real estate as security for the liens. Judgement was entered by the trial court in favor of the subcontractors, including the award of attorney’s fees. The Court of Appeals confirmed the judgment but reversed the award of attorney’s fees. The Supreme Court accepted jurisdiction to determine if the statute permits recovery of attorney’s fees from the general contractor given the situation.
The general contractor argued that the mechanic’s lien statute could not provide a basis for the award of attorney’s fees, claiming it only applied against the property owner. In strictly construing the statute, the Supreme Court noted well-established precedent that a mechanic’s lien is filed against and attaches to the property upon which the materials, labor or services were provided – not to a party. The Court held that lienholders are entitled to collect attorney’s fees incurred in foreclosing upon their liens and that I.C. §32-28-3-11 clearly provides “[a] party who files an undertaking and posts a surety bond must pay fees and costs if the judgment is found to be a lien on the property.” In other words, the bond released and replaced the owner’s real property as security for the liens and the subcontractors became entitled to foreclose on the bond for its judgment, attorney’s fees and costs.
In view of this holding, parties need to be mindful of their potential obligations when posting a surety bond.
For additional information regarding this or any area of construction law, please contact attorney Shannon Frank at sfrank@KDDK.com or (812) 423-3183, or contact any member of the KDDK Construction Law Practice Team.
About the Author
Shannon S. Frank, a Partner at Kahn, Dees, Donovan & Kahn, LLP (KDDK), in Evansville, Indiana, has more than 25 years’ experience in the practice of business law, construction law, estate planning and probate administration, health care law, and real estate law. Shannon takes prides in giving exceptional service to her clients, recognizing that relationships with clients play a significant and essential role in providing tailored and comprehensive legal advice.