Caselaw Update: Ohio Court Clarifies Contractual ADR Provisions Do Not Defeat Mechanic’s Lien Rights and Enforcement

As published by Builder's Exchange 

Mechanic’s liens filed on project contracts requiring mediation and/or arbitration often creates confusion regarding the filing and enforcement of mechanic’s liens. However, on August 3, 2020, Ohio’s Twelfth Appellate District Court, serving several southwest Ohio counties, clarified that a contractual alternative dispute resolution (ADR) provision does not prohibit a subcontractor’s statutory mechanic’s lien filing or a lien foreclosure lawsuit.

In Supply, Inc. v. T.H. Marsh Constr. Co., 2020-Ohio-3922, a subcontractor filed a mechanic’s lien on a project governed by a contractual ADR provision requiring mediation, arbitration or litigation at the owner’s sole discretion. In response to the subcontractor’s lawsuit for breach of contract, violations of the Ohio Prompt Payment Act, and to foreclose its mechanic’s lien, the project owner elected arbitration and moved to dismiss the lawsuit. The owner also argued that by filing the mechanic’s lien, the subcontractor defaulted on the contractual dispute resolution provision and Ohio’s arbitration statutes, Ohio Rev. Code §2711.01 et seq., because the mechanic’s lien arose from a contractual claim. The trial court agreed with the owner and dismissed the subcontractor’s entire lawsuit.

The subcontractor appealed, and the Twelfth Appellate District reversed the trial court’s decision dismissing the lawsuit. The appellate court determined that because Ohio courts retain jurisdiction over construction contract disputes, even in the presence of ADR provisions, upon application of one of the parties, a trial court must stay, not dismiss, the lawsuit pending the resolution of the ADR process. The appellate court further opined that because the contract at issue did not include a lien waiver provision, the subcontractor did not waive its statutory right to file a mechanic’s lien, and the ADR provision does not also serve as a contractual mechanic’s lien waiver. Furthermore, the mechanic’s lien and the complaint did not prevent the project owner from exercising its right to arbitration, as the owner could simply elect arbitration and move to stay the lawsuit pending arbitration.

While the Supply v. T.H. Marsh holding is in line with other court decisions throughout Ohio, it serves as a reminder to review construction contracts for not only ADR requirements, but lien waiver provisions. Contractual lien waiver provisions are enforceable in Ohio, and contractors should take precautions to not unwittingly waive their lien rights or without evaluating their overall risks and alternative payment security options. Likewise, all parties need to be aware of their contractual dispute resolution obligations to preserve claims and defenses and to avoid unnecessary delays created by procedural inaccuracies.