Construction contractor’s lien rights after sending owner multiple conflicting and unsubstantiated invoices. Olmstead Construction, Inc. v. Otter Creek Investments, Inc. Court of Appeals of Iowa (2019), by Hugh Anderson

Summary: Otter Creek Investments contracted with Olmstead for construction of a convenience store and gas station, on a cost-plus-fee basis. Eventually the project ran into budget problems, and there was confusion about the payment of some of the subcontractors. The contractor submitted conflicting invoices for the work, and failed to provide requested documentation and explanation. As a result, the owner withheld payment, pending clarification of costs. The contractor filed a mechanic’s lien (construction lien), followed by a lawsuit for breach of contract and foreclosure of the lien.

The trial court found in favor of the contractor on the breach of contract claim, but declined to foreclose the lien. An appeal followed.

Decision: The appellate court confirmed the breach of contract and related damages, but also supported the trial court’s decision to not enforce the mechanic’s lien. The court held that a claimant should not be allowed to present varying unsubstantiated invoices and then foreclose on a lien. The court explained that lien rights are based in equity (a category of courts and remedies with rules that differ in some respects from the rules that govern contracts and conventional legal proceedings), and that in questions of equity, the court has broad discretion in considering the hardship imposed on the defendant. Under the circumstances, the court in its discretion declined to impose the hardship of a foreclosure.

Comment: By the time the appellate decision was rendered, the owner had paid most of its obligation, making the foreclosure remedy nearly inconsequential. However, the case does illustrate the importance of sound, well documented invoicing and payment procedures.

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