A dispute between the general contractor and subcontractors who provided labor and materials in the construction of an IMAX movie theater in Porter County, Ind., gave the Indiana Supreme Court the opportunity to clarify when attorneys’ fees may be recovered in connection with foreclosure under the Indiana mechanic’s lien statute.[1] The case, brought by three subcontractors against general contractor Roncelli, Inc. and the property owner, began with a two-week bench trial spanning a year and producing a judgment in favor of the subcontractors. Each subcontractor requested attorneys’ fees. The general contractor posted a surety bond, as permitted by the Indiana mechanics lien statute.[2] The only issue before the court was whether, under the Indiana mechanic’s lien statute, lienholders may collect attorneys’ fees incurred in foreclosing on liens from a party posting a surety bond to secure the liens.

The court noted that all parties agreed that the Indiana mechanics lien statute should be strictly construed, as with all statutes that provide for awarding attorneys’ fees, as they are contrary to common law. In addition, there was no dispute concerning whether the subcontractors had the right to file liens. The general contractor’s liability had been resolved in the trial court proceedings, leaving the court to address the final issue of whether attorneys’ fees could be awarded where a bond was posted to cover the liens.

In analyzing the issue, the court turned to the statute, Ind. Code § 32-28-3-14, which states:

Except as provided in subsection (b), in an action to enforce a lien under this chapter, a plaintiff or lienholder who recovers a judgment in any sum is entitled to recover reasonable attorney’s fees. The court shall enter the attorney’s fees as part of the judgment. A plaintiff may not recover attorney’s fees as part of the judgment against a property owner in an action in which the contract consideration for the labor, material, or machinery has been paid by the property owner or party for whom the improvement has been constructed.

The general contractor claimed that because the property owner paid the construction contract in full, section 14(b) of the statute applied and the subcontractors should not be permitted to collect attorneys’ fees. The subcontractors argued that section 14(a) must be honored because it states that a court “… shall enter the attorney’s fees as part of the judgment,” removing discretion from the trial court as to awarding attorneys’ fees.

The court looked at the issue through a different lens, concluding that the provisions in the statute governing posting a surety bond resolve the attorneys’ fees issue. Ind. Code § 32-28-3-11(b) provides that if an undertaking (a bond) is filed it must provide that the person filing the bond will pay “… any judgment that may be recovered in the action to foreclose the lien, including costs and any attorney’s fees allowed by the court.” In addition, the general contractor’s bond specifically stated that its surety, Hartford Fire Insurance Company, will pay “… any judgment that may be recovered by [subcontractors] in its action to foreclose its lien, including costs and attorney’s fees allowed by the court.”

The court held that the general contractor’s obligation to pay the subcontractors for their labor and materials did not terminate when the real property was released from the liens and the bond was substituted as security for the liens. Instead, the subcontractors’ liens attached to the general contractor’s obligation to pay the full amount of the judgment, plus attorneys’ fees and costs as specifically stated in the bond. Had the court ruled differently, the general contractor could have avoided the statutory requirement to pay attorneys’ fees and costs altogether by posting the surety bond. Finally, the court stated that the general contractor would have been liable for attorneys’ fees and costs under section 14(a) because a lienholder is entitled to fees if the lienholder recovers a judgment, not merely a judgment against the property owner.

This is a case with a clear bottom line: If a lienholder is successful in foreclosing under the Indiana mechanic’s lien statute, the party against whom the lien is filed and judgment rendered must pay attorneys’ fees and costs.