Mechanics' lien claims are a powerful tool for the contractor or subcontractor because these statutory claims permit recovery of the amount of the parties' contract price, plus interest and attorneys' fees. The Indiana Court of Appeals recently analyzed the question of what mechanic's lien damages are always permitted and what damages can awarded at the discretion of the court.

In this case, an electrical contractor asserted a breach of contract and a mechanics' lien claim against a homeowner. The homeowner counterclaimed, asserting that the contractor had not properly completed the work for which the parties had contracted. At the trial's conclusion, the judge concluded that the contractor completed "80% of the work" and awarded the contractor money damages while denying the homeowner's counterclaim. However, the judge decided not to award the contractor either interest or attorneys' fees.

The contractor appealed. The homeowner argued that the contract could not recover interest because the parties had a good faith dispute regarding the amount that was owed and, under those circumstances, awarding interest is not proper. The homeowner also argued that attorneys' fees need not be awarded because the mechanics' lien statute provision regarding attorneys' fees had been modified from saying "shall be awarded" to "may be awarded." The homeowner contended that the change in language meant that the award of attorneys was discretionary and the judge could choose to award the fees or not.

The Indiana court of appeals split the baby. The court agreed with the homeowner -- namely, that prejudgment interest cannot recovered where there is a legitimate dispute regarding what is owed that must be resolved in court. At the same time, the court concluded that the award of attorneys' fees is mandatory in a successful mechanics' lien claim, even one like the case before it where the contractor was not entitled to recovery of the full amount of the lien claim.

The decision is important because it confirms a contractor's absolute right to attorneys' fees in a successful mechanics' lien claim. At the same time, it suggests that, if parties have a good faith dispute regarding the claim amount, prejudgment interest may not be awarded, which, on many projects can represent a substantial amount of money.

Case Citation for Lawyers: Clark v. Hunter, 861 N.E.2d 1202 (Ind. Ct. App. 2007).