This case and its companion cases involved contentious construction disputes surrounding the interplay of the Massachusetts Mechanics' Lien Statute in the context of a bankrupt general contractor and a building owner’s claims for offset damages. In this instance, the dispute centered on the fact that a contractor’s bankruptcy filing left approximately 28 subcontractors unpaid for work they had already performed.
The dispute arose from the construction of an apartment building in Malden, Massachusetts. Our client, which makes and installs custom exterior wall panels for commercial buildings, was a subcontractor to the general contractor. The general contractor did not participate in the case because all claims against it were stayed when it filed for bankruptcy.
After our client had substantially performed its portion of construction of the apartment building, a dispute arose directly between the owner and the general contractor. Primarily, the owner and its architect disputed the quality of much of the general contractor’s work on the building. As a result, the owner refused to pay the general contractor nearly $4.7 million in outstanding invoices. In response, the general contractor, which was having financial difficulties, refused to continue working on the project until the owner paid it for the work already completed. As a result, the general construction contract was terminated and the general contractor filed for bankruptcy reorganization, leaving approximately 28 subcontractors that had not been paid in full. Meanwhile, our client had substantially completed its work on the project and had been willing to complete its scope of the project in full.
The issue of whether a building owner’s claim of offset damages against the general contractor can obliterate a subcontractor's valid mechanic’s lien claim would have been a matter of first impression in Massachusetts had it proceeded to court. Our subcontractor client filed and perfected a mechanic’s lien on the property under the Massachusetts Mechanics' Lien Statute, Chapter 254 of the Massachusetts General Laws, by recording its notice of contract and statement of account before the owner terminated its general construction contract. The owner argued that the statutory language cut off the subcontractors’ claims purely because nearly $10 million the owner claimed in offset damages against the general contractor exceeded the $4.7 million due, and therefore nothing was "due or to become due" to the general contractor at the time the contract was terminated. Thus, according to the owner, our client and the other subcontractors were not entitled to any recovery for the work they had performed.
We disputed the owner’s reasoning, citing language found in BloomSouth Flooring Corp. v. Boys' & Girls' Club of Taunton Inc., 440 Mass. 618 (2003), the only Massachusetts Supreme Judicial Court case interpreting the lien statute in a comparable context. There, the general contractor had abandoned its work and its contract was terminated before the contractor perfected its lien. We reasoned that, because in our case the general construction contract at issue was not terminated before our client had perfected its mechanic’s lien, our client's lien filing protected its right to payment, notwithstanding any future offsets by the owner that might otherwise have been appropriate against the general contractor.
Ultimately, after a day of hard-fought mediation in this case involving an unsettled area of law, Bill Rogers and Erica Tennyson were able to negotiate a satisfactory settlement for our subcontractor.