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September 2007

A Subcontractor's Right to Prompt Payment

A Subcontractor's Right to Prompt Payment and an Award of Attorney's Fees and Interest If Not Paid

By Charles (C.J.) Schoenwetter

You have worked hard. You expect to be paid. Perhaps you have already paid your own workers and suppliers. And then, the bad news comes. The deadbeat who hired you refuses to pay. What do you do? You may consider filing a mechanic's lien. If that does not result in payment, then you may initiate litigation to foreclose on your mechanic's lien. If you initiate litigation, then there is a good chance you will also assert claims for: (1) Breach of Contract; (2) Unjust Enrichment; and (3) an Account Stated--in addition to the Mechanic's Lien Foreclosure claim. But do these claims guarantee your recovery of attorney's fees and interest? The answer, unfortunately, is "no."

These claims are all standard procedure. But the mechanic's lien foreclosure claim is the only one that offers the possibility of recovering attorney fees, costs and disbursements incurred in pursuing payment. Mechanic's lien claims often require an unpaid contractor to jump over numerous hurdles including, for example:

  • proper pre-lien notice;
  • timely and proper service and filing of the mechanic's lien statement;
  • initiating the lien within the statutory period permitted;
  • claiming only the amount owed (and no more) in the lien statement;
  • notifying all parties that have an interest in the property at issue;
  • and a host of other issues.

Unpaid contractors often jeopardize their ability to recover payment (and corresponding attorney's fees) by not complying with one or more of the strict requirements for establishing a mechanic's lien.

Fortunately, there may be an opportunity to assert a claim for payment and recover attorney's fees through a special law designed to protect certain subcontractors. The recovery of attorney fees, costs and disbursements under Minnesota Statutes section 337.10, subd. 3 may, in some circumstances, provide a broader and more reliable recovery of the costs associated with litigation. The law expressly requires prompt payment to subcontractors for work on large building projects, and provides an interest penalty for failure to make required prompt payments, as follows:

A building and construction contract shall be deemed to require the prime contractor . . . to promptly pay any subcontractor . . . within ten days of receipt by the party . . . requesting payment. The contract shall be deemed to require the party responsible for payment to pay interest of 1-1/2 percent per month to the party requesting payment on any undisputed amount not paid on time.[1]

Under the mechanic's lien statute, the recovery of attorney's fees is discretionary.[2] However, Minnesota Statutes section 337.10, subd. 3, expressly mandates the award of attorney fees as well as other costs and disbursements:

A party requesting payment who prevails in a civil action to collect interest penalties from a party responsible for payment must be awarded its costs and disbursements, including attorney fees incurred in bringing the action.[3]

Although Minnesota Statutes section 337.10, subdivision 3 provides recovery of attorney's fees, interest penalties, costs and disbursements in many circumstances, it is not a panacea for all subcontractors. The Legislature explicitly excepted from the protections otherwise afforded by this law subcontractors providing construction on improvements to new or existing buildings
constructed for habitation by one to four families or to construction of, or improvements to, attached single-family dwellings, if those dwellings are used for residential purposes and have fewer than 13 units per structure. This exclusionary language can be difficult to apply and consultation with a lawyer may be necessary.

Under the American Rule, a party generally may not recover attorney fees from an opponent unless a statutory or contractual provision expressly allows for such recovery. Construction contracts rarely allow subcontractors to recover attorney's fees. Many construction projects do not require or involve payment bonds. Accordingly, it is important to seek recovery of costs, disbursements and attorney's fees through all applicable avenues when litigation becomes necessary.

There are a number of ways to fairly and efficiently leverage payment from those who have not paid contractors for their work. Asserting mechanic's lien rights and initiating legal action are just two of the methods that can be effective. However, these methods are just the tip of the iceberg. Depending on the unique circumstances of each case, payment may be obtained with or without initiating a lawsuit. 

[1] Minn. Stat. § 337.10, subd. 3 (emphasis added).

[2] Asp v. O'Brien, 277 N.W.2d 382, 385 (Minn. 1979).

[3] Minn. Stat. § 337.10, subd. 3 (emphasis added).

© 2007 Bowman and Brooke LLP and Charles (CJ) Schoenwetter. This article does not represent legal advice. You should contact your attorney before taking any action.


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