Construction Law Update: Iowa Court of Appeals Says Attorney Fees Incurred in Arbitration are Recoverable Under Mechanic's Lien Statute's Attorney-Fee Provision
On June 30, 2021, the Iowa Court of Appeals issued a decision in Core Structural Services, LLC v. Neumann Brothers, Inc., 2021 WL 2690024 (Iowa Ct. App. 2021), in which it stated that “attorney fees incurred during an integrally-related contract arbitration may be awarded at the court’s discretion under the statutory provision for mechanic’s lien attorney fees.” Arbitration provisions are prevalent in construction contracts. Therefore, this decision is very favorable to mechanic’s lien claimants because if they prevail on their claims they will generally be entitled to recover their attorney fees whether the case was tried in court or arbitration.
The North Central Regional Council of Carpenters (“Owner”) hired Neumann Brothers, Inc. as the prime contractor to build a private-construction project. Neumann hired Core Structural Services, Inc. as a subcontractor for the project. Their subcontract agreement contained an arbitration provision that stated “all claims, disputes and other matters in question arising out of or relating to this subcontract or breach thereof . . . shall be decided by arbitration. . . .” The subcontract agreement did not contain any provision allowing Core to recover attorney fees against Neumann. A dispute arose between Neumann and Core, which led to Core posting a mechanic’s lien against the project property. Neumann later posted a bond through Federal Insurance Company (“Surety”) to discharge the lien under Iowa Code Section 572.15. Core later instituted two separate proceedings: (1) an arbitration proceeding against Neumann seeking monetary recovery under their subcontract agreement, and (2) a court action against the Owner, Neumann, and Surety to foreclose the mechanic’s lien and/or recover under the discharge bond. Core requested attorney fees in the court action under Iowa Code Section 572.32(1) which reads in relevant part, “In a court action to enforce a mechanic’s lien, a prevailing plaintiff may be awarded reasonable attorney fees.” The court stayed the court action until the arbitration between Neumann and Core was completed.
In the arbitration, the arbitrator entered an award in favor of Core. Thereafter, Core filed in the court action an application to confirm the arbitration award into a court judgment, and it also requested recovery of the attorney fees it incurred in the arbitration proceeding under Iowa Code Section 572.32(1). The district court confirmed the arbitration award into a judgment, but it denied Core’s request for attorney fees under the mechanic’s lien statute because it “did not believe it had the discretion to award the fees relating to the contract arbitration as part of the mechanic’s lien action.” Core appealed the district court’s denial of attorney fees.
On appeal, the Iowa Court of Appeals explained that the “lien-foreclosure claim and the contract claim are integrally related, and the contract arbitration decision – evaluating Core’s performance and Neumann’s obligation – was a prerequisite to the lien enforcement. . . . Without the arbitration clause, the contractual issue decided by the arbitrator would have been before the court in the mechanic’s lien action. . . . [Therefore,] [t]he arbitration award here is determinative of the contractual amount owed in the mechanic’s lien recovery-on-the-bond action.” The Court also reasoned that the “principles of equity, restitution, and prevention of unjust enrichment underlying the mechanic’s lien statute” supported recovery of the attorney fees because denying such recovery “would defy the liberal construction of the mechanic’s lien statute and generous construction of attorney fee statutes.”
Neumann countered with the argument that if “the arbitration attorney fees were a part of Core’s mechanic’s lien action, Core had to raise the issue to the arbitrator,” which it did not, thereby barring such recovery in the court action. The Court rejected the argument and stated that the arbitrator “did not have authorization under the [sub]contract to award attorney fees” because the subcontract agreement contained no attorney-fee provision in favor of Core. It then explained that Core’s request for attorney fees in the court action was based on its lien/bond claim and not its contract claim, thereby allowing the court to award such fees under the mechanic’s lien statute.
The Iowa Supreme Court has the final say on Iowa law. Therefore, the Iowa Court of Appeals’ decision is not the final word on this issue. But until the Iowa Supreme Court addresses the issue, this case provides legal authority for mechanic’s-lien claimants to recover arbitration attorney fees on their lien/bond claims in court.