Jennifer McMillan Beyerlein | Lane Powell | January 18, 2018
Today, the Washington Supreme Court has clarified any misunderstanding about the necessary parties in a mechanic’s lien foreclosure action when a lien release bond has been posted. In Inland Empire Dry Wall Supply Co. v. Western Surety Co., the Court upheld a divided Court of Appeals by allowing a lien foreclosure action brought by a material supplier to proceed solely against the surety securing the lien release bond. Inland Empire Dry Wall Supply Company alleged that it was not paid for drywall supplied to an apartment complex in Richland, Washington. Inland Empire filed a pre-claim notice and a mechanic’s lien against the property. The general contractor, Fowler General Construction, obtained a lien release bond from Western Surety Company, which identified Fowler as the “Principal” and Western Surety as the “Surety.” Ultimately, Inland Empire filed a lien foreclosure action solely against Western Surety seeking to foreclose its lien claim against bond.
Western Surety sought dismissal of the action, arguing that Inland Empire failed to properly include Fowler as the principal on the bond as required under the mechanic’s lien statute. The trial court granted summary judgment against Inland Empire, finding that the material supplier was required by statute to bring its lien foreclosure action against both the surety and the purchaser of the bond, Fowler. The trial court held that because the bond was the subject of the claim of lien, in place of the apartment complex, that both Fowler and Western Surety were the “owners” of the bond — making both indispensable parties to the lien foreclosure action. Division III of the Court of Appeals, in a split decision, disagreed last January, holding that the only necessary party to a lien foreclosure action involving a lien release bond was the surety.
In reviewing the statutory history of mechanic’s liens in Washington, the Supreme Court noted that the owner of the real property is required to be named in actions where no lien release bond is filed. The Court noted that this makes sense given that forfeiture of the property would be required in order to enforce payment of amounts owed under a mechanic’s lien. When a lien release bond is obtained, however, the real property is released from the lien and becomes “unreachable” and the bond becomes the security for enforcement of payment. In strictly reading the mechanic’s lien statutes, the Court found that neither the real property owner nor the entity who purchased the lien release bond are necessary parties in any action to enforce the lien against the surety who posted the lien release bond. This is because the surety is substituted for the real property owner in the eyes of the mechanic’s lien statutes for purposes of enforcement.
Practice Tip: In dicta, the Court noted that when a property owner or other party to a lien foreclosure action obtains a lien release bond after a lien foreclosure action is initiated, the lien claimant should amend its pleadings to specifically seek to foreclose on the lien release bond to avoid a situation where there is a judgment in favor of the lien claimant, but no security to enforce the judgment.