Construction Lender Not Entitled to File Lambert Motion

In Cal Sierra Construction, Inc. v. Comerica Bank, 2012 Cal.App.LEXIS 641 (May 31, 2012), Cal Sierra Construction, Inc. (“Cal Sierra”) filed suit to enforce a mechanics lien and stop notice in connection with a residential housing project in Placer County financed by Comerica Bank, Affinity Bank and United Commercial Bank.  The banks filed a Lambert motion, asserting that Cal Sierra’s claims were invalid because it had been paid for the work performed or did not perform the work claimed.  The trial court agreed,  and an order was entered releasing Cal Sierra’s mechanics lien and stop notice.

On appeal, the California Court of Appeals for the Third District, interpreting Lambert and an earlier California Supreme Court case, Connolly Development, Inc. v. Superior Court, 17 Cal.3d 803 (1976) – in which the Supreme Court upheld the constitutionality of California’s mechanics lien and stop notice statutes against a claim that they permit a taking of an owner’s property without due process – the Court of Appeals explained that the constitutional underpinnings of a Lambert  motion is to provide a speedier remedy for property owners to challenge mechanic’s liens or stop notices, not construction lenders:

In Connolly, the high court made clear the property interests at stake were those of the property owner alone.  In finding that the mechanics lien and stop notice can affect a taking of the owner’s property, the court cautioned: “[N]either the recording of a mechanics’ lien not the filing of a stop notice constitutes a taking of the lender’s property.  The mechanics’ lien attached to the landowner’s realty; the stop notice garnishes the landowner’s credit; neither encumber property of the of the lender.  Although the filing of a stop notice imposes upon the lender a liability to the claimant which the lender has not contractually agreed to assume, the imposition of that liability does not constitute a ‘taking’ of property in the constitutional sense.”

In conclusion, the Court of Appeals held that a Lambert motion is a remedy available to property owners but not construction lenders:

In the present matter, the trial court permitted the bank to utilize an expedited procedure designed by the Court of Appeal to protect the interests of a property owner from having its project suspended indefinitely by an unjustified lien.  But since the banks had already committed funds to the construction project, and their interests were protected by their security interest in the property, the same concerns do not apply to them.  By permitting the banks to utilize the expedited Lambert procedure where their property interests were not at stake, the court deprived plaintiff of its right to trial on its stop notice claim, in violation of due process of law.

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