Owner’s Slander of Title Claim Against Contractor Recording Four Separate Mechanics Liens Fail


Most mechanics lien actions follow a pretty standard process:

  1. A mechanics lien claimant, either a contractor subcontractor, material supplier, or laborer, performs work but is not paid;

  2. Mechanics lien claimant records a mechanics lien on the property in which work was performed; and

  3. Within 90 days thereafter files suit to foreclose on the mechanics lien.

Sometimes, either before or after a mechanics lien claimant files suit, the owner will record a mechanics lien release bond, in which case mechanics lien claimant files suit against the release bond.

But what if a  mechanics lien claimant records a mechanics lien, the owner records a mechanics lien release bond, and the mechanics lien claimant records three different but identical mechanics liens thereafter? Is this even legal?

One owner clearly didn’t think so and filed suit against a mechanics lien claimant for quiet title, slander of title, and declaratory and injunctive relief, which, while slightly different claims, were all premised on the ground that the lien claimant had impermissibly recorded its three mechanics liens after the owner had recorded its mechanics lien release bond.

The RGC Gaslamp, LLC Case

In RGC Gaslamp, LLC v. Ehmcke Sheet Metal Co., Inc., Case Nos. D075615 and D076594 (October 23, 2020) subcontractor Ehmcke Sheet Metal Company performed sheet metal fabrication and installation work at a luxury hotel located in downtown San Diego, California. In September 2017, Ehmcke recorded a mechanics lien in the amount of $257,978 for unpaid work. In response, the owner of the hotel, RGC Gaslamp, LLC, recorded a mechanics lien release bond releasing the mechanics lien.

That’s when things started to go a bit crazy.

  1. In December 2017, Ehmcke recorded a second mechanics lien identical to the first;

  2. Later, in April 2018, Ehmcke released the first and second mechanics lien and recorded a third mechanics for the same work. Once again, RGC records a mechanics lien release bond releasing the third mechanics lien.

  3. Then, in July 2018, Ehmcke released the third mechanics lien and recorded a fourth mechanics lien identical to the first, second and third mechanics liens.

In response, RGC filed suit against Ehmcke for quiet title, slander of title, and declaratory and injunctive relief, claiming that by recording four separate mechanics liens, all for the same work and all in the same amount, and by doing so requiring RGC to record two mechanics lien release bonds, rendered the “statutory protections afforded to owners under Civil Code section 8424 illusory.

While the action was pending, Ehmcke released its fourth mechanics lien. In opposition to the complaint, RGC filed an anti-SLAPP motion. “SLAPP,” which stands for Strategic Lawsuits Against Public Participation, is a motion designed to provide for early dismissal of lawsuits filed against people for the exercise of First Amendment rights.

In its anti-SLAPP motion, Ehmcke included a declaration by its Vice President, Billy Taylor, who stated that before hiring counsel it was not properly advised of the legal and statutory scheme regulating mechanic’s lien law in California, that after retaining counsel Ehmcke promptly released its fourth mechanics lien because it was untimely, and that Ehmcke did not intend to record any additional mechanics liens on the project. In addition, Ehmcke contended in its anti-SLAPP motion that, while it erroneously recorded its four mechanics lien, its activity in doing so was protected petitioning activity.

In its opposition, RGC contended that Ehmcke’s action of filing four duplicative mechanics liens was neither protected petitioning activity under the anti-SLAPP statute codified at Civil Code section 425.16, because the mechanics lien statute made no provision for repeat liens after an owner records a mechanics lien release bond, nor covered by the litigation privilege codified at Civil Code section 47, since none of the four mechanics liens were recorded during the course of litigation.

During the hearing, the trial court granted Ehmcke’s anti-SLAPP motion, while expressing discomfort that an owner like RGC would have no judicial remedy when faced with duplicative liens, and awarded Ehmcke’s $30,000 in attorney’s fees under the anti-SLAPP statute and $1,062 in costs as the prevailing party.

RGC appealed.

The Appeal

On appeal, the 4th District Court of Appeal explained that, under the anti-SLAPP statute codified at Civil Code 425.16, an anti-SLAPP motion involves shifting burdens of proof:

In the first step, the moving defendant bears the burden to establish that the challenged claim arises from the defendant’s protected activity. If the defendant carries its threshold burden, the burden then shifts to the plaintiff to demonstrate that its claims have minimal merit. “The court, without resolving evidentiary conflicts, must determine whether the plaintiff’s showing, if accepted by the trier of fact, would be sufficient to sustain a favorable judgment.” If a plaintiff does not make that showing, a court will strike the claim. A defendant that prevails on an anti-SLAPP motion to strike is generally entitled to recover attorney’s fees and costs.

As to the first prong, explained the 4th District, “courts consider whether a defendant has made a prima facie showing that activity underlying a plaintiffs causes of action is statutorily protected, ‘not whether it has shown that its acts are ultimately lawful.'” Thus, while Ehmcke’s fourth mechanics lien may have been released because it was untimely recorded, whether Ehmcke’s fourth mechanics lien was invalid or not was irrelevant. Further, explained the Court, while the mechanics lien statute does not address whether a mechanics lien claimant can record duplicative mechanics liens after a mechanics lien release bond is recorded is similarly irrelevant under the first prong of the anti-SLAPP statute since the lawfulness of such activity is not at issue.

Rather, held the Court of Appeal, “[t]he filing of a mechanics lien is a necessary prerequisite to bringing a foreclosure action” and “[a]s such, it is a protected prelitigation statement preparatory to filing a judicial proceeding.”

As to the second prong, explained the 4th District, because Ehmcke had released its fourth mechanics lien, RGC’s quiet title and declaratory and injunctive relief claims were rendered moot, leaving only RGC’s claim for slander of title.  As to RGC’s remaining claim for slander of title, under the second prong of the anti-SLAPP statute, explained the Court, RGC had the burden of showing that its claim had “minimal merit” including that “any asserted defenses . . . were inapplicable as a matter of law” or “make a prima facie showing that, if accepted, would negate such defenses.”

Here, Ehmcke claimed that RGC’s slander of title of claim was without merit because its fourth mechanics lien, even if invalid and later released, was a privileged activity under the litigation privilege. The Court of appeal agreed explaining:

Codified at section 47, subdivision (b), the litigation privilege applies to communications made as part of a “judicial proceeding.” Its principal purpose is to afford litigants and witnesses “utmost freedom of access to the courts without fear of being harassed subsequently by derivative tort actions. The privilege is absolute, providing a defense to all torts except malicious protection and applying “to all publications, irrespective of their maliciousness.” In general, the privilege applies “to any communication (1) made in judicial or quasi judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that [has] some connection or logical relation to the action.” “The privilege “is not limited to statements made during a trial or other proceedings, but may extend to steps taken prior thereto, or afterwards.”

Citing to the case, Frank Pisano & Associates v. Taggart (1972) 29 Cal.App.3d 1 (holding that the recording of a mechanics lien is protected under the  litigation privilege against a claim for disparagement of title), the Court of Appeal held that RGC had not shown the litigation privilege was inapplicable as a matter of law to its slander of title claim.

 Conclusion

So there you have it. You can challenge (defensively) the merits of a mechanics lien, but you can’t claim (offensively) that the act of recording the mechanics liens was a slander of title, even a mechanics lien recorded four times over again, and even when recorded after the recording of two mechanics lien release bonds.

This can be a frustrating outcome for owners, who may feel that a contractor is “playing games” by recording multiple mechanics liens, sometimes after a mechanics lien release bond is recorded (as was the case in the RGC Gaslamp case), or in wildly differing amounts, knowing that it costs an owner time and money to secure a mechanics lien release bond each time a new mechanics lien is recorded, or recording mechanics liens in excessive amounts, knowing that the premium paid by an owner for a mechanics lien release bond is based on the value of the mechanics lien. Unfortunately, while an owner has a defensive game that it can play, they really don’t have an offensive one.

#AntiSLAPP #RGC #Ehmcke #CivilCodesection8424 #CivilCodesection42516 #CivilCodesection47

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