Fifth Circuit Holds That Partial Mechanic's Lien Waivers Bar the Contractor from Claims for Extra Work and Delay Damages

The Fifth Circuit recently considered the question of whether interim mechanic’s lien waivers executed by a contractor released extra work claims and delay damages incurred prior to the waiver.

In Addicks Servs., Inc. v. GGP-Bridgeland, LP, 2010 WL 425054 (5th Cir. Feb 8, 2010), an excavation and grading contractor entered into a lump sum contract with a residential developer for $4,582,721 which amount increased to $6,110,774 after approved change orders. During the project, the contractor executed interim mechanic’s lien waivers along with the submission of each payment application, in which it “waive[d] and release[d] its lien and right to claim a lien for labor, services, or materials furnished through” the date of execution, as well as stated that the contractor “specifically waive[d]…any claim for damages due to delay…extra work, or any other claim of any kind it may have…as of the date of [the] [w]aiver.”

After completion, the contractor alleged that it performed extra work and incurred delay damages totaling an additional $2,160,957.00, for which it filed a mechanic’s lien against the property and later a breach of contract suit against the developer. The developer moved for summary judgment on the grounds that the contractor had released any claims for extra work and delay damages via the interim mechanic’s lien waivers. The district court granted the developer’s motion, and the contractor appealed.

On appeal, the contractor argued that factual disputes regarding the theories of ambiguity, waiver and promissory estoppel required the court to reverse the grant of summary judgment. First, the contractor argued that the usage of certain other words in the lien release created an ambiguity as to whether extra work was excluded from the lien releases. The court found that even if these specific words were ambiguous, the waiver specifically released “any claim…for extra work….” In addition, the court noted that the contractor could have limited the release by listing its outstanding claims in the blank space provided in the release for exceptions.

Next, the contractor argued that the developer waived its right to enforce the interim lien waivers by negotiating over certain change orders that might have been barred by the partial lien release. The court noted that proving an implied waiver requires a litigant to overcome a high threshold by clearly demonstrating the other party’s intent to relinquish a right. The court found that the developer did not intend to waive the lien release requirements, despite its negotiation with the contractor over some of the disputed changes.

Finally, the contractor argued that the developer’s promises to resolve the extra work claims at a later date bound the developer to pay those claims. The court found that these statements were too generic and indefinite to establish promissory estoppel because they did not guarantee any specific acts. Because the contractor had failed to raise any issue of material fact regarding the release language in the lien waivers, the Fifth Circuit affirmed the district court’s grant of summary judgment in favor of the developer.

As Addicks Services demonstrates, contractors and subcontractors must pay careful attention to each lien waiver executed during a project, as its execution might constitute a waiver of the right to pursue even well-substantiated claims for extra work or consequential damages. If the contractor is executing a partial lien waiver that requires the contractor to release claims for extra work performed up until the point of execution, the contractor should identify its actual or potential claims on the lien release form. As the Fifth Circuit noted, the contractor in Addicks Services could have easily preserved its claims for $2,160,957 had it simply filled in the blank on each interim release form identifying the remaining claims. Without such language, a strong interim lien release may bar the contractor or subcontractor for later pursuing substantial and potentially valid claims.

Categories: Legal Updates