The Court of Appeals decided Delmastro & Eells v. Taco Bell Corp. about 3 weeks ago, and the opinion taught a few lessons about when a Mechanic’s Lien can turn into a quicksand trap under Arizona’s groundless lien statute. The opinion is worth reading for review of several important propositions of mechanic’s lien law.

D & E did work on a commercial complex along West River Road in Tucson in 2008 and provided some of the owners with a preliminary 20-day notice on more than one occasion. One of the uninformed owners was Taco Bell (“TB”), which owned a pad in the project. The critical flaw in the preliminary 20-day notices was that they did not describe any work being performed on TB’s parcel which would alert a receiver of such notice that a lien might attach to its property. In short, TB did not get notice of D & Es claims against its property at all until D & E soght to foreclose its lien in May, 2009. D & E amdned its complaint in Superior Court to seek foreclosure against the TB pad and served TB with the amended complaint.

To have the right to foreclose on a mechanic’s lien, the lien claimer must substantially comply with each of the requirements in the mechanic’s lien statutes. One of those requirements is to get the 20-day preliminary notice correct. What happened here is that D & E didn’t legally describe the jobsite correctly; those descriptions have to be sufficient to allow a “stranger to the transaction” to identify what the mechanic did (work-wise) and where any future lien will attach (identifying the parcels-wise). The Court of Appeals found as a matter of law that substantial compliance with ARS 33-992.01(C) did not occur. It found “no reasonable person would conclude that D & E’s jobsite included the entire subdivided commercial complex.”

Not surprisingly, TB filed a claim for a groundless lien in response to learing of the D & E foreclosure complaint. D & E defended on the basis that TB had actual knowledge of the improvement and the obligation to pay, but the Court of Appeals would not have any of that: such knowledge “does not relieve a lien claimant of the duty to provide a preliminary notice that complies with Section 33-992.01(C).” This language will be somewhat helpful to owners of “uninvolved land” in future circumstances like this one.

To the issue of the groundless lien, the Court of Appeals was unsympathetic to D & E. It found that D & E had reason to know that the notice and claim of lien it filed against TB was invalid. The Court defined “reason to know” as “more than a subjective, good faith belief in the propriety of its recording” if groundless lien liability is to be escaped. The Court of Appeals acknowledged that ARS Section 33-420(A) is not intended as a windfall for landowners who chance to notice that lien documents they review are discovered to be invalid. Howver, the Court ultimately found that the lien claimant’s “reason to know” requirement cannot be a shield “when the [claimant’s] ignorance of the invalidity of a lien arose from the party’s own failure to take basic steps to assure its validity.” In short, before you record a notice and claim of lien, you’d best review with special care, mechanic, the legal description of the property you’re fixing to lien. A mechanic cannot count on hiding behind the owner’s failure to inform him that the information is incorrect,which is another statute in the bundle of mechanic’s lien statutes – especially when the lien claimer fails to serve the 20-day preliminary notice on the affected owner. The Court advised that even “notice recipients are not required to read the minds of line claimants or track the happenings on or near their property.”

I’m on holiday for a bit; happy Thanksgiving to those inclined to celebrate it.