Mechanic’s Lien Validity Can Be Decided in Alternative Dispute Resolution in Illinois
August 20, 2024On June 14, 2024, in a case captioned Portage Park Capital, LLC v. A.L.L. Masonry Construction Co., the Illinois First District Court of Appeals clarified and expanded the scope of arbitration in resolving disputes related to mechanic’s liens. Prior to the Portage Park decision, arbitrators determined the amount the contractor was owed, while the courts determined the validity and enforced payment of the lien. Now, depending on the intention of the parties, arbitrators are empowered—and encouraged—to determine the validity of mechanic’s liens.
In Portage Park, the property owner and contractor entered into an agreement whereby the contractor would construct a self-storage building in Chicago. The parties further agreed to utilize arbitration for dispute resolution. Claims subject to arbitration under their agreement included demands or assertions by one of the parties seeking adjustment or interpretation of contract terms, payment of money, extension of completion time, or other relief with respect to the terms of the contract.
The parties disputed the amount of money owed to the contractor by the owner. In turn, the contractor filed a mechanic’s lien for the disputed amount. The owner then sought a declaratory judgment in the Circuit Court of Cook County claiming that the contractor’s mechanic’s lien was fraudulent and false, and thus invalid. In response, the contractor successfully moved to compel arbitration and the Circuit Court dismissed the case.
On appeal, the owner argued that, pursuant to the Illinois Mechanics Lien Act, the Circuit Court had exclusive jurisdiction to determine the validity of the lien at issue. The contractor responded asserting that while only the circuit court can enforce the lien, an arbitrator may determine the validity of the lien.
The appellate court, relying on precedent from Minnesota, Ohio, and Texas, agreed with the contractor. It found that if the intention of the parties was to arbitrate certain claims, courts should defer to that intent. Because the owner and contractor in this case entered into a “generic” arbitration agreement, the parties were obligated to arbitrate any dispute arising under or relating to that agreement. And because “every dispute regarding a mechanic’s lien involves some reference to or construction of the contract,” the Court found that the mechanic’s lien arose under or related to the contract, and thus the validity was subject to arbitration.
The Court’s decision in Portage Park clarifies and expands the scope of arbitration in resolving disputes related to mechanic’s liens. With this precedent, contractors can now enter arbitration agreements with the understanding that arbitrators have the authority to determine the validity of mechanic’s liens. The decision underscores the importance of clearly defining dispute resolution mechanisms in construction contracts.
The full text of the Court’s publicly-available decision can be found under “Resources” below.
If you have any questions about your mechanic’s lien rights or your rights and obligations under a construction contract, please contact Robert Golterman, Jeremy Brummond, Taylor Essner, or another member of Lewis Rice’s Construction Law Department.
Special thanks to Jaylen Riley for his contributions to this article.
