Supreme Court of Minnesota Decides Mechanic’s Lien Law Issue in Favor of Contractors

Surprisingly, one of the most important tools used by contractors in running a smart and profitable business is not found in their tool belt. Instead, contractors who effectively negotiate the hurdles presented in Minnesota’s mechanic’s lien law statutes end up with a far greater chance of getting paid for the work they have completed than those who do not.

To protect and enforce Mechanic’s Lien rights, residential contractors and subcontractors must usually serve a Pre-Lien Notice, and then serve and file a Mechanic’s Lien Statement within 120 days of the last date of work. Courts have made inconsistent rulings on whether it was proper to mail the Lien Statement on the 120th day, or whether it must actually be received on or before the 120th day.

 Recently the Minnesota Supreme Court has clarified the service of claim statement aspect of mechanic’s lien law. The decision of the Supreme Court in Eischen Cabinet Company v. Hildebrandt, et al. on July 29, 2004 favors the contractor when interpreting the issue of service of the mechanic’s lien claim statement.

In the Eischen case, the homeowners (“Hildebrandts”) contracted with Eischen Cabinet Company (“Eischen”) to provide custom-made cabinets for their home. Eischen’s last day of work on the home was January 25, 2002. After not receiving payment in full, Eischen mailed a mechanic’s lien claim statement to the Dakota County Recorder on Friday, May 24, 2002, with a copy sent by certified mail to the Hildebrandts that same day. The mailing of the mechanic’s lien claim statement was 119 days after the last day of work.

The lien claim statement was not filed and recorded by the County Recorder until Tuesday, May 28 2002, which was three days past the 120 day deadline. The Hildebrandts did not pick up the certified letter that was copied to them at their post office box until May 30, 2002, which was five days past the 120 day deadline. The 120 day time limit expired on May 25, 2002, which was a Saturday, and the day after the mailing of the lien statement.

Both the District Court and Court of Appeals determined that service did not occur until the Hildebrandts received the copy of the claim statement on May 30, 2002, 125 days after the last date of work. Therefore, Eischen lost its lien rights since the Courts determined that service was not complete until after the termination of the 120 day time period.

However, the Minnesota Supreme Court reversed the decisions of the lower courts. The Supreme Court based their decision that service of the claim statement was effective upon mailing the lien claim statement instead of upon receipt of the lien claim statement.

The Supreme Court discussed a variety of factors that contributed to their decision. First, the Court stated that the “essential purpose” of the mechanic’s lien statute is to “reimburse laborers and material providers who improve real estate and are not paid for their services.” The Court also expressed that “certified mail” is a term trademarked by the United States Postal Service, and is defined as a method of sending mail in which the sender receives “a receipt stamped with the date of mailing.” It was also noted that the Minnesota Rules of Civil Procedure generally provide that notice is effective upon mailing, and not delivery. Finally, the Court looked to a past issue they ruled upon in 1987 which, though not dealing with the exact same fact scenario, was instructive to the Court in regard to when service was effective. As a result, the Court decided that all factors weighed in favor of making service of the lien claim statement effective upon mailing.

This decision by the Minnesota Supreme Court is favorable to those contributing labor and/or materials to real estate. The Court is liberally interpreting Minnesota mechanic’s lien law to protect the rights of contractors and subcontractors.

The timeliness of filing the lien claim statement with the county recorder was not at issue in this case. The district court found that from January 25, 2002, the last day of work, the 120-day period for filing expired May 25, 2002, but since May 25 was a Saturday, and Monday, May 27, was Memorial Day, the district court extended the filing deadline to Tuesday, May 28. NOTE: This also appears to be new law and a clarification in favor of the lien claimant.

We do not recommend that contractors and subcontractors wait until the last minute to protect their lien rights. However, knowledge and awareness of the intricacies of the mechanic’s lien time line is essential to protecting the profitability of your business.

Racheal M. Holland is an associate with Rinke-Noonan and practices in areas of construction law and litigation, mechanic's liens, real estate and environmental litigation.