On December 19, 2014, the Utah Supreme Court issued its opinion in Lane Myers Construction, LLC v. National City Bank, et al. 2014 UT 58 (UT 2014). In this case, a total of nine Utah jurists considered the question of whether a general contractor’s signing of a “final” draw request containing averments that no liens or claims could attach to the property was an effective lien waiver under Utah law. The trial court judge determined that it was. The three members of the panel on the Utah Court of Appeals considering the question held that it was not. Three members of the Utah Supreme Court reversed the Court of Appeals decision by ruling that the final draw request at issue could be a lien waiver under Utah law, but that factual issues surrounding the intent of the general contractor precluded summary judgment. Finally, two members of the Utah Supreme Court believed that as a matter of law, the final draw request was not a lien waiver under Utah law. As much as one hopes that the Lane Myers decision would clarify Utah Law on lien waivers, the fact that so many Utah jurists have disagreed on the subject only throws more doubt upon when, and to what extent, an owner or a financial institution may rely upon a “lien waiver” before dispersing construction funds.
In Lane Myers, property owners obtained a construction loan from National City Bank to build a home in Park City, Utah. There was a total of 16 draw requests from the general contractor to National City. As of the 15th draw request, the general contractor stated that a total of $357,560.98 was owed at that time. When it received only a fraction of that amount in response to the 15th draw request, the bank advised the contractor that the only remaining funds available from the construction loan were retainage, and not adequate to fund the entire amount owing. This was purportedly the first time the general contractor learned that the construction loan was hundreds of thousands of dollars short of the amount claimed to build the home. In spite of this, the general contractor submitted a 16th and “final” draw request for $105,702.99. The final draw request contained typical averments that there were no unpaid claims concerning all labor and materials furnished by the general contractors and subcontractors, materialmen, etc. It stated also that “no liens or claims that may result in liens exist against the above-described property other than as set forth herein.” Finally, the final draw request also stated that the general contractor had received payments for “all stages of construction/rehabilitation of the property other than the final disbursement.” The word “waiver” was not, however, in the document.
The general contractor claimed that it submitted the final draw request for the reduced amount because the owner had promised it would pay any remaining balance owing, because the owner was working with a new lender and because the lender’s insistence upon the words “final draw” on the final draw request referred only to the amount of the final draw and would not have any effect on the other unpaid amounts from prior draws. In reliance upon the final draw request, the bank paid the general contractor the $105,702.99. Of course, the owner did not secure a new loan, and did not pay the remaining balance owing. The general contractor ultimately filed a mechanic’s lien for $576,366.93, and filed suit to perfect the lien and foreclose upon it.
The trial court granted summary judgment in favor of the lender and owner, holding that the final draw request operated as a lien waiver because it substantially complied with Utah’s Mechanics’ Lien Act. The Court of Appeals reversed the trial court by holding that the final draw request did not substantially comport with the statutory lien release form provided by statute in § 38-1-39(4) of the Utah Code. A three-judge panel of the Utah Court of Appeals ruled that the final draw request did not satisfy each of “four distinct components” of the statutory form. The lender sought review from the Utah Supreme Court, which was granted.
The opinion of the Supreme Court, in which only the result was concurred by three other justices, did clarify one important aspect of Utah law on lien waivers, and that is the statutory form provided by the Utah Legislature in the Mechanics’ Lien Act is not a requisite form, but merely provides a safe harbor. The Lane Myers Court held that the sole criteria for the execution of an effective lien waiver are those set forth in § 38-1-39(2), i.e. the execution of a “waiver and release that is signed by the lien claimant or the lien claimant’s authorized agent” and the receipt of “payment of the amount identified in the waiver and release.” The Lane Myers Court clarified also that restrictive endorsements on a check must be in substantially the same form as those set forth in the statute. Any other document purporting to be a lien waiver, however, need not comply substantially with the form set forth in the Act. The court observed that the language in the subsection is “distinctly permissive, not prescriptive.” The Lane Myers Court went on to find, however, that because the final draw request in that case did not contain language that sufficiently articulated a “clear and knowing waiver,” a trial on the merits would have to be held to determine the intent of the general contractor when it signed the final draw request. Two of the members of the Utah Supreme Court filed opinions suggesting that because the word “waiver” did not appear in the final draw request, that as a matter of law the final draw request could not be deemed to be a waiver as a matter of law. Thus, the Lane Myers decision focuses on the “intent” of the general contractor, suggesting it is the “central focus in most waiver cases.” This effectively puts a question mark to the enforceability of any document purporting to waive lien rights under Utah’s Mechanics’ Lien Statute.
Of course every fact situation is different, and it appears no form other than the statutory form prescribed by the Utah Legislature can be said to guarantee an effective waiver and release. But the strong implication of this decision, and the Utah Supreme Court’s most recent pronouncement of the law on whether a particular document is an effective lien waiver and release, suggests that at a minimum, great care should be taken by any owner or lender who elects to use a form other than that prescribed by Utah statute. It may not be requisite, but it is certainly advisable.