Court of Appeals Issues Decision Regarding Second-Tier Subcontractors and Pre-Lien Notice

Velazquez Framing, LLC (“Velazquez”) v. Cascadia Homes, Inc. (“Cascadia”) is a Court of Appeals, Division 2 case where the primary issue on appeal was whether a second tier subcontractor was required to provide pre-lien notice under RCW 60.04 for its labor.

            The defendant, Cascadia, was the general contractor that planned to build a home on property it owned in Lakewood, Washington.[1]  High End Construction, LLC (“High End”),  submitted a bid to Cascadia for framing work on the home.  High End began work on Cascadia’s home, but later subcontracted with Velazquez to complete the framing work.[2]  Velazquez did not submit a prelien notice for its work on Cascadia’s home, and Cascadia claimed it was unaware that High End subcontracted with Velazquez for framing at the project.

            High End invoiced Cascadia and was paid for its work, but High End never paid Velazquez.  Subsequently, Velazquez recorded a lien for both labor and materials, and later filed a complaint to foreclose its lien.  Cascadia, due to the fact Velazquez did not provide it with prelien notice, moved for summary judgment, arguing prelien notice was required under RCW 60.04.031(1)[3] and the labor portion of  a lien cannot be segregated where a subcontractor’s lien includes both labor and materials.  Velazquez argued that no prelien notice was required under RCW 60.04.021[4] and RCW 60.04.031 and claimed that subcontractors can segregate the labor portion from the materials portion.  The trial court granted Cascadia’s motion and ruled Velazquez did not fall within one of the exceptions for prelien notice in RCW 60.04.031(2), and therefore, could not enforce the lien.  Velazquez appealed.

            In reaching a holding, the Court of Appeals first evaluated the plain language of RCW 60.04 and concluded that reading RCW 60.04.021, RCW 60.04.031(1), and RCW 60.04.031(2) together results in irreconcilable internal inconsistencies since two interpretations could be that RCW 60.04.031(2)(b)[5] is superfluous or that the legislature intended to exclude labor from prelien notice requirements. Because the Court determined there was not a plain, unambiguous meaning of the statute, it next resorted to a review of RCW 60.04’s legislative history to determine which of the above interpretations was, in its opinion, most consistent with the legislative intent.

            In its review, the Court noted changes to RCW 60.04 in 1991, where the legislature attempted to “modernize” the statute and to address “consumer protection problems related to construction liens,” including the common problem of homeowners being subjected to liens from subcontractors of which the homeowner was not aware.  The Court’s analysis includes acknowledgement that some labor is exempt from prelien notice requirements and distinguished between labor provided by laborers and labor provided by subcontractors.  In holding that second-tier subcontractors must provide prelien notice for labor, the Court of Appeals stated:

Simply put, not all liens for labor are exempt from prelien notice requirements. The legislative history makes it clear that the legislature wanted to protect both owners and laborers. To allow second-tier subcontractors to lien for their labor without any prelien notice would not protect owners and would be unnecessary to protect laborers. Requiring prelien notice for second-tier subcontractor labor aligns with this legislative intent.

Velazquez Framing, LLC v. Cascadia Homes, Inc., 521 P.3d 257, 258 (2022).

            In so reasoning, the Court of Appeals held that because Velazquez did not fall within one of the exceptions identified in RCW 60.04.031(2) and did not provide Cascadia[6] with prelien notice, Velazquez lost its ability to enforce its lien for labor.

            Comment:  Under RCW 60.04, to whom should have Velazquez given notice?  The Court of Appeals says Cascadia, but it failed to differentiate between Cascadia as a general contractor and Cascadia as an owner. In either case, the statute is clear: notice is not required to be given where persons contract directly with the owner or the prime contractor.  Here, Velazquez did not contract with the owner or prime contractor; therefore, it would seem any notice requirements could only be dictated by RCW 60.04.031(1), which fails to mention labor.  One plain language interpretation could be that since liens are authorized for labor under RCW 60.04.021, the lack of notice requirement for lien claimants whose claim of lien is based solely on performing labor is not superfluous or ambiguous, but rather in harmony with both the plain language interpretation of RCW 60.04.031(1) and the express “exceptions” identified in RCW 60.04.031(2), regardless of whether labor is provided by laborers or subcontractors. Therefore, an argument could be made that no notice is required for anyone providing labor only, but this theory is currently untested.

A subcontractor, by definition under RCW 60.04.011(16), is a licensed contractor who contracts with someone other than the owner of the property or their common law agent for the improvement of real property.  This Court of Appeals decision rests on the distinction between labor provided by laborers and labor provided by subcontractors. The Court read this distinction into the language of RCW 60.04.031(2)(b) to require notice for labor provided by subcontractors, but not for labor provided by a laborer.  The crux of the decision, in spite of the lengthy statutory interpretation silent on the issue, could hinge on a potential lien claimant’s possession of a valid contractor’s license, since being licensed would bring a person or an entity within the definition of a subcontractor, if they contract with someone other than the owner for improvements to the owner’s real property.  Even so, the statue fails to identify to whom a second-tier labor-only subcontractor would provide notice. 

While there may be other interpretations and  analyses, for now, the upshot of the holding is simple: if you are a second-tier subcontractor providing labor on a construction project, you should provide notice to both the owner and the general contractor as a best practice to preserve your lien rights.  And if you’re an owner or a general contractor concerned about unexpected labor liens, get lien releases and waivers from your prime contractor and subcontractors.  Ahlers Cressman & Sleight, PLLC, can assist you with incorporating lien provisions into construction agreements, notice requirements, drafting and executing lien releases, as well as lien foreclosure actions.

[1] The Court of Appeals did not differentiate between Cascadia as an owner or Cascadia as the GC.

[2] Pursuant to an oral contract.

[3] Except as otherwise provided in this section, every person furnishing professional services, materials, or equipment for the improvement of real property shall give the owner or reputed owner notice in writing of the right to claim a lien. If the prime contractor is in compliance with the requirements of RCW 19.27.095, 60.04.230, and 60.04.261, this notice shall also be given to the prime contractor as described in this subsection unless the potential lien claimant has contracted directly with the prime contractor. The notice may be given at any time but only protects the right to claim a lien for professional services, materials, or equipment supplied after the date which is sixty days before:

(a) Mailing the notice by certified or registered mail to the owner or reputed owner; or

(b) Delivering or serving the notice personally upon the owner or reputed owner and obtaining evidence of delivery in the form of a receipt or other acknowledgment signed by the owner or reputed owner or an affidavit of service.

[4] Except as provided in RCW 60.04.031, any person furnishing labor, professional services, materials, or equipment for the improvement of real property shall have a lien upon the improvement for the contract price of labor, professional services, materials, or equipment furnished at the instance of the owner, or the agent or construction agent of the owner.

[5] Notices of a right to claim a lien shall not be required of […] [l]aborers whose claim of lien is based solely on performing labor.

[6] Note that Cascadia was the owner of the property and is identified as a general contractor.

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