In theory, arbitration is a cheaper and less formal way to way to resolve disputes. The parties conduct their proceedings in an informal setting, and not through the court system. While lawyers like to debate the benefits and detriments of arbitrations versus court proceedings, the reality is that arbitration is the preferred method of dispute resolution for many contractors. It is therefore not uncommon to see arbitration clauses in construction contracts.
However, the right to arbitration is not absolute, and can be lost in certain situations. One such situation is where a contractor participates in court litigation. Such participation can result in the inadvertent waiver of the right to arbitrate.
The threat of waiver creates a problem for unpaid contractors who want to proceed with a mechanic’s lien in Maryland. This is because under the Maryland Mechanics Lien Law, the only way to obtain a mechanic’s lien is by a court order. Therefore, to protect their lien rights, contractors cannot avoid participating in litigation. So where does this leave contractors in Maryland who are unpaid and need to file mechanic’s lien suits in Court? Will the filing of a mechanic’s lien result in the waiver of a contractor’s right to pursue arbitration and force the contractor to litigate the entire case in Court?
The answer is no. The Maryland Court of Appeals (the highest court in Maryland) has recognized that contractors must have a way to protect their lien rights. The court held that participating in the initial stages of a lien suit does not result in a waiver of the right to arbitrate. The Court noted, however, that taking the lien suit too far can result in a waiver of the right to arbitrate. Contractors are not permitted to establish a final mechanic’s lien by litigating the entire lien suit to completion. Contractors are only permitted to obtain an interlocutory (i.e. temporary) mechanic’s lien while the actual merits of the case are arbitrated.
In light of the court’s ruling, contractors must understand how far they can proceed in court without waiving their rights. Obtaining certain relief under the Maryland Mechanic’s Lien Law is permitted, but the right is not absolute and can result in contractors being stuck in court if they are not careful.
If you have any questions about this topic or any other construction law issue, please contact Brian Loffredo at
ABOUT BRIAN LOFFREDO
Brian is a commercial litigator with more than seventeen years of experience representing clients in the franchise industry. Brian routinely assists clients during the licensing and franchise/FDD review process, as well as with the resolution of franchise-related disputes, including those involving terminations, territorial disputes, fraud, disclosure/relationship law violations and breaches of contract.
In addition, Brian represents and counsels clients in the construction industry on matters involving litigation, construction defects, licensing and compliance, collections, mechanic’s liens, payment bond and Miller Act claims, contract drafting, and compliance with home improvement laws and other construction industry laws.
Brian also has extensive experience representing financial institutions with workouts, collections and residential / commercial foreclosures.
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