Unconditional Waiver Void if Payment Fails

In September, 2016, in the case of Cashman Equipment Co. v. West Edna Assoc., et al., 132 Nev. Adv. Op. 69 (2016) the Nevada Supreme Court addressed two important issues of first impression in Nevada regarding the waiver of mechanic’s lien claims.  Plaintiff Cashman Equipment was a large material supplier who was supplying emergency back-up power generators to the new Las Vegas City Hall.  Originally, Cashman had bid the project directly to Defendant West Edna Assoc. dba Mojave Electric (“Mojave”), the electrical subcontractor; however, the City of Las Vegas required the use of Disadvantaged Business Enterprises (“DBE”) on the project and therefore Mojave inserted a DBE contractor (Cam Consulting) between itself and Cashman.  Cam did nothing other than serve as a flow-through entity that signed off on paperwork and collected a fee to make it appear that it was supplying Cashman’s equipment to the project.  Mojave insisted that payment flow through Cam to Cashman to meet its DBE obligations.  Toward the end of the project, after the generators were delivered to the Project, Mojave paid Cam in excess of $800,000, approximately $750,000 of which was owed to Cashman.  Cashman provided an unconditional lien waiver in exchange for its expected payment.  Instead of paying Cashman, the owner of Cam absconded with the funds and proceeded to divert the funds to other purposes.  Cashman asserted mechanic’s lien rights as well as payment bond rights at the time of trial.  The trial judge refused to enforce the mechanic’s lien rights on the basis that it found that the release provided by Cashman was enforceable because Mojave’s payment to Cam constituted payment to Cashman.  Likewise, the Court engaged in an equitable fault analysis regarding Cashman’s mechanic’s lien and UCC lien rights and found that Cashman was 66% as fault for its loss for not having protected itself better.  In the end the Court awarded only $197,000 to Cashman.

The Nevada Supreme Court unanimously ruled that the district court erred in finding that the waiver, even though termed “unconditional”, was enforceable against Cashman and found that payment to Cam by Mojave did not constitute payment to Cashman.  The Court likewise found that the district court erred when it failed to enforce the plain language of Nevada statutes which provide that if payment to a contractor fails to clear the bank upon which it is drawn the lien release will be deemed void.  It is not uncommon for higher-tiered contractors to hold payment unless an “unconditional release” is provided which many lower-tiered contractors and suppliers are loath to give for fear of waiving their rights if they aren’t paid.  Despite such reticence, however, many times such releases are provided in order to procure needed payment.  The Court’s decision provides much needed guidance in the area and holds district courts will be required to protect the rights of lower tiered contractors and suppliers regardless of the forms used.

Likewise, the Court noted that whether an equitable fault analysis can be used to reduce a security interest or mechanic’s lien in Nevada was a matter of first impression, and again, the Court sided with Cashman and reversed the District Court and found that “equity” may not be used and that the rights of contractors as established by the Legislature may not be restricted by the courts.  The Supreme Court reversed and remanded the matter for the sole purpose of the district court recalculating damages owed to Cashman, including attorneys’ fees.

A copy of the Court’s opinion may be seen here:  Cashman Equipment v. Mojave Electric

Mediation Held to be a Pre-condition to Litigation

On February 4, 2016 the Nevada Supreme Court ruled that mandatory mediation provisions found in contracts act as a condition precedent to the initiation of litigation.  In the case of MB America v. Alaska Pacific Leasing Co., 132 Nev. Adv. Op. 8 (Feb. 4 2016) the Supreme Court of Nevada upheld a district court’s granting of summary judgment when Plaintiff MB initiated litigation without having first fulfilled its duty to submit the dispute to mandatory mediation.   Likewise, the Supreme Court upheld an award of attorneys’ fees to Defendant Alaska Pacific.

Plaintiff MB argued that it had discussed mediation informally with Alaska Pacific, however, the Supreme Court found that this did not meet the requirements of the contract and because Alaska Pacific had not expressly rejected mediation, Plaintiff MB was under an obligation to fulfill the mediation requirement.  The Court likewise rejected the argument that the district court matter should be stayed pending compliance with the mediation requirement, which would be typical when dealing with arbitration provisions.

Parties and their attorneys would do well in future proceedings to strictly comply with any mediation provisions contained in their agreement and memorialize such compliance in the event that it becomes necessary to establish that all “conditions precedent” to litigation have been fulfilled.

Attorneys’ Fees Mandatory When Lien is Expunged

Expunged lien results in attorneys’ fee award

On July 13, 2016 the Nevada Court of Appeals issued an unpublished decision which squarely addressed the issue of the award of attorney’s fees when dealing with motions to expunge mechanic’s liens.  The facts of the case were simple in that the District Court granted a motion to expunge a mechanic’s lien, which,  per Nevada statutes results in a mandatory award of attorneys fees to the moving party.  The District Court denied the request for attorneys’ fees stating that it had not found that the mechanic’s lien claim had been “frivolous”.  The Appellate Court reversed this decision and found that the statute governing expungement of mechanic’s liens (NRS 108.2275) provided for only three possible outcomes:

“First, if the court finds that “[t.]he notice of lien is frivolous and was made without reasonable cause, the court shall make an order releasing the lien and awarding costs and reasonable attorney’s fees to the applicant for bringing the motion.” NRS 108.2275(6)(a.). Second, if the court finds that “[t]he amount of the notice of lien is excessive, the court may make an order reducing the notice of lien to an amount deemed appropriate by the court and awarding costs and reasonable attorney’s fees to the applicant for bringing the motion.” NRS 108.2275(6)(b). And third, if the court finds that “[t]he notice of lien is not frivolous a~d was made with reasonable cause or that the amount of the lien is not excessive, the court shall make an order awarding costs and reasonable attorney’s fees to the lien claimant for defending the motion.”

The matter was reversed and remanded to the district court for further proceedings to address the issuance of attorneys’ fees.

The case may be found at:  One Trop LLC v. Verma