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