On August 14, 2019, the Court of Appeals, Ninth Judicial District (Summit County) handed Ohio subcontractors and suppliers a victory on mechanic’s lien rights by reversing and remanding a trial court decision where the lower court had held that a subcontractor’s notice of furnishing was invalid because it was served before the sub had performed any labor or furnished materials to the Project.
The dispute arose out of a 2015 project to build a Fairfield Inn & Suites Hotel in Stow, Ohio (the “Project”). The General Contractor for the Project (Moosaally Construction, Inc., or “General Contractor”) hired Pursuit Commercial Doors (”Subcontractor”) as a subcontractor to install the hotel doors, door frames, and related hardware.
Ohio law requires, on private projects, that if an owner has prepared and recorded a “notice of commencement” for a Project, that to preserve their right to a lien, first-tier subcontractors and suppliers serve a notice of furnishing (“NOF”) on the Owner’s designee (sub-subcontractors and suppliers must also serve their NOF on the original contractor listed in the NOC).
In this regard, R.C. § 1311.05, titled “Notice of Furnishing” provides in pertinent part as follows:
Except as provided in section 1311.04 of the Revised Code and this section, a subcontractor or material supplier who … wishes to preserve [its] … lien rights shall serve a notice of furnishing, if any person has recorded a notice of commencement in accordance with section 1311.04 of the Revised Code, upon the owner’s, part owner’s, or lessee’s designee named in the notice of commencement or amended notice … at any time after the recording of the notice of commencement or amended notice but within twenty-one days after performing the first labor or work or furnishing the first materials ….
R.C. 1311.05(A) (Emphasis added.).
On May 6, 2015, the Owner (“ROCE” or “Owner”) recorded a notice of commencement (“NOC”) for the Project. On September 10, 2015, the Subcontractor served its notice of furnishing on the Owner’s Designee. On October 17, 2015, it began supplying materials or labor to the Project.
On July 11, 2016, after a payment dispute with the General Contractor, the Subcontractor recorded a mechanic’s lien on the Project. Several months later, with still no resolution of its claim, the Subcontractor filed its complaint in Summit County, including its claim for foreclosure of the mechanic’s lien.
On summary judgment, however, the trial court dismissed the Subcontractor’s lien claim, holding that the mechanic’s lien was invalid because the subcontractor served its notice of furnishing before it furnished labor or materials to the Project.
The Ninth Judicial District Court, however, unanimously reversed.
The appeals court explained that the trial court had improperly focused on the language in the Ohio Revised Code stating that the NOF should be served “within twenty-one days after performing the first labor or work or furnishing the first materials.” R.C. 1311.05(A) (emphasis added).
This interpretation, the appeals court held, was an overly narrow and restrictive reading of the remedial mechanic’s lien statute. Specifically, the appeals court explained that the trial erred in holding the mechanic’s lien invalid based on the above language because “there are two timing requirements for the service of a notice of furnishing under R.C. 1311.05(A): first, it must be after the recording of the notice of commencement or amended notice; second, it must be within twenty-one days after performing the first labor or work or furnishing the first materials. There is no requirement that a notice of furnishing can only be filed after the commencement of labor or the furnishing of materials.” Pursuit Commercial, at ¶10 (emphasis added).
Because here the Subcontractor’s NOF was served after the notice of commencement was recorded, and within twenty-one days after its first work, the NOF served its purpose and was effective.
The Pursuit Commercial opinion is an important victory for subcontractors and suppliers in Ohio. This is evidenced by the fact that the American Subcontractors Association (for whom this firm is general counsel) filed a “friend of the court (or “amicus”) brief with the Ninth Judicial District, supporting the Subcontractor’s appeal and urging reversal of the trial court decision.
That said, there are two practical points of importance for potential claimants to note:
First, until the Ohio Supreme Court weighs in on the issue, the best practice for Ohio subcontractors and suppliers is to wait until shortly after the first furnishing of labor or materials (ideally immediately after, but no more than 21 days after) to serve an NOF if one is required. This is because, while the Pursuit Commercial appellate decision is persuasive authority for most appellate courts, it is only binding as precedent within the Ninth Judicial District, which covers Summit, Lorain, Medina, and Wayne Counties.
Second, a notice of furnishing, even under this decision, can be “early” and thus ineffective if it is served before the owner records the notice of commencement.