Generally, lien waivers that contain fraudulent information are not enforceable. However, not all intentionally misleading statements are fraudulent. The crux of the issue is whether a lien waiver simply states that the subcontractor has been paid a specific amount or whether the subcontractor claims that the work completed is worth the amount stated in the waiver.
The Illinois Appellate Court addressed this issue briefly in Casablanca Lofts, LLC v. Blauvise (2014 Ill. App. Unpub. Lexis 1377 (1st Dist. June 26, 2014)). In arbitration, prior to litigation, the developer/owner of a condominium project, Casablanca Loft, discovered that the electrical subcontractor had submitted three lien waivers totaling $135,000 and had been paid $135,000. Id. at ¶6. However, the electrical subcontractor had only provided material and labor with a value of $19,000. Id. Casablanca Lofts then filed a complaint against the electrical subcontractor alleging that it fraudulent misrepresented the amount owed for labor and materials. Id. at ¶¶5, 7. The trial court found that the electrical subcontractor and its owner did not make false statements in the lien waivers, because “the mechanics lien waivers don’t say anything about the amount of work done….” Id. at ¶12. The Illinois Appellate Court affirmed the trial court’s ruling without comment on the issue.
This case provides a sobering reminder to owners and general contractors. Obtaining lien waivers is not merely a clerical requirement. Lien waivers are a critical element of the construction payment process. The lien waivers provided by the Casablanca Lofts subcontractor did not provide a statement regarding the value of the work actually performed or provide a percentage of work completed. Owners and general contractors should require that subcontractors provide lien waivers prior to disbursing funds. Owners, or their agents, and general contractors should examine lien waivers to verify that the amount stated in the lien waivers conform to the work actually performed. Finally, in order to avoid overpaying subcontractors, lien waivers should indicate the value or percentage of work actually performed.
Adam Gill (312-499-6728; ALGill@duanemorris.com) and Jeffrey L. Hamera (312-499-6782; JLHamera@duanemorris.com)