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AIA General Conditions Mediation Clause Covered Contractor’s Mechanics’ Lien Claim

The United States District Court for the District of Maryland recently interpreted the mediation clause in the AIA A201 -2007 “General Conditions of the Contract for Construction” to require mediation before proceeding with a mechanics’ lien claim.  Kane Builders S&D, Inc. v. Maryland Pharmacy, LLC, 2013 U.S. LEXIS 83432 (D. Md. June 13, 2013).  In Kane, the subcontractor and contractor used a form AIA contract as their agreement for the subcontractor to furnish labor and materials in the construction of a retail pharmacy.  The parties incorporated as part of the contract the AIA Document A201 – 2007 General Conditions.

The standard conditions in the AIA A201 include Section 15.2.8, which provides, “If a Claim relates to or is the subject of a mechanic’s lien, the party asserting such Claim may proceed in accordance with applicable law to comply with the lien notice or filing deadlines.”  Section 15.3.1, however, states, “Claims, disputes, or other matters in controversy arising out of or related to the Contract . . . shall be subject to mediation as a condition precedent to binding dispute resolution.”  Another relevant clause is Section 15.3.2, which provides that a request for mediation “may be made concurrently with the filing of binding dispute resolution proceedings but, in such event, mediation shall proceed in advance of binding dispute resolution proceedings, which shall be stayed pending mediation for a period of 60 days from the date of filing.”

The subcontractor filed a mechanics’ lien in state court for nonpayment, and the owner contended that mediation was a condition precedent to the subcontractor prosecuting its lien claim.  Distrct Court Judge Deborah K. Chasanow held that Section 15.3.1 is sufficiently broad to include mechanics’ lien claims.  The court also rejected the subcontractor’s argument that litigation does not constitute “binding dispute resolution” as that term is used in Section 15.3.1.  Therefore, the court concluded that mediation was a condition precedent to the subcontractor’s right to prosecute its mechanics’ lien claim.

Notwithstanding this point, the court declined to dismiss the action.  Judge Chasanow noted that Section 15.3.2 expressly contemplated that the subcontractor had the right file the lien claim while concurrently requesting mediation, and have the litigation stayed pending mediation.  The court reasoned that staying the litigation, rather than dismissing it, was appropriate.

The practical takeaway from this case is the reminder that if parties do not wish to subject a mechanics’ lien claim (or other specific types of claims) to mediation or another form of alternative dispute resolution provided for in the contract, the parties should expressly exclude lien claims from the mediation or ADR provisions.  Otherwise, the parties are at the mercy of the court to determine whether the claim falls within or outside of the ADR requirement, and awaiting the decision of the court on this matter will only serve to delay the ultimate resolution of the underlying dispute.