Effect of Pre-Suit Settlement Offers in Construction Lien Law

Construction liens are often resolved by compromise. When negotiations break down, an owner who is found to have made a good faith offer before suit has been filed can be in a much different position than one who waits until suit is filed to begin negotiations when it comes to exposure to the lien claimant's attorneys fees. This article explains the difference. Early and effective legal consultation can make all the difference.

Effect of Pre-Suit Settlement Offers on a Litigant’s Entitlement to Prevailing Party Attorney’s Fees Under Florida’s Construction Lien Law

Robert E. Ferencik, Jr., Esq.
Lisa K. North, Esq.

Under Florida law, the prevailing party in an action to enforce a construction lien is entitled to recover its attorney’s fees. See Section 713.29, Fla. Stat. Awarding attorney’s fees to the prevailing party serves to encourage the settlement of disputes before resorting to litigation. According to the Florida Supreme Court, “ orcing the loser to bear the costs of fees of producing the opponent’s victory engenders a more realistic appraisal of the merits of the claim and discourages dilatory or obstructive tactics.” C.U. Associates, Inc. v. R.B. Grove, Inc., 472 So.2d 1177, 1178 (Fla. 1985).

Although Section 713.29, Florida Statutes, provides for the recovery of attorney’s fees by the prevailing party in a lien foreclosure action, the Florida Supreme Court has held that in order to be a prevailing party under Section 713.29, a litigant must have recovered an amount exceeding that which was previously offered in settlement of the claim. C.U. Associates, 472 So.2d at 1179. Not all settlement offers will be considered, however, in determining whether a party is actually the prevailing party entitled to an award of attorney’s fees. Rather, in order to defeat a party’s entitlement to fees as the prevailing party, the settlement offer must have been made before the complaint to foreclose the lien was filed. Sullivan v. Galske, 2006 WL 47512 (Fla. 2nd DCA Jan. 11, 2006); All-Brite Aluminum, Inc. v. Desrosiers, 626 So.2d 1020 (Fla. 2nd DCA). Additionally, the burden is on the party making the settlement offer to prove that the offer was in fact made and that it was made in good faith. C.U. Associates, 472 So.2d at 1179; Sullivan, 2006 WL 47512, at *3 n.2.

In other words, if a defendant proves that it made a settlement offer to the lienor prior to commencement of the lawsuit for an amount that was equal to or greater than the amount actually awarded the lienor in a judgment, then the lienor is not entitled to prevailing party attorney’s fees. If, however, that same settlement offer was made to the lienor after, rather than before commencement of the litigation, then the offer cannot be used to defeat a litigant’s right to attorney’s fees as the prevailing party under Section 713.29.

The Second District Court of Appeal’s decision in Sullivan v. Galske, 2006 WL 47512 (Fla. 2nd DCA Jan. 11, 2006), exemplifies the manner in which the above legal principles are applied by Florida courts. In Sullivan, a contractor brought an action for breach of contract and to foreclose a construction lien against homeowners for which it constructed a home. Although the parties attempted to settle their dispute prior to commencing litigation, their efforts failed. The trial court entered a judgment in favor of the contractor, and determined that the contractor was entitled to attorney’s fees pursuant to the contract and Section 713.29 as the prevailing party in the litigation. After the homeowners filed documents with the court regarding pre-suit settlement negotiations, however, the trial court reversed its ruling as to attorney’s fees, holding that the contractor was not the prevailing party in the litigation. The contractor appealed the trial court’s decision denying it attorney’s fees.

Following a recitation of the legal principles set forth above, the Second District Court of Appeal found that although the contractor received a favorable judgment in its lien foreclosure action, it may not be the prevailing party under Section 713.29 if the homeowners offered to settle with it prior to the lawsuit for an amount that was equal to or greater than the award in the judgment. The Second District held that the trial court was required to provide the parties with an evidentiary hearing regarding the pre-suit negotiations before determining the factual issues essential to it ruling, and remanded the case to the trial court for an evidentiary hearing.

Based on the Florida courts’ interpretation of Section 713.29, the owner in a lien dispute should seriously consider the possibility of making an offer of settlement to a lienor prior to commencement of litigation, and the lienor should seriously consider the implications of rejecting such an offer. In some cases, the attorney’s fees incurred by a litigant will surpass the damages awarded the litigant in a judgment. If a litigant is unable to recover its attorney’s fees in a lien foreclosure action, a judgment in its favor may not necessarily translate into money in its pocket.