In a recent decision, the Wisconsin Supreme Court diminished the statutory mandate that any waiver document waives all present and future construction lien rights, unless “specifically and expressly” limited to a “particular portion” of the “labor, services, materials, plans, or specifications.”

In Great Lakes Excavating, Inc. v. Dollar Tree Stores, Inc.,¹ a handwritten insertion of the word "Partial" in the title, and a specific dollar amount that conflicts with unambiguous printed waiver terms, may now preserve all remaining statutory construction lien rights.

Background

The Supreme Court reversed the published appeals court decision in the case.²

As discussed in my May 13, 2021, article in this blog, “The Pitfalls of Partial Construction Lien Waivers,” the appeals court had affirmed the circuit court’s determination the subcontractor’s construction lien was waived in its entirety.

The appeals court concluded that the subcontractor had failed to properly limit its partial lien waiver “specifically and expressly” according to the strict statutory requirement of Wis. Stat. section 779.05(1).³ The Court of Appeals concluded the mere reference to $33,488 did not relate to a particular portion of the work as required by the construction lien statute to effectively limit the release to only part of the lien on the property.

The pertinent portion of the lien waiver involved appears in Figure 1:⁴

 

Figure 1: In Great Lakes Excavating, Inc. v. Dollar Tree Stores, Inc., a handwritten insertion of the word "Partial" in the title can be seen in the completed lien waiver form.

The Supreme Court’s Reasoning

The Supreme Court held the waiver document satisfied the “specifically and expressly” requirement of the construction lien statute by limiting the waiver to “a particular portion of … labor, services, materials, plans, or specifications” in the amount of $33,448.⁵

Irreconcilable Conflict Is Not Ambiguity

To reach this conclusion, the Supreme Court dealt first with that portion of the statute that “[a]ny ambiguity in such document shall be construed against the person signing it.” The Court concluded that, rather than any “ambiguity,” there was an irreconcilable conflict with the printed waiver terms and the insertion of the word “Partial” in the title.

The Court applied common law contract principles to resolve the conflict to determine that the handwritten word “Partial” prevailed and left no “ambiguity” that it was a partial release. The majority also concluded that limiting the waiver to a specific dollar value “does not create any additional ambiguity” (emphasis added).

A Dollar Value Limitation Is Specific Enough

The Court then dealt with whether the $33,448 satisfied the specificity requirement of the partial waiver provision of the statute – i.e., whether it “specifically and expressly” limited the waiver to “a particular portion of … labor, services, materials, plans, or specifications” in the amount of $33,448.

Under the circumstances, the Court determined that the $33,448 satisfied the statute. Under the circumstances here, all the work was completed, the overall lien dollar amount was fixed at $222,238, and there were no other construction liens mentioned to sort out.

So, the Court held that the construction lien on the owner’s property remained valid, and that the lien claimant could seek $188,790 to satisfy the lien.

In all probability, the prime contractor is judgment proof, as it failed to defend against the lien action at its own expense under Wis. Stat. section 779.02(6) "Prime contractors to defend lien actions.”⁶ The property owner intervened at the circuit court, court of appeals, and supreme court. The partial lien pitfall now ensnares the property owner rather than the lien claimant.

The Dissent’s Reasoning

The dissent questions the majority’s reliance on common law contract principles to override the legislature’s chosen policy regarding statutory construction lien waivers. This is a straightforward application of a straightforward statute. The dissent points out that whenever a lien claimant loses its statutory construction lien, it retains any contract rights of the claimant otherwise existing.

Practical Application Problems

The dissent provides examples of future practical problems the majority’s interpretation may well produce in future waiver cases:

• property owners do not know what work conflicting subcontractor and contractor lien claimants may have performed or what they are owed;

• lien claimants can and do accept partial payments as complete lien waivers as a settlement;

• it is a false premise that a party accepting a certain amount of money must be waiving only up to that dollar amount;

• there are serious problems of proof;

• common law principles are irrelevant to the purely statutory construction lien right; and

• a partial waiver must be pursued as the statute directs, or it fails, and the presumption of a complete waiver prevails.

Useful Guidance and Forms

The dissent provides particularly helpful practice tips. In ¶27, the dissent also suggests two contrasting, agreed-upon, and recognized partial lien waiver forms:⁷

• See Figure 2 below: A suggested waiver of construction lien form, published in the Wisconsin Construction Lien Law Handbook from State Bar of Wisconsin PINNACLE®; and

• See Figure 3 below: a “Limited Waiver of Construction Lien,” which the dissent states was offered by one of the statute’s drafters.⁸

Figure 2: A suggested waiver of construction lien form, published in the Wisconsin Construction Lien Law Handbook from State Bar of Wisconsin PINNACLE®:

Figure 3: "Limited Waiver of Construction Lien" as shown in ¶27 of the dissent:

Conclusion: Undermining Certainty

The Supreme Court downplays the pattern and statutory language that is designed to create certainty by creating a simple test or rule for lien waivers because owners and lenders have to be able to rely on them on a daily basis. The Supreme Court’s decision undermines that certainty.

This article was originally published on the State Bar of Wisconsin’s Construction and Public Contract Law Section Blog. Visit the State Bar sections or the Construction and Public Contract Law Section webpages to learn more about the benefits of section membership.

Endnotes

¹ ​Great Lakes Excavating, Inc. v. Dollar Tree Stores, Inc., 2022 WI 44 (June 22, 2022)​.

² Great Lakes Excavating, Inc. v. Dollar Tree Stores, Inc., 2021 WI. App. 23, 397 Wis.2d 210, 959 N.W. 2d 351 (published March 30, 2021).

³ Wis. Stat. § 779.05(1) (2019-20).

⁴ Great Lakes Excavating, 2022 WI 44, ¶28.

⁵ Great Lakes Excavating, 2022 WI 44, ¶22.

⁶ Wis. Stat. § 779.02(6) (2019-20).

⁷ Great Lakes Excavating, 2022 WI 44, ¶27.

⁸ Id.