Contract Dispute Arbitration Comes Before, Not in Lieu of Court Determination of Foreclosure

CONTRACT DISPUTE ARBITRATION COMES BEFORE, NOT IN LIEU OF COURT DETERMINATION OF FORECLOSURE

By: Larry R. Leiby, Esq. and Ian T. Kravitz, Esq.

About the Author: Larry Leiby, Esq. was the founder and first chairman of the Florida Bar Construction Law Committee in 1976. He is the author of the Florida Construction Law Manual. He is Board Certified in Construction Law and was on the Construction Law Certification Committee that creates and grades the tests for construction law board certification. He was awarded the lifetime achievement award by the Florida Bar Construction Law Committee and teaches construction law at the Florida International University College of Law. He can be reached at leiby@mkpalaw.com. For more information, please visit www.mkpalaw.com.

In Royal Palm Collection, Inc. v. Lewis, 2010 WL 2178757 (Fla. 4 th DCA June 2, 2010), Royal Palm Collection, Inc. ("Royal") was the general contractor on the construction of a residence for George and Carlene Lewis ("Owners"). Disputes arose between the parties and Royal brought suit to foreclose a construction lien on Owner's property in the amount of $72,339, and for damages on theories of breach of contract, unjust enrichment, quantum meruit, and equitable lien. Owners answered the complaint raising several counterclaims and defenses. Pursuant to a clause in the contract between the parties, Royal and Owners were ordered to arbitration over their claims.

After a five day arbitration hearing, the arbitrator issued an award in favor of Royal in the amount of $38,528.88. The arbitrator specifically found that Royal "was entitled to be paid for the 'actual construction that was put in place by them.'" The arbitrator however rejected Royal's claims that Owners had breached the contract between the parties. The arbitrator did find specifically as to the lien foreclosure claim that "[Royal's] claim of lien was proper in that it was their only means of protecting their interests in the project during the dispute. Florida Statutes are specific as to the time frames required for filing a lien and the time to move to foreclose on a lien. [Royal] took those steps as required by law to protect their interests." The trial Court then entered an order affirming the arbitration award.

After the arbitration award was affirmed, Royal filed a motion seeking a judgment foreclosing its construction lien against Owner's property. The trial court refused to enter such a judgment. The trial court found that Royal was not entitled to a judgment of foreclosure on its construction lien because the arbitrator's written award was silent on that issue. As a result of that finding, the trial court entered a judgment only for monetary damages. Royal disagreed and brought its appeal.

The appellate court reversed the finding of the trial court. Specifically, the appellate court pointed out that while it is up to the arbitrator to determine the issues of entitlement to payment and the amount due under an agreement calling for arbitration of disputes, it is up to the trial court to decide the issue of entitlement to enforce that award through foreclosure of a construction lien. The appellate court stated that although Royal was required to arbitrate its entitlement to and the amount of payment due under the agreement with Owners, Royal retained its right to enforce such an arbitration award through its construction lien. An issue to be decided by the trial court after issuance of the arbitration award as to the contract claims at issue. Not by the arbitrator.

Foreclosure of a construction lien can only occur by order of a court of competent jurisdiction located within the county where the real property is situated. Since an arbitrator is not a court of law, an arbitrator lacks jurisdiction to enter an order foreclosing a construction lien. Even if your contract requires arbitration of disputes, it is important to ensure that an action is brought before a court of competent jurisdiction to foreclose your construction lien within the time allowed by law. Usually one year from the date the lien was recorded. Once that right to foreclose your lien is preserved, you can proceed to arbitrate your contract claims, and then apply to a court of law to foreclose your lien.