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Real Property & Development Review

WA Court of Appeals Clarifies Necessary Parties to Lien Enforcement Action Where Release Bond Has Been Posted

Posted in Construction

Attempting to clarify a statute that has been “the source of

silhouette engineer in a building site over Blurred constructioconsiderable confusion,” the Washington Court of Appeals concluded the only necessary party that must be named as a defendant in a lien enforcement action where a release bond has been posted is the surety that issued the bond.

The Court’s decision in Inland Empire Dry Wall Supply Co. v. Western Surety Co., 197 Wn. App. 510 (2017), reversed the Spokane County Superior Court’s dismissal of a lien action brought by Inland Empire, an unpaid dry wall supplier for a Richland apartment complex construction project.

After Inland Empire recorded a lien against the project, Fowler General Construction (the project’s general contractor) obtained a release bond in accordance with RCW 60.04.161 from Western.  Inland Empire brought suit against Western to foreclose its lien, but it did not name Fowler as a defendant, even though Fowler was the bond’s principal. Id. at 512-13.

Western argued that Inland Empire failed to comply with the statutory requirements of RCW Chapter 60.04 by failing to name Fowler as a defendant.  The Spokane court agreed and ruled that Western was discharged from liability as a result of Inland Empire’s failure to name and timely serve Fowler in the action. Id. at 513.

But the Court of Appeals reversed, holding in a 2-1 decision out of Division III that RCW 60.04.161 requires only the surety that issued the bond to be named as a defendant. Id. at 519.

While Inland could have also named Fowler, as the bond principal, it was not required to do so. Inclusion of Fowler may have streamlined the case and would have obviated the need for this appeal, but it was not a statutory prerequisite. Because Inland satisfied the statute of limitations for inclusion of a necessary party under RCW 60.04.161, the trial court’s judgment in favor of Western is reversed.

To reach this conclusion, the Court interpreted the provisions of RCW 60.04.161, as well as Division II’s holding in CalPortland Co. v. LevelOne Concrete, LLC, 180 Wn. App. 379 (2014).

In CalPortland, the Court held that a party bringing a lien enforcement action was not required to name the real property owner as a defendant after a release bond had been posted. Id. at 388.  But the plaintiff did name both the bond’s principal and surety as defendants in CalPortland; the Court expressed that bringing an action against the principal and surety was “sufficient” to satisfy statutory requirements. Id. In addition, the Court expressed that once the release bond in CalPortland was posted “[t]he only parties with an interest in the bond were . . . the principal and surety named in the security.” Id.

The Court in Inland Empire rejected Western’s argument that Inland Empire was required to name both Fowler and Western as defendants following CalPortland: “All we said in CalPortland was that a suit against both a bond principal and bond surety is sufficient for compliance with the lien release bond statute.  The ruling did not address whether suit against both is necessary.” Inland Empire, 197 Wn. App. at 515.

The Court acknowledged “[t]he procedure for obtaining relief against a lien release bond under RCW 60.04.161 has been the source of considerable confusion.” Id. at 514.  But its decision focused on the fact that only the surety—not the principal—is specifically referenced in RCW 60.04.161, which governs the procedure for obtaining a release bond and for bringing an action against the bond.

The statute provides in key part: “The effect of recording a bond shall be to release the real property described in the notice of claim of lien from the lien and any action brought to recover the amount claimed. Unless otherwise prohibited by law, if no action is commenced to recover on a lien within the time specified in RCW 60.04.141, the surety shall be discharged from liability under the bond.”

The Court emphasized the reference to the surety in RCW 60.04.161 “indicates the legislature’s plain intent that when a lien release bond is filed, the surety shall be substituted for the property owner as the entity that must be sued to recover on a lien. The omission of any reference to the bond principal is significant and indicates the legislature’s intent that a bond principal need not be included.” Id. at 516-17 (emphasis added).

Chief Judge George B. Fearing dissented, expressing that the CalPortland decision and authority from other jurisdictions supports requiring a party to name both the principal and surety in such an action. Id. at 534-35.

Western has sought review from the Washington Supreme Court, which is scheduled to consider the petition on May 2, 2017.

Although the Court of Appeals expressed in its decision that “[t]here is no practical or logical impediment to pursuing a bond claim against only the surety,” id. at 518, the Court also noted that the principal may be allowed to intervene as a defendant in such circumstances.  Best practices accordingly support naming both the surety and principal as defendants, particularly while Western’s appeal to the state supreme court is still pending.