In a recent decision, the Minnesota Supreme Court found that where the damages stemming from a contractor’s negligence exceeded the amount due under its construction contract with the project owner, the contractor’s mechanic’s lien was satisfied, and the contractor was not entitled to recover its attorneys’ fees.
In Sustainable 9, LLC v. Coleman, 38 N.W.3d 482 (Minn. 2026), the defendant owner contracted with the plaintiff builder for construction of a home. Under the contract, the owner made several payments to the builder. As the project neared completion, the owner began claiming some of the construction was defective and then withheld payments. As a result, the contractor claimed a mechanic’s lien for the unpaid amounts. In the litigation that followed, the contractor sought to enforce its lien and to recover its attorneys’ fees as allowed by Minn. Stat. § 514.14. The owner asserted counterclaims for breach of contract and negligence, and also argued that the common law doctrine of recoupment allowed her to offset the amounts necessary to remedy the construction defects against the amount claimed on the lien.
At trial, the jury found that the contractor was owed $94,951 on its lien claim, but found that the contractor had been negligent and awarded the owner $278,622 in damages. Despite the fact the owner’s claim far exceeded the amount due on the lien, the district court found that the damage award did not void the lien and therefore awarded the contractor its attorneys’ fees as allowed by statute. The Minnesota Court of Appeals then affirmed the district court’s decision.
The Minnesota Supreme Court reversed. After examining the common law history of the recoupment doctrine, the Sustainable 9 Court held that the damages award to the owner served to satisfy the owner’s debt to the contractor. And because there was no longer a debt to the contractor, there was nothing to be secured by its claimed lien. Due to the lack of a valid lien, the contractor was not entitled to its attorneys’ fees under the lien statute.
The result in Sustainable 9 will provide owners some leverage in disputes with their builders. Contractors routinely threaten owners with the recording of a mechanic’s lien and the accompanying statutory right to recover their attorneys’ fees. Now, owners claiming defective work will cite Sustainable 9 to push back by making clear that the right to recover fees and costs on the builder’s lien claim may disappear if a jury finds the contractor’s work was defective.
Key Takeaway
Owners should be aware that asserting defective-work counterclaims can eliminate a contractor’s mechanic’s lien and statutory recovery of attorneys’ fees. Contractors should ensure quality workmanship because negligence may cost them not only damages, but also their lien rights and ability to recover attorneys’ fees.
For questions about mechanic’s lien rights or construction disputes, please contact Mark Vyvyan.
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