October 2020

Mechanic’s Liens are powerful tools for contractors, subcontractors, and material suppliers who find themselves dealing with a customer who is refusing to pay for work or materials supplied on a project.  However, meeting notice and timing requirements are essential to maintaining lien rights.  A recent decision by the Nevada Supreme Court highlighted the necessity of complying with notice requirements under NRS 108.  In Reed v. Soligent Distrib., LLC, the Court found that Soligent’s lien, that had been otherwise validly recorded, should be released because Soligent had failed to serve a Notice of Right to Lien on the property owner.  Soligent had indeed sent a Notice of Right to Lien to the property owner, but the Notice was returned undelivered.  The Court determined that since the Notice had not effectively provided “actual notice” to the property owners of Soligent’s right to lien and Soligent was aware that the Notice was not delivered, Soligent had failed to “substantially comply” with the notice requirement in NRS 108.245 and could not maintain a valid lien against the property.

 

            Background

 

Soligent Distribution, LLC filed a lawsuit seeking, among other things, to foreclose upon mechanic’s liens on several parcels of real property, including the residential property of Don and Betty Reed.  The Reeds filed a motion to release Soligent’s mechanic’s lien pursuant to NRS 108.2275(6), arguing that Soligent could not enforce its lien because it failed to deliver its Notice of Right to Lien to the Reeds as required by NRS 108.245.[1]  Soligent had mailed the Notice of Right to Lien by certified mail, return receipt requested to Betty Reed at the property address.  The Reeds, however, did not receive mail at their property address, and because the Reeds’ forwarding request with the postal service had expired before Soligent mailed the Notice of Right to Lien, the postal service did not forward Soligent’s Notice to the Reeds’ mailing address.  Instead, Notice of Right to Lien was returned to Soligent marked as “undeliverable.”  Soligent made no further effort to deliver the Notice of Right to Lien.

 

After holding a hearing on the matter, the district court found that Soligent had complied with NRS 108.245 because the statute only required Soligent to send the Notice of Right to Lien via certified mail, and did not require Soligent to ensure receipt of the Notice.  Soligent had sent the Notice to the owner at their property address through certified mail, and the district court found that to be sufficient.  The district court thus denied the Reeds’ motion and later ordered the Reeds to pay Soligent’s attorney fees and costs in defending against the motion.  The Reeds appealed the ruling issued by the district court.

 

            Appeal

 

On Appeal, the Reeds argued that because Soligent failed to deliver its Notice of Right to Lien pursuant to NRS 108.245(1), Soligent could not perfect its lien on the Reeds’ property and the district court therefore erred in finding that the lien was not frivolous and made without reasonable cause under NRS 108.2275(6).  More specifically, the Reeds argued that Soligent did not “substantially comply” with NRS 108.245’s delivery requirement because Soligent sent its Notice of Right to Lien to an incorrect address and the postal service returned the Notice of Right to Lien to Soligent as undeliverable.

 

Soligent argued that it complied with the statute by sending, via certified mail, the Notice of Right to Lien to the Reeds at their property address.  Soligent pointed out that the statute does not require proof of receipt it only requires that notice be delivered personally or by certified mail.  Soligent had gone above and beyond by mailing the notice with a return receipt requested, and it was not required to make further attempts to ensure that the Reeds received the Notice of Right to Lien.

 

The Nevada Supreme Court sided with the Reeds’ and concluded that Soligent did not substantially comply with the statutory requirement to deliver notice of its right to lien to the Reeds.  The Court found that the Reeds’ were not provided with “actual knowledge” of Soligent’s potential lien claim before they received Soligent’s Fifteen Day Notice of Intent to Lien.  Although Soligent had sent the Notice of Right to Lien via certified mail, they were made aware that the Notice was not delivered, and the Reeds did not have actual knowledge of Soligent’s involvement in the project.  With regard to substantial compliance with NRS 108, the Court stated:

 

Because substantial compliance with NRS 108.245 requires that the property owner have actual knowledge of the identity of a potential lien claimant, see Hardy Cos., 126 Nev. at 531, 245 P.3d at 1152, and  Soligent was aware that the Reeds were not provided with such notice when the postal service returned as undeliverable Soligent’s Notice of Right to Lien, Soligent should have then taken steps necessary to provide the Reeds with actual notice of Soligent’s right to record a lien against their property.

Reed v. Soligent Distrib., LLC, 2019 Nev. Unpub. LEXIS 1337, *4-5, 453 P.3d 912, 2019 WL 6830822.

 

            Since Soligent had not substantially complied with the Notice of Right to Lien requirement in NRS 108 and had not provided the Reeds with actual notice of its involvement in the project and right to lien, the Nevada Supreme Court reversed the decision made by the district court and remanded the case to the district court with the instruction to expunge Soligent’s lien.

 

            Takeaways for Lienholders

 

            Reed v. Soligent demonstrates that ensuring the property owner has actual notice of a company’s right to lien is key to maintaining lien rights.  Based on the facts of the case, it would appear that Soligent technically complied with NRS 108.245 when it sent the Notice of Right to Lien to the property owners’ address via certified mail.  However, the intent of the statute (requiring personal service or delivery through certified mail) is to ensure that the property owner receives the Notice and receipt of that Notice is verified.  In this case, when the Notice was returned as undeliverable, Soligent knew that it had not been received by the owner and thus bore the obligation to ensure that notice was effectively provided through some other means. 

 

            For all those looking to secure their lien rights, it is imperative that you get the correct information for the property owner at the beginning of the project.  Sending out the required lien notices may seem like a simple task, but a small mistake can cause you to forfeit your lien rights.  Make sure you have the correct/best mailing address for the property owner and additional contact information.  And if one of your notices is returned to you as undeliverable, find another way to notify the owner right away.

[1] NRS 108.245(1): “Except as otherwise provided in subsection 5, every lien claimant, other than one who performs only labor or is a potential claimant under NRS 608.150, who claims the benefit of NRS 108.221 to 108.246, inclusive, shall, at any time after the first delivery of material or performance of work or services under a contract, deliver in person or by certified mail to the owner of the property a notice of right to lien in . . .”

For more information contact:

Daniel M. Hansen

dhansen@gibbsgiden.com

(310) 734-3326

Daniel Hansen is an associate based in our Las Vegas office. He practices in the areas of business law, contracts, construction, real estate, shareholder litigation, personal injury and has experience with natural resources, tax, insurance and probate.

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