An old law being applied in a new way is changing the landscape of lien filing and making it riskier. Texas Civil Practices and Remedies Code section 12.001 provides stout penalties for filing a fraudulent lien. Section 12.001 was originally enacted in response to groups who are part of the movement that believes that Texas never joined the union. Members of these groups were filing liens on buildings as part of the move-ment to take back Texas. Today, the courts have applied this law in the context of construction and development projects to punish lien claimants with def-ective liens. The purpose of this article is to discuss the civil penalties associated with filing liens but it is important to note that there are criminal penalties as well. The refusal to release a fraudulent lien or intentionally, knowingly or recklessly making a false or misleading statement in a lien affidavit are each punishable by up to one year in jail and a $4,000 fine.
Section 12.001 provides several remedies to each person who owns real property or an interest in real property that is burdened by an invalid lien. First, the owner is entitled to the greater of its actual damages or $10,000.00. In other words, an invalid lien can cost the claimant at least $10,000. Next, the court will assess exemplary damages. The amount of exemplary damages to be assessed will be determined at trial and will be in an amount designed to punish the lien claimant for filing the fraudulent lien. Next, the owner is entitled to recover its attorney's fees and court costs from the claimant. This also means that the claimant will probably not be able to recover its own costs and fees. All of this is, of course, on top of the likely loss of the unpaid debt the claimant believed it was owed to begin with (assuming that the account debtor is insolvent). There are few written opinions discussing the scope and application of this law, but it is clearly being used more often in recent times, as in the case of Centurion Planning Corp., Inc. v. Seabrook Venture II, 2004 WL 2823125, No. 01-02-00518-CV, (Tex. App. -- Houston [1st Dist.] 2004, no pet.).
In another relevant case, Taylor Electrical Services, Inc. v. Armstrong Electrical Supply, 167 S.W.3d 522 (Tex. App. -- Fort Worth 2005, no pet h.), a supply company agreed to supply elec-trical supplies to an electrical contractor by a certain deadline for use on a project or face liquidated damages. The supplier failed to meet the deadline and the contractor assessed liquidated damages in accordance with their agreement and sent the supply company checks for full payment reduced by the amount of liqui-dated damages. The supplier refused to cash the checks and filed a lien in the full amount, as if liquidated damages should not have been assessed. The court found this lien to be fraudulent due to the over-statement of the amount by way of the claimant's failure to consider liquidated damages, and assessed the statutory penalties.
From a reading of the cases it is clear that the assessment of fraud-ulent lien penalties is not limited to those cases where there is ab-solutely no merit to the lien filing. In both of these cases each of the claimants had an argument that they were owed money. It is not certain in what other circumstances the courts will apply this law. Some instances where this law may be applied are the following:
* Filing a lien late;
* Filing a lien when the requisite notices were not provided;
* Including amounts in a lien that are not lienable under the statute;
* Filing a lien for work performed on another project; and
* Liening for amounts not authorized in the contract.
We have incorporated these developments in the law in both the way we represent lien claimants and in leveraging the law in assisting our general contractor and owner clients in dealing with lien filings on a project. For those of you who go it alone with lien filings, tread carefully as the lien landscape has become much more treacherous. For those owners and general contractors with liens on their projects, this change should provide you with a powerful tool to deal with invalid liens.