Justices void contractor’s lien, deny legal fees in construction suit

In Brief

• Minnesota Supreme Court ruled that a homeowner’s negligence damages extinguished a contractor’s mechanic’s lien through recoupment.
• Contractor Sustainable 9 won a breach-of-contract claim for $94,951.89, but homeowner Jacqueline Coleman received $278,622 in negligence damages.
• The court held that recoupment differs from an offset because it can eliminate a plaintiff’s recovery entirely when claims arise from the same transaction.
• Because the mechanic’s lien was extinguished, the contractor was not entitled to recover attorney fees or costs under Minnesota’s mechanic’s lien statute.

A contractor sued a homeowner for breach of contract and sought attorney fees and costs. Reversing the Minnesota Court of Appeals, the Minnesota Supreme Court concluded that because the homeowner’s negligence damages exceeded the amount of the contractor’s lien, the lien was extinguished rather than merely offset. Therefore, the contractor was unable to obtain attorney fees and costs.

The dispute arose from the construction of Jacqueline Coleman’s home in Medina. Coleman hired Sustainable 9 LLC as the general contractor in 2019. She made installment payments as construction progressed. As the project neared completion, Coleman identified numerous deficiencies, including defects involving the roof fascia, basement floor, and stairway.

After discussions regarding repairs failed, Coleman withheld further payments. This prompted the contractor to file a mechanic’s lien and commence litigation seeking foreclosure of the lien and damages for breach of contract. Coleman counterclaimed, alleging both breach of contract and negligence arising from defective construction.

Following a jury trial, both parties achieved partial success. The jury found that Coleman breached the construction contract and awarded the contractor $94,951.89. At the same time, it found that Sustainable 9 had negligently performed its work and awarded Coleman $278,622 in damages.

Although the district court recognized that Coleman’s negligence recovery exceeded the contractor’s contract award, it treated the competing awards as an offset rather than applying the doctrine of recoupment. The court concluded that the contractor still possessed a valid mechanic’s lien, even though the lien had no collectible value after the offset, and consequently awarded the contractor $46,000 in attorney fees and $16,500 in costs under Minnesota Statutes section 514.14. The court of appeals affirmed.

“The trial court saw the entire case: six days of jury trial, a separate mechanics’ lien bench trial, 247 exhibits, and three years of litigation,” argued Courtney Ernston, an attorney at North Star Law Group PLLC representing Sustainable 9. “That judge, with the complete picture before her, awarded one-third of respondent’s requested fees, reduced the hourly rate, and limited recovery only to lien work.”

Representing the homeowner, William Rogers, an attorney at Christensen Law PLLC, argued, “Minnesota homeowners should not be forced to pay attorney fees for contractors who do more harm than good. It is not fair, and it makes no sense, to bill Ms. Coleman for the respondent’s attorney fees to pursue foreclosure of a lien that no longer exists because a jury said that it’s gone.”

The Minnesota Supreme Court emphasized the distinct nature of recoupment. Unlike a setoff or counterclaim, recoupment is a purely defensive doctrine that allows a defendant to reduce or eliminate a plaintiff’s recovery when both claims arise from the same transaction. The court traced the doctrine through longstanding Minnesota precedent and explained that it is grounded in equitable principles designed to ensure that a plaintiff cannot recover on a transaction while ignoring damages caused by its own deficient performance.

The court rejected the contractor’s argument that recoupment applies only to damages tied directly to contractual obligations. Instead, the court concluded that both the mechanic’s lien claim and the homeowner’s negligence claim arose from the same construction project. This made recoupment available even though negligence is a tort claim rather than a contract claim.

Finding that recoupment applied, the court held that the homeowner’s negligence damages completely extinguished the mechanic’s lien. The court explained that a mechanic’s lien exists only to secure an unpaid debt. Once recoupment establishes that no debt remains because the contractor’s liability exceeds the amount otherwise owed, there is no lien left to enforce. It found that the district court erred by characterizing the competing recoveries as merely offsetting one another after recognizing the lien. Because the lien itself ceased to exist through recoupment, the contractor did not prevail in the mechanic’s lien foreclosure action. Therefore, the contractor could not recover attorney fees or costs under section 514.14.