Important Updates to Minnesota Mechanic’s Lien Law
Category | Briefing Papers
By Colin M. Bruns
Colin is a shareholder of the firm’s Construction Law Department. He can be reached at 612.359.7665 and Cbruns@fwhtlaw.com.
In the last several months, Minnesota courts have issued two important decisions that may impact contractors’ ability to recover their attorneys’ fees in a lien foreclosure action under the Minnesota mechanic’s lien statute.[1]
First, in Advanced Eng’g & Env’t Servs., LLC v. Gaughan Companies,[2] the Minnesota Court of Appeals found that where a contractor requested, but did not recover, attorneys’ fees in arbitration, the contractor was not entitled to recover attorneys’ fees under the mechanic’s lien statute in district court.
Second, in Sustainable 9, LLC v. Coleman,[3] the Minnesota Supreme Court held that when the amount of damages caused by a contractor’s negligent construction exceeds the amount of that contractor’s mechanic’s lien, the owner’s defense of recoupment eliminates the lien and the contractor is not entitled to recover attorneys’ fees under the mechanic’s lien statute.
Contractors performing work in Minnesota should be aware of these two recent decisions, which are discussed in further detail below.
Advanced Eng’g & Env’t Servs., LLC v. Gaughan Companies
In Advanced Eng’g & Env’t Servs., LLC v. Gaughan Companies, the lien claimant, Greystone Construction Company (“Greystone”) filed a mechanic’s lien on an apartment building in Shakopee, Minnesota on which it performed work. An engineering company that also worked on the project commenced a lien foreclosure action naming the owner, Shakopee Apartments LLC (“Shakopee”) and Greystone as parties. Greystone filed a cross-claim against Shakopee to foreclose on its mechanic’s lien. The district court stayed the action while the parties proceeded to arbitration pursuant to the arbitration clause in their contract.
In its arbitration demand, Greystone sought approximately $1.4M for alleged nonpayment and specifically sought an award of attorneys’ fees. The arbitrator awarded Greystone $562,269, which included pre-award interest but did not include any amounts for attorneys’ fees. The arbitrator’s final award provided: “This Award is in full consideration of all claims, counterclaims and third-party claims and motions presented. All other claims, counterclaims, third-party claims, motions and requests for relief by any Party are denied in their entirety.”
Greystone subsequently moved the district court to lift the stay, confirm the arbitration award, and schedule a hearing for a motion to recover costs, disbursements, and attorneys’ fees under the Minnesota mechanic’s lien statute. The district court confirmed the award and concluded that the arbitrator’s award did not preclude Greystone from seeking costs and attorneys’ fees under the mechanic’s lien statute in district court. Shakopee appealed the district court’s decision. It argued, among other things, that the district court erroneously permitted Greystone to move for attorneys’ fees.
The Court of Appeals reversed the district court and concluded that the final arbitration award precluded Greystone from seeking attorneys’ fees in the district court because Greystone asserted the claim to the arbitrator and the arbitrator expressly denied all claims excluded from the award, which included Greystone’s claim for fees. In doing so, the Court of Appeals distinguished its prior decision in Stiglich Const., Inc. v. Larson,[4] in which the court found that a contractor was not precluded from seeking attorneys’ fees in district court under the mechanic’s lien statute when the contract in that case reserved the parties’ right to pursue purely statutory claims in district court and the contractor did not raise the issue of attorneys’ fees in the arbitration.
This case is a good reminder for contractors to carefully review and understand what their contract requires for dispute resolution. When a contract requires disputes to be resolved through arbitration, in order to perfect their mechanic’s lien, contractors must commence a separate lien foreclosure lawsuit in district court, which often will be stayed pending the outcome of the arbitration. Contractors in this situation should carefully review their contracts to determine whether the arbitration proceeding or the district court action is the appropriate venue to assert a claim for attorneys’ fees.
Sustainable 9, LLC v. Coleman
In Sustainable 9, LLC v. Coleman, the lien claimant filed a mechanic’s lien on a new home it built in Media, Minnesota. It subsequently commenced a lawsuit against the homeowner for breach of contract and to foreclose on its mechanic’s lien. The homeowner asserted a counterclaim for breach of contract and negligence. At trial, the jury found that the homeowner breached the contract and awarded the contractor $94,951 in damages. The jury also found that the contractor was negligent in its work and awarded the homeowner $278,622 in damages on the negligence claim.
Following the jury trial, the district court held a hearing on the contractor’s claim to foreclose on its mechanic’s lien. The homeowner argued that, under the doctrine of recoupment, the lien was extinguished because the value of the lien was less than the amount the jury awarded to the homeowner on her negligence claim. The district court rejected the homeowner’s recoupment theory and found that the contractor had a valid lien in the amount of $94,951 based on the amount the jury awarded to the contractor on its breach of contract claim; however, the court determined that the contractor could not collect on the lien because the amount of the lien was offset by the amount the contractor owed to the homeowner on the negligence claim. Nevertheless, the district court held that the contractor was entitled to recover its attorneys’ fees under the mechanic’s lien statute because it established a valid lien. The court determined that the homeowner’s negligence claim reduced the amount of the lien, but it did not void the lien in its entirety and, thus, it did not void the contractor’s claim for attorneys’ fees. After offsetting the amounts due, the court determined that the contractor owed the homeowner $121,170. The homeowner appealed the district court’s decision and the Court of Appeals affirmed. The homeowner then petitioned the Minnesota Supreme Court for review.
The Minnesota Supreme Court undertook a thorough analysis of the doctrine of recoupment and determined that the defense applied to the contractor’s mechanic’s lien claim because the contractor’s lien claim and the homeowner’s negligence claim arose from the same transaction – i.e., the construction of the home. The Court concluded that the homeowner was entitled to assert the affirmative defense of recoupment and reduce the amount of the mechanic’s lien by the amount of damage caused by the contractor’s negligence. Because the damages caused by the contractor’s negligence exceeded the amount of the lien, under the doctrine of recoupment, the contractor’s mechanic’s lien was eliminated in its entirety. And because there was no valid mechanic’s lien, the contractor was not entitled to recover its attorneys’ fees to enforce such a lien.
This case illustrates some of the risks involved in a mechanic’s lien foreclosure action where both the owner and contractor assert competing claims against each other. Under the doctrine of recoupment, if a court determines that the amount of the owner’s claim exceeds the amount of the lien, the lien may be declared invalid and preclude the recovery of attorneys’ fees under the lien statute. Given that the ability to recover attorneys’ fees is often an important factor in litigating and resolving lien claims, contractors should be aware of this risk in light of the Minnesota Supreme Court’s recent decision.
Conclusion
In the two recent cases discussed above, Minnesota courts denied the contractors’ claims to recover attorneys’ fees under the Minnesota mechanic’s lien statute. Contractors performing work in Minnesota should be aware of these cases to help understand the circumstances in which they may, or may not, be able to recover their attorneys’ fees in a lien foreclosure action.
[1] Minn. Stat. § 514.01 et seq.
[2] No. A25-1734, 2026 WL 1469616, at *1 (Minn. Ct. App. May 26, 2026).
[3] 38 N.W.3d 482 (Minn. 2026).
[4] 621 N.W.2d 801 (Minn. Ct. App. 2001).
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