Opinion ID: 779684
Heading Depth: 2
Heading Rank: 1

Heading: The Retainage

Text: 9 Section 8.5 of the contract provides: Payment of Contractor's final invoice under a particular Contract Order is conditioned upon final completion of the Work described in the Contract Order, Owner's acceptance thereof, and receipt by Owner of satisfactory evidence of no undischarged liens arising because of the Work. Entergy does not allege that Hall did not complete the work it contracted to perform, and there is no indication that Entergy did not accept Hall's work on the project. Entergy asserts, however, that Hall failed to provide satisfactory evidence of no undischarged liens arising because of the Work. It has withheld Hall's final invoice payment of $354,114 on that basis. 10 Hall argues that section 8.5 can only be read as referring to statutory mechanic's or materialmen's liens designed to secure payment for work and materials provided by construction contractors. Hall contends that the expiration of all statutory limitation periods for filing such liens 2 constitutes satisfactory evidence of no undischarged liens since, once the liens are time-barred, Entergy is no longer exposed to any threat of lien liability. 11 Entergy argued in its motion for summary judgment that it was entitled to withhold Hall's final payment [u]ntil Hall can provide Entergy with proof that HSI's claim has been resolved. Appellant's App. Vol. I, at 218. There is some indication in the record that while Hall had, in fact, obtained lien-waiver certificates from other subcontractors, it had not obtained a waiver from HSI. But in response to Hall's contention that all potential liens have been discharged by statutes of limitation, Entergy now argues on appeal that the possibility of a judgment lien resulting from this litigation entitles it to continue withholding the retainage. The district court apparently agreed with Entergy's new construction of section 8.5, and added that, in any event, the res judicata effect of a judgment in favor of Entergy on all other counts would then entitle Hall to the retainage, less litigation fees. 12 We reject Entergy's construction of section 8.5. It is difficult to see why the res judicata effect of a judgment is any better evidence of no undischarged liens than a statutory bar. We find that the plain and ordinary meaning of liens arising out of the Work includes mechanic's and materialmen's liens, but does not include the future possibility of a judgment lien. Under Entergy's view, a project owner, armed with a similar retainage provision, could always withhold final payment for any reason or for no reason at all for at least the period of a general contract statute of limitations. In addition, the moment a contractor initiated legal proceedings to recover the payment, the possibility of a resulting judgment lien would then justify a continued withholding and entitle the owner to retain the payment until the absolute conclusion of the litigation in its favor. Hall correctly observes: This is bootstrapping of the first order. Appellant's Reply Brief at 3. Although Entergy may have initially been authorized to withhold payment based on the course of conduct between the parties relating to lien waivers, we agree with Hall that the expiration of all statutory periods of limitation for mechanic's and materialmen's lien filings constitutes satisfactory evidence of no undischarged liens. Summary judgment in favor of Entergy on count one was improper. We reverse and remand to the district court with instructions to enter judgment in favor of Hall on count one with imposition of maximum interest of any description and a corresponding reduction in attorney's fees under Arkansas Code Annotated § 16-22-308.