SDCL 44-9-42 Authorizes Attorney Fees for Defending Intertwined Counterclaims in Mechanic’s Lien Actions; Law-of-the-Case Controls Fee Decisions on Remand

Introduction

In Smith Masonry v. WIPI Group USA, Inc., 2025 S.D. 26 (S.D. June 11, 2025), the Supreme Court of South Dakota addressed, for the first time, the scope of attorney fee recovery under SDCL 44-9-42 in a mechanic’s lien action. The case arises from a protracted dispute between a contractor, Tom Smith d/b/a Tom Smith Masonry (Smith Masonry), and a property owner, WIPI Group USA, Inc. (WIPI), over a 2014 fence project involving masonry columns and metal fence panels. After a six-day bench trial and a first appeal (WIPI I) that resulted in reversal of the circuit court’s wholesale offset and a directive to enter foreclosure for the full lien and reconsider fees, the case returned to the circuit court. On remand, the circuit court denied all attorney fees to Smith Masonry, prompting this second appeal.

The key issues were:

Whether the circuit court violated the law-of-the-case doctrine by revisiting the merits of liability and damages when deciding fees after WIPI I.
Whether SDCL 44-9-42 permits recovery of attorney fees only for prosecuting the lien foreclosure, or also for defending against intertwined counterclaims/setoffs.
Whether the circuit court abused its discretion by denying all fees under SDCL 44-9-42.

The Supreme Court reversed, holding that the law-of-the-case doctrine barred the circuit court’s effort to re-litigate issues resolved in WIPI I, and that SDCL 44-9-42 allows fee recovery not only for prosecuting the foreclosure but also for defending intertwined counterclaims necessary to enforce the lien. The Court remanded for a fee award consistent with its opinion and granted $30,000 in appellate attorney fees to Smith Masonry.

Summary of the Opinion

The Supreme Court issued two decisive holdings:

Law-of-the-case: After WIPI I conclusively established Smith Masonry’s entitlement to foreclose for the full lien amount and recognized WIPI’s failure to prove damages to offset the lien, the circuit court could not revisit or undermine those determinations in the guise of deciding attorney fees. By speculating about hypothetical evidence and faulting Smith Masonry for pursuing its lien, the circuit court violated the law-of-the-case doctrine.
Scope of SDCL 44-9-42: The statutory authority to award “such attorney’s fees … as … warranted and necessary according to the circumstances of each case” is broad and not limited to fees incurred solely in prosecuting the lien foreclosure. Where the lien claimant’s success “hinges” on defeating the owner’s intertwined counterclaims or offsets, the claimant may recover those defense fees, subject to the Crisman factors.

Finding the circuit court’s zero-fee ruling to be a fundamental error of judgment grounded in improper considerations—punishing Smith Masonry for litigating and speculating about unproven damages—the Court reversed and remanded for a fee award consistent with its opinion. It also awarded Smith Masonry $30,000 in appellate fees.

A special concurrence by Justice Kern agreed that denial of fees was an abuse of discretion and would have instructed the circuit court to award no less than $150,000 on remand, given the unrefuted reasonableness of counsel’s rates and hours and the record developed across years of litigation.

Analysis

Precedents and Authorities Cited

Smith Masonry v. WIPI Group USA, Inc. (WIPI I), 2023 S.D. 48, 996 N.W.2d 368: The first appeal established that Smith Masonry substantially performed, that WIPI presented no competent cost-of-repair evidence to offset the lien, and that Smith Masonry was entitled to foreclosure for the full amount. WIPI I directed reconsideration of attorney fees free from the circuit court’s prior equitable “wash” approach.
Law-of-the-case line: In re Pooled Advocacy Trust, 2012 S.D. 24; In re Estate of Siebrasse, 2006 S.D. 83; Grynberg Exploration Corp. v. Puckett, 2004 S.D. 77. These cases reinforced that issues decided on appeal bind the trial court on remand and cannot be circumvented in later stages of the same litigation.
Attorney fee discretion and standards:
- Wald, Inc. v. Stanley, 2005 S.D. 112 (mechanic’s lien fee awards are remedial; courts must apply governing standards, not punish).
- Crisman v. Determan Chiropractic, Inc., 2004 S.D. 103 (sets eight-factor framework for fee reasonableness: time/labor; preclusion of other work; customary fee; amount involved/results; time limitations; relationship length; lawyer experience/reputation; fixed/contingent fee).
- Suvada v. Muller, 2022 S.D. 75 (abuse of discretion defined as a fundamental error of judgment outside permissible choices).
- Duffield Construction, Inc. v. Baldwin, 2004 S.D. 51 (fee awards are not punitive).
Statutory interpretation: Reck v. South Dakota Board of Pardons & Paroles, 2019 S.D. 42 (plain-meaning approach); contrasted with Plains Commerce Bank, Inc. v. Beck, 2023 S.D. 8 (limiting language of SDCL 15-17-38 for mortgage foreclosures underscores that SDCL 44-9-42 is broader).
Scope of recoverable fees (persuasive and related):
- W.J. Bachman Mechanical Sheetmetal Co. v. Wal-Mart Real Estate Business Trust, 2009 S.D. 25 (discussed fees for lien prosecution and setoff defense; did not directly decide the scope question).
- Out-of-state: Clem Martone Construction, LLC v. DePino, 77 A.3d 760 (Conn. App. Ct. 2013) and Abbey Villas Dev. Corp. v. Site Contractors, Inc., 716 N.E.2d 91 (Ind. Ct. App. 1999), both allowing recovery for defense of intertwined counterclaims integral to enforcing the lien.
Comparative-fee reasonableness: In re South Dakota Microsoft Antitrust Litigation, 2005 S.D. 113; Eagle Ridge Estates Homeowners Ass’n v. Anderson, 2013 S.D. 21 (consideration of the opponent’s fee spend supports reasonableness of prevailing party’s fees).

Legal Reasoning

The Court’s legal analysis proceeds in two integrated steps—(1) policing adherence to prior appellate mandates via law-of-the-case, and (2) clarifying the breadth of SDCL 44-9-42’s fee-shifting authority in mechanic’s lien litigation.

1) Law-of-the-case binds fee adjudication on remand

WIPI I resolved critical merits issues: Smith Masonry’s lien was valid; it was entitled to the full contract balance; and WIPI presented no admissible damages evidence to justify any offset. On remand, however, the circuit court:

Reiterated its earlier (reversed) view that Smith Masonry’s work was not worth the final $40,000 and implied the case “should never have been brought.”
Speculated that, had WIPI’s expert testified, diminution damages would have equaled $40,000–$50,000, thus resurrecting the “wash.”
Denied fees as a matter of “punishment” for litigating instead of “walking away.”

The Supreme Court held that this approach contravened the law-of-the-case doctrine. Once an appellate court settles a legal issue, trial courts cannot relitigate, reconsider, or undermine it at later stages. By grounding its fee denial in a re-imagined merits outcome and conjecture about unproven damages, the circuit court acted outside the permissible range of choices.

2) SDCL 44-9-42 covers intertwined defense work necessary to enforce the lien

SDCL 44-9-42 authorizes courts to allow attorney’s fees that are “warranted and necessary according to the circumstances of each case.” The Court emphasized the breadth and remedial nature of this language and expressly rejected a categorical rule limiting recovery to the costs of prosecuting the lien foreclosure alone. Where the owner’s counterclaims (or offset defenses) are intertwined with the lien claim such that defeating them is essential to enforcement, defense fees may be recoverable.

In this case, WIPI’s counterclaims—seeking up to $650,000 on a $200,000 project—directly contested the contractor’s substantial performance and aimed to eliminate or offset Smith Masonry’s lien. The record showed the litigation became dominated by those counterclaims, and Smith Masonry’s success on the lien hinged on defeating them. The Court found support in analogous decisions from Connecticut and Indiana and aligned its interpretation with the statute’s remedial purpose: ensuring those who provide labor/materials are paid, including through fee-shifting that realistically captures the work required to enforce the lien.

3) The circuit court’s fee denial was punitive, speculative, and contrary to the record

The Supreme Court identified multiple defects in the circuit court’s fee decision:

It punished Smith Masonry for litigating rather than settling, contrary to the remedial purpose of the statute and the principle that fee awards are not punitive.
It relied on speculation about hypothetical evidence WIPI never offered (and for which the record showed significant procedural complications), violating the law-of-the-case and the requirement to base findings on the record.
It inconsistently treated the Crisman factors—downplaying unrefuted affidavits detailing time investment, market rates, client relationship, and the extraordinary complexity introduced by WIPI’s counterclaims.

The Court concluded that denying all fees was “a fundamental error of judgment” and therefore an abuse of discretion.

Impact

The decision has several important ramifications:

Expanded recoverability of fees in mechanic’s lien litigation: Lien claimants in South Dakota can recover reasonable fees for defense work that is “part and parcel” of enforcing the lien when counterclaims/setoffs are intertwined. This reduces the perverse incentive for owners to file sprawling counterclaims to outspend or deter lien enforcement.
Sharper constraints on trial courts post-remand: Law-of-the-case must be respected even at the fee stage. Trial courts may not revisit merits findings or speculate about unadmitted evidence to justify fee outcomes.
Operational guidance for fee petitions: Practitioners should build a record that ties defense work to lien enforcement, document market rates, compare opponent fee spend, and align arguments with the Crisman factors. Opponents who spend heavily to press unsuccessful counterclaims may unwittingly validate the reasonableness of the prevailing party’s fees.
Negotiation dynamics: The ruling discourages “weaponized” counterclaims designed to force lien claimants to capitulate due to fee exposure. It should promote more accurate pretrial damage analyses and realistic settlement positions.
Appellate fee benchmarks: The Court’s award of $30,000 in appellate fees underscores that meaningful appellate work in complex lien/counterclaim cases is compensable and may be substantial.
Doctrinal clarity: The Court distinguished the broad language of SDCL 44-9-42 from narrower fee statutes (e.g., mortgage foreclosures under SDCL 15-17-38), signaling that text matters and remedial statutes will be read in context to accomplish their purpose.

Complex Concepts Simplified

Mechanic’s lien: A statutory security interest allowing those who improve property (e.g., contractors, suppliers) to claim a lien against the property to secure payment.
Substantial performance: A contract doctrine allowing a party who has performed the essential bargain—though with defects—to recover the contract price minus any proven damages attributable to the defects.
Offset (setoff): A reduction of amounts owed to account for the non-breaching party’s damages, such as the cost to correct defective work. The owner must prove such damages with competent evidence.
Law-of-the-case: Once an appellate court decides an issue, that decision governs later stages of the same case; lower courts cannot re-try or re-decide it indirectly.
Crisman factors: A multi-factor test to gauge fee reasonableness, including time/labor, preclusion of other work, customary fee, amount/results, time constraints, client relationship, lawyer experience, and the fee arrangement type.
Intertwined claims doctrine (as applied here): When prosecution of a lien claim and defense against the owner’s counterclaims are factually and legally interwoven, defense fees necessary to prevail on the lien are recoverable under SDCL 44-9-42.
Abuse of discretion: A decision that lies outside the range of reasonable choices—arbitrary, speculative, or based on improper considerations.

Additional Observations and Practice Pointers

Record-building matters: Affidavits detailing hours, rates, complexity, settlement efforts, client relationship, and how defense work was necessary to enforce the lien are crucial. The Court criticized the trial court for ignoring unrefuted record evidence.
Segregation vs. intertwining: While counsel should segregate time where feasible, this decision recognizes that a realistic, integrated approach is appropriate when claims are intertwined. Explain why segregation is impracticable or artificial when facts and legal theories overlap.
Opponent’s fee spend: Where available, document the opposing party’s total fees to contextualize the reasonableness of your own request, especially in complex, multi-year litigation.
No punitive fee denials: Courts may not deny fees to penalize a party for refusing to settle or for bringing a statutorily authorized lien claim. The statute’s purpose is to make the claimant whole, not to impose settlement-driven penalties.
Remand strategy: On remand, expect a factor-by-factor Crisman analysis, with the “amount involved and the results obtained” encompassing both the lien amount and the successfully defeated counterclaim exposure.
Special concurrence signals: Although not binding, the special concurrence suggests that a floor of $150,000 would have been appropriate on these facts, given the unrebutted evidence on rates, hours, and complexity, and the absence of contrary proof from WIPI.

Conclusion

Smith Masonry v. WIPI Group USA, Inc., 2025 S.D. 26, establishes two significant rules for South Dakota mechanic’s lien litigation. First, once the Supreme Court has ruled on the merits, the law-of-the-case doctrine prohibits trial courts from relitigating settled issues when assessing attorney fees on remand. Second, SDCL 44-9-42’s broad, remedial language authorizes recovery of attorney fees not only for prosecuting the lien foreclosure but also for defending intertwined counterclaims or offsets that must be defeated to enforce the lien. By rejecting a punitive and speculative fee denial and awarding appellate fees, the Court reinforces the Legislature’s purpose: to ensure that those who furnish labor and materials can realistically and fully vindicate their payment rights.

Going forward, parties and courts should evaluate fee petitions with fidelity to the record, the Crisman factors, and the statute’s remedial aim—recognizing that, in complex construction disputes, defending against expansive counterclaims is often inseparable from enforcing the lien itself.