Source: https://www.reedsmith.com/en/perspectives/2014/03/the-applicability-of-pennsylvanias-mechanics-lien
Timestamp: 2019-04-22 02:59:58+00:00

Document:
The owner and contractors on a construction project usually anticipate that all parties will be properly paid for work performed. In reality, however, it is not uncommon for issues to arise related to the payment of a contractor and its subcontractors or suppliers. In addition to bringing a breach of contract action, Pennsylvania’s Mechanics Lien Law (the “Lien Law”)1 provides an unpaid contractor or subcontractor with a powerful additional legal remedy to obtain payment because a mechanics lien is imposed against the property interest to which qualifying “improvements” were made, creating a “cloud” on the legal title to that property interest.2 With the recent boom in Marcellus shale in Pennsylvania, the question has arisen as to whether or not gas wells or pipelines qualify as “improvements” for purposes of the Lien Law, and therefore can be made the proper subject of a mechanics lien claim filing.
Does the construction of a gas well or the installation of a gas pipeline fall within this definition? This issue has not been specifically decided by the Pennsylvania courts in any reported decision, but prior decisional law, the legislative history preceding the current version of the Lien Law, and the broader body of out-of-state case law all suggest that that an oil and gas well or pipeline project can be susceptible to mechanics lien filings.
1. 49 PURDON’S. STAT. (“P.S.”) §§ 1101, et seq. (2010).
2. On a project involving the construction of a building, the mechanics lien claim would typically be filed against the underlying property on which the building was constructed, usually the fee estate. However, on most gas well or gas pipeline projects, the production company does not own the land on which the well or pipeline is being installed, but typically only holds a leasehold or easement interest from the landowner. The Lien Law permits a lien to be asserted against a leasehold or easement interest, but places significant restrictions on the ability to assert a lien beyond the leasehold interest and against the underlying fee estate. See 49 P.S. 1303(d) (“No lien shall be allowed against the estate of an owner in fee by reason of any consent given by such owner to a tenant to improve the leased premises unless it shall appear in writing signed by such owner that the erection, construction, alteration or repair was in fact for the immediate use and benefit of the owner.”).
3. 49 P.S. §1201(10); Dollar Bank, FSB v. EM2 Dev. Corp., 716 A. 2d 671, 674 (Pa. Super. 1998).
5. Sampson–Miller Assoc., Cos., Inc. v. Landmark Realty Co., 303 A. 2d 43, 45 (Pa. Super. 1973).
7. Mechanics Lien Act of 1901, P.L. 431 § 1.
11. McCartin McAuliffe Mech. Constr. v. Midwest Gas Storage, 685 N.E. 2d 165 (Ind. Ct. App. 1997); see also, Mid America Homes, Inc. v. Horn, 396 N.E. 2d 879 (Ind. 1979) (citing Monpelier Light & Water Co. v. Stephenson, 53 N.E. 444 (Ind.1899)) (enforcing mechanics lien for erection of an oil well derrick under Indiana’s law).
12. See Kanawha Oil & Gas Co. v. Wenner, 76 S.E. 893 (Va. 1912) (oil and gas well found to be a qualifying structure under West Virginia’s mechanics’ lien law, W. VA. CODE §§ 38-2-1 et seq. (1985)).
13. See N.M. Albuquerque Foundry & Mach. Works v. Stone, 286 P. 157 (1930); Lakeview Drilling Co. v. Stark, 310 P. 2d 627 (1957); Yearout v. American Pipe & Steel Corp., 168 P. 2d 174 (4th Dist. 1946)(applying New Mexico, Oregon and California’s general mechanics lien statute to drilling of an oil well). New Mexico and California have both since passed specific statutes regarding lien rights in oil and gas projects. See N.M. STAT. ANN. §§ 70-4-1 et seq. (1987); CAL. CIV. PROC. CODE §§ 1203.50 et seq.(1981).
14. Alaska, Arizona, Arkansas, California, Colorado, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Michigan, Montana, New Mexico, Oklahoma, Texas, Utah, Wyoming.
15. See e.g. New York law holding equipment rental relating to pipeline construction not lienable. Butts v. Randall, 260 N.Y.S. 713 (N.Y. Tr. Ct. 1932); Whereas a state court in Kentucky has held that the lienability of rental equipment depends on the type of equipment. Stagg Indus. Dev. Corp. v. General Oil Field Supply Co., Inc., 743 S.W.2d 41 (Ky. Int. App. Ct. 1988). See also Florida, Illinois, Louisiana, Michigan, Ohio, and Arkansas laws for another example of how state lien interests for pipelines differ. These states will expressly grant a lien on a pipeline’s production when a contractor has not been paid. 40. FLA. STAT. ANN. § 713.805(3); ILL. REV. STAT. CH. 82, ¶ 503(3); LA. REV. STAT. ANN. § 9:4861(A); MICH. COMP. LAWS ANN. § 26:423(1); OHIO REV. CODE ANN. § 1311.021(A); ARK. STAT. ANN. § 18-44-211.
16. Satisfaction of these other statutory requirements is no easy matter, and can quickly become a daunting task on a large oil and gas project. For example, whether each gas well would be considered to be a separate “improvement” and whether the project is considered a single “plant” or multiple projects, may create complex allocation and apportionment issues for the contractor seeking to assert a lien. See 49 P.S. §1306. Similarly, where a pipeline project extends over more than one parcel or one county, the logistics associated with filing of the claim (e.g., requirements concerning description of the property affected, allocation issues and filing in more than one county) can become very complicated and can furnish a possible basis for striking the lien. See 49 P.S. §§1502, 1503.
17. See, e.g., 49 P.S. §1402 (lien waivers); §1508 (lender priority provisions); see also 42 PA . CONSOL. STAT. §§ 8141(1), 8143(f) (provisions defining qualified purchase money mortgages and open end mortgages).

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