KNOW YOUR PROJECT OWNER OR LOSE YOUR RIGHTS

“Never assume” can be a devastating mistake when dealing with government agencies. That old saying was put to the test where a subcontractor named MasTec mistakenly assumed that the “Mercer County Improvement Authority” must be part of Mercer County—thereby losing its lien security for over $6,900,000. Even worse, if MasTec had done a little more advance preparation, MasTec might have discovered that it did have lien rights elsewhere. If you want to find out the answer to what MasTec should have done, and what you can do to avoid similar missteps, read along. Case Name: MasTec Renewables Constr. Co. v. Sunlight Gen. Mercer Solar, LLC. (A-1833-15T4).
 
The Mercer County Improvement Authority (“Improvement Authority”) entered into a contract with Sunlight General Mercer Solar, LLC (“Sunlight”) to act as general contractor for the construction of a renewable solar generating facility. Sunlight then hired MasTec to design and build the facility. Sunlight also obtained a leasehold interest in that facility. If you are wondering, no payment/performance bond was required from Sunlight to protect MasTec because Sunlight was not a public agency.
 
MasTec was not fully paid, so it filed a municipal mechanics lien for $10,250,000. Later, MasTec partially settled its claims with Sunlight and reduced the lien to $6,900,000. As to the lien, however, the Improvement Authority challenged its validity in court. The Appellate Division then decided that the lien was not valid because the Improvement Authority’s project was not subject to municipal mechanics liens under the “County Public Improvement Authorities” Law.
 
While the Improvement Authority was obviously named the “Mercer County Improvement Authority”, the Court held that the Improvement Authority was actually an arm of the State government, not the Mercer County government. Since municipal mechanics cannot be filed against the State government, MasTec’s lien filing was unenforceable and had no value.
 
Taking over 34 pages to get there, the Court’s analysis basically hinged on two bits of pretty clear language in the “County Improvement Authorities Law” (“CIAL”): (1) an authority is “a public body politic and corporate constituting a political subdivision of the State”, and (2) “an authority shall not constitute or be deemed to be a county or municipality or agency or component of a municipality for the purposes of any other law[.]” That is, the Authority was a State subdivision; it was not a part of the county. So, MasTech never had municipal mechanics lien rights it could enforce.
 
Analysis: There are three primary laws available to subcontractors/suppliers which they may use to secure their payment rights: municipal mechanics liens, public works payment/performance bonds, and construction liens. As seen in this case, municipal mechanics lien filings are not enforceable on State projects, including county improvement authorities, even though they are generally available on county projects, municipal projects and school district projects. For bonds, both State and county projects, as well as municipalities and school districts, almost always require payment/performance bonds. Since the filing of the wrong kind of claim is worthless, as in this case, the actual owner of the project should be uncovered before agreeing to a contract. That way, the sub/supplier, can know what rights it may actually have before it needs them, and what steps it should take to protect them.
 
Don’t assume, even if you think you know the answer. For example, a “fire district” may exist to address fires in one town, but a different town may just have a fire department which is part of the town itself. If the project owner is the “fire district”, for example, then filing a lien with the town is not effective. The filing must be with the district. In a similar vein, this decision does not apply to municipal improvement authorities  where municipal mechanics lien filings shold be permitted.
 
Besides the mix of public and private ownership in this case, there are other variations in the forms of ownership. These can include different mixes of public and private involvement, odd-ball project owner entities like “Joint Meetings” or other authorities, and even not-for-profit organizations which sign contracts for construction work but do not have any interest in the underlying property or funds which can be attached or pursued by lien or bond claim. Other laws can cover colleges, for example, and not all of them are treated the same under the law. There can also be a Federal project in the mix. This unhealthy stew of potential project ownership interests can produce a reault like poor MasTec suffered.
 
So how would homework have helped MasTec, when it required a New Jersey appellate court to write a long decision to come up with the answer? First, many project manuals simply tell you who the owner actually is, such as, in the Advertisement for Bidding which is often included. If that doesn’t solve the problem, call the agency to get the correct information. With luck, you might get some documentation to support it. No, do not ask some “field guy” or lower level employee. Try its legal department; this is a serious business having important ramifications if you get it wrong.
 
In all likelihood, if MasTec had called the Improvement Authority’s headquarters before agreeing to take on the project, it would have learned the Improvement Authority was considered a State agency. Then, it should have known there were no municipal mechanics lien rights. Furthermore, MasTec could have learned there was no payment/performance bond in place, meaning, that it would also have had no bond claim rights.
 
But, there is a kicker to the story. With a bit more investigation, MasTec might have also learned about the leasehold granted to Sunlight. Then, when MasTech wasn’t paid, it could have exercised its proper remedy—filing a construction lien against the leasehold. Leaseholds are real, private property under the law. So, they are subject to construction liens, just like other forms of real, private property. Filing a construction lien was probably the last thing a contractor would have expected on a project presumed to be public works.