Controversial Mechanic's Lien Ruling Overturned

A Virginia case in which a judge shockingly allowed removable items to be included in a mechanic's lien has been reversed and remanded after being considered by another District Court judge.

In the U.S. District Court for the Western District of Virginia: Harrisonburg Division, Judge Glen Conrad has reversed a November decision that allowed a variety of non-attached items to be included in a mechanic's lien in the case of Summit Community Bank v. Blue Ridge Shadows Hotel & Conference Center LLC, et al. The case was featured in the May edition of Business Credit Magazine.

In the suit (Blue Ridge Shadows), Bankruptcy Court Judge Ross Krumm upheld the lien filing rights of Corporate & Franchise Interiors (CFI) and Executive Protection Systems (EPS) in a case involving the development of a Virginia hotel. CFI's claims totaled $228,761.33 for items including sleeper sofas, chairs, desk lamps, pillows, game tables, desks, artwork and lamps. EPS' claims totaled $56,034.43 for items including flat panel LCD monitors, coaxial cable, microphones, projectors, speakers and amplifiers. Such items generally would not have been considered lienable based on a wealth of mechanic's lien case law.

In the original ruling, Krumm noted that existing Virginia statutes did not include "an exhaustive or exclusive list" of materials qualifying for a mechanic's liens and that some unattached materials were critical in creating improvements to a building without being permanently annexed. The ruling surprised several attorneys contacted by NACM and a line of experts, including NACM Mechanic's Lien & Bond Services Director (MLBS) Greg Powelson. The prevailing opinion was that the judge's ruling went against the essence of a mechanic's lien, not to mention a couple centuries of case law, and was inherently flawed.

Conrad essentially rendered the same opinion in April in reversing the previous decision. The judge chalked up the Krumm decision to a failure to recognize that a significant connection, which typically must be physical and permanent, is needed between materials and a structure to qualify as improvement:

"It is not sufficient for materials to simply add value to a building by their mere presence without any further connection to the building."

Conrad also reviewed the previous court's reliance on a 1997 case involving cabinets that had been delivered, accepted and installed in a building, but later removed after a dispute (Moore & Moore General Contractors Inc. v. Basepoint Inc.), in justification of the November ruling. Conrad ruled the lower court erred in focusing solely on the "removability of materials, as opposed to their connection to the encumbered property."

The November decision did raise concern that a host of vendors who previously wouldn't have tried to include their claims in a mechanic's lien would begin to do so. Additionally, attorneys worried the original decision could be used as a persuasive, though not binding, argument in states where mechanic's lien law language was similar to that of Virginia. Conrad's ruling now largely renders such concerns moot and keeps Pandora's Box shut for all intents and purposes.

Brian Shappell, NACM staff writer

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