A recent decision by the Appellate Court of Illinois, Second Judicial District, is likely bad news for suppliers and subcontractors in the state, as it may erode the mechanic’s lien act protections for work on commercial projects that involves property improvement subject to an easement and title retention agreement.
The ruling was a surprise to Connie Baker, CBA, director of operations for NACM’s Secured Transactions Services (STS). “It will add another layer of research for credit professionals to look over easement agreements and to know when something could be considered removable and, therefore, non-lienable,” she said.
The American Subcontractors Association’s (ASA) Subcontractors Legal Defense Fund filed a “friend of the court” brief in support of the unpaid subcontractor in this case. Eric Travers, a partner with the Columbus, OH, law firm of Kegler, Brown, Hill and Ritter, ASA’s general counsel, described the appellate court’s decision as “discouraging” and “at odds with the public policy of the Illinois Mechanic’s Lien Act,” noting that the rationale used by the court could “deprive untold numbers of subcontractors and suppliers on future projects of mechanic’s lien rights the Illinois legislature granted.”
The appellate court affirmed on Aug. 9 a summary dismissal of subcontractor’s mechanic’s lien claim in AUI Construction Group, LLC, vs. Louis J. Vaessen, et al. (For more details from NACM’s Secured Transaction Services on the case, click here.) According to court documents, AUI Construction Group entered into a cost-plus agreement with Postensa Wind Structures U.S., LLC, to build a 500-foot-tall wind power plant in 2011. A memorandum of the wind park easement agreement between the project owners and developers was recorded on Dec. 22, 2011.
After completing the work in mid-2012, AUI ultimately billed Postensa for more than $3 million. In late 2013, after Postensa filed for bankruptcy, an arbitrator awarded AUI $3.5 million, including attorney’s fees. In 2014, AUI filed a foreclosure complaint on a mechanic’s lien against the project’s owner, the estate of Louis and Carol Vaessen, asserting the estate’s property should be sold at public auction to satisfy its lien.
Earlier in the year, an Illinois circuit court summarily dismissed AUI’s lien claim, holding AUI’s 500-foot-tall wind power plant was removable, was not an improvement to real property under the state’s mechanic’s lien act and was a non-lienable trade fixture.
“As the intent of the parties is the most important factor in determining whether an item is a removable trade fixture or a permanent improvement, the easement agreement establishes that the tower was a trade fixture,” the appellate court said in its ruling.
– Nicholas Stern, editorial associate