To Lien a Pipeline, or Not to Lien a Pipeline, That Is the Question
By Peggy Underwood and Rachel E. Jeanes | August 14, 2019 at 03:12 PM
With the recent proliferation of pipeline construction projects in Pennsylvania namely, Mariner East, Mariner East II and Atlantic Sunrise to name a few, contractors have been faced with the dilemma of securing payment for work performed on these projects. Within the past year, at least one major pipeline contractor has filed for bankruptcy and the Mariner East II project was stalled by citizens’ lawsuits. As a result, contractors, subcontractors and suppliers (collectively, contractors) on these projects have been forced to find alternate means to secure payment. Can these contractors receive the benefit of Pennsylvania’s Mechanics’ Lien Law to preserve their right to payment when the property to be liened is not a traditional building, but rather a natural gas transmission pipeline that traverses multiple Pennsylvania properties and counties? We believe the answer to be “yes,” but it can be tricky and costly.
The first hurdle is to establish that the pipeline owner has an interest to which a lien can attach. For a lien to be effective, the pipeline must be an “improvement” on “property” as defined in the Pennsylvania Mechanics’ Lien Law of 1963, 49 P.S. Section 1201, et seq. (Lien Law). Traditionally, mechanic’s liens are filed against the owner’s fee or leasehold interest in a building or structure. The structure is normally found at one location and in only one county. A pipeline, however, by its very nature, traverses across many individual properties and counties. Often, the pipeline owner’s interests are a mix of easements, rights-of-way, leases and fee interests that span across thousands of unrelated real property parcels.
In view of the pipeline owner’s complicated ownership pattern, can contractors and subcontractors find protection in the Lien Law? The most common property interest held by pipeline owners is that of an easement. Contrary to common perception, we found no caselaw or statutory support that would limit the Lien Law to fee or leasehold interests in brick and mortar structures. The Lien Law simply provides lien rights for work performed on “every improvement and the estate or title of the owner in the property …” (49 P.S. Section 1301(a)). An improvement is defined as “any building, structure or other improvement of whatsoever kind or character erected or constructed on land, together with the fixtures and other personal property used in fitting up and equipping the same for the purpose for which it is intended.”
The term “property” includes the improvement (i.e., the pipeline) “belonging to the same legal or equitable owner … forming a part of a single business or residential plant.” The key phrase in the definition of property which allows the filing of a single lien is the phrase, “forming a part of a single business … plant.” As described below, if that language were not in the Lien Law, contractors would be forced to file separate liens against each and every parcel on which they performed work. Since a pipeline can meet the criteria of being an improvement on property that can be liened, the next hurdle is determining whether and how the other requirements of the Lien Law can be met.
The second hurdle is to confirm that a single lien is appropriate. Before making the decision to file a lien against a pipeline, a contractor or its counsel must determine whether the apportionment rules apply. Under the Lien Law, when a contractor performs work under one contract on several different improvements which “do not form all or part of a single business or residential plant,” the contractor must file a separate lien claim against each parcel and apportion the lien among those parcels for the total amount owed. As described below, a pipeline can traverse more than 500 parcels in one county alone. Practically speaking, if the apportionment rules were to apply to such liens, the cost and logistical issues would be prohibitive. While courts have found that the apportionment rules apply to the construction of an attached row of townhouses, pipelines and the ownership interests involved are distinguishable.
A pipeline has only one function—i.e., to transport gas to its ultimate destination for processing and distribution in the furtherance of the owner’s business interests. A pipeline, therefore, is an improvement that is part of a single business plant. With the unique nature of pipelines, practitioners could mistakenly believe that a lien would need to be filed on every property the pipeline crosses, which would be completely infeasible. Fortunately, the apportionment rule is less complicated than it looks. It is imperative, however, that the lien claim expressly state that the pipeline forms all or part of a single business plant.
The last hurdle is to confront the special logistical issues in filing a lien against a pipeline. If the lien claimant is a subcontractor, it must first determine to whom it must provide notice of intent to file a lien. Does the Lien Law require a subcontractor to notify each and every parcel owner of its intent to lien? Under the Lien Law, subcontractors must provide notice to the “owner” at least 30 days before filing. There are no reported cases on this issue and recent lien claimants have provided notice to all the parcel owners. We believe, however, that it should be sufficient for subcontractors to provide the 30-day written notice solely to the pipeline owner, because the lien is against the pipeline owner’s interest in the pipeline (generally an easement), nothing more.
The Lien Law also requires that the claimant provide “such description of the improvement and the property claimed to be subject to the lien as may be reasonably necessary to identify them.” In view of the many hundreds of parcels involved and significant potential for error, practitioners must engage a title company to search and provide copies of all records related to the pipeline owner’s property interests in the relevant counties. The title company’s costs for this search, alone, could be tens of thousands of dollars. Once the recorded instruments are received, each record must then be carefully reviewed to determine which documents are related to the pipeline and which are not. This review will be time-consuming and costly.
In a recent case, one of our subcontractors successfully filed liens in four counties and secured full payment in excess of $4 million for a pipeline project that spanned four Pennsylvania counties: Berks, Dauphin, Lancaster and Lebanon. The title search revealed a total of 814 property documents, at a cost of over $12,000. In this matter, the time limits imposed by the Lien Law and the large volume of documents required costly expedited review and collation of the property records and other information needed for the lien. Significant time was also spent in drafting the lien and formulating supporting exhibits.
Once the lien and its relevant exhibits are drafted and compiled, the last logistical hurdle is filing. In Pennsylvania, not every county has adopted electronic filing. Practitioners must first confirm whether the court requires paper or electronic filing, along with any special rules for documents that are substantially larger than normal. The property records will contain maps, drawings and photographs which significantly increase the electronic size of the documents. Whether a county requires electronic or paper filing, each presents its own challenges. As to electronic filing, each county limits the size of files for submission to the court. Some, like Berks County, have file size limits as low as 10 megabytes. Depending on the number of property documents, a claimant could have at least 20 separate 10-megabyte files to upload. Even with electronic filing, hard copies must be served. The hard copies may consist of multiple reams of paper. For counties without electronic filing, the copy, service, and mailing fees would be twice the costs for electronic filing.
At present, there are no reported cases identifying restrictions on mechanics’ liens against pipelines. To date, liens have been filed and contractors have been paid. Until the courts rule otherwise, the decision to file a mechanic’s lien on a pipeline, therefore, is more a question of cost and logistics rather than of legal entitlement. Assuming that the contractor can meet the other requirements of the Lien Law, the issue of whether to file comes down to a cost benefit analysis. If the benefits outweigh the costs, then filing a mechanic’s lien on a pipeline is currently achievable.
Peggy Underwood and Rachel E. Jeanes are attorneys with Horn Williamson assisting clients at all stages of the construction and litigation process, representing general contractors, subcontractors, owners, developers and suppliers involved in both public and private construction projects throughout the Mid-Atlantic region. They may be reached at firstname.lastname@example.org and email@example.com or at 215-987-3800.