Massachusetts Mechanic's Lien Law "Cram Down" Provision Enforced - With A Twist
Thursday, April 19, 2012 at 1:06PM
Jack DiNicola

The Massachusetts Mechanic's Lien Law ("Lien Law") contains a mechanism intended to limit owners' and general contractors' exposure to liens.  See M.G.L. c. 254, sec. 4.  In essence, the amount of a subcontractor's or sub-subcontractor's lien is limited to the amount due or to become due the contractor or subcontractor that is in contractual privity with the lien claimant at the time the lien claimant's notice of contract is recorded.  Therefore, if a general contractor owes a subcontractor $100,000 (i.e., the amount due or to become due), and a sub-subcontractor of that subcontractor records a notice of contract asserting that it is owed $150,000, the amount of that lien is capped at $100,000 -- the amount due or to become due.  There are exceptions, however, if a lower tier subcontractor serves a notice of identification.

This provision has been enforced by Massachusetts courts for years.  The cram down provision is most often used in termination cases, where a subcontractor records a notice of contract after the general contractor is terminated.  In fact, the seminal case on this issue involved a terminated general contractor.  Usually, the analysis focuses on when the actual termination occurred versus when the notice of contract was recorded.  In a case issued by the Massachusetts Appeals Court on April 12, 2012, however, the notice of contract was recorded before the termination of the contractor.  See Superior Mech. Plmg. & Heating, Inc. v. Insurance Co. of the West, 2012 WL 1193887.  The Superior Mechanical Court did not focus on the date of the formal termination notice, but rather focused on the terms of the contract for default and payment, and the dates upon which those provisions controlled the relationship between the owner and the general contractor.  The Court determined that, despite the date of the formal notice of termination, at the time the subcontractor's notice of contract was recorded, pursuant to the terms of the general contract, there was no money due or to become due the general contractor.  The Appeal Court reversed a summary judgment decision in favor of the subcontractor and actually instructed the Superior Court, upon remand, to dismiss the subcontractor's mechanic's lien claim under the cram down provision.

The importance of this decision is that now courts must focus on the language of the governing contracts and the facts associated with default and payment, instead of simply focusing on the date of a termination notice.

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