Pacific Gas & Electric (PG&E) is the largest utility company in the United States, and they just filed for bankruptcy protection. This comes in the aftermath of the most recent wave of California wildfires, which may have been caused (in part) by PG&E in the first place. There are a ton of different avenues worth exploring with the PG&E bankruptcy – but let’s take a look at some victims of the filing that might be overlooked – PG&E’s contractors and subcontractors.
How will those who performed work for PG&E get paid?
Will Those Affected in the Construction Industry Get Paid?
Most people are at least somewhat familiar with bankruptcy. And most people have it (relatively) right – when a business files bankruptcy, there’s a strong chance they won’t be paying all of their bills, and if they do, it could be for pennies on the dollar.
For the contractors and subs that have done work for PG&E, the question remains: “How will they get paid?” Or, better yet, “Will they get Paid?“
The answer, for now, is unknowable. However, for some claimants, there is a tool that might stack the odds a little bit in their favor – a mechanics lien. Mechanics liens do particularly well during bankruptcy proceedings. At the same time, with respect to the PG&E bankruptcy, there are serious lingering questions about the ability to file a lien.
Let’s break that down further in the next section…
Before getting too far along, here’s another article that provides important background info on mechanics liens and construction industry bankruptcies:
Should I File a Mechanics Lien if PG&E Owes Me Money?
There are a lot of moving parts here, but among the potential issues, there are 2, in particular, that stand out:
1. Are mechanics lien rights available?
2. Potential logistical issues with lien rights and utility work.
We’ll cover each issue below.
1. Do Mechanics Lien Rights Apply to Utility Projects?
This can be a very tough question to answer, and again – there are moving parts abound. Unfortunately, there’s not a real black-and-white answer.
First, let’s take to California’s lien laws. Under § 8402 of the California Civil Code, “A person that provides work authorized for a site improvement has a lien right under this chapter.” (emphasis added). Here’s where it gets interesting. Under § 8042, a “Site improvement” includes “(d) Construction or installation of sewers or other public utilities.” (emphasis added).
So, based on the above, work that’s performed for the construction or installation of public utilities should be subject to mechanics liens.
Unfortunately, here’s where things get hazier.
Under California’s Public Utilities Code, the ability to lien utility property is very limited. In fact, under 851 of California’s Public Utilities Code, any encumbrance made on a public utility is void unless it was first authorized by the Public Utilities Commission.
Obviously, a mechanics lien is a type of encumbrance – so what gives? Unfortunately, the answer may be ¯_(ツ)_/¯
To date, there hasn’t been much clarity provided on this issue through case law, legislation, or otherwise. This is despite the fact that the issue was spotted as early as 1992 in this excellent note on the subject: The Conflict between the California Mechanics’ Lien Statutes and the Public Utilities Code
2. Potential Logistical Issues with Lien Rights and Utility Work
Beyond the overarching issue of whether mechanics lien rights will be available – there’s another potential issue. In order to file a mechanics lien, there’s certain information that must appear on the face of the mechanics lien. While a lot of that information should be readily accessible, there are two pieces of information that could be particularly problematic:
1. The name of the party who owns the property to be liened;
2. A description of the site sufficient for identification.
For potential lien claimants who have provided work on utilities, these pieces of info can be hard to obtain. For one, when utility work is being done, there’s little reason to identify the owner of the property where the utility is located. Further, for things like power lines – work may be done on a ton of different properties!
The same issue comes up when describing the property. Unlike when construction is being performed on one specific lot – when utility work is performed on a number of properties, properly describing them all can be a nightmare.
California Mechanics Lien Resources
On top of the 2 issues above, there’s also the fact that California has strict mechanics lien and preliminary notice rules. Here are a few helpful articles and resources that will help you get up to speed on the subject:
- How to File a California Mechanics Lien
- What Is a California 20-Day Preliminary Notice?
- California Mechanics Lien & Notice FAQs
Bottom Line: A Mechanics Lien Might Be One of the Best Options to Get Paid
Ultimately, all of the above information might come down to a simple question:
Considering minor flaws have been known to derail even the most righteous of lien claims, is it worthwhile to pursue a mechanics lien claim when there are so many potential pitfalls?
That question is a tough one, and it’s up to each potential claimant to answer it for themselves. But the power of a mechanics lien claim is undeniable, and in the face of bankruptcy, a mechanics lien might be one of the only remedies that have a chance to get a claimant paid in full.
If you’ve ever dealt with another party who’s gone bankrupt, you’ll know that filing suit is a long shot – especially when that suit is filed after the bankruptcy filing. It can seem like the bankrupt party is totally untouchable due to the automatic stay. But, as discussed above and in our Bankruptcy Deep Dive, mechanics liens can cut through the BS and work toward payment in many bankruptcy scenarios.