Recently, a large dispute related to both bankruptcy and mechanics liens has reared its head in West Virginia. While any determination regarding the validity or priority of the mechanics liens in question has not yet been made, it will be interesting to see what the bankruptcy court determines in this large dispute.
The liens at issue in this dispute stem from work performed for the construction of a $2 billion coal plant. Longview Power, LLC (Longview), the coal plant’s operator, has claimed deficiencies in work have created problems for the operation of the plant, and has filed for Chapter 11 bankruptcy protection.
Longview’s title insurance company, First American Title Insurance Co. (First American) has filed an adversary suit in the bankruptcy proceeding in an attempt to invalidate the $350 million worth of mechanics liens filed against the property by contractors on the project. While an integral part of the Chapter 11 plan was to use the proceeds of the insurance policy to pay off the mechanics liens, the insurer disputes (among other things) that the mechanics liens have priority over the lien created by a credit line deed of trust. The bankruptcy judge determined that Longview was able to have the mechanics lien questions determined as a part of the Chpater 11 suit, and was not required to litigate these questions in a separate suit First American brought in California.
The insurer makes three requests to the court: to determine that the mechanics liens did not have priority over the deed of trust lien from the credit line; that the mechanics liens were invalid pursuant to WV law; and that, to the extent the liens were legally valid, to reduce the amounts of the liens.
First American makes several arguments in support of its position. That the contractors failed to name the trustee in the lien enforcement litigation, that part of the coal plant property is county land rather than private land, and that the contractors had issued periodic lien waivers in exchange for payment that rendered them unable to claim first priority for their liens.
While nothing has yet been determined, this case may present some interesting conclusions and interpretations of West Virginia mechanics lien law, as regards lien waivers, lien priority, and, potentially, P3 projects. If this turns out to be the case, the Construction Payment Blog will keep up to date on any developments.