The concept of government property leased to a private entity has gotten a lot of press lately, and a lot of discussion on this blog. One may think the situation only rarely arises when a lien claim is sought against a project that is privately commissioned, but is performed on public land leased to a private enterprise. Rare it is not, however.
How will the courts handle lien claims sought on these private-public mixed projects?
On the state level, we’ve seen some hints.
New York wouldn’t provide for any lien or bond claim rights, Washington would allow the claimant to file a standard mechanics lien against the “leasehold interest” in the property, and Oklahoma just passed a law requiring bonds be issued just as it would be required if the work was commissioned by the state. In many states, it’s unclear whether bonds would be required or whether a claimant could file a lien against the leasehold interest.
But what would happen on the federal level under the US Miller Act?
The situation arose this month in Indiana’s Southern District in the case Roth Bros, Inc. v. Ohio Farmers Insurance Co. In this case, the surety sought to avoid a claim under the Miller Act because the “principal” on the bond wasn’t the United States government, but instead was the private enterprise leasing property from the United States government. The question here was whether it mattered that the principal was a private company and not the government.
A motion to dismiss was filed, and the district court denied the same. Therefore, the Miller Act claim against the bond listing the private enterprise as principal continues for now.
There are a few things to keep in mind about this decision:
1) It’s a district court decision, which means it has limited applicability.
2) The claimants may eventually lose, but have just survivied a single attack on their claim. Nothing is preventing the surety from raising further attacks.
3) Most importantly, this case does nothing to suggest that a bond is required under this private-public mixture scenario. As it turns out for the claimant in the Roth Bros case, a bond was placed to protect their claim rights. But, if the government isn’t commissioning the work, was a bond ever required? Under the Miller Act…perhaps not.
Stay tuned here, we’ll continue to update you as this important case unfolds. Also, a hat tip to Stark Law Office’s Oregon Construction Lawyer Blog for first blogging about this case, and thus bringing it to our attention.