The headline here might be a little bit premature for two reasons: (1) The subject decision has been appealed; and (2) The decision is in federal court, and thus, is not binding to state courts in Mississippi. Nevertheless, the shot has been fired, and there is now standing case law in Mississippi declaring its stop payment statute as unconstitutional.
Hat tip to the Construction Law Toolbox in calling attention to a decision from the Mississippi Federal Northern District declaring MS Code § 85-7-181 (the Stop Payment Statute) unconstitutional. The decision was released on April 12, 2012, by Magistrate Judge S. Allan Alexander, captioned Noatex Corp v. King Construction of Houston LLC, No 11-00137.
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§85-7-181 isn’t a groundbreaking or unique statute (full text here). It provides:
When any contractor or master workman shall not pay any person who may have furnished materials…the amount due by him to any subcontractor therein, or the wages of any journeyman or laborer employed by him therein, any such person, subcontractor, journeyman or laborer may give notice in writing to the owner thereof of the amount due him and claim the benefit of this section; and, thereupon the amount that may be due upon the date of the service of such notice by such owner to the contractor or master workman, shall be bound in the hands of such owner for the payment in full, or if insufficient then pro rata, of all sums due such person…
The constitutionality of the Stop Payment statute in Mississippi was actually brought up more than 20 years ago in Coatings Manufacturers Inc v. DPI Inc (1991), another federal court case. The case was resolved on other grounds though, and the court never reached the issue.
The issue was reached in this case, with Noatex arguing that “the interim deprivation of property that resulted from service of the Stop Notice was sufficient to trigger the need for procedural due process and that § 85-7-181 ‘lacks any of [the] minimum safeguards that due process requires to accompany such a substantial deprivation of property.'”
Comparing the stop notice statute’s effect to a pre-judgment attachment (“no matter what you call it, § 85-7-181 has the exact same effect as an attachment”), the court concludes that the statue is unconstitutional on its face:
[T]he court is compelled to hold that Mississippi’s stop notice statute violates due process by authorizing what is in practical effect the prejudgment attachment of funds without prior notice and a hearing, or an acceptable post-seizure remedy. Consequently, §85-7-181 is facially unconstitutional…
It will be interesting to see what spirals out of this decision and whether it is overturned.
Mechanics lien laws (and stop payment laws) have been part of the American legal landscape since Thomas Jefferson’s days, introduced into the Maryland legislature by Thomas Jefferson himself. Despite challenges to its constitutionality based on a denial of due process – the basis of Jude Alexander’s declaration of unconstitutionality in Mississippi – they have been upheld as constitutional by courts in every single state time and time again. In fact, in some states like California, they are actually written into the constitution as an affirmative right.
It’s hard to believe that Judge Alexander’s decision will turn into good law (and thus, folks probably shouldn’t avoid filing stop payment or stop notice claims based on this decision). That’s not to say it won’t cause some disruptions. We’ll see where this takes us.
Update: Legislature Passes Sweeping New Lien Laws
The Mississippi legislature quickly sprung into action to protect subcontractors and suppliers against this decision. New sweeping changes to the mechanics lien scheme in Mississippi were passed and went into effect on April 11, 2014. These are some of the most significant lien law changes that have occurred in years anywhere in the country. The new scheme offers even great protection to subs and suppliers than existed before this decision. levelset’s mechanics lien resources for Mississippi have been updated to reflect the changes.