Parent Company files a pre-lien, sub contractor purchases materials from "child company" and never pays, who has lien rights?

2 weeks ago

As a General Contractor, we hired a Electrical Contractor who purchases materials from a vendor. The vendor, a larger company, is owned by a parent company, and then that company is owned by yet another parent company. 4 tiers total, from the top.

4- big parent company
3- smaller parent company
2- local supplier
1- our sub contractor
Direct- My Company.

I have known of, from being around, the big parent company. I then learned they owned the small parent company. I never heard of, or knew the bigger companies owned any of the smaller ones.

The smaller parent company filed the pre lien, the electrical contractor buys materials from the local supplier.

Eventually a lien is filed by the big parent company with a DBA, as the smaller parent company.

I paid all of my bills to the sub contractor timely and correct, they never paid the local supplier, which in reality was the parent company, but i never knew.

Senior Legal Associate Levelset

The California Civil Code does not directly address whether parent companies can file a mechanics lien for payments owed to their subsidiaries. However, there’s a fair argument that the parent, acting as the owner of a subsidiary, is entitled to pursue the lien claim – especially if the subsidiary who is directly owed payment is named on the lien filing (as a DBA or in some other way), as well.

On the other hand, there may be an argument that a parent filing the lien is improper since the parent wasn’t the one who provided the work or even the notice. Though, that argument would likely need to be fleshed out in court, which means the dispute would cause a lot of headaches and cost a lot of time and money before that point was ever decided.

By and large, it’s probably safest to assume that the issue of a parent/subsidiary relationship like the one discussed above would be acceptable as a valid and enforceable. Of course, there’s a lot of nuance there – so it may be worthwhile to consult a California construction attorney on the matter.

Finally, note that California is what’s called a “full price” lien state. Meaning, even when a contractor or subcontractor has been paid in full, themselves – their failure to pay their own subs and suppliers can result in the unpaid subs and suppliers filing a mechanics lien for the full value of what they’re owed. Meaning, even though you’ve paid your customer in full, an unpaid sub-tier lien claimant can still file a mechanics lien for their full debt.

For more background on California mechanics lien rights as well as a look at the California Civil Code: California Mechanics Lien Guide and FAQs.

Managing Partner Gibbs Giden LLP

As usual, Mr. Viator offers fantastic guidance in his response. California’s mechanics lien law is liberally construed in favor of the claimant so the claimant often has the better side of 50/50 arguments.

–CN

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