On behalf of Kaplin Stewart Meloff Reiter & Stein, P.C. posted in Construction Defect on Jul 26, 2017.
In a recent opinion, the Third Circuit Court of Appeals held that the automatic stay of claims against a bankrupt contractor barred the filing of an electrical supplier’s NJ construction lien against the project real estate. The decision points out how differences between state lien statutes can affect the rights of lien claimants where a bankruptcy has been filed. In In Re Linear Electric Company, Inc., a prime electrical contractor filed a bankruptcy petition. After the petition had been filed, two electrical suppliers to the bankrupt contractor filed New Jersey Construction Liens against real estate which had been improved with the electrical material supplied by the two lien claimants. The bankrupt contractor moved to dismiss the liens as having been filed in violation of the automatic stay of claims imposed when a bankruptcy is filed, even though the lien claims were asserted against real property owned by the project owner, not directly against the bankrupt contractor. The Court held that the liens violated the automatic stay. It reasoned that even though the liens were asserted against real estate owned by a non-bankrupt party, under the New Jersey Lien statute, the liens functioned as a claim against the accounts receivable of the bankrupt electrical contractor in that if the liens were paid, the project owner would not have to pay the bankrupt contractor. This would be to because, under the New Jersey Lien statute, construction liens are assessable only up to the amount of a “Lien Fund”, consisting of all unpaid […]