Credit managers for supply houses, subcontractors, and construction lawyers can all breathe a sigh of relief thanks to an opinion issued on May 22, 2014 by the Fourth Circuit Court of Appeals in the CSSI bankruptcy case. Nan E. Hannah served as a counsel of record in this important decision.
The Fourth Circuit upheld the decision originally issued by Judge Randy Doub of the United States Bankruptcy Court for the Eastern District of North Carolina and upheld by the United States District Court, Eastern District of North Carolina. Translation: If a contractor or subcontractor files bankruptcy, lower tier subcontractors and suppliers who have provided labor and/or materials to a project retain the right to file their lien, even post-petition.
Avoiding the level of legal nerd-ism that is possible in discussing lien law, the critical importance of this decision lies in the fact that it clarifies once and for all that in North Carolina, lien rights come into existence upon first performance and are perfected by the serving and filing of the actual lien forms. Recognize that until the papers are served, money will flow and if no money remains due and owing, then the right to claim a lien is a piece of paper which may have no value. It is still incumbent upon potential lien claimants to timely file their Notice to Lien Agent and then not to become complacent, but serve the notice of lien upon funds when trouble becomes evident. It is the perfection of the lien upon funds which serves to stop the flow of funds. The value of the decision reference herein is that the right to perfect that lien even if someone in the chain unexpectedly files a bankruptcy petition is assured.