4th Circuit: BB&T v. Construction Supervision Services- Subcontractor Lien on Funds

Summary: Construction Supervision Services (“CSS”) filed a Chapter 11 bankruptcy in January 2012, after which several subcontractors, which had previously provided stone, concrete, and fuel to CSS on an open account, sought to serve notice of liens on funds owed by others to CSS, thereby perfecting such liens. BB&T, which had lent CSS money, objected to the Subcontractors’ post-petition notice and perfection, arguing that such actions violated 11 U.S.C. § 362(a)(4). The Court of Appeals, affirming the bankruptcy and district courts in the instant case, but reversing In re Mammoth Grading, Inc., No. 09-01286-8-ATS (Bankr. E.D.N.C. July 31, 2009), In re Harrelson Utilities, Inc., No. 09–02815–8–ATS, 2009 WL 2382570 (Bankr. E.D.N.C. July 30, 2009), and In re Shearin Family Investments, LLC, No. 08–07082–8–JRL, 2009 WL 1076818 (Bankr. E.D.N.C. Apr. 17, 2009), held that such post-petition notice and perfection did not violate the automatic stay due to the exception in § 362(b)(3), which allows “any act to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the trustee’s rights and powers are subject to such perfection under section 546(b) . . . .” (Emphasis added.) In turn, § 546(b) “permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection . . . .” (Emphasis added.) As both §§ 362(b)(2) and 546(b) are predicated on the term “an interest in property”, the Court of Appeals analyzed its meaning, finding that the phrase “encompasses more than just liens.” Here the question was whether the subcontractors had an interest in property, viz. The BB&T funds, prior to the bankruptcy filing, despite not yet having served notice of the liens. Under N.C.G.S. § 44A-18 (2012), the 4th Circuit found it clear that a lien on funds “shall [be secured by] amounts earned by the lien claimant as a result of having furnished labor, materials, or rental equipment at the site of the improvement under the contract to improve real property . . . .” All that is required to be entitled to a lien on funds is delivery of material and equipment. Contract Steel Sales, Inc. v. Freedom Const. Co., 362 S.E.2d 547, 551 (N.C. 1987). Commentary: The Court of Appeals supports it position by pointing out that the North Carolina legislature amended N.C.G.S. § 44A-18 in 2012 to make clear that subcontractor is entitled to a lien on funds as soon as materials are delivered. While this change was not applicable to this case, the Appeals Court held that this nonetheless instructive as it was intended to “clarify existing law, to correct a misinterpretation, or to overrule wrongly decided cases”, namely seeking to “neuter” the Mammoth Grading line of cases. As clarification, the amendment indicated that the prior law (and law of this case) had actually entitled subcontractors to a lien on funds. This process of allowing, or at least giving deference and weight to, a “clarification amendment” seems very close to the unconstitutional line against ex post facto laws. It is also reminiscent of colloquy between Humpty Dumpty and Alice:

“When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’

’The question is,’ said Alice, ‘whether you can make words mean so many different things.’

’The question is,’ said Humpty Dumpty, ‘which is to be master — that’s all.”

By allowing a legislature to later “clarify” statutes to overturn judicial precedent at best would seem to encourage sloppy statutory drafting and sow confusion in interpretation and at worst lead to an infringement on judicial authority. If the question is “Which is to be master?”, the answer should be the law as it stood, not whomever can later redefine it. For a copy of the opinion, please see: BB&T v. Construction Supervision Services- Subcontractor Lien on Funds