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The Employee Retirement Income Security Act ("ERISA")
preempts section 3 of the New York Lien Law. This
is the law laid down by the Federal Second Circuit Court
of Appeals in EklecCo v. Iron Workers Locals 40, 361,
& 417 Union Sec. Funds, 170 F.3d 353 (2nd Cir. March
22, 1999). "Insofar as section 3 of the New York
Lien Law allows the placing of a mechanic's lien to secure
employee benefits protected under ERISA, section 3 is preempted."
EklecCo, 170 F.3d at 356.
The case involved EklecCo, a real estate developer, which
contracted with U.S. Bridge ("Bridge"), as contractor,
for Bridge to provide certain services in constructing a
mall. Pursuant to a collective bargaining agreement,
Bridge hired members of Iron Workers Local Union 417 to
perform labor. Under the collective bargaining agreement,
Bridge was required to contribute to the union's employee
benefit plans, which qualified as employee benefit plans
under ERISA.
Some time after construction began, EklecCo and Bridge became
embroiled in a dispute over charges for extras and change
orders. EklecCo declared Bridge in breach of its contract
and refused to make any further progress payments.
As a result, Bridge defaulted on the payments it was required
to make to the benefit plans. Thereafter, Bridge,
under section 3 of the New York Lien Law, filed a mechanic's
lien against the mall property, Bridge assigned part of
the lien to a group of union security funds, and the funds
filed a new lien. EklecCo responded by seeking an
order discharging the second lien, arguing that ERISA preempted
section 3 of the New York Lien Law as a collection mechanism
for employee benefit plans. Eventually the matter
came before the United States Court of Appeals for the Second
Circuit.
The Court found that the question before it was answered
by its prior decision in Plumbing Industry Bd., Plumbing
Local Union No. 1 v. Howell Co., Inc., 126 F.3d 61 (2nd
Cir. 1997). Plumbing Industry Board involved
facts quite similar to those in EklecCo, except in
the context of a public, rather than private, construction
contract setting. In Plumbing Industry Board,
a general contractor contracted with a subcontractor for
the performance of mechanical work on a school construction
project. The subcontractor defaulted on fringe benefit
payments that it owed under a collective bargaining agreement
and hereafter filed for bankruptcy. The trustee for
the benefit payments, under section 5 of the New York Lien
Law, filed a mechanic's lien against the funds designated
for payment for the school construction project. The
general contractor, of course, sought to have the lien vacated.
In Plumbing Industry Board, the court noted that
the effect of the trustee's lien would be to hold the general
contractor liable for the subcontractor's benefit payment
obligations on which the subcontractor defaulted.
No ERISA requirement exists, however, that the general contractor
assume responsibility for the subcontractor/employer's benefit
payment obligations to employees. Accordingly, the
court held that, because section 5 of the New York Lien
Law would in effect add a general contractor to the explicit
list of persons whom ERISA holds responsible for an employer's
benefit payment obligations to employees, the Lien Law impermissibly
supplements the enforcement mechanisms of ERISA and is preempted.
The only distinction between Plumbing Industry Board
and EklecCo is that Plumbing Industry Board
involved section 5 of the New York Lien Law while EklecCo
concerned section 3 of the New York Lien Law. Section
5 covers laborers working on public improvements and certain
trust funds; section 3 covers laborers working on private
improvements and the same types of trust funds. "For
the purpose of preemption analysis, sections 3 and 5 of
the New York Lien Law are the same." EklecCo,
170 F.3d at 356. The language and the remedy of sections
3 and 5 are practically identical. The only distinction
between the two sections, which is immaterial for preemption
analysis, is that section 5 involves public projects while
section 3 concerns private projects. Accordingly,
the Second Circuit held that, because section 3, like section
5, creates an alternative enforcement mechanism making EklecCo--the
property owner--liable for the ERISA payment obligations
of the employer, Bridge, it is preempted by ERISA.
In sum, to the extent that section 3 of the New York Lien
Law provides additional enforcement mechanisms to secure
ERISA employee benefits beyond those provided under ERISA,
it is preempted. Accordingly, if an employee benefit
plan files a lien to secure employee benefits protected
by ERISA, the lien will be vacated.
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