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Sub's Failure to Contribute to Union Benefit Plan Gives Rise to Mechanic's Lien Rights Despite ERISA
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October 31, 2005
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Thelen Reid Brown Raysman & Steiner LLP
The California Supreme Court has held unanimously that the members of a labor union could bring an action to foreclose on a mechanic's lien based on a subcontractor's failure to pay them contractually required benefits. The court held there was no pre-emption by ERISA. R. Betancourt v. Storke Housing Investors, 31 Cal. 4th 1157 (2003).
The matter came before the court after a subcontractor failed to pay union workers their benefits on a residential construction project. Under the collective bargaining agreement between the union and the subcontractor, the workers were entitled to an hourly compensation package including both wages and benefits. Although the workers received their wages from the subcontractor, the subcontractor did not make contributions to the union's trust funds for the workers' benefit.
To recover the unpaid contributions, workers recorded a mechanic's lien under Civil Code §3110 against the owner's real property, then brought suit to foreclose on the lien. Civil Code §3110 provides that "all persons and laborers of every class performing labor upon or bestowing a skill or other necessary services on... a work of improvement shall have a lien upon the property upon which they have bestowed labor... for the value of such labor done... whether done... at the instance of the owner or of any person acting by his authority or under him as a contractor or otherwise."
The defendant owner demurred, contending that the lien foreclosure action was pre-empted by federal law. It argued that the amounts due were fringe benefit contributions owing to the union's employee benefit plan and thus were subject to and pre-empted by the federal Employment Retirement Income Security Act (ERISA). ERISA pre-empts state laws that "relate to" employee benefit plans. The trial court sustained the demurrer, but the Court of Appeal reversed. The California Supreme Court granted review and affirmed the Court of Appeal's decision..
This was not the first time the Supreme Court had addressed the intersection between mechanic's lien laws and ERISA. In Carpenters So. Cal. Admin. Corp. v. El Capitan Development Co., 53 Cal. 3d 1041 (1991), the court addressed the issue of whether ERISA pre-empted a mechanic's lien for additional compensation recorded under former Civil Code §3111 and held that ERISA pre-empted the lien.
Because of the similarity of this case to El Capitan, the defendant owner argued that §3110 should be similarly pre-empted and that the lien was improper. In contrast, the plaintiff workers urged the Supreme Court to declare that, in light of subsequent U.S. Supreme Court decisions limiting the scope of ERISA pre-emption, El Capitan no longer was good law.
The court held that ERISA did not pre-empt §3110 and that workers could record state law mechanic's liens for unpaid benefits. The court found that §3110 was a law of general applicability and did not implicate ERISA directly, even though express benefit trust funds were on "the long list of those entitled to liens" under the statute. The court contrasted the general applicability of §3110 with the former §3111, which it found singled out ERISA plans for special treatment. The court found that the workers here were not suing or being sued in an effort to enforce the terms of an ERISA plan. Rather, they were suing for moneys owed them for work performed, and the ERISA plan at most would receive funds recovered as a result of their mechanic's lien foreclosure suit. Accordingly, ERISA did not pre-empt §3110.
The court declined to overrule El Capitan. It noted that El Capitan was based on statutory language in §3111 that the Legislature since has amended and broadened, implying that the new statutory language might yield a different result in a case involving the current version of §3111.
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©2005 Thelen Reid Brown Raysman & Steiner LLP
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