Mechanics Liens; Fees

Prohibits the use of a mechanic's or materialman's lien for
payment of union trust fund contributions.

THE SENATE                              S.B. NO.           2141
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds that the concept of a
 2 mechanic's or materialman's lien is to place a lien on real
 3 property and improvements when the person seeking the lien has
 4 furnished labor or materials in the improvement of the real
 5 property.  This ensures that the person who has contributed to
 6 the improvements will not be without recourse if the contractor
 7 who hired the person fails to pay the person.
 8      In 1981, the Hawaii Supreme Court extended this right to
 9 union trust funds.  In the case of Hawaii Carpenters' Trust Funds
10 v. Aloe Development Corp., 63 Haw. 566, the court found that even
11 though the pension fund technically furnished no labor, the
12 unpaid contributions that were owed the pension fund were as much
13 justly due the employees as their wages.  As such, they were as
14 much entitled to a lien for the unpaid pension fees as they would
15 have been for unpaid wages.
16      The issue arose again in the case of Laborers' Trust Fund v.
17 Maui Prince Hotel Corp., 81 Haw. 487 (1996).  There the trust
18 fund brought an action to foreclose its mechanic's and
19 materialman's liens on properties to collect judgment against

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 1 their subcontractors for delinquent payments under the federal
 2 Employee Retirement Income Security Act (ERISA).  The trial court
 3 dismissed the case on ERISA preemption grounds, but the Hawaii
 4 Supreme Court reversed, holding that the lien law was not
 5 preempted by ERISA and the use of the lien to assist with the
 6 collection process was consistent with the intent of ERISA to
 7 promote prompt payments of employee benefit contributions.
 8      However, the legislature does not believe that this result
 9 comports with the intent of either the lien law or of ERISA.  The
10 legislature notes that Hawaii is one of only two states that does
11 not take the position that ERISA preempts the use of the
12 mechanic's lien law in this situation.  The mechanic's lien law
13 should be reserved for its original intended purpose and not used
14 to hold improvements hostage for non-payment of pension funds.
15 This is too far a stretch for the law.  The legislature finds
16 that ERISA provides sufficient guarantees to ensure payment of
17 employee benefits.
18      The purpose of this Act is to exclude the application of
19 mechanic's and materialman's liens for non-payment of union trust
20 funds.
21      SECTION 2.  Section 507-49, Hawaii Revised Statutes, is
22 amended to read as follows:

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 1      "507-49  Exceptions.(a)  Anything contained in this part
 2 to the contrary notwithstanding, in connection with any repairs
 3 or improvements made or performed on property which before the
 4 repairs or improvements was used primarily for dwelling purposes,
 5 no lien shall exist either for the furnishing of materials to a
 6 general contractor as defined in this chapter or his
 7 subcontractor either of whom was required to be licensed but was
 8 not licensed pursuant to chapter 444 or if unreasonable
 9 advancement of credit was given by the furnisher of materials to
10 the general contractor or subcontractor whether such person is
11 licensed, unlicensed or exempted under chapter 444. 
12      The issue of reasonable advancement of credit shall be
13 decided by the circuit judge at the return day hearing provided
14 for in section 507-43(c); provided that if a party affected by
15 the lien does not appear at the return day hearing, [he] that
16 party may raise the issue of unreasonable advancement of credit
17 at any time prior to the entry of a final or interlocutory decree
18 of foreclosure in the proceeding brought to enforce the lien
19 under section 507-47.  For the purposes of this section, if the
20 furnisher of materials has secured a credit application form from
21 the general contractor or the subcontractor to whom the materials
22 were furnished or has reasonably inquired into the credit status

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 1 of the general contractor or subcontractor, the advancement of
 2 credit by the furnisher of materials shall be prima facie
 3 reasonable. 
 4      The credit application referred to [herein] in this
 5 subsection shall be current and shall include at least the
 6 following information: 
 7      A.  For all persons: 
 8           1.   Name 
 9           2.   Address 
10           3.   Type of business (Example - plumbing
11                subcontractor) 
12           4.   Date business started 
13           5.   Contractor's license number 
14           6.   Bonding companies generally used 
15           7.   Banks used 
16           8.   List of current creditors 
17           9.   Balance sheet 
18          10.   Total of all outstanding construction contracts
19                $..... 
20          11.   Incompleted portion of all contracts $..... 
21      B.  In addition, for corporate accounts: 
22           1.   Names of officers 

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 1           2.   Authorized capital 
 2           3.   Paid in capital 
 3      C.  In addition, for noncorporate accounts: 
 4           1.   Names of partners, co-venturers, etc. 
 5      (b)  Anything contained in this chapter to the contrary
 6 notwithstanding, no general contractor as defined in this chapter
 7 or [his] the general contractor's subcontractor or the
 8 subcontractor's subcontractor who is required to be licensed
 9 pursuant to chapter 444, shall have lien rights unless [such]
10 that contractor was licensed pursuant to chapter 444 when the
11 improvements to the real property were made or performed, and no
12 subcontractor or subcontractor's subcontractor so licensed shall
13 have lien rights if his work was subcontracted to him by a
14 general contractor as defined in this chapter or his
15 subcontractor who was required to be licensed but was not
16 licensed pursuant to chapter 444.
17      (c)  Anything contained in this chapter to the contrary
18 notwithstanding, no lien shall exist for a union trust fund for
19 collection of unpaid union trust fund contributions."
20      SECTION 3.  Statutory material to be repealed is bracketed.
21 New statutory material is underscored.

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 1      SECTION 4.  This Act shall take effect upon its approval.
 3                           INTRODUCED BY:  _______________________