litigating aviation mechanics’ - sgr la · question: whether an aircraft mechanic, with...

Litigating Aviation Mechanics’ Liens in Georgia

Thomas J. Stalzer, Partner

Smith, Gambrell & Russell, LLP

April 2012

Introduction

Georgia amended its mechanics’ lien laws relating

to aircraft and aircraft engines, effective July 1,

2010.

Exhibits

Statute

Prior §44-14-363 Prior §44-14-518 §11-9-333 §44-14-320 Amended §44-14-518 §44-14-550 Marked §363 and §518 49 USC §44107(a) and §44108(a)

Exhibit

1 2 3 4 5 6 7 8

Who needs to be aware of M’s/L Laws?

The list of persons is rather long:

It includes the Mechanics and their Customers of course.

But it also includes persons having an interest in the Aircraft that is in the shop for repair or other work. This group includes:

Banks and Financial Institutions (that have a S/I in the AC)

Leasing Companies (that have title to the AC)

Subsequent Purchasers of the Aircraft that want to take “free & clear”

of prior mechanic’s liens, and

AC Title Insurance Companies that will issue title policies on the AC.

Lastly, lawyers for all of the above need to be aware of these laws, b/c – in GA and elsewhere – the rules relating to these liens are becoming more detailed and complex.

Three Step Legal Approach

Start with State Law

• Determine if you have a Lienable Debt and if there

has been compliance with the state statute

The look at Federal Law

• To see if any FAA filing is required (and, if so, file)

Then Return to State Law

• To determine the priority of the Mechanic’s Lien

Priority is determined at the state level

§44-14-363 Effective Prior to July 2010

Originally enacted in 1873 and amended over the years (Ex. 1).

Statute applied to:

Work done and materials furnished in manufacturing or repairing of personal property, including aircraft; and

Storage of personal property

No Limits on lien amount; except that the maximum storage

charge cannot exceed $1.00 per day, after 30 days of storage,

and only if the asset value is less than $200.

Prior §44-14-363 (cont’d)

Assertion of the Lien

• Retain possession; or

• Surrender possession and file a “claim of lien”:

• Timing. General rule is 90 days after “work is done”;

Exception – 180 days for aircraft.

• Place. Clerk of Superior Court “where the

owner resides”

• Compliance Issue. Where do you file the lien when the debtor is not a GA resident?


Priority Rules Mechanic’s liens are superior to all liens other than:

• Liens for taxes;

• Liens of which mechanic had “actual notice” before

“the work or material [was] furnished”; and

• UCC security interests in farm machinery and

equipment (§11-9-310(2) now §11-9-333(b))

§44-14-518 Effective Prior to July 2010

Background Enacted in 1994…fairly recent statute

Actually, a SC statute, that GA copies, almost verbatim

Applies only to Aircraft Just one paragraph in length (Ex. 2)

Coverage This statute applies to any person engaged in:

• “servicing or furnishing supplies or accessories for aircraft”, including fuel.

Statute also applies to persons who provide contracts of indemnity (that is, insurance policies) for aircraft (AC insurance policies)

Lien Amount Limited to the reasonable charges for the services, items or earned premiums


Lien Arises Automatically

• Lien attaches to the aircraft automatically but “dissolves” unless a “statement” of

the charges due is filed per the statute;

Statement

• Notarized, and contain (i) an accounting of the amount due; (ii) customer’s name; (iii) owner’s name (if known), and (iv) a description of the aircraft;

• Must be filed within 90 days after services or supplies are furnished; and

• With Clerk of Superior Court of the county where the aircraft was located when the services or supplies were furnished.


Priority rules

• None set out in the statute.

RockBridge Commercial Bank v. Gulfstream Aerospace,

Superior Court, Chatham County, CV09-2369

Fall 2009

Aircraft – G-III / FMV $2 million +/-

Bank Debt – Approx. $6 million

Gulfstream bill – Approx. $250,000

Lien priority contest between mechanic’s lien and a

pre-existing UCC security interest

Rockbridge v. Gulfstream (cont’d)

Bank’s Priority Argument

• §11-9-333(a) (Ex. 3). Perfected security interest has priority over all liens, claims and rights set out in §44-14-320.

• §14-44-320 (Ex. 4) includes “liens in favor of mechanics on real and personal property.”

Therefore, UCC trumps §363 mechanic’s lien.

Appellate court support for this position (“later in time” rule).

UCC also trumps §518, for the same reason (a “servicer” is equivalent to a “mechanic”), and §518 does not grant any lien priority rights in favor of the service provider.

Rockbridge v. Gulfstream (cont’d)

Gulfstream’s Priority Argument focused on §518 (not §363)

• Gulfstream was a “servicer” under §518.

• Key: When GA adopted §518 in 1994, it did not add §518 to the list of liens trumped by the UCC (§44-14-320).

• Therefore, evidence of legislative intent that §518 trumps UCC.

• Rockbridge case settled, but same argument by Delta in Delta Air Lines, Inc., v. PNC Equip. Finance, Superior Court, Clayton County, CV-02522-9. In 2011, court agreed with Delta’s position that its §518 mechanic’s lien primes a pre-existing security interest.

Amended §44-14-518 (Ex. 5) Effective July 2010

Section 518, as amended, is now the only mechanic’s lien statute that relates to aircraft and aircraft engines.

Scope: • Servicing or furnishing supplies or accessories for aircraft

(or “aircraft engines”, which was added)

• Providing contracts of indemnity

Added from §363, persons engaged in

• Repairs (but not “manufacturing”)

• Storage (without any dollar limitations from §363)

Amended §44-14-518

The original Section 518 included a specific list of

supplies and accessories that would give rise to a

lien

That list was modified in the amended Statute:

• They added “parts”…..fine

• But they also deleted “fuel” (while retaining “oils” and

“lubricants”)

Amended §44-14-518 (cont’d)

Perfecting May retain of possession; or

If possession surrendered, mechanic must, within 90 days after repairs “are furnished”:

• deliver “written notice” to certain interested parties (new); and

• depending on the equipment, involved, file the notice with the FAA or under state law, int’l treaty or foreign law (new)

Priority Key Provision. Mechanic’s lien is superior to all other liens except taxes, subject to notice and filing requirements


“Written Notice” and Delivery Requirements

• Notarized, and contain (i) an accounting of the amount due; (ii) customer’s name; (iii) owner’s name, if known, and (iv) a description of the aircraft [not engine?].

• Sent by personal delivery, certified mail or statutory overnight delivery to the persons designated in the Statute:

(1) For U.S. registered AC – to the FAA registered owner and others holding FAA recorded interests in the AC.

(2) For non-U.S. registered aircraft – to the owner at its last known address or, if not known, to the customer.


(3) For Engines - the rules are the same but there are two questions or issues:

First, the ownership of an Engine not “registered” with the FAA, like Aircraft.

Second, there’s a special rule for engines “not subject to recordation by the FAA”…not clear which engines those might be.

Point: Mechanic needs to know who Owns an Engine…current contact information


Filing Requirements

For US registered AC - file the “written notice” with the FAA aircraft registry in OK City, OK

The aircraft registry was established under the Federal Aviation Act of 1958. Under the Act, only certain documents can be filed with the registry.

• With respect to “Aircraft”, you can file “conveyances” (which includes any document that affect title to or an interest in an aircraft); and

• With respect to engines, you can file only leases and security agreements.


Under these rules, the FAA has adopted policies with respect to the filing of Mechanics’ Liens

• With respect to US Aircraft – FAA will accept

mechanics liens filed by mechanics in states that provide for filing of those liens. Currently, 37 states, including GA, provide for filing.

The states not on the list include: AL, CO, DE, HI, MD, MS, MT, NV, NH, NY, PA, VT and WV.


And with respect to Engines – FAA will not accept mechanics liens filed against engines.

Reason: ML is not a “lease” or a voluntary security agreement.

• Stanziale v. Pratt & Whitney (In re Tower Air, Inc.) ,

319 B.R. 88 (Bankr. D. Del. 2004). Court agreed with the FAA’s interpretation of §44107.

• Recent case law has supported the FAA view.


• For engines -- where possession has been surrendered

-- where do you file under Sec. 518 if you cannot file with

the FAA.

File “with the Georgia Superior Court Clerks’ Cooperative Authority

or the appropriate recording authority, established by applicable

state law, international treaty or foreign law, in the manner

prescribed for the filing of such liens for recordation.”

Note: Do not file any documents with the GSCCCA.

• Foreign Registered Aircraft – same rules


Questions / Potential Issues

(1) Is “fuel” covered?

Two possible interpretations

• Deletion is inconsequential since statute still

covers “supplies” and “materials”; or

• Deletion was intentional and a seller no longer has

a mechanic’s lien on the sale of fuel


(2) §518’s Reliance on Possession to Perfect – without an FAA Filing -- is Problematic in Georgia.

Southern Horizons Aviation v. Farmers & Merchants Bank of Lakeland, 231 Ga. App. 55, 497 S.E.2d 637 (Ga. App. 1998)

Issue: Lien priority contest between an aircraft mechanic and a bank

having a subsequent perfected security interest in the aircraft

Mechanic did not record its lien with the FAA, but was perfected under

§ 363 (had possession and initiated foreclose proceedings)

Bank recorded security interest with the FAA, after foreclosure action

started.

Holding: Under federal law (not state law), “[A] mechanic’s lien which has not

been recorded with the FAA is not valid.” Bank prevailed.

Based on Philko Aviation Inc., v. Shacket, 462 U.S. 406 (1983)


Philko Aviation v. Shacket

An owner sold the aircraft to Mr. Shacket, delivered possession and a copy of a bill of sale;

Owner then sold the same aircraft to Philko Aviation, delivering original bill of sale that was recorded with the FAA (but not possession of the aircraft)

Question: Who owns the aircraft?

Held: Philko Aviation, because it was the first to file its interest with the FAA.

Per US Supreme Court, “state laws allowing undocumented or unrecorded transfers of interests in aircraft to affect innocent third parties are preempted by the federal Act.”

Southern Horizons applied Philko even though Southern Horizons did not involve a sale of the aircraft.


Different result from 6th Circuit Court of Appeals:

Triad Int’l Maint. Corp., v. Southern Air Transport, Inc. (In re Southern Air Transport) 511 F.3d 526 (6th Cir. 2007).

Question: Whether an aircraft mechanic, with possession, is required to record its mechanic’s lien with the FAA in order to preserve its priority under NC mechanic’s lien statute?

Held: No, distinguishing Philko on the basis that Philko involved a sale (transfer) of an aircraft and not a mechanic’s lien…two different transactions.

Southern Horizons may be open to challenge by GA mechanics.


(3) §518’s Potential “Gap” between Surrender and Filing is

Problematic.

Commercial Jet, Inc., v. U.S. Bank, N.A., 45 So.3d 887

(Fla. App. 2010)

FL statute similar to GA, allowing a mechanic, who

surrenders possession, to file its lien within 90 days after

completion of the work

Held: Once aircraft surrendered, lien is lost and is not

reactivated by the subsequent filing.

Mechanics’ Liens – Other Issues

Owner Consent (lease situation):

Not explicit requirement in the statute, but early cases under §363 held that an owner’s interest in personal property could not be affected without its consent (either express or implied). Dixon v. GMAC, 105 Ga. App. 413 (1962).

Case law still may apply to §518 (mechanic’s lien is superior to “to all liens”; silent on owner’s interest).

Prospective Lien Waiver by Mechanic:

Advance waiver is null and void, per §44-14-366(a) (but statute applies to real property liens)

Mechanics’ Liens – Other Issues (cont’d)

Are logbooks and records a part of the “Aircraft” or

“Engine”?

Is there a legitimate right for mechanic to hold the books

pending payment?

Not addressed in the statutes or cases.

Are Statutory Lien Rights Assignable?

Question arises in a lease context where lessor fails

or refuses to pay its share of the maintenance costs,

and lessee agrees to pay the lessor’s share to

obtain possession of the aircraft.

Not addressed in the statutes or cases.

Potential Consequences of Bad Faith Liens Filings with FAA and IR

Seen a rash of bogus mechanics liens filed with the FAA – 2 categories – by persons not mechanics, or by mechanics for greatly exaggerated amounts.

Some owners have begun to fight back by filing lawsuits. In fact, last year, a lawsuit was filed against an OK City title company that file a M/L against an AC at the request of its client….chilling effect in OK City.

The causes of action typically include:

• Slander of title claim – but real estate concept (OCGA §51-9-11)

• Interference claim – contractual relationships

• Defamation claim

The International Registry

Est. under the Cape Town Convention of 2001

Ratified by United States in March 2006

Requires additional filings to protect owners,

lenders and lessors

For mechanics, no additional filings

Mechanic’s lien priority is not affected by the

Treaty

Foreclosure Proceedings §44-14-550 (Ex. 6)

Mechanic’s Perspective:

• Mechanic’s must file an affidavit of foreclosure in a court of competent jurisdiction (¶2)

• The action must be filed within one-year after assertion of the lien by possession or filing (¶8)

• There is potential liability for damages if mechanic does not act in good faith (¶7)

Foreclosure Proceedings (cont’d)

Owner’s Perspective:

• Right to “force” a foreclosure by contesting in writing

the “validity of the amount claimed to be due” (¶1)

• Mechanic must foreclose with:

10 days, with possession

30 days, if possession surrender

• If not timely filed, lien is forfeited

Foreclosure Proceedings (cont’d)

Owner, Recorded Lienholders & Lessee:

• Right to receive notice of foreclosure (¶3) • Right to request probable cause hearing (¶4)

Right to full hearing (¶5) Owner may obtain possession to time of full hearing by

posting bond (¶5)

• Owner or Lessee may have cause of action against mechanic for loss of use if mechanic has not acted in good faith.

Summary to Protect the Mechanic Under §518

1. Maintain exclusive possession;

2. Don’t surrender equipment until the FAA or other lien filings are in place (to avoid any “gap”);

3. File with the FAA or other appropriate location as soon as payment issue arises;

4. Careful not to overextend credit on fuel sales;

5. Calendar the 90-day period after completion of work (lien filing deadline);

6. Calendar the 1-year period after assertion of the lien (SOL for initiating foreclosure action);

7. Have a legitimate basis for any lien filings;

8. Obtain owner’s consent prior to performance of the work; and

9. Be aware of written challenges to demands for payment.

litigating aviation mechanics’ - sgr la · question: whether an aircraft mechanic, with...

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