Indiana Court Holds that Second-Tier Materialman May Not Invoke Personal Liability Notice Statute
Indiana Code Section 32-28-3-9, often referred to as the Personal Liability Notice (PLN) Statute, provides a means for subcontractors, equipment lessors, and laborers to assert a claim against a project owner for amounts owed for labor and material on a construction project. Essentially, the PLN Statute provides a means to assert a lien against funds the owner would otherwise pay to a general contractor, as contrasted to asserting a mechanic’s lien claim against real estate. The PNL Statute provides an additional or alternative remedy to the rights available under the Indiana mechanic’s lien statute, Indiana Code Section 32-28-3-1.
In R.T. Moore Co., Inc. v. Slant/Thin Corp., 966 N.E.2d 636 (Ind. Ct. App. 2012), the court was presented with a second-tier material supplier’s assertion of rights under the PLN Statute. As diagramed below, the owner hired a general contractor, which subcontracted mechanical work to R.T. Moore. In turn, R.T. Moore ordered certain equipment from a supplier, which in turn ordered the equipment from Slant/Thin.
Mechanical Subcontractor (R.T. Moore)
Second-Tier Supplier (Slant/Thin)
R.T. Moore paid its supplier, which then paid the funds to a secured lender instead of Slant/Fin and went out of business. Slant/Thin served a personal liability notice on the owner, which held funds owed to project participants to avoid the risk of double payment. R.T. Moore filed a complaint against Slant/Thin, which in part sought a declaratory judgment to the effect that a “material supplier to a material supplier” lacked standing under the PLN Statute. The trial court ruled in favor of Slant/Thin, but the Court of Appeals reversed. The appellate court carefully reviewed the provisions of the PLN Statute and the mechanic’s lien statute to determine the scope of the protected class of parties who may assert statutory rights. Neither Slant/Thin nor the bankrupt supplier performed any labor on the project, so Slant/Thin’s contribution was too remote to permit the assertion of rights under the PLN Statute. This case confirms that second-tier suppliers need to take appropriate steps to protect their right to payment, but cannot rely upon the PLN Statute.