Indiana Court of Appeals holds that on-site labor is not required for

subcontractor status under Indiana’s mechanic’s lien statute.

 

By Joshua W. Casselman, Partner

 

In Service Steel Warehouse Co., L.P., v. United States Steel Corp., No. 20A-CC-1643 (Ind. Ct. App. May 3, 2021), Rubin & Levin successfully argued that an off-site steel fabricator was a subcontractor, not a material supplier, and thus that a supplier to the fabricator was not barred from asserting a mechanic’s lien against U.S. Steel’s project site.

 

The material supplier sold structural steel to the steel fabricator who performed its labor-intensive work in Texas. Once the fabrication work was complete, the components and structures were delivered to U.S. Steel’s project site in Gary, Indiana. The material supplier was not paid by the fabricator and recorded a mechanic’s lien against U.S. Steel’s project site.

 

U.S. Steel argued the material supplier’s mechanic’s lien was barred by Indiana’s rule that a material supplier to another material supplier is too “remote” to have mechanic’s lien rights. U.S. Steel contended the steel fabricator was a material supplier because it did not perform its fabrication work at the physical location of the project site. The material supplier countered that the steel fabricator was a subcontractor, not a material supplier, because it performed a definite and substantial portion of the physical labor required under the prime contract between U.S. Steel and the general contractor. Thus, the material supplier argued Indiana’s supplier-to-supplier prohibition did not apply.

 

The Court of Appeals agreed with the material supplier and held the steel fabricator was a subcontractor, not a material supplier. It found that on-site labor is not required for subcontractor status under Indiana’s mechanic’s lien statute for several reasons.

 

First, the plain language of Indiana’s mechanic’s lien statute does not include an on-site labor requirement for subcontractor status. Second, the Indiana Supreme Court has interpreted the erection requirement of Indiana’s mechanic’s lien statute to mean “some physical act of labor in connection with the creation of a structure or improvement on land.” Premier Investments v. Suites of America, Inc., 644 N.E.2d 124, 128 (emphasis added). The steel fabricator’s work satisfied this erecting requirement. Third, the Court noted the changing landscape of the construction industry and the growing popularity of off-site construction. It held the remedial purpose of Indiana’s mechanic’s lien statute is better served by focusing on the nature of the work performed, not the location where it is performed.

 

The Court adopted the majority view of courts throughout the country in holding that to qualify as a subcontractor one must perform a definite and substantial portion of the prime contract. Turning to the facts of the case, the Court found the evidence designated by the parties on summary judgment established that the steel fabricator performed a definite and substantial portion of the prime contract between U.S. Steel and its general contractor. Accordingly, the Court concluded the material supplier’s mechanic’s lien was not barred by Indiana’s supplier-to-supplier prohibition and the trial court had erred in entering summary judgment in favor of U.S. Steel on the material supplier’s mechanic’s lien foreclosure claim.