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Mississippi’s ‘Stop Notice’ Statute Declared Unconstitutional


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Fisher

By Chase Fisher

The general problem
The subcontractor in the case contributed materials and labor to the construction of an auto parts manufacturing facility in Mississippi.  At some point during the construction, a billing dispute arose between the general contractor and the subcontractor.  In light of the dispute, the subcontractor gave the owner notice that it was filing a lien for $179,707.40 pursuant to Mississippi’s Stop-Notice statute.  Because of the statute, the owner was then required to deposit all amounts owed to subcontractor, which totaled $260,410.15, in the court’s registry.

The general contractor filed suit to challenge the constitutionality of the statute, alleging it deprived the general contractor of property (the funds owed to it) without due process.  Further, there was no guarantee if, or when, these funds would ever be forwarded to the general contractor in light of the Stop-Notice statute, which the general contractor argued could prevent it from meeting its other business obligations. 

No safeguards
One of the biggest issues the court took with the statute was the complete lack of procedural safeguards that would prevent subcontractors from abusing the Stop-Notice statute’s provisions every time a simple dispute arose.  In particular, the court noted that no bond was required to be posted, no exigent circumstances were required to be proven (e.g., requiring the subcontractor to prove that the funds were in immediate danger of being destroyed or concealed), and no affidavit was even required to set out the facts of the dispute and the reason for stopping payment of the funds.

Instead, the only protection provided by the statute was simply a civil penalty for falsely and knowingly filing a Stop-Notice claim, which is a high standard for general contractors to prove.  Because of the lack of due process protections afforded to general contractors prior to having their property (money) deprived, the court found Mississippi’s Stop-Notice statute unconstitutional.

Takeaway
Mississippi is not the only state with a stop-notice statute.  As such, contractors should be aware that other jurisdictions may follow Mississippi’s lead and shoot down the stop notice remedy.  It is always advisable for multi-state subcontractors to review their legal remedies in each state, as payment disputes often arise.  While state laws typically provide some degree of protection, contracts can often be drafted in a manner to fill in the gaps or increase protection for the parties.


 

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