Indiana’s Expansion of Mechanic’s Lien Actions
By Chase Howard, David Shelton, and Joseph Rhetts
Indiana’s Expansion of Mechanic’s Lien Actions Under Service Steel Warehouse Co. v. United States Steel Corp.
I. What is a Mechanic’s Lien?
Codified under Indiana Code § 32-28-3-1 et seq., a mechanic’s lien is a valuable tool to help ensure that contractors, subcontractors, and laborers will receive compensation for work involving the erection, alteration, repair, or removal of buildings or structures. Mechanic’s liens are intended to protect the payment rights of those providing labor and materials to a project while preventing the project owner from enjoying the fruits of such labor and materials without paying for them. Mechanic’s liens are generally available to parties who either perform labor or furnish materials for a construction project, both residential and commercial. Under Indiana’s mechanic’s lien laws, these parties are given the power to assert a lien against real property and improvements for an amount up to the value of any such unpaid labor performed or materials furnished. Beyond the extent of the value of labor or materials, successful plaintiffs may also be entitled to the recovery of attorney’s fees.
II. Who May Assert and File a Mechanic’s Lien?
While a mechanic’s lien may seem simple at a quick glance, it is important to identify who actually has the ability to assert a mechanic’s lien as well as understand and adhere to the statutory time periods and other requirements that must be satisfied to obtain a valid and enforceable mechanic’s lien. A common example involves a subcontractor, such as a steel company, which is left unpaid after performing work to improve real property and/or improvements on a specific project. In this example, the steel company has the ability to assert a mechanic’s lien against the property upon which the project is located, and, if still unpaid, may seek foreclosure of the owner’s real property to obtain payment. Another example involves a material supplier rather than a subcontractor, which supplies steel to a subcontractor, who in turn performs work on a specific project. In this example, if the subcontractor fails to pay the steel supplier, the steel supplier may assert a mechanic’s lien against the property upon which the project is located.
However, what if the steel supplier provides steel to another supplier that in turn supplies a subcontractor who performs work on the project site, but is ultimately not paid by its customer? Can the steel supplier seek a mechanic’s lien against the project which received the benefit of the materials provided by the steel supplier? The Indiana Supreme Court in Service Steel Warehouse Co., L.P. v. United States Steel Corp., 182 N.E.3d 840 (Ind. 2022), provided clarity on this issue, answering this question in the affirmative.
III. The Expansion of Mechanic’s Lien Actions by the Indiana Supreme Court
In Service Steel, the Indiana Supreme Court held that a material supplier may assert a mechanic’s lien regardless of whether a recipient of the materials performs work on-site. In this case, United States Steel Corporation (“U.S. Steel”), the owner, contracted with Carbonyx, Inc., the general contractor, to design and build two facilities in Gary, Indiana. Carbonyx, as general contractor, contracted with Troll Supply to fabricate steel for the project. Troll Supply contracted with Service Steel Warehouse Company (“Service Steel”) for the supply of steel. After acquiring the steel from Service Steel, Troll Supply fabricated the steel at a location away from the project site and performed no work at the project site. However, the fabricated steel was ultimately incorporated into the project. This dispute arose from Troll Supply’s failure to pay Service Steel, which led to Service Steel’s assertion of a mechanic’s lien against the project site and subsequent foreclosure action against U.S. Steel.
U.S. Steel’s argument relied on the history of mechanic’s liens in Indiana as they relate to material suppliers. Indiana courts have previously held that mechanic’s liens are only available for suppliers who furnish materials to someone who performed work on the project site, such as a contractor or subcontractor, and are not available for supplier-to-supplier relationships. U.S. Steel argued that because Troll Supply did not perform any work on the project site, Troll Supply was not a subcontractor but, instead, was a material supplier. Thus, Service Steel, also a material supplier, could not assert a mechanic’s lien on the project site, as mechanic’s liens are not available for supplier-to-supplier relationships. The Indiana Supreme Court disagreed, correcting course on the wrong path that lower courts followed on this issue and ultimately allowing Service Steel to assert its mechanic’s lien rights.
The Court reasoned that the status of the recipient does not determine a material supplier’s ability to assert a mechanic’s lien—material suppliers are not required to furnish materials to someone who performs work on-site. Instead, mechanic’s lien rights should be broadly available to suppliers, regardless of whether they furnish materials to a contractor, subcontractor, or another supplier. As long as the material supplier furnishes the materials for the particular project upon which it bases its lien, the supplier may assert a mechanic’s lien, regardless of the recipient.
The Court’s holding in Service Steel provides greater protections to parties who have a role, large or small, in a construction project. While previously limited to only material suppliers, subcontractors, or contractors who had a connection to work performed on-site, mechanic’s lien rights now may extend to material suppliers who provide materials to other material suppliers.
Chase Howard is a 2023 graduate of the IU Robert H. McKinney School of Law and will join the firm this summer as an Associate Attorney in our Fishers office.
David Shelton is a Partner at DeFur Voran who focuses his practice on general business and corporate law, credit and real estate transactions, land use, and zoning.
Joe Rhetts is an Associate Attorney with a practice concentrated in business, government, real estate, land use and zoning, property taxes, and economic development and redevelopment.
Disclaimer: the contents of this article should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult with counsel concerning your situation and specific legal questions you may have.