November 10, 2011

Illinois Joins the Majority of States in Allowing Unions Recovery Under the State Mechanic Lien Statutes and ERISA

Holland & Knight Alert
James P. Chivilo | Gregory R. Meeder

The Second District Appellate Court in Illinois recently confirmed that union pension funds and unions may proceed with mechanics lien claims in state court even though the pension fund or union may have already filed a claim under the Federal Employee Retirement Income Security Act (ERISA) in federal court. Central Laborers’ Pension Fund v. Nicholas and Associates, Inc. 2011 WL 4035772 (2d Dist., September 2, 2011) recently aligned the state of Illinois with the majority of states which allow union pension funds alternate and convenient theories of recovery under both ERISA and the Illinois’ Mechanic Lien Act 770 ILCS 60/1 et.seq. (the “Act”). Owners now have expanded liability under the Central Laborers’ Pension Fund decision and contractors must realize that they may now have to defend the same claim in two different forums.

Owners and Contractors: Be Aware of Your Subcontractors’ Contribution Requirements

Prior to Central Laborers’ Pension Fund it was generally understood that pension funds and unions could be barred from recovery under the Act after initiating claims under state prevailing wage statutes. See General Laborer’s District Counsel v. James McHugh Construction, 230 Ill.App.3d 939, 596 N.E.2d 19 (1st Dist. 1992). Central Laborers’ Pension Fund illustrates that owners and contractors in Illinois need to be aware of whether or not their subcontractors are making contributions under their collective bargaining agreements. Pension funds and unions now have alternative and redundant avenues of recovery enabling them to directly lien construction projects. Concurrent or simultaneous mechanics liens to collect unpaid contributions with or without an ERISA action pending in federal court will impact a project’s progress, the payment process and the relationship between contractors, subcontractors and their owners.

In Central Laborers’ Pension Fund, two appeals involving two distinct municipal school districts and their construction projects were consolidated. In both projects, the municipal school district had retained the same general contractor, Nicholas Associates Inc. (NAI). Each general contract that NAI had entered into with each respective school district was a distinct contract for a specific project. In both projects, NAI contracted with the same subcontractor, KMC Masonry Inc. (KMC). KMC provided labor and materials for masonry work to both school district projects under different subcontract agreements. As construction proceeded, KMC failed to pay mandatory contributions under the collective bargaining agreement.

ERISA Sometimes Preempts State Mechanics Lien Law

The pension funds first filed a federal lawsuit in the federal court of the Northern District of Illinois, based on ERISA and ultimately secured a default judgment against KMC. After it became apparent that the pension funds were unable to execute on the federal court judgment, they then filed separate public mechanic lien claims against the municipal school districts and NAI pursuant to Section 23(b) under the Act. Shortly thereafter, the state court dismissed the mechanic lien actions and found that the ERISA statute preempted Illinois state mechanics lien law.

The ultimate issue of review for the appellate court was whether or not the Act qualified as an alternative enforcement provision triggering ERISA preemption. The Second District Appellate Court determined that the Act was more comparable to the majority of state mechanic lien statutes and majority view of state law cases across the United States which had determined that ERISA did not preempt state mechanics lien law. Specifically, the court analyzed whether the Act:

  • had general applicability
  • predated ERISA
  • made reference to trust funds or ERISA itself
  • functioned irrespective of ERISA
  • regulated an area of traditional state concern

The Appellate Court concluded that the Act did not fit any of these categories of state law which are related to ERISA for purposes of preemption. Furthermore, the court determined that the Act did not regulate any terms, duties or the administration of the ERISA plans. Ultimately, the appellate court held that the majority view analysis of several cases cited in Forsberg v. Bovis Lend Lease Inc., 2008 UT App. 146, 184 P.3d 610 (Utah App. 2008) (finding against preemption) rather than the minority view of cases cited in International Brotherhood of Electrical Workers, Local Union No. 46 v. Trig Electric Construction Company, 142 Wash.2d 431, 13 P. 3d 622 (Wash. 2000) (finding preemption) fit best with the Act.

Finally, the appellate court discussed the application of General Laborers District Counsel v. James McHugh Construction, 230 Ill.App.3d 939, 596 N.E.2d 19 (1st Dist. 1992). In McHugh, an Illinois appellate court had found that a union pension fund was denied its right to prosecute mechanics lien claims after it had proceeded against the general contractor under the Prevailing Wage Act, 820 ILCS 130/1 et seq. The Second District Appellate Court had held that McHugh predated the line of majority view cases set forth in Forsberg and, therefore, was inapplicable for its analysis in Central Laborers’ Pension Fund.

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