In my last blog, I discussed how to establish and “perfect” a security interest related to an aircraft parts sale. I refer to such agreements as liens-by-agreement because they are typically founded upon a security agreement that establishes the rights and responsibilities associated with the secured transaction.
In today’s blog post, we will discuss how to establish a “lien-by-law.” Many states have laws that permit someone who adds value to an aircraft to assert a lien against that aircraft.
The name of these liens varies by state. In some states, the appropriate law might be called an artisan’s lien. It can also be called a mechanic’s lien but be careful of laws with this name because the term “mechanic’s lien” can also refer to a type of construction lien that does not apply to aircraft parts.
The scope of these liens can also vary. Some of the laws are limited to cases where labor is performed on the aircraft (e.g. repair station work), while others include provision of materials. Some of the materials-based lien laws could permit a distributor to establish a lien on an aircraft where a part was sold with the specific intent of it being installed on an an identified aircraft (depending on the state, you may need the signature of the owner/operator on a document in order to assert the lien). For example, Missouri law permits someone who furnishes materials for an aircraft to obtain a lien on the aircraft if he obtains:
- a memorandum describing the material furnished, or to be furnished; that is,
- signed by the owner, authorized agent of the owner, or person in lawful possession of the aircraft (such as the operator)
Such liens can be asserted over an aircraft, or they can be asserted over an aircraft part or assembly if that is what is being worked-on.
Possessory Liens
Some states have laws that allow someone who provides goods or services to retain a possessory lien in the aircraft. This means that the lien exists as long as the provider retains possession of the aircraft. California is one jurisdiction that has a possessory lien law. Typically, where there is a pure possessory lien law, the lien holder may lose the lien upon relinquishing possession of the aircraft. Such possessory lien laws are usually coupled with the right to retain the aircraft subject to the lien (to clarify that retaining possession is permitted). They may also provide a specific protocol for using the aircraft to enforce the lien (California lets the lien holder sell the aircraft after the debt becomes delinquent by ten days).
Filing Liens
Some states have lien laws that are not possessory. Typically, if the lien law is not possessory (doesn’t require the service provider to retain the aircraft) then the law will require notice as a means of perfecting the lien. Remember that the purpose of perfection is typically to establish constructive notice, which provides you with a priority relative to later-filed liens. “Notice” means that the lien-statement must be filed with a state agency, and/or the FAA. Which one do you have to file with? That depends on the requirements of state law!
As an example, let’s take a quick look at the current Florida aircraft lien law:
329.51 Liens for labor, services, fuel, or material expended upon aircraft; notice.—Any lien claimed on an aircraft under s. 329.41 [fuel] or s. 713.58 [labor/services] is enforceable when the lienor records a verified lien notice with the clerk of the circuit court in the county where the aircraft was located at the time the labor, services, fuel, or material was last furnished. The lienor is not required to possess the aircraft to perfect such lien. The lienor must record such lien notice within 90 days after the time the labor, services, fuel, or material was last furnished. The notice must state the name of the lienor; the name of the owner; a description of the aircraft upon which the lienor has expended labor, services, fuel, or material; the amount for which the lien is claimed; and the date the expenditure was completed. This section does not affect the priority of competing interests in any aircraft or the lienor’s obligation to record the lien under s. 329.01.
F.S. 329.51 (2022).
This clause explains that the enforceability of the lien is tied to filing a notice “with the clerk of the circuit court.” A separate statute (F.S. 329.01) also requires fling with the FAA in order to extend validity to third parties (perfection of the lien, as we discussed in the last blog post). Courts can read enforceability as being something different from perfection, which suggests that you need to file your lien notice with both the FAA and the circuit court clerk in order to fully secure your rights.
Note that Florida also makes it illegal in some cases to remove the aircraft from the service provider before the payment is tendered (if the removal is performed “with intent to defraud,” which includes situations like paying with a check and the ordering a stop-payment on the check), unless the service provider provides written consent for that removal.
Hybrid Lien Laws
Some states require the repair station to retain possession and also to file a financing statement. Some permit both options. For example, the Missouri law that was mentioned above permits assertion of a possessory lien, but it also allows the person furnishing the labor or material on the aircraft to retain the lien without possession by filing a statement in the office of the county recorder of the county where the owner of the aircraft or part or equipment resides (if this is not known then an alternative filing location would be where the recorder where the labor or material was furnished).
Conclusion
State lien laws vary widely, so it is important to identify the correct state laws that apply. Note that some states might have more than one law that applies (they may provide you with options). Look for both aviation-specific laws and also more general laws that permit providers across many industries to assert liens. It is important to identify all of your options so you can determine which option best-suits your needs.
It is equally important to identify how to perfect the lien, because perfection provides (constructive) notice that your lien has priority over other liens that are later-filed. Is possession sufficient? Do you need to file somewhere? Do you need to file with both the state and the federal government? The answers to these questions can be complex, and it may be worthwhile to employ an aviation attorney to help build an effective system for protecting your commercial rights.