High Court Bars the Use of Liens by Trust Funds

The Supreme Court dealt a setback to California’s 440,000 construction workers Tuesday, letting stand a ruling that forbids their pension and benefit funds from using traditional mechanics’ liens to recover delinquent contributions from contractors.

Lawyers representing the trust funds, which provide retirement and health benefits for construction laborers, said that “millions, perhaps billions of dollars” in contributions could be threatened by the court actions.

Ironically, the legal decisions are based on the 1974 federal law intended to protect the pensions and fringe benefits of American workers.

In June, the state Supreme Court ruled that this federal law preempts a 1965 California law that gave construction workers and their pension trust funds the right to put a lien on buildings and property.

Since small construction contractors move often and have few tangible assets, state lawmakers had decided that liens provided the most effective way to make sure that the funds are paid by contractors. The money is usually paid into trust funds, which are set up to collect and administer medical, vacation and retirement benefits for laborers who work for different employers.

But in its 5-2 decision, the state Supreme Court ruled that the federal law preempts all related state laws, including those designed to protect the pension funds.

In an appeal to the U.S. Supreme Court, lawyers for the Carpenters Trust Fund of Southern California said this conclusion is “simply incomprehensible” because it strips construction workers of the means to protect their pension and benefit funds. This contradicts the purpose of the federal law, even if it is in line with its literal language, they said. Their appeal was joined by trust funds that represent sheet metal workers, iron workers, laborers and other construction employees.

But without comment Tuesday, the justices denied the appeal in the case (Carpenters Southern California Administrative Corp. vs. El Capitan Development Co., 91-480).

“This makes the (state) statute a dead letter,” said Los Angeles lawyer Robert W. Gilbert, who filed a brief on behalf of the Sheet Metal Workers Trust Fund of Southern California, Arizona and Nevada. “It does not mean the funds won’t get paid but it will make it much more difficult to collect the money in some situations.”

The trust funds can bring lawsuits against contractors who fail to make proper contributions. But suits can be both costly and ineffective if the contractor has moved and left behind no assets.

“Some of these are fly-by-night operations. Once they are gone, you can’t find them,” said Julius Reich, a Los Angeles lawyer who filed a brief on behalf of the Laborers Trust Fund.