Aircraft Management Companies Who Do Not Directly Perform Maintenance or Provide Fuel May Still Be Able To Assert Liens Under Texas Law

A recent decision by the Court of Appeals of Texas, First District in Harris County has upheld an aircraft lien asserted by an aircraft management company under the Texas Property Code even though the manager did not directly perform maintenance on the subject aircraft (the “Aircraft”) or directly provide fuel.

The Facts

In TWC Aviation, Inc. d/b/a Landmark Aircraft Management & Charter SJC v. World Tech Aviation, LLC, the aircraft owner (“World Tech”) entered into two agreements with TWC Aviation (the “Manager”) in connection with World Tech’s aircraft (the “Aircraft”): a charter and lease agreement and an aircraft services agreement.  Both agreements contained choice-of-law provisions stating that the agreements were “negotiated and delivered in the State of Texas” and would “in all respects be governed by, and construed in accordance with, the laws of the State of Texas, including all matters of construction, validity, and performance, without giving effect to its conflict of laws provisions.”

A dispute later arose between Manager and World Tech regarding amounts owed under the agreements, World Tech asserted claims against Manager for breach of contract, conversion, and violation of the fraudulent lien statute, and Manager countersued World Tech for breach of contract and foreclosure of its lien.

The Trial Court Decision

Before trial, World Tech filed a motion for summary judgment arguing that Texas aircraft lien law did not apply to Manager’s asserted lien because (1) no nexus existed between the parties and Texas, (2) Manager was only a management company and it did not actually perform maintenance or provide fuel, and (3) Manager did not file a notarized lien statement as required under Texas Property Code Section 70.301(a).  Manager opposed the motion arguing that the lien was valid or that genuine issues of material fact existed regarding the lien’s validity.

The trial court granted World Tech’s summary judgment motion and declared that Manager did not hold a valid lien on the Aircraft.  After a bench trial, Manager appealed and, with respect to the lien, it argued that the trial court had erred because the evidence established that its lien was valid.

The Appeal Court’s Decision

On appeal, the Court initially observed that Texas Property Code Section 70.301(a) provides that:

A person who stores, fuels, repairs, or performs maintenance work on an aircraft has a lien on the aircraft for:

1. the amount due under a contract for the storage, fuel, repairs, or maintenance work; or

2. if no amount is specified by contract, the reasonable and usual compensation for the storage, fuel, repairs, or maintenance work.

In its analysis regarding World Tech’s argument that no nexus existed with Texas, the Court cited to the parties’ choice of law provision in which they agreed that their relationship would be governed by Texas law and Texas’s public policy favoring freedom of contract in holding that Texas law applied.

Although World Tech relied upon a decision of a federal court in the Eastern District of Virginia, holding that Section 70.301 “applie[d] only with respect to contracts arising under Texas law” and could not “operate to create liens for aircraft fueling and servicing transactions that occur[red] elsewhere,” the Court distinguished that case.  Unlike the parties in the Virginia case, Manager and World Tech executed agreements expressly stating that they would “in all respects be governed by, and construed in accordance with, the laws of the State of Texas, including all matters of construction, validity, and performance.”  Thus, Manager and World Tech agreed that their relationship arose under and would be governed by Texas law.

The Court further rejected World Tech’s argument that Section 70.301 does not apply to a management company that only arranges for those services to be provided because “the statute contains no such limiting language, and we see no reason to insert this additional restriction in the statute, particularly when Texas courts generally give lien statutes a liberal construction.”

This is especially true where Manager not only financed the fuel, repair, and maintenance of the Aircraft, but it also procured and paid for the materials and services needed to keep the Aircraft operational, and it directly provided storage of the Aircraft.

Finally, the Court was not persuaded that the absence of a notarized signature on the lien statement made the lien invalid.  Rather, the Court noted Section 70.303 makes the filing of the lien, and thus its notarization, “discretionary.” It then concluded that “whether Manager correctly filed its lien did not affect whether the lien was valid under Texas Property Code section 70.301(a).”

Although the Court does not say it outright, it appears that the Court is distinguishing between the existence of a lien under the statute versus perfecting of the lien.  Unfortunately, the Court does not provide any further analysis on this issue, so it is unclear whether this distinction is consistent with other case law addressing perfection of an aircraft mechanic’s lien, either through possession or filing of the lien statement with the FAA Registry.

Conclusion

What does this mean for aircraft management companies?  First, keep in mind that this case was decided in the First District, Court of Appeals in Harris county, so it is only precedential authority in that District.  However, it is certainly persuasive authority in other courts in Texas, and perhaps in other jurisdictions applying Texas law in a particular case.

Second, jurisdictional arguments aside, aircraft management companies including Texas as the applicable law in their agreements should be able to assert liens under the Texas Property Code regardless of where the maintenance, fuel, or storage were provided.  Finally, even if they do not directly provide the maintenance, fuel, or storage, the company should be entitled to a lien when they have otherwise financed, procured, or paid for materials and services for an aircraft.