An aircraft mechanic’s lien claimant recently lost its lien rights when a bankruptcy court judge enforced a maintenance agreement’s choice of law provision. In In re ATA Airlines, a maintenance provider had entered into an agreement with ATA to perform maintenance services on ATA’s aircraft. A choice of law provision in the agreement required that New York law govern the agreement. Subsequently, the maintenance provider serviced ATA’s aircraft with the majority of the work being performed in Texas. When ATA filed for Chapter 11 bankruptcy protection, the maintenance provider perfected its lien rights pursuant to Texas law. However, the maintenance provider did not have possession of any of ATA’s aircraft when it filed its lien claim. (New York law required possession of the aircraft in order to assert a lien claim where Texas law did not require possession).
The mechanic’s lien claimant then initiated an adversary proceeding to enforce its lien rights. In response, ATA filed a motion for summary judgment arguing that the maintenance provider’s lien was invalid pursuant to New York law, which was required by the agreement’s choice of law provision. The maintenance provider opposed the motion by arguing that its lien was proper under Texas law because the Federal Aviation Act preempted application of the agreement’s choice of law provision. The Judge granted ATA’s motion and dismissed the maintenance provider’s lien claim. The Judge ruled that conflicts of law doctrine required that the choice of law provision be enforced. He also concluded that the Federal Aviation Act did not preempt application of the law dictated by a choice of law provision that was agreed to by the parties.
The moral of the story: If you have a written agreement designating the laws of a state other than the one in which you provide your services, you need to understand that state’s lien laws and comply with those requirements. Ideally, this issue should be addressed when the agreement is negotiated to ensure that you will be protected by the agreed upon law. Alternatively, the agreement could carve out an exception to the choice of law provision that excludes application of that state’s law to the perfection and enforcement of a mechanic’s lien claim.
