On June 10, 2015, the South Carolina Court of Appeals issued an opinion in C.R. Meyer and Sons Company v. Custom Mechanical CSRA, LLC which provides clarification as to the rights of a laborer on money paid to a contractor when the laborer does not directly work for that contractor.
In that case, a facility owner hired a general contractor to construct a toilet paper-making machine. The general contractor hired a subcontractor to install industrial piping. The subcontractor borrowed money from two lenders to fund its work and obtained laborers through its subsidiary.
The general contractor suspended the subcontractor’s work after a dispute arose. The parties arbitrated the subcontractor’s breach of contract claim and an arbitration panel awarded the subcontractor close to $2 million. The general contractor filed an action against the subcontractor in circuit court challenging the arbitration award. The subcontractor filed a third-party complaint against its creditors, including its lenders and employees.
After the circuit court confirmed the arbitration award, the general contractor and subcontractor reached a settlement. The settlement provided the circuit court would order the general contractor to pay $1.8 million from the arbitration award into the subcontractor’s attorneys’ trust account pending the court’s determination of the creditors’ priorities.
The rights created by S.C. Code Ann. § 29-7-10 were at the center of this appeal. S.C. Code Ann. § 29-7-10 provides (1) “Any contractor . . . shall pay all laborers . . . for their lawful services . . . out of the money received for the erection . . . of buildings upon which such laborers . . . are employed or interested,” and (2) “such laborers . . . shall have a first lien on the money received by such contractor.” § 29-7-10.
On appeal, the Court of Appeals considered whether S.C. Code Ann. § 29-7-10 created a first lien on money paid to a contractor when (1) the laborers claiming the lien did not work for the contractor, but for its subcontractor, and (2) the funds to which the lien would attach were held in escrow by court order instead of paid directly to the contractor.
First, the Court of Appeals held that the specific identify of the employer makes no difference. Specifically, the Court of Appeals found that § 29-7-10 does not require “laborers” to be directly employed by the contractor who receives the money in order for them to be entitled to a first lien. Instead, § 29-7-10 establishes a first lien in favor of “laborers” who worked on “the erection . . . of buildings” regardless of their specific employer.
Second, the Court of Appeals found that the funds in the escrow account were owned by the subcontractor and were held for its benefit—to pay its creditors—upon court order. The fact that the circuit court ordered the funds be placed in the lawyers’ trust account did not change the ownership of those funds. Thus, the lien attached once the subcontractor’s attorneys received the funds on its behalf, and § 29-7-10 gave the lien first priority.
This opinion should provide a laborer some comfort that he or she is going to enjoy the protections of § 29-7-10 no matter who employs him.