Land & Renewables Connection

In November 2022, the United States District Court for the Western District of Pennsylvania rendered its Opinion in Anderson Excavating, LLC v. Weiss World, L.P., 638 F. Supp. 3d 525 (W.D.Pa. 2022) wherein the District Court concluded that an unpaid contractor could not impose a mechanics’ lien claim on a surface owner’s interest when the unpaid debt was related to work the contractor performed for a subsurface property owner. On December 8, 2023, the United States Court of Appeals for the Third Circuit affirmed that decision and the lower court’s dismissal of the lawsuit. Anderson Excavating, LLC v. Weiss World, L.P., No. 22-3278 (3d. Cir. Dec. 8, 2023). The Anderson Excavating case highlights interesting issues associated with the interplay between surface ownership, subsurface ownership and the Pennsylvania Mechanics’ Lien Law (“Lien Law”).

The Lien Law is a powerful, statutorily created tool that provides an additional option to those in the construction industry seeking payment for unpaid work. Under the Lien Law, general contractors, subcontractors, and in some situations, design professionals, can file a mechanics’ lien against real property (and even leasehold interests) for unpaid work if they provided goods and services in the erection, construction, alteration, or repair of an improvement to real property in a private construction project in Pennsylvania. This option is not available for other types of service providers.

Consider a business owner who hires a company to provide information technology services, and then does not pay for those services. The information technology vendor can file a breach of contract claim against the owner to seek payment for its services. That is the extent of the information technology vendor’s recourse against the business owner.

Now consider a real property owner who contracts with a general contractor to perform certain improvements to the real property. The contractor does not pay for those improvements. Like the information technology vendor, the general contractor can bring a breach of contract claim against the owner to seek repayment for its work. But, if the contractor provided improvements to the land that fall within the scope of the Lien Law, the contractor can attempt to secure repayment by filing a mechanics’ lien claim against the owner’s real property. 

Going one step further, our contractor who was hired to perform improvements to the real property hires a subcontractor to perform a certain scope of that work, like electrical work. The general contractor does not pay the subcontractor. The subcontractor does not have to rely on a breach of contract claim against the contractor to get paid. Under the Lien Law, that subcontractor may have a mechanics’ lien claim against the owner’s real property, even though the subcontractor has no contract with the owner. The Lien Law can be a powerful tool to secure repayment for certain types of work performed to improve real property.

A mechanics’ lien will be given the priority in the order it is filed. In other words, if you are the first to file a mechanics’ lien, you will be given the first lien on the real property. However, there are exceptions to this general rule. For example, county real estate tax liens will have priority over the mechanics’ lien, as well as construction loans, and purchase money mortgages. Once a mechanics’ lien is filed, and then perfected (served on the property owner), it may relate back to the commencement of the new construction, or the date materials were furnished, or possibly the date of its filing. This determination can be reached by reviewing certain factors relevant to the construction project. It is important to know though that timing is critical in the filing of a mechanics’ lien, and in some cases, a condition precedent exists prior to being eligible to file a mechanics’ lien. In addition, if a respondent challenges the viability of a mechanics’ lien claim, the courts generally strictly construe the Lien Law.   

This backdrop of the Lien Law sets the scene for the Anderson Excavating case and explains the motivations behind the lawsuit. Anderson Excavating arose out of an unpaid contract for labor, services and materials involving an approximately 100 acre property in Greene County, Pennsylvania (the “Subject Property”). The relevant history goes back a century, to 1911, when the Subject Property’s coal rights were severed from the surface rights. In Pennsylvania, the subsurface minerals, oil and gas can be separated from the surface and owned by separate individuals. See, Hetrick v. Apollo Gas Co., 608 A.2d 1074, 1077 (Pa. Super. Ct. 1992). The Subject Property’s surface eventually came to be owned by Weiss World, L.P. (“Weiss World”), with the Subject Property’s coal becoming owned by Monongalia County Coal Company (“Monongalia Coal”).

In 2015, Monongalia Coal hired Anderson Excavating to provide “labor, equipment, and/or materials to provide surface work to assist [in] mine management.” Anderson Excavating, 638 F. Supp. 3d at 528. This involved earthwork and excavation on the surface of the Subject Property. Two years later, Weiss World, the surface owner, entered into an easement agreement with Monongalia Coal, the coal owner, that allowed the coal owner to access 2.7 acres of the surface of the Subject Property for a storage area and sediment pond. A dispute arose regarding access and a court enjoined Weiss World from opposing the construction of a new access road for Monongalia Coal to access its surface infrastructure on the Subject Property.

In 2019, Anderson Excavating finished the work under its contract with Monongalia Coal and was owed approximately $392,000. Unfortunately for Anderson Excavating, Monongalia Coal filed for bankruptcy—which meant it was not going to able, or even forced by a court, to pay Anderson Excavating for the work that it performed. The nearly $392,000 was basically uncollectible from Monongalia Coal. So, Anderson Excavating needed another path, another party, to try to hold liable for payment for the work that Anderson Excavating completed. 

To try to get paid for its work, Anderson Excavating filed suit against Weiss World. In its lawsuit, Anderson Excavating attempted to enforce a mechanics’ lien claim against Weiss World’s interest in the surface of the Subject Property by claiming that Anderson Excavating was a subcontractor to Weiss World under a section of the Lien Law, 49 P.S. § 1201(5). Evaluating the dispute, the District Court stated that it “. . . presents a novel issue of Pennsylvania law: whether an unpaid contractor can impose a mechanics’ lien on a surface owner’s property interest when the unpaid contractor’s outstanding debt stems from a contract with, and work performed for, the owner of a subsurface property interest.” Anderson Excavating, 638 F. Supp. 3d at 528. Weiss World moved to dismiss the lawsuit because Anderson allegedly failed to state a viable claim against Weiss World. Id. at 530. Anderson Excavating opposed dismissal, raising several arguments.

Anderson Excavating first contended that the court could not consider the 1911 deed that severed the Subject Property’s surface from the oil and gas, the deed vesting Weiss World with ownership of the surface, the easement agreement between Weiss World and Monongalia Coal or the court injunction that prevented Weiss World from preventing the construction of a new access road. The District Court quickly rejected these objections on procedural grounds.

Anderson Excavating’s second and third arguments related to intricacies of the Lien Law. The District Court summarized these issues by stating:

The critical questions posed by this case are: (1) whether Weiss World’s surface rights are the ‘property’ subject to the lien when the contract between Anderson and [Monongalia Coal] related only to [Monongalia Coal’s] subsurface rights; and (2) whether Anderson effectuated an improvement to the Subject Property as a contractor or subcontractor of Weiss World.

Anderson Excavating, 638 F. Supp. 3d at 532. The Lien Law contains specific definitions regarding the relationships, nature of work, and property interests that may authorize a mechanics’ lien claim. The District Court observed that “[t]here is no question that Anderson [Excavating] may only impose the subject mechanics’ lien if authorized by these terms.” Id.

The District Court first evaluated whether Anderson Excavating’s work on the surface of the Subject Property for the subsurface coal owner entitled Anderson Excavating to assert a mechanics’ lien claim against the surface owner's property interest. The District Court noted that surface interests in a property can be severed from subsurface interests in the same tract of land and observed that “‘. . . an express grant of all the minerals and mining rights in a tract of land is by natural implication the grant also of the right to open and work the mine, and to occupy for those purposes as much of the surface as may be reasonably necessary.’” Anderson Excavating, 638 F. Supp. 3d at 533 (quoting Baker v. Pittsburg, C. & W. R. Co., 68 A. 1014, 1015 (Pa. 1908)). The subsurface owner’s right to use the surface of the land is generally known as the “Accommodation Doctrine”, because “the right to use as much of the surface as necessary for mining operations, however, must be ‘exercised with due regard to the owner of the surface, and its exercise will be restrained within proper limits by a court of equity, if this becomes necessary.’” Anderson Excavating, 638 F. Supp. 3d at 533 (quoting Oberly v. H.C. Frick Coke Co., 104 A.864 (Pa. 1918); Chartiers Block Coal Co. v. Mellon, 25 A. 597 (Pa. 1893)). 

Anderson Excavating’s improvements to the land were conducted on the surface of the Subject Property and to the surface of the Subject Property. But, that work was performed at the direction and for the benefit of Monongalia Coal, which did not own the surface of the Subject Property. This was a dispositive fact in the District Court’s analysis.

The District Court reasoned that the Lien Law could not be read to allow the imposition of a mechanics’ lien claim by Anderson Excavating against the surface owner of the Subject Property because Monongalia Coal did not own any of the surface rights. The District Court reflected that:

It is a fundamental legal principle that nemo dat quod non habet - nobody can give what he does not have. [Monongalia Coal] would not be permitted to convey any interest or title in the surface to Anderson [Excavating] in connection with its improvement because [Monongalia Coal] has no such interest (beyond its limited right of access). Likewise, Weiss World could convey no interest in the subsurface estate, because only [Monongalia Coal] holds those rights. It is axiomatic that, just as nobody can give what he does not have, nobody can take from another what that person does not possess. Where the surface estate and the subsurface estate have been severed, a contractor or subcontractor retained by the subsurface estate owner may only lien that owner’s interest. It cannot lien the separate property of the surface estate owner.

Anderson Excavating, 638 F. Supp. 3d at 534. In other words, Monongalia Coal did not own the surface, so Anderson Excavating could not pursue a mechanics’ lien against the interest of the surface owner - Weiss World.

With that issue resolved, the District Court turned to Anderson Excavating’s final claim - that its case should go forward because it was actually a subcontractor under the Lien Law. The District Court rejected this contention as well. There was no contract for improvements between Monongalia Coal and Weiss World, so Anderson Excavating could not claim to be a subcontractor under a contract related to Weiss World’s interests. Anderson Excavating, 638 F. Supp. 3d at 535. To attempt to get around this detail, Anderson Excavating tried to latch onto the easement agreement between Weiss World and Monongalia Coal. 

Anderson Excavating reasoned that “. . . because it was hired by [Monongalia Coal] to perform and did perform some improvements on the Subject Property, it did so on the land governed by the 2017 Easement, thus making it a subcontractor to Weiss World.” Anderson Excavating, 638 F. Supp. 3d at 535. The District Court remarked that “[t]his is a stretch the Court cannot accept.” The District Court continued that “[t]he Easement between the parties - entered after protracted and adversarial litigation - only formalized and circumscribed [Monongalia Coal] right of access. It does not, in any sense, make Anderson [Excavating] a subcontractor of [Monongalia County Coal Company]. Id. As a result, the District Court dismissed the case.

On appeal, the United States Court of Appeals for the Third Circuit affirmed the District Court’s conclusions and its dismissal of the case. In a non-precedential decision, the Third Circuit principally focused on the easement between Weiss World and Monongalia Coal’s and whether it formed some type of contract with Weiss World. The Third Circuit concluded that Anderson Excavating’s improvements on the surface were for the benefit of Monongalia Coal, not for the benefit of Weiss World and that Weiss World did not seek or intend to use the improvements. Anderson Excavating v. Weiss World, No. 22-3278 at *3. The Third Circuit concluded that “[a]s a result, Anderson Excavating cannot show that the limited 2017 easement between Monongalia and Weiss world was a contract for the ‘improvements’ that Weiss World vehemently opposed and never benefited from.” Id.

As the District Court observed, the Anderson Excavating case presented novel questions about the interplay between the Lien Law and its relationship to work performed for the owner of a particular estate in land. Because it is a creature of statute and is a powerful tool to secure repayment of unpaid sums for certain types of work, strict compliance with the Lien Law is demanded by courts. As Anderson Excavating suggests, the boundaries of the respective rights of surface and subsurface owners are unsettled under Pennsylvania law. As oil, gas and mineral extraction continue and the subsurface may increasingly be used for injection and disposal of wastes, questions about whether certain improvements to the land are subject to the Lien Law will likely grow.

If you have an issue that may involve the Lien Law, surface rights or subsurface rights, contact Brendan A. O’Donnell at 412-288-2226 or Matthew J. Lautman at (412) 288-5017.