Liens “On The Line”: Enforcing Line Liens on Minnesota Renewable Energy Projects
Category | Briefing Papers
Hugh Brown and Kasia Kokoszka are members of the firm’s Construction Law Department. Hugh can be reached at 612.359.7663 or hbrown@fwhtlaw.com. Kasia can be reached at 612.359.7601 or kkokoszka@fwhtlaw.com.
Mechanics’ liens are critical for securing payment for contractors, subcontractors, and suppliers. However, traditional mechanics liens, which attach to property rights in discrete parcels of land, have significant limitations when it comes to renewable energy projects and the sprawling web of property rights, regulatory approvals, and contract rights they involve. In Minnesota, “powerline” liens, or “line liens” provide contractors working on renewable projects with an additional tool that addresses some of these limitations. However, Minnesota’s line lien statute is outdated and vague, and there is little caselaw interpreting it. As this article explains, the resulting uncertainty severely curtails the usefulness of line liens and calls for a legislative solution.
Why Line Liens Matter
Traditionally, for payment security, contractors rely on Minnesota’s mechanic’s lien statute, Minn. Stat. § 514.01, under which contractors who contribute to the improvement of real estate are entitled to a lien on the improvement and the land on which it is located. Minnesota’s “line” lien law under Minn. Stat. § 514.04 also allows contractors to secure payment on projects like railroad, telephone, and electric lighting which do not conform or translate well to “standard” land liens under Minn. Stat. § 514.01.
On renewable energy projects, such as those using wind turbines and solar panels for electrical generation, contractors can secure payment either through land liens under Minn. Stat. § 514.01 or line liens under Minn. Stat. § 514.04. Given the existence of traditional mechanics liens under Section 514.01, one might wonder whether line liens are superfluous. They are not, for at least two reasons. First, wind and solar projects cover vast areas – much larger than a traditional thermal power plant. Traditional mechanics liens are not well suited to cover these large swathes of land because they apply to discrete parcels– dozens or hundreds of which might be implicated in a utility-scale wind project. Land liens must be filed in the county where the parcel is located, complicating how to apportion and file liens on renewable energy projects which may extend over multiple counties or even cross state lines. Land liens are also limited to 80 acres – a small area where renewable energy projects are concerned – and cannot encompass non-contiguous parcels. Second, as discussed below, energy and transmission projects involve rights other than fee simple or leasehold rights, which is what can be seized and sold with a mechanics lien. Since a line lien covers the “rights, franchises, and privileges” of the owner, as well as the land and improvement, they potentially convey more rights than a mechanics lien.
Line liens, therefore, are an important tool. However, unique considerations arise particularly in line liens based on the nature of renewable energy projects and current Minnesota law on line liens, which has not been updated in over one hundred years and presents significant practical problems as applied to renewable energy construction projects. This article principally focuses on the unique issues that arise in line lien foreclosure actions on renewable energy projects related to the fact that Minn. Stat. § 514.04 was written before the existence of these types of projects.
To What Does a Line Lien Attach?
To what does a line lien attach? A line lien under Minn. Stat. § 514.04 provides a lien for contributions made “for the construction, alteration, or repair . . . of any telegraph, telephone, or electric light line, or of any line of pipe, conduit, or subway, or any appliance or fixture pertaining to either.” Based on the plain language of the statute, and the lack of legal authority interpreting its application to renewable energy projects, it is not at all clear whether power generation facilities like wind and solar farms are even subject to the Minnesota line lien statute.
Where the language of a statute is plain and unambiguous, Minnesota courts interpret the law as written. Mechanics liens are there to protect contractors and other workers who provide material and services for improvements to the property of another, and courts interpret lien statutes liberally to further this public policy and give contractors a means to secure payment.[1]
Read through this lens, one could interpret the line lien statute to apply to renewable energy facilities. Line liens apply to any “appliance or fixture pertaining to” an “electric light line” or any line of “conduit.” Minn. Stat. § 514.04. The terms “appliance” and “fixture” are not defined, and given the judicial policy of construing liens broadly to protect contractors, a court could find that a wind farm is lienable under Minn. Stat. § 514.04 because it involves the construction of a conduit to transmit electrical energy, and the power generation and associated equipment of the Project are all “appliances or fixtures pertaining to” a “conduit.” Contractors and their counsel will certainly make this argument.
On the other hand, owners can be expected to argue that only the transmission line system itself is subject to the line lien statute. The plain language of Minn. Stat. § 514.04 suggests that does impose a lien on the entire project but only the transmission or utility line itself [2]In Armco Steel Corp., Metal Products Div. v. Chicago & N. W. Ry. Co., the court provided that there was “serious doubt” as to whether § 514.04 would apply to work performed in the construction of a building for the owner of a railway when the building was located 1 ½ blocks from the railway itself, and was actually leased and used by a trucking company to load and unload trucks that were “piggybacking” on railroad flatcars. 149 N.W.2d 23, 26 (Minn. 1967). Also, a wind farm construction project may stop just outside the substation owned by a utility and the connection of the wind farm to the grid is sometimes performed by an entity other than the contractor, making it possible to argue that the contractor on the project does not hold a valid line lien. In short, the application of Minn. Stat. § 514.04 to renewable energy construction projects in the twenty-first century remains an open question.
What Rights Does a Line Lien Cover?
Possibly the most important question at issue related to line liens under Minn. Stat. § 514.04 is what precisely an unpaid contractor is entitled to obtain through a line lien foreclosure action. Irrespective of whether a line lien applies to the entire facility or just the transmission lines, the line lien attaches to more than real property interests; it also specifically attaches to “all the rights, franchises, and privileges of the owner.” Minn. Stat. § 514.04.
There is no authoritative interpretation from Minnesota courts defining phrase “rights, franchises and privileges” contained in Minn. Stat. § 514.04. Minnesota has defined “franchises” as a right that “cannot be exercised without the express permission of the sovereign power – a privilege or immunity of a public nature which cannot be legally exercised without legislative grant.” City of St. Paul v. N. States Power Co., 462 N.W.2d 379, 383 (Minn. 1990). The U.S. Supreme Court has explained that the franchises of a railroad corporation, one of the entities potentially subject to a § 514.04 lien, are:
rights or privileges which are essential to the operations of the corporation, and without which its road and works would be of little value; such as the franchise to run cars, to take tolls, to appropriate earth and gravel for the bed of its road, or water for its engines, and the like.
Morgan v. Louisiana, 93 U.S. 217, 223 (1876). The language of Minn. Stat. § 514.04 regarding “rights, franchises and privileges” appears to reflect the unique bundle of property and other rights that railroads and similar projects possess, with no apparent discussion of the applicability of this phrase to renewable energy projects.
However, renewable energy projects are subject to complex permitting requirements and both federal and state laws and regulations governing renewable energy interconnections, making it highly unlikely that the contractor or purchaser at a foreclosure sale would be permitted to step into the role of the project owner and obtain payment by exercising all of the owner’s “rights, franchises, and privileges.”
Further, except in unique cases, an energy project is useless without the right to connect to the grid and sell power to an electric utility. Both of these rights stem from contracts between the energy facility operator and private parties – namely, the independent system operator, the owner of the transmission line, and the electric utility. In order to file a line lien, the claimant only need to file it with the Secretary of State, but that filing does not give effective notice to the entities with various ownership or revenue rights that they may lose their rights to a lien claimant and the statute does not explain how those rights could be foreclosed. Indeed, it is not clear that foreclosure can convey those contract rights to a lien claimant (or a purchaser at a foreclosure sale) by operation of law, and significant technical and regulatory barriers exist to doing so. Although one solution might be to grant a lien claimant a right to the revenue stream of the renewable energy project, it is not at all clear that Minn. Stat. § 514.04 grants authority to do this.
Other pressure points exist, to be sure. Large energy facilities also comprise large portions of a utility’s resource planning, which require Minnesota Public Utilities Commission approval. Further, utilities may be under statutory mandate to provide a certain amount of renewable generation in their overall power resource planning. See Minn. Stat. § 216C.053. Therefore, a contractor may be able to extract payment by putting the utility or owner in an untenable situation. But the lien statute contemplates that lienable interests can be seized and sold at a foreclosure sale if pressure does not work, and the leverage provided by a mechanics lien depends, at least in part, on the ultimate ability to be able to seize and sell property. And in the context of a renewable energy project, what a line lien claimant would be entitled to foreclose is at best unclear.
Conclusion
Line liens have the potential to be powerful tools for contractors who perform work on renewable energy projects. However, current uncertainty about the rights granted by the line lien statute makes reliance on the protections provided by line liens equally uncertain. Ultimately, a legislative solution is preferable. Courts are ill-equipped to make the policy judgments necessary to resolve these issues. If the legislature intends for projects connected to the grid to be subject to the line lien statute, they should draft an amendment to solve the issues identified in this Briefing Paper. Until that is done, litigation about the scope of line liens is regrettably inevitable.
[1] Albert & Harlow Inc. v. Great N. Oil Co., 167 N.W.2d 500, 504 (Minn. 1969).
[2] This interpretation is consistent with the section’s historical application, Albert & Harlow Inc. v. Great N. Oil Co., 167 N.W.2d 500 (Minn. 1969) (lien on oil pipeline); Brown v. Marine Home Tel. Co., 162 N.W. 884 (Minn. 1917) (lien on telephone line); Perry v. Murphy, 57 N.W. 792 (Minn. 1894) (lien on railway), and is supported by the section’s legislative title: “Lines of Railway, Telegraph, or Similar Projects.”
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