A fixed-based operator (FBO) or a maintenance, repair and overhaul provider (MRO) that provides materials, fuel, and/or services (such as maintenance, hangar, tiedown, etc.) to an aircraft owner may have the legal right to assert a lien against the aircraft if the customer fails to pay for the materials or services.
The purpose of this article is to educate potential lienholders on some of the issues that they will encounter should they elect to exercise their right to place a lien on an aircraft. Lienholders who are most knowledgeable on the requirements for exercising lawful lien rights can most effectively protect their investment in the work and materials and minimize their risks.
Can you lien a customer’s aircraft when they are delinquent on rent or fail to pay for services? Maybe. The answer depends on a number of variables, including: (i) what state you are located in; (ii) what the outstanding sums due to you are for; (iii) whether you have possession of the aircraft, (iv) the amount of the lien; and (v) whether you have a written agreement with the aircraft owner.
First, consider whether your state has a statute that allows for liens specific to aircraft. This could be a specific statute like that of Connecticut (C.G.S. §49-92g), Florida (Fla. Stat. §329.51), Texas (Tex. Prop. Code §70.302), New Mexico (N.M. Stat. Ann. §48-3-29), Oklahoma (42 Okl. St. §91A), California (Cal Code Civ Proc §1208.61), Idaho (Id. Code §45-1102), and North Carolina (N.C. Code § 44A-55), which have statutes that specifically apply to aircraft. In other states, the right to lien an aircraft could be included within a broader statute that includes mechanics liens. In New York, for instance, the right to lien an aircraft is included in a statute protecting the bailee of motor vehicles, motor boats and aircraft. See N.Y. CLS Lien §184. In Maine, the right to lien an aircraft is covered in a broader mechanics lien statute that protects those who perform labor and materials for storage and repair of vehicles, aircraft and parachutes. See 10 M.R.S. §3801.
Does the applicable statute provide you with a basis to exert a lien? Once you find the law that applies to asserting a lien against an aircraft, you need to consider whether you have a basis for asserting a lien under that law. Does the statute provide you with a basis to lien the aircraft? Some states like Connecticut and California provide for aircraft liens to protect those that store, care for, maintain, or provide services or fuel. California and New Jersey’s aircraft lien statutes provide for a lien based upon non-payment of landing fees. See Cal. Code Civ. Proc. §1208.61 and N.J. Stat. §2A:44-2. California, however, exempts air carriers and foreign air carriers from its aircraft lien provisions. See Cal. Code Civ. Proc. §1208.70. Other states, like Florida, limit the application of liens to labor, services, fuel, or materials.
Are you required to have a written contract in order to effectuate a lien on an aircraft? It depends on the jurisdiction. In Idaho, the labor, skill or materials giving rise to the lien must be performed pursuant to a written agreement. See Id. Code §45-1102(2)(d). Contrast that with New York, where a written agreement is not required, but if you provided a written quote for the materials or services, then the lien cannot exceed the amount of the quote. See N.Y. CLS Lien §184.
Are you timely exercising your right to a lien? Assuming you have a basis to file a lien, you next need to consider whether you are timely in asserting the lien. In Maine, for example, you must exercise your right to a lien within 90 days from rendering the materials or labor. See 10 M.R.S. §3801. Failure to timely exercise your right to a lien could preclude you from relying upon this remedy to protect your interest. Therefore, it is best to timely consider lien options in advance of your potential need to rely upon same.
Is possession of the aircraft required in order to perfect a lien? The short answer is: it depends on the jurisdiction. Some states require you to have possession in order to exercise a lien right while other states do not require possession. California and New York are examples of states that require possession of the aircraft in order to have a valid lien. See Cal. Code Civ. Proc. §1208.61, N.Y. CLS Lien §184. Contrast this with Idaho, Florida and Texas, which do not require possession of the aircraft. See Id. Code §45-1102(2)(b), Tex. Prop. Code §70.302, and Fla. Stat. §329.51.
Are you required to provide the aircraft owner with notice of the lien? Most state statutes will require that you provide the aircraft owner with notice of the lien within a certain number of days after filing the lien. Additionally, if a lienholder forecloses on a lien, many states also will require the lienholder to publish in a newspaper or provide other public notice of the date and time of the foreclosure auction in advance.
Do you need to record your lien with the applicable state? It depends on the jurisdiction. If the applicable state lien statute requires you to record the lien with the state, you must follow the specific process for recording the lien as set forth in the state statute.
Do you need to record your lien with the FAA? Yes. The purpose of the FAA Civil Aviation Registry was to create "a central clearing house for recordation of titles so that a person, wherever he may be, will know where he can find ready access to the claims against, or liens, or other legal interests in an aircraft.” (Internal quotation marks omitted.) Philko Aviation v. Shacket, 462 U.S. 406, 411. In light of this, federal law preempts state law in terms of where to file your lien. In short, even if your state’s law requires you to file your lien with a particular state agency, as a matter of federal law you must also file the lien with the FAA Civil Aviation Registry.
That being said, however, federal law does not preempt state law rules on how you create the lien, perfect the lien or the priority of your lien. That will all be dictated by your specific state law. Simply put, your applicable state law will provide the relevant procedural and substantive requirements regarding how to create and perfect the lien at the state level, whereas federal law requires that you also file the lien with the FAA Civil Aviation Registry. The FAA will not make any determination as to the validity of the lien under the applicable state law; it merely accepts the filing and records it on the FAA’s database.
Do I need to file my lien on the International Registry? The International Registry operates under the Cape Town Convention and the Aircraft Protocol adopted on November 16, 2001, at Cape Town, which provides for the registration and protection of international interests that are recognized by ratifying states. The International Registry provides a mechanism by which to file priority interests in certain aircraft and component parts on an international level. Only certain specific types of aircraft and component parts qualify for registry on the International Registry. Although it is not required to record a lien on the International Registry, if the aircraft qualifies, it could be advisable to file on the International Registry to further protect your priority interest in the lien.
Are there risks to the lienholder in filing a lien? Before you proceed with filing a lien against an aircraft, consider the risks. Asserting a lien without a legal basis or without complying with an applicable statute could expose the party filing the unlawful lien to civil claims for fraud, tortious interference and replevin. In certain situations, it also could expose the filing party and/or its attorney to potential criminal liability. As long as you are acting in good faith and without malice, you should be able to avoid legal liability. Notwithstanding that, you likely will be required to retain counsel to defend the claim and assist in navigating the legal proceedings. In addition to the legal and defense costs, it is important to consider the risk to your reputation and what impact having exercised the lien may have on your business.
Based on the foregoing, the best advice is to make sure you identify the applicable state statute and make sure you understand the statute in order to follow the requirements exactly. Also be sure to file the lien on the FAA Civil Aviation Registry. If you can’t find the applicable statute, don’t understand it, or have a question, reach out to competent and trusted aviation counsel to evaluate the issues and guide you through the process.
This article was co-authored by Paul M. Grocki, Esq. Paul regularly represents purchasers and sellers in the buying, selling, and financing of aircraft of various sizes, including creating and registering holding entities, minimizing sales and use tax, and federal compliance issues concerning use and ownership. He also routinely represents both lienholders and aircraft owners in addressing issues relating to liens placed on aircraft.
Alison L. Squiccimarro is an attorney with the Law Offices of Paul A. Lange, LLC with offices in New York and Connecticut. Squiccimarro’s nationwide practice focuses on aviation related commercial litigation with an emphasis on FAA and DOT regulatory issues, airports, insurance coverage and employment matters.