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Court to hear arguments on 'stop payment' ruling

JACKSON — A federal appeals court will hear oral arguments Aug. 7 in New Orleans on a ruling that invalidated Mississippi’s “stop payment” law.

In 2012, U.S. Magistrate S. Allan Alexander ruled the law unconstitutional because it deprived a corporation of its property without due process of law.

Alexander ruled against King Construction of Houston, Texas, a subcontractor hired by Noatex Corporation to assemble conveyor systems at a factory site in Guntown, Miss. The plant was being built by Noatex for Auto Parts Manufacturing Mississippi Inc.

Court records show King Construction and Noatex got into a dispute in July of 2011 over invoices. King Construction filed a “stop notice” in the Lee County Chancery Court.

The Mississippi “stop notice” statute, according to court documents, allows a subcontractor to notify the owner of a project of its claim against a contractor and freezes the funds owed to the contractor by the owner. When the stop notice was filed, court records show APMM owed Noatex $179,707.

Noatex sued King Construction in U.S. District Court in north Mississippi. King Construction appealed the adverse ruling to the 5th U.S. Circuit Court of Appeals in New Orleans.

Alexander said the Mississippi law violates due process by authorizing what is in practical effect the prejudgment attachment of funds without prior notice and a hearing or an acceptable post-seizure remedy.

“The withholding of construction funds is much like the garnishment of wages in that it dramatically impedes the progress of a construction project and potentially affects sums due other subcontractors or suppliers,” Alexander said.

Alexander said the law does not require proof of the validity of the claim.

“The bottom line is that no matter what you call it, (the law) has the exact same effect as an attachment — immobilizing the contractor’s property for an indeterminate period of time to secure payment to a subcontractor.

“Mississippi’s stop notice statute violates due process by authorizing what is in practical effect the prejudgment attachment of funds without prior notice and a hearing, or an acceptable post-seizure remedy,” Alexander said.

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