JACKSON — A federal appeals court has upheld a ruling that invalidated Mississippi’s “stop notice” 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. A three-judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans upheld that ruling yesterday.
Alexander ruled against King Construction of Houston, Texas, a subcontractor hired by Noatex Corporation to assemble conveyor systems at a factory site in Guntown. 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 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 Circuit.
The 5th Circuit panel agreed with Alexander that the Mississippi law violated 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 Stop Notice statute deprives the contractor of a significant property interest, the right to receive payment and to be free from any interference with that right,” Judge Carl E. Stewart wrote for the 5th Circuit panel.
“The Stop Notice statute is profound in its lack of procedural safeguards. It provides for no pre-deprivation notice or hearing of any kind,” Stewart said.
Stewart said a civil penalty cited by the state attorney general’s office for filing a false stop notice is only a “modest safeguard … and cannot rescue the facial constitutionality of the Stop Notice statute.”
“The Stop Notice statute allows attachment, and therefore deprivation, by mere notice from a subcontractor without any intervention by a government official,” Stewart wrote.