The United States District Court for the Northern District of Mississippi has ruled that Mississippi's Stop Notice statue is unconstitutional. The fallout from the decision is unclear, but it could make it more difficult to get lines of credit from suppliers and contractors.
The state's Fifth Circuit Court of Appeals affirmed a 2012 lower court ruling in the case Noatex Corp. v. King Construction of Houston, LLC that the Stop Notice statute, as written, violated the due process of companies. Therein, the court decision released in October included the following:
- "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."
- "The Stop Notice statute is profound in its lack of procedural safeguards. It provides no pre-deprivation notice or hearing of any kind."
- "It requires no posting of a bond on the part of the subcontractor prior to attachment."
- "The statute does not require a showing of exigent circumstances for attachment nor is it narrowly drawn to those circumstances."
- "The statute even fails to require any affidavit or attestation setting out the facts of the dispute and the legal rationale for the attachment."
- The "immediate freezing of monies from the owner to the contractor" does not achieve the stated goal of providing adequate remedies to subcontractors and materialmen.
NACM Secured Transaction Services believes the finding of the Mississippi Stop Notice statute as unconstitutional should be of great concern to material suppliers and contractors there. Mississippi limits lien rights to those parties who have a direct contract with the owner. As a material supplier and subcontractor, the only means of inflicting any payment pressure was to file your Stop Notice. Now that Stop Notice provisions have in essence been stripped away, you may find more material suppliers and subcontractors less willing to extend lines of credit on construction projects.