The Applicability Of Pennsylvania’s Mechanics Lien Law To Oil And Gas Well And Pipeline Construction Projects

The owner and contractors on a construction project usually anticipate that all parties will be properly paid for work performed. In reality, however, it is not uncommon for issues to arise related to the payment of a contractor and its subcontractors or suppliers. In addition to bringing a breach of contract action, Pennsylvania's Mechanics Lien Law (the "Lien Law")1 provides an unpaid contractor or subcontractor with a powerful additional legal remedy to obtain payment because a mechanics lien is imposed against the property interest to which qualifying "improvements" were made, creating a "cloud" on the legal title to that property interest.2 With the recent boom in Marcellus shale in Pennsylvania, the question has arisen as to whether or not gas wells or pipelines qualify as "improvements" for purposes of the Lien Law, and therefore can be made the proper subject of a mechanics lien claim filing.

A valid mechanics lien claim must satisfy numerous statutory requirements. One such primary requirement is that work performed by the contractor or subcontractor must constitute an "improvement" in the property, as defined under the Lien Law. The underlying theory is that, if the contractor has provided services which permanently improve the value of the property, then it ought to be paid for the value of such services. Thus, the work done must create a new improvement upon the estate, or make a substantial addition to an existing improvement.3 The statutory language under the Lien Law defines an "improvement" to include "any building, structure or other improvement of whatsoever kind or character erected or constructed on land, together with the fixtures and other personal property used in fitting up and equipping the same for the purpose for which it is intended."4 Pennsylvania courts have further defined an "improvement" as "a permanent addition to real property that enhances its capital value...and is designed to make the property more useful or valuable."5

Does the construction of a gas well or the installation of a gas pipeline fall within this definition? This issue has not been specifically decided by the Pennsylvania courts in any reported decision, but prior decisional law, the legislative history preceding the current version of the Lien Law, and the broader body of out-of-state case law all suggest that that an oil and gas well or pipeline project can be susceptible to mechanics lien filings.

The only reported decision touching upon the subject is Yellow Run Coal Co. v. Yellow Run Energy Co., 420 A. 2d 690 (Pa. Super. Ct. 1979). In that case, the Pennsylvania Superior Court analyzed whether or not mining is an improvement to real property under the Lien Law. The court drew a distinction between strip mining (which involved only activities associated with the excavation of top soil and coal) compared to underground mining...