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Supplier Allowed to Sue on Mechanic's Lien in Kansas Although It Was Not Qualified to Do Business There
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November 12, 2007
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Howrey LLP
An Oklahoma supplier contracted to provide materials to a subcontractor for a metal building in Kansas. The supplier shipped the materials from Oklahoma to Kansas in another company's trucks. The subcontractor never paid the supplier.
The supplier filed a petition to foreclose on its mechanic's lien of $54,673 in Kansas state court. As part of the petition, the supplier alleged that it was an Oklahoma corporation "authorized to and doing business in the State of Kansas."
The defendant property owners moved to dismiss the petition to foreclose on the grounds that pursuant to Kansas' closed-door statute, Kansas Statutes Annotated §17-7307(a), an out-of-state corporation "doing business" in Kansas could not maintain an action in Kansas courts unless it had registered with Kansas officials and qualified to do business.
The District Court found that the supplier had not qualified to do business in Kansas by registering with Kansas officials and, therefore, dismissed the lien petition. The supplier appealed. It argued that it provided the materials at issue from Oklahoma, had no place of business in Kansas, had no employees or agents in Kansas, and had sold the materials into interstate commerce from Oklahoma. Accordingly, the supplier asserted, it was not subject to Kansas business registration requirements. The defendant property owners responded by listing 14 acts in which the supplier had engaged in Kansas, arguing that registration was required.
The Kansas Court of Appeals reversed. Alliance Steel, Inc. v. Piland, 35 Kan.App.2d 728, 134 P.3d 669 (2006). It held that while the supplier had done business in Kansas in one sense by selling something to a customer there, it did not do business in Kansas within the meaning of Kansas's closed door statute, which would require registration as a condition of suing.
Under Kansas Statutes Annotated §17-7303, an out-of-state corporation is "doing business" in Kansas and must register with the state if it either: (1) establishes an office, place of business or distribution point in Kansas; or (2) delivers its wares or products to agents in Kansas for sale, delivery, or distribution.
The appeals court found that while the supplier provided substantial materials involved in construction, the supplier was not otherwise involved in the work in Kansas. As a result, the supplier did not meet the criteria for "doing business" in Kansas.
The Court of Appeals differentiated between the minimum contacts that would subject a defendant to jurisdiction under Kansas' long arm jurisdiction statute and acts requiring a foreign corporation to register with Kansas officials. It also differentiated between engaging in interstate and intrastate commerce. The court noted that the fact the supplier engaged in 14 acts in Kansas did not trigger the registration requirement; the controlling issue was whether the supplier engaged in acts specified in the statute.
Because the supplier was not "doing business" in Kansas within the meaning of Kansas' closed-door statute, the court held the supplier was not required to register to do business in Kansas in order to be able to sue to foreclose on the mechanic's lien.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2007 Howrey LLP
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