NEW ORLEANS – The U.S. Court of Appeals for the Fifth Circuit has upheld a lower court ruling that Mississippi's "stop notice" statute is unconstitutional because it deprives contractors due process.

In the underlying case, Noatex Corporation filed suit against King Construction of Houston LLC, Carl King and the state of Mississippi as well as Mississippi Attorney General Jim Hood.

Noatex alleged that Auto Parts Manufacturing Mississippi (APMM) owed the company money. Noatex had subcontracted with King Construction, which in turn alleged that Noatex owed it money. King filed a “Laborer’s and Materialman’s Lien and Stop Notice” for an unpaid amount of $260,410.15 that was “bound in the hands of APMM.” The billing disputes resulted in three lawsuits.

The court ruled on several aspects of the statute’s unconstitutionality. It held that the statute’s procedures lack safeguards providing for a pre-deprivation notice or hearing, bond postage by the subcontractor, showing of outside circumstances and it also failed to require an affidavit for facts and rationale behind notice.

The state argued that “ [t]he ‘extraordinary situations’ exception” ought to be applied for government interest in the “promotion of the health of the construction industry, and the need to provide an adequate remedy to subcontractors and materialmen.”

However, the court ruled that immediately freezing money from an owner to the contractor is not necessary; there is no need for immediate action when other procedures would suffice; and third, the statute only requires that notice be given without interference by a government official.

Both King Construction and the State of Mississippi appealed the declaratory judgment. King then filed a motion to withdraw its appeal, but was opposed by Noatex, and was thus not permitted to withdraw by the district court. Noatex then filed motions for further relief including coverage for attorney's fees and an appeal bond. The district court moved to deny the relief motion and stayed other proceedings. Noatex subsequently appealed those stays.

The appeals court also affirmed the district court’s denial of Noatex’s motion for relief and the district court’s stay of proceedings on Noatex’s motion for appeal bond.

Circuit Judges were W. Eugene Davis, Jacques L. Wiener Jr. and Chief Judge Carl E. Stewart.

Case nos. 12-60385 and 12-60586.

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