Unsecured Trade Creditors Committee

ABI Committee News

Know Your Mold

One of the best kept secrets in the tooling industry is an Ohio law that grants a lien to molders and mold-builders for services performed related to dies, molds, patterns and forms. Ohio Molder’s Lien Law is provided in Ohio Revised Code §1333.29 through §1333.31 (Molder’s Lien Law), and the applicable provisions that outline Ohio Mold-builder’s Lien Law (Mold-builder’s Lien Law) are located in Ohio Revised Code §1333.32 through §1333.34.[2]

To understand what rights and protections are afforded molders and mold-builders under the Ohio lien laws, you must begin with the cast of parties that factor into the lien scenario. Under Ohio law, a molder is defined as an entity that uses the die, mold, pattern or form to manufacture, assemble or fabricate plastic, metal, paper, china, ceramic, glass or rubber products. A mold-builder is defined differently under the Ohio Revised Code, and the distinction is important in terms of how the law is applied. A mold-builder is an entity that fabricates, cuts, casts or designs molds for the plastic industry or for the metal forming industry. A mold-builder does not include any entity similarly described as a molder for the purposes of the Molder’s Lien Law, unless the person also engages in the activities described therein. A customer is generally any entity that engages a molder or mold-builder to fabricate, cast or otherwise make a die, mold, pattern or form.

An entity that qualifies under Ohio law as a molder or mold-builder no matter the industry, has the added protection of having a statutory lien perfected either by possession or by filing a UCC financial statement, that is superior to all other creditors, including secured creditors (who take subject to it). These liens secure a molder’s or mold-builder’s right to full payment by a customer who for whose benefit the mold/die, etc is utilized.

Molder v. Mold-builder

The Molder

A molder’s lien is dependent on physical possession of the dies, molds, patterns or forms, notwithstanding the fact that the molds are likely to be owned by a customer. The lien secures full payment of what the customer owes the molder for the fabrication, repair or modification of the die, mold, pattern or form. Under the Molder’s Lien Law, a mold is the only collateral that secures a molders’ right to full payment by a customer. Simply put, the molder’s lien under the Molder’s Lien Law is a possessory lien that has priority over other security interests in the subject mold/die. Therefore, in order to maintain the statutory lien (and priority status) a molder must not give up possession of the subject die, molds, patterns or forms. Relinquishing possession grants a secured creditor and other lien holders priority (over a molder) on the subject mold.

Before a molder can enforce its rights under the Molder’s Liens Law, there must be a period of nonpayment by the customer. If a molder is unpaid for at least 60 days from the date payment becomes due from the customer, a molder may send a final notice for payment to the last known address of the customer. The Ohio Revised Code deems this notice as “final,” which is a misnomer because it is the only written notice that is required from the molder. The notice must contain: (1) an itemized statement of the amount due; (2) a description of the die, mold, pattern or form being held and (3) an explanation of the repercussions of the customer failure to pay within 30 days of the notice being sent. The continued noncompliance of the customer to not pay the invoice arms a molder with the right to enforce its lien by either: (1) continuing to retain possession and commence a civil action to enforce a molder’s lien and a judgment to sale the die, mold, pattern or form and/or (2) continuing to retain possession until the customer pays the amount due. If a molder decides to sell the die, mold, pattern or form, any excess proceeds of the sale after satisfaction of the outstanding debt must be paid to the customer.

In 1987, the U.S. Bankruptcy Court for the Northern District of Ohio addressed the Molder’s Lien law, wherein Judge Speer held in favor of the molder, and in doing so, stated:

[I]t appears to the Court that the molder’s lien is a codification of a common law artisan’s lien, and therefore, should be given a liberal construction under Ohio law. Such a construction would lead the Court to find that the possession of the molds is the act which perfects the lien, . . . moreover, this finding would be consistent with the general rule that a lien which is declaratory of the common law, must be interpreted in the conformity with common law principles. 51 Am.Jur. 2nd, Liens §38. Under the common law, superior rights were typically obtained through possession of the property.

In re Flue Gas Resources, 77 B.R. 628, 631 (Bankr. N.D. Ohio 1987). Judge Speer enforces the premise of the Molder’s Lien Law, that a lien is only effective so long as the molder maintains physical possession of the mold.

A customer is not left without recourse under the Molder’s Lien Law. A customer has a limited right to obtain possession of the mold during the pendency of a civil action by either (1) depositing with the clerk of the clerk, the amount due to a Molder (plus the cost of notification and amount sufficient to cover the civil award should a Molder prevail) or (2) a bond covering the same amount.

The Mold-builder

The Mold-builder’s Lien Law, grants a mold-builder a lien on all on all molds it produces and on all proceeds from the subsequent transfer of the same, until a mold-builder is paid in full. The amount of the lien is the amount the customer or molder owes a mold-builder for the fabrication, repair of modification of the mold. The Mold-builder’s Lien Law gives the mold-builder recourse against the customer, and the molder that may have engaged the mold-builder to create the subject mold.

The lien attaches when the mold is delivered from the mold-builder to the customer. It is important to note that a mold-builder retains the lien even if it is not in possession of the mold for which the lien is claimed.

To perfect the aforementioned lien, a mold-builder must file a UCC financing statement, which also constitutes notice of the lien. The priority of a perfected Mold-builder’s lien is determined at the time the lien attaches (in this instance when the mold is delivered). The first lien that attaches to the mold/die has priority over liens that subsequently attaches. Therefore, if there are two competing mold-builders’ liens, the first to attach pursuant to the Mold-builder’s Lien Law is the first filed. The filing of the UCC financing statement constitutes constructive notice of the lien, and results in the mold-builder’s lien having first priority position against secured lenders and other creditors of the customer. A mold-builder should be aware that failure to timely file the financing statement will jeopardize its priority status, allowing other creditors’ liens to attach to the mold prior to the mold-builder’s lien attaching.

In order for a mold-builder to enforce its lien, it must provide written notice to the customer and molder indicating the lien is claimed, providing the amount a mold-builder is owned, and making a demand for payment. By complying with these requirements and customer’s and molder’s continued failure to pay, a mold-builder has the right to: (1) enforce the right to possession of the mold by judgment, foreclosure or any available judicial procedure; (2) commence a civil action in a court of common pleas to enforce the lien, including an execution sale; (3) take possession of the mold, if it can be done without breaching the peace or (4) sell the mold in a public action. Notwithstanding, no sale shall be made or possession shall be obtained in violation of the customer or molder’s rights under applicable patent, bankruptcy or copyright laws.

A mold-builder’s lien remains as a valid security interest on the subject mold until the earlier of: (1) full payment due it for the mold; (2) the customer’s receipt of a “verified statement” from a molder that a molder has paid the amount for which the lien is claimed or (3) the financing statement is terminated.

Ohio Mold-builder’s Lien Law provides an added blanket of protection to mold-builders. In particular, the law provides that any provision of a contract that waives a mold-builder’s right under Ohio law is void and unenforceable as against public policy. In addition, any provision of a contract requiring the application of another state rather than the Ohio Mold-builder’s Lien Law is void and unenforceable as against public policy. These provisions become increasingly important in a business transaction that involves an Ohio Mold-builder and an out of state customer, who fails to pay and attempts to circumvent a mold-builder’s rights under Ohio law.

Conclusion

Know your mold. It is very important molders and mold-builders make themselves aware of the aforementioned provisions, to assist in gauging their future business relationships with customers. These provisions provide molders and mold-builders with a unique statutory right to protect their outstanding accounts receivables. The Molder’s and Mold-builder’s Lien Law provide a means for molders and mold-builders to enforce a customer’s payment obligation for work performed in an easier and less expensive manner. The same laws present a cautionary tale to financial institutions (including banks) and customers. Specifically, financial institutions that may be in a financial relationship with the customer need to pay special attention to the aforementioned Ohio laws. Usually as part of the loan agreement/security agreement with the customer a financial institution will receive security in and liens on all or substantially all of customer’s assets, which often times includes the aforementioned molds. In a great many instances, those same security documents provide that an attachment of a lien on the subject collateral (in this instance the mold) is a breach of the financial documents. Notwithstanding, the statutory liens granted molders and mold-builders upon perfection, by physical possession or filing of a UCC financial statement, may render the financial institutions security interest in the subject tool in second position to a molder and/or mold-builder. Customers may find themselves without the equipment they contracted with a molder as an effect of their nonpayment. Moreover, they may be in breach of the terms of their loan agreement/security agreement with the bank or financial institutions because a molders and mold-builder’s lien may trump the bank or financial institution’s lien on the subject collateral.

[1] Jean R. Robertson is a partner at Calfee, Halter & Griswold LLP in Cleveland, where her practice includes bankruptcy and creditors’ rights. Tiiara N. A. Patton is an associate with Calfee, Halter & Griswold LLP in the firm’s business restructuring practice group.

[2] Michigan law also provides protections to molders and mold-builders by granting those parties liens under the Michigan Ownership Rights in Dies, Molds and Forms law and the Special Tools Lien Act law. See Mich. Comp. Laws § 445.611, et seq.; Michigan Comp. Law § 570.541, et seq. The applicable provisions provide molders and mold-builders with a lien on the die, mold and form for the amount due the molder for the completed service related to the same. Id.