Pick your Litigants Wisely When Filing Mechanic’s Lien Lawsuits

The Supreme Court of Virginia recently held that a subcontractor, Synchronized Construction Services, Inc. (“Synchronized”), could proceed with its mechanic’s lien lawsuit against the project owner and bank, despite the absence of the general contractor on the hotel construction project, finding that the general contractor was not a necessary party. In Synchronized Construction Services, Inc. v. Prav Lodging, LLC, et al., 764 S.E.2d 61 (Va. 2014), the subcontractor sought project amounts due with a breach of contract count against the general contractor (“GC”), and a mechanic’s lien count against the project owner and bank.

Synchronized failed to serve the GC in the litigation, and an appealable issue arose because the GC was not involved in the litigation of the mechanic’s lien claim. The circuit court held that because the GC was a necessary party, Synchronized’s mechanic’s lien claim could not proceed.

On appeal, the Supreme Court of Virginia focused its necessary party inquiry on the subject matter or the so-called “res” of the mechanic’s lien action.  Notably, the GC failed to perfect a mechanic’s lien on the project real estate. During the litigation, the owner and bank chose to go through a “bonding-off process” where they posted a bond, which had a practical effect of substituting the bond for the underlying project real estate – meaning that the res became the bond itself and not the real estate. The Court found that because the GC was not involved with its own lien and therefore had no rights to the underlying project real estate, and its rights were not tied up in any way with the posted bond, it had no specifically defined interest in the subject matter of the lawsuit, and was not a necessary party.

In light of this case, subs and other companies should ensure that they choose their parties wisely before proceeding with construction litigation. Failing to do so could derail an attempt to get a fair shake in court. The legal landscape is complicated and one slip can endanger a company’s entire payment claim.

Katie Lipp is an attorney with the Washington, DC regional business law firm Berenzweig Leonard, LLP, and the head of its construction law team. Katie can be reached at klipp@berenzweiglaw.com.

Major Court Ruling Protects Subcontractors’ Right to Get Paid

The right of subcontractors to get paid on federal projects is more iron-clad thanks to a recent decision out of the Ninth Circuit Court of Appeals, handed down on April 29, 2014. The decision explains that state law cannot frustrate the federal statute providing subcontractors and other companies an avenue to payment for their work.

The federal law that provides companies and persons with such a remedy is the Miller Act. This Act protects persons who contribute to the performance of a federal construction contract, including subcontractors and those who directly contract with subcontractors, such as sub-subcontractors. Recently, a Ninth Circuit case confirmed that state law cannot bar a contractor’s federal Miller Act lawsuit for payment.

The Miller Act makes general contractors on federal construction projects provide a payment bond “for the protection of all persons supplying labor and material in carrying out the work provided for in the contract.” 40 U.S.C. § 3133(b)(2). Under the Miller Act, any person who has furnished labor or materials for work on a federal construction project, and who has not received full payment within 90 days after their last day of work or furnishing of materials or supplies can bring a civil lawsuit on the project’s payment bond for the amount due at the time the lawsuit is filed. 40 U.S.C. § 3133(b)(1).

The federal Miller Act is remedial in nature, and the Supreme Court has confirmed that its rights and remedies cannot be conditioned by state law. The Ninth Circuit recently affirmed this principle in a case of first impression, joining the Supreme Court and the Eighth and Tenth Circuits.

In Technica, LLC v. Carolina Cas. Ins. Co., No. 12-56539 (April 29, 2014), the prime contractor and surety for the federal payment bond at issue tried to argue that Technica, a sub-subcontractor on the federal government project, could not maintain its Miller Act lawsuit because it lacked a California contractor’s license. A California law precluded any unlicensed contractor from filing a lawsuit to collect for unpaid services, but the Technica Court held that the California law could not limit Technica’s rights under the federal Miller Act.

While many construction laws have strict time limits and procedural requirements, the Technica Court made it clear that state laws attempting to limit a claimant’s rights and remedies under the federal Miller Act will be struck down. The construction lawteam at Berenzweig Leonard has experience navigating the complexities of the federal Miller Act and its intersection with local state laws.

Katie Lipp is an attorney with the Washington, DC regionalbusiness law firm Berenzweig Leonard, LLP. Katie can be reached at klipp@berenzweiglaw.com.