Virginia Supreme Court Rules that Parties With a Pecuniary Interest Are Necessary to a Suit to Enforce a Mechanic's Lien
November 17th, 2014
Late last month, the Virginia Supreme Court cleared up any ambiguity regarding who must be named in a lawsuit to enforce a mechanic’s lien. In Sychronized Construction Services, Inc. v. Prav Lodging, LLC, 2014 WL 5490663 (Va. Sup. Ct. Oct. 31, 2014), the Court examined whether a general contractor that had no financial interest in a bond posted to release a mechanic’s lien was a necessary party to the subcontractor’s mechanic’s lien enforcement action.
Prav Lodging, LLC (“Prav”) had acquired a parcel of property and obtained a credit line deed of trust from Virginia Community Bank (“VCB”) to finance the construction of a hotel. Prav then entered into a contract with Paris Development Group, LLC (“Paris”) to act as the construction manager. Paris entered into several subcontracts, including a subcontract with Synchronized Construction Services, Inc. (“Synchronized”). Following substantial completion, Synchronized recorded a mechanic’s lien for unpaid work, and six months later, filed a complaint to enforce its mechanic’s lien. Synchronized’s lawsuit named as defendants Prav, VCB, Paris, and numerous other subcontractors; however, Synchronized failed to serve Paris with the lawsuit.
Following the filing of the lawsuit, Prav and VCB posted a bond to release the property from the lien, and each filed separate motions to dismiss the mechanic’s lien claim. The issue became whether Paris was a necessary party and, absent service on Paris, whether the mechanic’s lien was improper. The circuit court agreed with the defendants that Paris was a necessary party to the lawsuit and without Paris in the litigation, the circuit court dismissed Synchronized’s mechanic’s lien claim with prejudice. Having lost its mechanic’s lien rights, Sychronized appealed.
On appeal, the Virginia Supreme Court explained that it has consistently defined the term “necessary party” broadly, and in a mechanic’s lien suit, it looks to whether the party has a relevant interest in the real property. When a mechanic’s lien has been “bonded off,” any party with a “pecuniary interest” in the bond is a necessary party that must be named in the count to enforce the mechanic’s lien. Therefore, the principal on the bond and the surety on the bond are necessary parties. Because Paris was neither the bond principal, nor the surety posting the bond, it was not a necessary party, and the circuit court could have rendered complete relief on Synchronized’s mechanic’s lien without Paris. Accordingly, the Supreme Court reversed and remanded the case to the circuit court.
In recent years, the body of mechanic’s lien law in Virginia has been constantly in flux, with statutory changes and decisions such as Synchronized. For these reasons, the selection of knowledgeable legal counsel is critical for contractors seeking to enforce mechanic’s lien rights. BrigliaMcLaughlin is frequently called upon to prepare and enforce mechanic’s liens, as well as to defend mechanic’s lien lawsuits. In fact, within two weeks after the Synchronized decision, BrigliaMcLaughlin successfully argued that decision to defeat a mechanic’s lien enforcement action filed against a surety client, where the subcontractor failed to name the principal on the bond as a necessary party in its count to enforce its mechanic’s lien. To our client’s relief, the mechanic’s lien enforcement action was dismissed with prejudice, and, since the statute of limitations had expired, the mechanic’s lien rights are entirely barred. To learn more about BrigliaMcLaughlin’s construction risk management and litigation practice, click here.
THE RESULTS OF THIS CASE RELY UPON A VARIETY OF UNIQUE FACTORS. CASE RESULTS DO NOT GUARANTEE OR PREDICT A SIMILAR RESULT IN ANY FUTURE CASE.
Categories: Legal Updates