Synchronized Constr. Servs. v. Prav Lodging ( 2014 )

Present: Kinser, C.J., Lemons, Goodwyn, Millette, Mims, and
Powell, JJ., and Koontz, S.J.
SYNCHRONIZED CONSTRUCTION
SERVICES, INC. OPINION BY
JUSTICE LEROY F. MILLETTE, JR.
v. Record No. 131569 October 31, 2014
PRAV LODGING, LLC, ET AL.
FROM THE CIRCUIT COURT OF ORANGE COUNTY
Daniel R. Bouton, Judge
In this appeal we consider whether a general contractor,
who has no pecuniary interest in the bond posted to release the
real estate subject to a subcontractor's mechanic's lien, is a
necessary party to a subcontractor's mechanic's lien
enforcement action.
I. Facts and Proceedings
In 2008, Prav Lodging, L.L.C. ("Prav") acquired a parcel
of real estate in Orange County, Virginia to build a hotel
facility. Secured by a credit line deed of trust, Virginia
Community Bank ("VCB") financed the construction of the hotel
facility. Prav entered into a contract with Paris Development
Group, LLC ("Paris") to act as construction manager for the
project. As construction manager, Paris had the authority to
enter into subcontracts with subcontractors to facilitate the
project. Paris entered into several such subcontracts,
including a subcontract with Synchronized Construction
Services, Inc. ("Synchronized").
The owner-construction manager contract between Prav and
Paris was a cost-plus agreement, whereby Prav would pay Paris
the cost of the work plus a $192,000 fixed fee. Prav's
payments were scheduled to be made on a monthly basis upon
Paris' submission of an invoice to Prav.
The construction manager-subcontractor subcontract between
Paris and Synchronized was a fee agreement, whereby Paris would
pay Synchronized a $398,000 fee subject to additions and
deductions as the project progressed. Paris' payments were
scheduled to be made on a monthly basis upon Synchronized's
submission of a pay application to Paris.
By February 3, 2010, the construction project was
"substantially complete," with the remaining work to be
"obtainable in a matter of a few days." On March 11, 2010,
Synchronized recorded a mechanic's lien for unpaid work on the
construction project in the amount of $208,250.80 with the
Orange County Clerk's Office. On September 9, 2010,
Synchronized filed a complaint to enforce its mechanic's lien
in the Circuit Court of Orange County, naming Prav, Paris, VCB,
and numerous other subcontractors as defendants. In its
complaint, Synchronized asserted a claim to enforce its
mechanic's lien as well as a claim that Paris breached its
contract with Synchronized by failing to make all payments due
to Synchronized under their subcontract.
2
Paris did not enter an appearance in the case. Indeed, it
could not do so because it no longer existed. According to the
public records of its state of incorporation, Paris was
dissolved on March 12, 2010 – the day after Synchronized had
recorded its mechanic's lien.
Prav and VCB filed an application to post a bond in the
amount of $237,906.80 in accordance with Code § 43-70. The
circuit court granted that application, thereby releasing the
real estate which had been subject to Synchronized's mechanic's
lien.
Prav filed a motion to dismiss the entire complaint on the
basis that Synchronized failed to timely serve numerous
defendants. In response, the circuit court held that
Synchronized "failed to exercise due diligence" to serve Paris
within one year of the date of the filing of the complaint, and
therefore dismissed Synchronized's breach of contract claim
against Paris. However, the court declined to dismiss
Synchronized's mechanic's lien claim.
Later, VCB filed a motion to dismiss the mechanic's lien
claim on the basis that Synchronized failed to timely serve
Paris, who, as the construction manager, was a necessary party
to the mechanic's lien enforcement action. In response, the
circuit court held that Paris was in fact a necessary party,
and that Synchronized's failure to timely serve Paris required
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dismissing Synchronized's mechanic's lien claim with prejudice.
The court entered an order to that effect and denied
Synchronized's motion for reconsideration.
Synchronized timely filed a petition for appeal with this
Court. We granted the following assignments of error:
1. The [c]ircuit [c]ourt erred in dismissing
Synchronized's mechanic's lien enforcement action
where Paris, the construction manager, did not have a
recognized possessory or expectancy interest in the
lien enforcement action which could be defeated or
diminished as the result [of that] suit and therefore
was not a necessary party to the action. While Paris
may have had a contractual claim against the owner of
the [p]roject arising out of its [c]ontract, the facts
below reveal that Paris never satisfied the express
conditions precedent[] found in its [c]ontract in
order to preserve and maintain such claims. Hence,
even if Paris had contractual claims, those claims
would not be sufficient to mandate a finding that
Paris was a necessary party to the lien enforcement
action brought by Synchronized.
2. The [c]ircuit [c]ourt applied an incorrect standard
in analyzing whether Paris was a necessary party to
the lien enforcement action and thus erred in
dismissing Synchronized['s] mechanic's lien
enforcement action where the presence of . . . Paris[,
the general contractor,] was not required under
Virginia law.
3. The [c]ircuit [c]ourt erred in that Virginia Code
§ 43-22 does not explicitly require a [general
contractor] to be included as a party to a mechanic's
lien enforcement action or at all times be [a] viable
party in a mechanic's lien enforcement action where
the facts below showed that Synchronized had the
ability to present proof at trial of the balance due
under the Prav Lodging-Paris [c]ontract at all
relevant times included at the time Synchronized's
mechanic's lien was recorded.
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II. Discussion
A. Standard of Review
Whether a party is a necessary party to a particular claim
is a question of law that we review de novo. Glasser &
Glasser, PLC v. Jack Bays, Inc., 285 Va. 358, 369, 741 S.E.2d
599, 604 (2013).
B. Necessary Parties in Mechanic's Lien Enforcement Actions
This appeal requires us to address the meeting of two
different areas of law: mechanic's lien enforcement actions,
and necessary party jurisprudence. However, as this is not an
issue of first impression, precedent controls our decision.
A mechanic's lien was "[un]known to the common law or to
courts of equity," and therefore is purely "a creature of the
statute" allowing for its creation. Shenandoah Valley R.R. Co.
v. Miller, 80 Va. 821, 826 (1885); Sergeant v. Denby, 87 Va.
206, 208, 12 S.E. 402, 402 (1890). Being in derogation of the
common law, "there must be a substantial compliance with the
requirement of that portion of the statute which relates to the
creation of the [mechanic's] lien; but . . . the provisions
with respect to its enforcement should be liberally construed."
American Standard Homes Corp. v. Reinecke, 245 Va. 113, 119,
425 S.E.2d 515, 518 (1993). That is to say, a party must
strictly comply with the "specific time frame and in the manner
set forth in the statutes" to perfect its mechanic's lien, "or
5
the lien will be lost." Britt Constr., Inc. v. Magazzine
Clean, LLC, 271 Va. 58, 63, 623 S.E.2d 886, 888 (2006)
(collecting cases). Once a mechanic's lien is created by
operation of law and is perfected in accordance with the
relevant statutory requirements, the party holding the
mechanic's lien is able to bring suit to enforce that lien.
Code § 43-22.
A mechanic's lien enforcement action "must name all
necessary parties within the time set forth by Code § 43-17,
and a failure to name a necessary party as defendant requires
dismissal." Glasser, 285 Va. at 369, 741 S.E.2d at 605. The
Code does not provide an answer as to which parties are
necessary parties to a mechanic's lien enforcement action. See
Walt Robbins, Inc. v. Damon Corp., 232 Va. 43, 46-47, 348
S.E.2d 223, 226 (1986) (rejecting the argument that Code § 43-
22 establishes who is a necessary party in mechanic's lien
enforcement actions). We have therefore relied upon our common
law authority to supply the answer.
We have consistently defined "necessary party" broadly.
See, e.g., Asch v. Friends of Mt. Vernon Yacht Club, 251 Va.
89, 90-91, 465 S.E.2d 817, 818 (1996). Generally, we have
described necessary parties as follows:
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Where an individual is in the actual enjoyment of the
subject matter, or has an interest in it, either in
possession or expectancy, which is likely either to
be defeated or diminished by the plaintiff's claim,
in such case he has an immediate interest in
resisting the demand, and all persons who have such
immediate interests are necessary parties to the
suit.
Id. (internal quotation marks omitted). What constitutes the
"subject matter" or res of a mechanic's lien enforcement action
narrows the necessary party analysis to a specific set of
interests in this type of litigation.
1. Enforcement of a Mechanic's Lien Against Real Estate
A mechanic's lien enforcement action seeks to enforce the
mechanic's lien "against the property bound thereby." Code
§ 43-22. As a mechanic's lien enforcement action implicates
real property rights, we have turned to due process principles
to determine who is a necessary party in such litigation. See
Walt Robbins, 232 Va. at 46-47, 348 S.E.2d at 226.
Such due process principles qualify a necessary party as
any party who has a real property interest in the real estate
subject to the mechanic's lien. See, e.g., James T. Bush
Constr. Co. v. Patel, 243 Va. 84, 87-88, 412 S.E.2d 703, 705
(1992) (beneficiary of a deed of trust, recorded after the real
estate subject to the mechanic's lien was improved, is a
necessary party); Mendenhall v. Douglas L. Cooper, Inc., 239
Va. 71, 75-76, 387 S.E.2d 468, 740-71 (1990) (owner of real
7
estate subject to the mechanic's lien is a necessary party);
Walt Robbins, 232 Va. at 47, 348 S.E.2d at 226 (beneficiary of
a deed of trust, recorded before the real estate subject to the
mechanic's lien was improved, is a necessary party); id. at 48,
348 S.E.2d at 227 (trustee of a deed of trust, recorded before
the real estate subject to the mechanic's lien was improved, is
a necessary party). In sum, the "subject matter" or res of a
mechanic's lien enforcement action is the real estate subject
to the mechanic's lien, and a necessary party is one who has a
real property interest in such real estate because it is that
real property interest "which is likely either to be defeated
or diminished by the plaintiff's claim." Asch, 251 Va. at 90,
465 S.E.2d at 818.
Importantly, the focus is on which parties actually have a
relevant interest in the real property. Just because a party
may be generally "interested" in the mechanic's lien
enforcement action, such as having a pecuniary interest in the
outcome of the litigation, does not mean that the party is
necessary to the proceedings. See, e.g., Air Power, Inc. v.
Thompson, 244 Va. 534, 537-38, 422 S.E.2d 768, 770 (1992) (land
trust beneficiaries are not necessary parties to a mechanic's
lien enforcement action against the trust's real estate because
they only have a personal property interest in the profits from
8
the trust's real estate, and have "no interest, [either] legal
or equitable, in the [real estate] itself").
2. Release of the Real Estate by a Posted Bond
Certain "parties in interest" may, in accordance with the
rules set forth by the General Assembly, post a bond after a
mechanic's lien enforcement action has been filed. Code § 43-
70. A properly posted bond releases the real estate from the
mechanic's lien enforcement action. Id. We have previously
recognized that this bonding-off process only "substitutes the
bond for the real estate" that had been subject to the
mechanic's lien. York Fed. Sav. & Loan Ass'n v. William A.
Hazel, Inc., 256 Va. 598, 602, 506 S.E.2d 315, 317 (1998).
Because the real estate is no longer subject to the mechanic's
lien enforcement action once a bond is properly posted, the
"subject matter" or res of the suit is no longer the real
estate, but is instead the posted bond itself.
This has a logical impact on the necessary party analysis.
If no bond has been posted the inquiry turns upon which parties
have a real property interest in the real estate subject to the
mechanic's lien, but when a bond is posted the inquiry focuses
upon which parties have a pecuniary interest in the bond itself
which is "likely either to be defeated or diminished" by the
plaintiff's "claim against the bond." George W. Kane, Inc. v.
9
NuScope, Inc., 243 Va. 503, 509, 416 S.E.2d 701, 705 (1992)
(internal quotation marks omitted).
To this end, we have previously considered which parties
constitute "necessary parties-defendant to [a] bond enforcement
suit." Id. at 509, 416 S.E.2d at 704. The principal on the
bond and the surety on the bond are necessary parties. Id.
However, the owner of real estate, the trustee under the deed
of trust, and the beneficiary of the deed of trust are no
longer necessary parties when their only relation to the
litigation is their respective real property interests in the
real estate that had been subject to the mechanic's lien, but
that was no longer encumbered once the bond had been posted in
accordance with Code § 43-70. Id. at 510, 416 S.E.2d at 705.
3. Concerns Not Addressed by the Necessary Party Doctrine
The circuit court incorporated into its necessary party
analysis concerns that go beyond the scope of this precedent,
and the parties dispute these concerns on appeal. We address
these points to underscore that they are not part of the
necessary party analysis.
First, the court expressed concerns about issues of proof.
The amount that the owner is indebted to the general
contractor, and the amount that the general contractor is
indebted to the subcontractor, are factual issues that the
parties may dispute when a subcontractor seeks to enforce its
10
mechanic's lien. See Code § 43-7(A). And such disputes remain
present even "with respect to a bond enforcement suit,
[because] the party-plaintiff has the burden of proving the
same elements of his claim that he would have had to prove in a
suit to enforce the lien released by that bond." George W.
Kane, 243 Va. at 509, 416 S.E.2d at 704.
However, concerns regarding which parties might be vital
to proving the plaintiff's case are not relevant to the
necessary party analysis. See id. at 509-10, 416 S.E.2d at
704-05. This conclusion is compelled by the fact that we have
previously held that the owner of the real estate subject to a
mechanic's lien is no longer a necessary party once a bond is
posted to release and replace that real estate as the res
subject to the lien. Id. at 510, 416 S.E.2d at 705. If an
owner is not a necessary party even though the mechanic's lien
enforcement action may implicate issues relating to a contract
entered into by that owner, see Code § 43-7(A), then a general
contractor is not a necessary party simply because the
mechanic's lien enforcement action may implicate issues
relating to a contract entered into by that general contractor.
Simply put, the controlling considerations of the
necessary party doctrine are not issues of proof and issues as
to which party may be best situated to provide proof. Instead,
the necessary party doctrine is calculated to ensure that all
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parties central to a dispute can have their interests resolved,
so that absent parties' interests are not adversely affected
and participating parties may be awarded complete relief. See
Michael E. Siska Revocable Trust v. Milestone Dev., LLC, 282
Va. 169, 173-77, 715 S.E.2d 21, 23-25 (2011). As established,
this requires defining a necessary party to a mechanic's lien
enforcement action as a party who has a recognized interest in
the "subject matter" or res of the litigation.
Second, the circuit court believed that the "subject
matter" or res of a mechanic's lien enforcement action was more
than simply the real estate or the posted bond. The court
expanded those terms to include the contractual issues that may
arise through the course of a plaintiff's prima facie case or
by way of an affirmative defense.
This position incorrectly conflates a mechanic's lien
enforcement claim with a breach of contract claim. A necessary
party to a mechanic's lien enforcement action must have a
specifically defined interest in the "subject matter" or res of
that litigation, which we have repeatedly defined as being
either the real estate or posted bond. See George W. Kane, 243
Va. at 509-10, 416 S.E.2d at 705; Air Power, 244 Va. at 537-38,
422 S.E.2d at 770; James T. Bush Constr. Co., 243 Va. at 87-88,
412 S.E.2d at 705; Mendenhall, 239 Va. at 75-76, 387 S.E.2d at
470-71; Walt Robbins, 232 Va. at 47-48, 348 S.E.2d at 226-27.
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A party whose only relation to a mechanic's lien enforcement
action is his status as a party to a contract, the terms of
which may be contested during the course of litigation, is akin
to a party who has only a general pecuniary interest in the
outcome of a mechanic's lien enforcement action. We have
previously recognized that such a general, tangential interest
is insufficient to elevate a party to necessary party status.
See Air Power, 244 Va. at 537-38, 422 S.E.2d at 770.
Moreover, as with many mechanic's lien situations, in this
case any litigation in the mechanic's lien enforcement action
will not foreclose the ability for Paris, as the general
contractor, to bring or defend a claim in the future relating
to its contracts with the owner, Prav, or the subcontractor,
Synchronized. Neither collateral estoppel nor res judicata
would encumber such future litigation because Paris would not
have been a party to the mechanic's lien enforcement action,
and no party in that mechanic's lien enforcement action
identifies with Paris' interest to such a degree that it could
be said to have represented Paris' legal rights. See Rule 1:6
(governing res judicata); Raley v. Haider, 286 Va. 164, 170,
747 S.E.2d 812, 815 (2013) (setting forth the requirements for
res judicata to bar suit, including identity of the parties or
their privies); Ellison v. Commonwealth, 273 Va. 254, 258, 639
S.E.2d 209, 212 (2007) (noting the mutuality of parties
13
requirement among the standards for application of collateral
estoppel to bar litigation of an issue of fact).
C. Whether Paris Is a Necessary Party
In this case, Prav and VCB posted a bond that released the
real estate subject to Synchronized's mechanic's lien. Code
§ 43-70. As a bond has been posted, the necessary party
inquiry is whether Paris has a pecuniary interest in that
posted bond, being the "subject matter" or res of
Synchronized's mechanic's lien enforcement action, which is
"likely either to be defeated or diminished" by Synchronized's
"claim against the bond." George W. Kane, 243 Va. at 509, 416
S.E.2d at 705 (internal quotation marks omitted). The answer
is no.
Paris is neither the principal nor the surety on the bond.
Moreover, Paris has no ability to be awarded a judgment to be
paid out from the bond. A posted bond is "subject to the final
judgment of the court upon the hearing of the [mechanic's lien
enforcement action] upon its merits," and is "for the payment
of such judgment." Code § 43-70. That is, a posted bond can
only be paid out to those claimants who have a valid mechanic's
lien on the real estate released by the bond.
Paris does not have such a mechanic's lien. It is true
that Paris was the construction manager and, by providing such
services for the construction of the hotel facility, acquired a
14
mechanic's lien on that real estate. Code § 43-3. But the
continued existence of a mechanic's lien requires the party
acquiring the lien to perfect it in accordance with the Code.
Id.; see Britt Constr., 271 Va. at 63, 623 S.E.2d at 888
(collecting cases).
The requirements for perfection differ depending upon
whether the party asserting the lien is a general contractor, a
subcontractor, or a party who contracts with a subcontractor.
See Code §§ 43-4; 43-7; 43-9. Being the party who
"contract[ed] directly with the owner," Paris was a "general
contractor" for purposes of the mechanic's lien statutory
scheme. Code § 43-1. Code § 43-4, governing the perfection of
a general contractor's mechanic's lien, required Paris to file
a "memorandum of lien" and "a certification of mailing of a
copy of the memorandum of lien [to] the owner of the property"
in the Orange County clerk's office. The record reflects that
Paris did not undertake these actions. As such, Paris failed
to perfect its mechanic's lien on the real estate, and that
mechanic's lien was lost. Britt Constr., 271 Va. at 63, 623
S.E.2d at 888. Because Paris lost its mechanic's lien, the
posted bond is incapable of being subject to a monetary
judgment in favor of Paris through the course of Synchronized's
mechanic's lien enforcement action.
15
We therefore hold that the circuit court can render
"complete relief" in Synchronized's mechanic's lien enforcement
action, even in Paris' absence, because Paris' lack of a
pecuniary interest in the posted bond means that there is no
monetary claim upon which the circuit court could award
judgment in favor of Paris, and no interest held by Paris which
might need to be shielded from an adverse judgment. See Lamar
Co. v. City of Richmond, 287 Va. 322, 324-25, 757 S.E.2d 15, 16
(2014) (proper decree could be entered without participation of
the absent and putatively necessary party).
III. Conclusion
Under the facts of this case, Paris, as the general
contractor, is a proper party but not a necessary party to a
subcontractor's mechanic's lien enforcement action. We will
therefore reverse the circuit court's judgment to the contrary,
vacate the order dismissing Synchronized's mechanic's lien
enforcement claim with prejudice, and remand for further
proceedings consistent with this opinion.
Reversed and remanded.
SENIOR JUSTICE KOONTZ, with whom JUSTICE MIMS and JUSTICE
POWELL join, dissenting.
I respectfully dissent. This case presents the issue
whether the general contractor in a project involving the
construction of a hotel was a "necessary party" in a
16
subcontractor's action to enforce its mechanic's lien when that
perfected lien had been discharged, pursuant to Code § 43-70,
upon the filing of an appropriate bond by the owner of the real
estate upon which the hotel was constructed.
Today the majority of this Court holds that because the
general contractor failed to perfect its statutorily granted
mechanic's lien under Code § 43-3 it had no "pecuniary
interest" in the bond and, therefore, was not a necessary party
to the subcontractor's action to enforce its perfected
mechanic's lien. Neither the majority in its opinion, nor the
subcontractor in its appellee's brief, cites to any prior
decision by this Court in which we have held that a general
contractor is not a necessary party to a subcontractor's action
to enforce its mechanic's lien. In my view, the statutory
scheme involving the enforcement of a mechanic's lien by a
subcontractor and the significant role of the general
contractor in all construction projects provide persuasive
reasons that such is the case.
Initially, I am reminded of the old adage that bad facts
can lead to bad law. In this case no evidentiary hearing was
conducted in the trial court and, thus, the material facts are
drawn necessarily from the parties' pleadings, memoranda, and
supporting exhibits filed in that court. While the majority
makes reference to the fact that the general contractor did not
17
enter an appearance in the case because it was apparently
dissolved the day after the subcontractor recorded its
mechanic's lien, there are no facts in the record reflecting
the status of the general contractor at the time the
subcontractor subsequently filed its action to enforce its
mechanic's lien nor at the time the bond was posted by the
owner of the real estate.
What is undisputed, however, is the fact that the general
contractor was not given notice of the subcontractor's action
because the subcontractor "failed to exercise due diligence" to
serve the general contractor. That finding by the trial court
was not challenged by the subcontractor even though it suggests
that the general contractor could have been served. Under
these circumstances, the proper analysis of the issue in this
appeal necessarily must be premised upon the fact that the
subcontractor simply failed to give the general contractor
notice of the proceeding and thereby deprived the general
contractor of the opportunity to appear and provide evidence in
the case if it desired to do so. This is not a case in which
the general contractor with notice declined to participate.
Moreover, under these circumstances there is no factual basis
upon which a determination can be made as to what pecuniary
interest, if any, the general contractor had in the proceeding
initiated by the subcontractor.
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Nevertheless, the majority opinion seems to suggest that
the posting of the bond made these "bad facts" irrelevant to
its determination that the general contractor was not a
necessary party in this case. In that context, it is not clear
what the reasoning would be had, for example, the general
contractor been given notice, appeared, and asserted that the
owner was indebted to it and that it was not indebted to the
subcontractor. For the reasons that follow, in my view, the
statutory scheme for enforcing a mechanic's lien contemplates
the central role of the general contractor in construction
cases so that all claims may be resolved and future litigation
avoided.
The analysis in this appeal is guided by settled law
regarding the enforcement of a mechanic's lien. Mechanic's
liens arise by statute and are in derogation of the common law.
Britt Constr., Inc. v. Magazzine Clean, LLC, 271 Va. 58, 63,
623 S.E.2d 886, 888 (2006); Carolina Builders Corp. v. Cenit
Equity Co., 257 Va. 405, 410, 512 S.E.2d 550, 552 (1999).
The statutory authority for a mechanic's lien for those
whose labor or materials is incorporated in construction
projects is found in Code §§ 43-1 to 43-23.2. As pertinent to
this appeal, Code § 43-3(A) provides that a mechanic's lien is
created automatically by "performing labor or furnishing
materials of the value of $150 or more . . . for the
19
construction, removal, repair or improvement of any building or
structure." Both the general contractor and subcontractor are
granted a mechanic's lien in this manner. See Code § 43-4
(general contractors); Code § 43-7 (subcontractors).
A mechanic's lien cannot be enforced, however, unless it
is first perfected in accord with Code § 43-7. Britt Constr.,
271 Va. at 63, 623 S.E.2d at 888 (collecting cases). Pertinent
to the present case, Code § 43-7(A) provides that "the amount
for which a subcontractor may perfect a lien . . . shall not
exceed the amount in which the owner is indebted to the general
contractor." This statute further provides that it shall be an
affirmative defense that the owner is not indebted to the
general contractor, or that the amount owed to the general
contractor is less than the amount of the subcontractor's
asserted mechanic's lien. These provisions reflect the central
role of the general contractor in all construction projects.
Thus, we have long held that the burden of proof in a suit to
enforce a mechanic's lien requires the subcontractor to prove
both that he is entitled to payment for labor and materials
furnished under his contract with the general contractor and
that the owner was indebted to the general contractor under
their contract at the time notice of the subcontractor's lien
was given or became so indebted thereafter. John T. Wilson Co.
v. McManus, 162 Va. 130, 135, 173 S.E. 361, 362 (1934).
20
Once a mechanic's lien has been perfected, Code § 43-22
provides, in pertinent part, that the lien "may be enforced in
a court of equity" by a complaint filed in the county or city
wherein the property upon which the building was constructed is
located. The statutory scheme for enforcing a perfected
mechanic's lien is a unique equity proceeding. Once the
subcontractor's suit invokes the equity jurisdiction of the
trial court, "it may go on to a complete adjudication, even to
the extent of establishing legal rights and granting legal
remedies which would otherwise be beyond the scope of its
authority." Such is the case even though the complainant may
have failed to establish its right to a mechanic's lien.
Johnston & Grommett Bros. v. Bunn, 108 Va. 490, 493, 62 S.E.
341, 342 (1908); see also Erlich v. Hendrick Constr. Co., 217
Va. 108, 115, 225 S.E.2d 665 (1976).
In a suit by a subcontractor to enforce a mechanic's lien
the focus of the equity court's determination is upon the
status of the general contractor's accounts with the owner and
the subcontractor. In this context, we have observed that
there is a distinction between a "proper party" and a
"necessary party" in that the failure to include the former is
not a ground for dismissing the suit whereas the failure to
include the latter renders the court powerless to proceed with
the suit. Mendenhall v. Douglas L. Cooper, Inc., 239 Va. 71,
21
74, 387 S.E.2d 468, 470 (1990). There we explained that a
necessary party's "interests in the subject matter of the suit,
and in the relief sought, are so bound up with that of the
other parties, that their legal presence as parties to the
proceeding is an absolute necessity, without which the court
cannot proceed. In such cases the court refuses to entertain
the suit, when those parties cannot be subjected to its
jurisdiction." Id.
In Raney v. Four Thirty Seven Land Co., we stated that
"[w]here an individual is in the actual enjoyment of
the subject matter, or has an interest in it, either
in possession or expectancy, which is likely either
to be defeated or diminished by the plaintiff's
claim, in such case he has an immediate interest in
resisting the demand and all such parties who have
such an interest are necessary parties to the suit."
233 Va. 513, 519-20, 357 S.E.2d 733, 736 (1987) (quoting
Gaddess v. Norris, 102 Va. 625, 630, 46 S.E. 905, 907
(1904))
Code § 43-70 provides that when a suit has been filed
under Code § 43-22 to enforce a mechanic's lien, "parties in
interest" may petition the court "for permission to pay into
court an amount of money sufficient to discharge such lien."
If the court permits the posting of the bond, "the property
affected thereby shall stand released from such lien" and
enforcement of the lien "shall be subject to the final judgment
of the court upon the hearing of the case on its merits." The
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posting of the bond does not constitute a confession of
judgment or otherwise resolve the underlying controversy of
whether the alleged debt secured by the lien is owed. See York
Fed. Sav. & Loan Ass'n v. William A. Hazel, Inc., 256 Va. 598,
602, 506 S.E.2d 315, 317 (1998). Thus, we held in George W.
Kane, Inc. v. NuScope, Inc., 243 Va. 503, 509, 416 S.E.2d 701,
704 (1992), that "with respect to a bond enforcement suit, the
[subcontractor] has the burden of proving the same elements of
his claim that he would have had to prove in a suit to enforce
the lien released by that bond."
In the present case, the subcontractor filed a complaint
in the Circuit Court of Orange County to enforce its perfected
mechanic's lien on September 9, 2010. Subsequently, in August
2011 the owner filed an appropriate bond in accordance with
Code § 43-70 and the subcontractor's lien was discharged.
Although the complaint named the general contractor as a
defendant, the subcontractor failed to give the general
contractor notice of the proceeding and the general contractor
did not enter an appearance.
It is readily apparent that when a bond is filed under
Code § 43-70 the subject matter of the subcontractor's lien
enforcement suit remains the determination of what
indebtedness, if any, existed between the owner and the general
contractor at the time the lien was perfected or thereafter,
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and what indebtedness, if any, exists between the general
contractor and the subcontractor. The bond is not the subject
matter of the suit. Rather, the bond provides the monetary
pool from which the equity court makes a "complete
adjudication" of the financial issues between all the parties
involved in the construction project that have been provided
proper notice of the proceeding, while releasing the property
of the owner in question from claims of parties involved in
that construction project. Significantly, in this way the bond
provides the mechanism by which the equity court is able to
resolve any financial claims that may exist between all the
parties to the construction project and thus protect them from
future litigation involving the construction project.
In the present case, the general contractor was not
provided the opportunity to assert any claims it may have had
against the owner or to refute any assertions of the
subcontractor against it in its capacity as the general
contractor in the construction project. Moreover, the equity
court was called upon to render a complete adjudication of the
financial issues in the case "on its merits" without the
benefit of the general contractor's evidence of what, if any,
indebtedness existed between it and the owner and what, if any,
indebtedness existed between it and the subcontractor. In that
circumstance, in my view the general contractor was a necessary
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party to the subcontractor's suit to enforce its mechanic's
lien, and the trial court did not abuse its discretion in
refusing to entertain that suit and dismissing it with
prejudice.
The majority relies, in part, upon our decision in Kane to
conclude that a general contractor is not a necessary party to
a bond enforcement suit by a subcontractor. There, we held
that the owner of the real estate subject to a mechanic's lien
is no longer a necessary party once a bond is posted to release
the real estate. 243 Va. at 510, 416 S.E.2d at 705. The
majority reasons that if an owner is not a necessary party in
those circumstances then it follows that the general contractor
is also not a necessary party. In Kane, however, the general
contractor, rather than the owner, posted the bond. Id. at
505, 416 S.E.2d at 702. The distinction is significant. When
the owner posts the bond it does so to release a mechanic's
lien claim so that the owner's property is no longer
encumbered. When the general contractor posts the bond it
becomes a party to the subcontractor's enforcement suit and
thereby protects itself from future litigation with the
subcontractor.
The majority also relies upon our decision in Air Power,
Inc. v. Thompson, 244 Va. 534, 422 S.E.2d 768 (1992), to
support its reasoning in this case. There, we held that land
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trust beneficiaries are not necessary parties to a mechanic's
lien enforcement action against the trust's real estate. This
was so because the beneficiaries only had a personal property
interest in the profits of the trust's real estate. Id. at
537-38, 422 S.E.2d at 770. Obviously, Air Power did not
involve the status of a general contractor and the unique role
the general contractor plays in a construction project and the
resulting role it maintains in the resolution of a
subcontractor's mechanic's lien enforcement suit.
For these reasons, I would hold that the general
contractor, where available for service by a subcontractor in
its mechanic's lien enforcement suit in which a bond has been
posted by the owner in accordance with Code § 43-70, is a
necessary party. Accordingly, I would further hold that the
trial court did not abuse its discretion in refusing to
entertain the subcontractor's action in this case and
dismissing it with prejudice.
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