Synchronized Constr. Servs., Inc. v. Prav Lodging, LLC

Decision Date31 October 2014
Docket NumberRecord No. 131569.
Citation764 S.E.2d 61,288 Va. 356
CourtVirginia Supreme Court
PartiesSYNCHRONIZED CONSTRUCTION SERVICES, INC. v. PRAV LODGING, LLC, et al.

Andrew N. Felice (James H. Higginbotham, II ; Rees Broome, on brief), for appellant.

W. Alexander Burnett (Paul S. Bliley, Jr. ; Joseph E. Blackburn, III ; Williams Mullen, on brief), for appellee Virginia Community Bank and Paul S. Bliley, Jr., Trustee.

Sean D. Gregg, for appellee Prav Lodging, LLC.

Present: KINSER, C.J., LEMONS, GOODWYN, MILLETTE, MIMS, and POWELL, JJ., and KOONTZ, S.J.

Opinion

Opinion by Justice LEROY F. MILLETTE, JR.

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.

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 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.
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 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:

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...

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