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.