Two Recent Virginia Court Opinions of Interest in Construction Cases

Two recent court opinions are of interest to Virginia construction lawyers and businesses. The first one relates to an assignment of a construction contract, and the second one to the enforcement of a mechanic’s lien where it has been “bonded off.”

In Smart Choice Corp. V. Wayne’s Erecting LLC, Judge Conrad issued the opinion of the USDC for the Western District of Virginia concerning the defendant’s motion to dismiss. In this case, contractor M.D. Russell Construction entered into a contract with Wayne’s Erecting concerning the construction of an office building. M.D. Russell subsequently assigned this contract to Smart Choice. At the close of the project, Wayne’s Erecting signed an unconditional waiver and release in favor of Smart Choice. Smart Choice then sued Wayne’s Erecting for allegedly breaching the contract. Smart Choice alleged that Wayne’s Erecting ignored the project drawings and incorrectly built the building.

The court held that the amended complaint alleged sufficient facts to state a plausible claim for relief. Smart Choice specifically alleged that M.D. Russell Construction assigned the contract to Smart Choice, and that Wayne’s Erecting was aware of this assignment. The court further found that these allegations were supported by the language of the unconditional waiver and release, which stated that Wayne’s Erecting had received full payment from Smart Choice for labor and materials it provided to the project. We’ll have to wait and see what happens at the Summary Judgment stage, but for now Smart Choice’s claims have survived the defendant’s initial motion to dismiss.

In Johnson Controls Inc. v. Norair Engineering Corp., the Fairfax County Circuit Court issued an opinion concerning whether a bond principal is a necessary part for a claim against a mechanic’s lien release bond. Chris Hill recently wrote about this opinion on his Construction Law Musings blog. Chris’ post includes a link to the letter opinion by the Fairfax County Circuit Court.

In this matter the plaintiff, Johnson Controls, provided materials to the defendant, Norair Engineering, for a commercial construction project. Johnson Controls recorded a memorandum for mechanic’s lien (the “Lien”) against the project property. Pursuant to Virginia Code § 43-71, Norair Engineering subsequently “bonded off” the Lien by substituting a mechanic’s lien release bond (the “Bond”) in the place of the Lien. The Bond substitutes the security given to the lien claimant, and does not change the underlying claims or defenses presented by the parties.

In its suit to enforce the Lien claim as against the Bond, Johnson Controls named Norair Engineering as a defendant, but it failed to name Norair Engineering as a defendant in the specific count to enforce the Lien claim as against the Bond. The court held that as the Bond principal, Norair Engineering is a necessary party to the count to enforce the Lien claim against the Bond. Despite the fact that Norair Engineering was named as a defendant in other counts, the court held that it did not have the right to contest the Lien claim as against the Bond. Norair Engineering only has the right to contest the Lien claim as against the Bond if it is named as a defendant in the lien enforcement count.

The six-month period to file suit to enforce the Lien claim had run, therefore amendment was permitted only if the modified claim related back to the original complaint. Virginia code § 8.01-6.1 expressly provides that the relation back provision does not apply to mechanic’s lien claims. Johnson Controls was not permitted to amend its count to enforce the Lien claim as against the Bond.

Because Johnson Controls failed to name a necessary party, and because Johnson Controls was time barred from amending its Lien claim as against the Bond, the court dismissed the count to enforce the Lien claim as against the Bond.

Remember; when suing to enforce a lien claim as against a mechanic’s lien release bond, only the bond principal and the surety are necessary parties. Don’t leave either of these parties out of the count to enforce the lien claim.