Mechanics liens are powerful tools to get parties in the construction industry paid. While there are several steps that parties on the top of the payment chain have to challenge the mechanics lien, or otherwise get the lien removed from the property, some of these steps may actually benefit the lien claimant. One option to remove a lien that a lien claimant shouldn’t fear is “bonding off” a mechanics lien claim. “Bonding off” allows a substitution of a bond for the property at which a lien is placed on. This means that the lien claimant is still secured, but by a bond (a pile of money), rather than the property itself. This way the property owner can breathe easier with no lien on the title of land, and the lien claimant retains a secured position. While this process seems easy and beneficial for all parties involved, other than the necessity of coming up with a pile of cash big enough to bond off the lien (or finding somebody who will do it for you), it’s important for lien claimants to put some thought into the process of making a claim once a bond comes into play. Naming all necessary parties is crucial for a claim to be valid, and when a bond is submitted, the necessary parties in the claim may change. If all necessary parties are not named, the results could be disasterous.
One lien claimant in Fairfax, Virginia learned how important naming all necessary parties really is. The claimant’s failure to name all the necessary parties in his claim against a bond resulted in the claimant losing his claim against the bond, and with it, an opportunity to get paid.
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Background of the Case
The case at issue, Johnson Controls Inc. v. Norair Eng’g Corp., rises from a dispute between a supplier and a subcontractor. Johson Controls Inc. (“JCI”) entered into an agreement with Norair Engingeering Corp. (“Norair”) to provide fan coil units and related equipments and materials. Norair failed to pay JCI, and during the ensuing payment dispute, JCI filed a mechanics lien. Norair then petitioned to substitute a bond to effect the release of the lien pursuant to the authority of Virginia Code § 43-70, which states, in pertinent part:
At any time after the perfecting of any such lien and before a suit be brought for the enforcement thereof, the owner of the property affected thereby, the general contractor or other parties in interest may, after five days’ notice to the lienor, apply to the court having jurisdiction of a suit for the enforcement of such lien, or to the judge thereof in vacation, for permission to make such payment into court, or to file such bond, as prescribed in § 43-70, which permission, in either such event, shall be granted by such court, or judge, unless good cause be shown against the same by some party in interest. Upon the granting of such permission, and the payment of such money into court, or the filing of such bond, as the case may be, the property affected thereby shall stand released from such lien.
The Court granted the petition, and a bond was issued with Norair as principal and Travelers Casualty and Surety Company of America (“Travelers”) as surety. JCI then amended its complaint to file four total claims. Tellingly, however, JCI specifically named only the surety Travelers on its claim against the bond, and did not name Norair.
Analysis and Results
Because of that oversight, Travelers immediately filed a motion to dismiss. Travelers contended that, because Norair was not named in the bond claim, the claim could not stand. Specifically, Travelers raised two issues for the court to address: whether Norair was a necessary party to the bond claim; and, i.e. was a necessary party, whether JCI could amend the claim to include Norair?
Concerning the first issue, the court made clear that when mechanics liens are bonded off, the necessary parties to be named in a claim can change. While the property owner and parties involved with the title to the land are no longer necessary parties (just by virtue of owning the property), the principal and surety of the bond become the necessary parties to be named (even if they were not previously necessary parties in the mechanics lien). This makes perfect sense, in that the party obtaining the bond, and the party providing the money for the bond should be included in a claim against it, and, since the bonding off of the lien removes the lien from the property by substituting the bond, the property owner is not a necessary party unless somehow related to the bond itself.
In this case, the failure to name the principal, Norair, in the bond claim was fatal to that particular claim. JCI attempted to argue that it should be allowed to amend the claim in order to include Norair, but the court was unpersuaded. Since the statute of limitations had run on the bond claim, JCI was not allowed to go back and amend the claim to include Norair. Since the necessary parties were not named in the claim at issue, and the statute of limitations had run, the claim necessarily failed, and was dismissed.
Simple things like naming the necessary parties in a claim can make or break an opportunity to get paid. It’s important to note that merely having the correct parties for one type of action doesn’t necessarily mean that those are the same required parties for a different type of action. Mechanics liens are powerful legal tools, and a lien claimant shouldn’t be afraid of an owner or contractor bonding off a lien. But, special care should be taken to comply with any new requirements for making a claim against the bond rather than the property itself. Unfortunately, as was the case here, when the bond claim is not handled correctly procedurally, a party can be left with no recourse for payment. It’s important to understand which of the parties involved should be named in both mechanics lien claims and bond claims.