When a lien is bonded off on a construction project in Virginia, the claimant must make a separate claim against the bond. As one subcontractor discovered, it’s important to name the right parties in the bond claim, or risk losing your payment.
Bonding off a mechanics lien is a common tactic to clear the property title. This doesn’t extinguish the claim, but rather replaces the property securing the claim with a surety bond. With a few exceptions, the process is relatively the same once a lien is bonded off. This includes the requirements for a lien enforcement action/lawsuit against the lien release bond. However, as with any legal action, claims need to properly drafted and all the appropriate parties must be named.
This was highlighted in a Virginia case where a subcontractor’s action to enforce their rights against a bonded off lien was dismissed for failing to name the bond principal as a party.
Bonding off liens in Virginia
As mentioned above, mechanics liens get bonded off all the time. Virginia mechanics lien law sets the rules that apply when a lien is bonded off before an enforcement action:
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… for permission… to file such bond… Upon granting… the property affected thereby shall stand released from such lien.
The sureties on any such bond, which may be involved in any suit or action brought under the provisions of this section, shall be made parties to such suit or action.VA Code §43-71
As you can see from the last excerpt, the surety must be a party to the action against the bond. But what about the surety principal (i.e. the person who posted the bond)? What if there are multiple counts in the lawsuit? These issues were tackled in a case out of the Fairfax County Circuit Court discussed below.
Bond principal is necessary party for claims against lien release bonds
The case in question is Johnson Controls, Inc. v. Norair Engineering Corp, et. al.
- General Contractor: Norair Engineering Corp (Norair)
- Subcontractor: Johnson Controls, Inc. (JCI)
- Bond surety: Travelers Casualty and Surety Company of America (Travelers)
Norair hired JCI to supply fan coil units and other related materials and equipment. As the project progressed, Norair failed to pay JCI.
Subsequently, JCI filed a mechanics lien against the property. Norair responded by bonding off the lien pursuant to Va. Code. §43-71. The court granted the petition, and a bond was issued by Travelers, with Norair as the bond principal.
Sub fails to name GC in bond claim
After which, JCI brought suit against Norair for breach of contract, quantum meruit, and unjust enrichment (Counts I-III). They also filed a bond claim against Travelers (Count IV). Travelers, in response, filed a motion to dismiss the bond claim because JCI was a necessary party to the action, and JCI was barred from adding them at that point.
The court went on to discuss the specific circumstances when a mechanics lien is bonded off.
“Unlike lawsuits to enforce the lien itself, the property owners and the beneficiaries and trustees of the deed of trust are not necessary parties to a lawsuit to enforce the bond. Instead the bond principal and surety are necessary parties.” (Emphasis ours.)
If JCI were still within the claim deadline, they could have amended their claim to include the bond principal. But the six-month period to enforce their claim had passed. Amending claims in Virginia is only allowed if the amended claim relates back to the original complaint. However, Va. Code §8.01-6.1 explicitly states that relation-back provisions “shall not apply to eminent domain or mechanic’s lien claims or defenses.”
Due process requires the bond principal (GC) to be named in the action
Recognizing that they could no longer amend the claim, JCI argued that since Norair was a party to the lawsuit, that should be sufficient.
But the court wasn’t swayed. Just because a party is named in a lawsuit doesn’t change the fact that a necessary party was absent from the specific count/claim. The reason for naming necessary parties is to give them notice and opportunity to challenge the claim.
In an action against a payment bond, the claimant needs to prove the same elements as if it were a lien claim enforcement action.
Since Norair is not a party to the bond claim, it has no right to defend JCI’s perfection of the lien, which JCI must prove in a bond action. Moreover, Norair has no right to present defenses to the bond claim generally. Norair gains this right only if it is named to the bond claim count.
Therefore, since JCI failed to name Norair in the lien claim against the bond, and the time to amend the claim had passed; the court dismissed the action against the bond.
Enforcement actions must be carefully drafted
Navigating the lien process is a challenging venture to say the least. There are a ton of procedural landmines that could spell disaster for an otherwise completely valid claim. This is particularly true when it comes to filing an enforcement action. This is why you should always consult with a construction attorney before taking any action to enforce your lien claims. Anyone in the construction industry in Virginia should note that when a lien is bonded off, both the surety and the bond principal must be named as parties to the action. Don’t leave either one of these parties out!