By: Alexander A. Miuccio Published: February 2016

Court Rejects Subcontractor's Unjust Enrichment Claim Against Owner

When a subcontractor is unable to collect money owing from a contractor because of the contractor’s insolvency, or some other reason, the subcontractor sometimes looks to the owner of the project for recovery under a theory of unjust enrichment. A claimant seeking relief under unjust enrichment must demonstrate that the owner has agreed to pay for the subcontractor’s work or that the owner acted in such a way that gave rise to an obligation to pay the subcontractor.

The court addressed what must be shown to support an unjust enrichment claim in MCM Prods. USA Inc. v Aliusta Design. The case determined whether subcontractors can make a valid unjust enrichment claim against a leased owner of property where the contract is between the subcontractors and the general contractor.

Background

MCM, a seller of luggage and accessories, leased a space in Manhattan for a store. In June of 2014, MCM entered into a $1.4 million contract with a general contractor to renovate the leased property. The general contractor, in turn, retained various subcontractors to carry out the construction. There was no contractual relationship between MCM and any of the subcontractors.

In March of 2015, the general contractor filed a mechanic’s lien against the property, and several subcontractors followed suit. MCM’s lease with its landlord required that MCM promptly discharge any mechanic’s liens filed against the property. In May of 2015, MCM filed a lawsuit seeking a judgment declaring that it did not owe any money to any of the subcontractors. Several of the subcontractors filed counterclaims against MCM for unjust enrichment, claiming that MCM’s leased property was unjustly benefitted by their work for which no payment has been made to the subcontractors and, therefore, MCM should be responsible for payment. MCM moved to dismiss the counterclaims, arguing that the subcontractors could not recover without a contract with the owner.

Decision

The court dismissed the subcontractors’ unjust enrichment counterclaims. In doing so, the court followed well settled case law to hold that an unjust enrichment claim cannot be supported merely because MCM received a benefit from the subcontractor’s work. Where there is an express contract between a general contractor and a subcontractor, the law is clear that the owner may not be held liable unless the owner has assented to a payment obligation to the subcontractor. The owner’s consent to allow the improvements for which it received a benefit to be made is not enough. The owner has to undertake actions which would give clear indication that it assumed the obligation to pay the subcontractor. In this decision, the court did not address the validity of the subcontractors’ mechanic’s liens.

Comment

Here, the MCM court applied New York law to bar the application of the unjust enrichment doctrine where there is no evidence that the owner assumed any independent obligation to pay the subcontractors. However, a subcontractor may have a valid unjust enrichment claim against an owner if it can show direct dealings between the owner and the subcontractor to justify imposing an obligation the owner, despite the absence of a contractual relationship. This includes situations where the owner paid the subcontractor directly or expressed a willingness to pay the subcontractor. Therefore, an owner may be liable to the subcontractor where communications between the parties show that the owner assured direct payment to the subcontractor.  

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