By: Jared A. Hand Published: August 2016

Subcontractor's Unjust Enrichment Claim Against Project Owner Held Invalid

In MCM Products USA, Inc. v. Aliusta Design, et al., the Plaintiff/owner of the relevant property engaged a general contractor (the “GC”) in connection with a construction project located in New York City (the “Project”). Thereafter, the GC engaged numerous subcontractors (the “Subcontractors”) to carry out portions of the work. Importantly, the Subcontractors were directly engaged by the GC, and had no contractual relationship with Plaintiff/owner.

As payment disputes arose on the Project, mainly due to the GC’s failure to pay certain Subcontractors, mechanic’s liens were filed against the property. Thereafter, Plaintiff/owner commenced a declaratory judgment action seeking a determination that it is not liable to the Subcontractors for any money due and owing from the GC. In response to Plaintiff/owner’s complaint, one of the Subcontractors asserted a counterclaim for unjust enrichment1. Plaintiff/owner subsequently moved to dismiss the counterclaim.

In granting Plaintiff/owner’s motion to dismiss the counterclaim for unjust enrichment (which rests on a theory of quasi-contract), the Court noted that, generally, the existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi-contract for events arising out of the same subject matter. The general rule further precludes a quasi-contractual claim against a third-party non-signatory to a contract that covers the subject matter of the claim (i.e. Plaintiff/owner).

Given that the unjust enrichment counterclaim does not assert any allegations linking Plaintiff/owner to the services allegedly performed, and that the counterclaiming Subcontractor admitted it was engaged directly by the GC, Plaintiff/owner may not be held liable to the counterclaiming Subcontractor.

The holding in MCM Products USA, Inc. demonstrates the importance of knowing from whom a subcontractor can recover monies owed. Where there is an express contract between a general contractor and subcontractor, the owner of the subject project may not be held directly liable to the subcontractor on a theory of implied or quasi-contract, unless the owner has expressly assented to such an obligation. The mere fact that an owner consented to the improvements being provided by a subcontractor (and accepted the benefit of such improvements), however, does not render it liable to a subcontractor. Rather, the subcontractor’s sole remedy lies against the general contractor with whom it contracted.


1A claim for unjust enrichment is based on the theory of quasi-contract. Such theory seeks to create an implied contract when a written agreement doesn’t actually exist. The theory is based in equity and is designed to avoid an individual or entity being unjustly enriched at the expense of another.

 

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