Appellate Court Affirms Denial Of Motion To Amend Lawsuit To Permit Subcontractor To Assert Direct Claims Against Project Owner

Our readers will not be surprised to learn that we believe that mechanic’s liens are a powerful tool to assist unpaid contractors in collecting their money. We recently wrote about how failing to follow the requirements of asserting and foreclosing such liens is fatal to any subsequent recovery on the lien. In a nutshell, because the mechanic’s lien is a statutory compromise that gives a contractor the right to sue someone with which it has no contractual relationship, the need for the lienor to follow formalities (such as filing and renewing a Notice of Pendency) is emphasized. In the recent case of Marine Bulkheading, Inc., v Ibex Construction Company, LLC, and Costco Wholesale Corporation, an appellate court rejected an attempt by a subcontractor to get around the fact of a bankrupt general contractor and its own failure to renew a required Notice of Pendency by seeking to amend its complaint to include direct non-lien foreclosure claims against the project’s owner. 

Background

In late 2015, Ibex Construction Company entered into a contract to construct a Costco on Third Avenue in Brooklyn. Because of the proximity of the property to the Gowanus Canal, foundation piles were required. That scope of work was subcontracted to Marine Bulkheading, Inc. Marine performed its work, but was not paid by Ibex. Marine filed a mechanic’s lien, and ultimately sued Ibex and Costco to foreclose the lien. Marine also asserted contract claims against Ibex. Marine filed a Notice of Pendency at the time it started the lawsuit, but never renewed its filing after three years, as required by the statute. 

Ultimately, Ibex filed for bankruptcy, and the lawsuit was stayed by federal law as a result. (Many practitioners mistakenly believe that a bankruptcy filing and the Automatic Stay prohibit taking ANY action against a bankrupt debtor; this is not true, a creditor is permitted to take actions to perfect and maintain liens pending the bankruptcy. The only thing prohibited by the Bankruptcy Code are attempts to collect on that lien.) By the time the lawsuit resumed, the deadline to renew the Notice of Pendency had passed (and, if you read our recent column, you realize that this resulted in the effective voiding of the mechanic’s lien). In an attempt to get around the now unrecoverable mechanic’s lien and the bankrupt general contractor, Marine moved to amend its complaint to assert a quasi-contractual quantum meruit claim directly against Costco, the project’s owner. In so moving, Marine noted the delays to the case and that there would be no prejudice to Costco as all facts were already known. Costco opposed, noting that there was already a contract between Marine and Ibex that covered the subject matter of the dispute, and arguing that such direct subcontractor against owner claims were improper.

Decision

The motion court denied the motion, following well settled law that holds that where there is already a written contract governing the subject matter of the dispute, quasi-contractual claims arising out of that same dispute are barred. Marine, with no other avenue to salvage any recovery, appealed. The Appellate Court affirmed, not only finding that the existing contract barred the proposed new claims, but also that “a property owner who contracts with a general contractor does not become liable to a subcontractor on a quasi-contract theory unless it expressly consents to pay for the subcontractor’s performance. The owner’s mere consent to and acceptance of improvements placed on his [or her] property by the subcontractor, without more, does not render it liable to the subcontractor”. 

Comment

While one has to admire Marine’s attempt to extricate itself from the effects of both the GC’s bankruptcy and its own failure to renew the Notice of Pendency, such were too little, too late. As we noted in a recent column, mechanic’s lien formalities are necessary because the mechanic’s lien is a statutory compromise that gives a contractor the right to sue someone with which it has no contractual relationship—and, in most circumstances, provides security for the underlying debt. Here, the contractor failed to follow all of the required formalities to keep its lien in place (the maintenance of the Notice of Pendency by making sure that it was timely renewed). Accordingly, once the Notice of Pendency expired, so did the contractor’s right to maintain the lien foreclosure lawsuit. Its post-hoc efforts to salvage recovery by asserting alternative claims against the only remaining solvent defendant (the owner) were not sufficient as a matter of law.

Mechanic’s liens must be prepared, filed, served (with proof thereof), and perfected (and maintained) correctly.  It is simple, fast and inexpensive to renew a Notice of Pendency.  It is very costly not to do so. Therefore, should you have any questions as to how to best protect your rights to recover on a mechanic’s lien, you should consult with experienced construction counsel.

About the authors: Thomas H. Welby, an attorney and licensed professional engineer, is General Counsel to the CIC and the BCA, and is the Founder of, and Senior Counsel to the law firm of Welby, Brady & Greenblatt, LLP, with offices located throughout the Tri-State Region. Gregory J. Spaun, General Counsel to the Queens and Bronx Building Association, and an attorney and a partner with the firm, co-authors this series.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100