{"id":901856,"date":"2023-11-09T10:39:25","date_gmt":"2023-11-09T17:39:25","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=901856"},"modified":"2023-11-09T10:39:28","modified_gmt":"2023-11-09T17:39:28","slug":"unjust-enrichment-the-subcontractors-claim-against-the-owner-when-the-general-contractor-is-unavailable-for-judgment","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/unjust-enrichment-the-subcontractors-claim-against-the-owner-when-the-general-contractor-is-unavailable-for-judgment\/","title":{"rendered":"Unjust Enrichment: The Subcontractor\u2019s Claim Against the Owner When the General Contractor is \u201cUnavailable for Judgment\u201d"},"content":{"rendered":"\n

Melissa Jones | Frantz Ward<\/a><\/p>\n\n\n\n

Non-payment: the dreaded issue all subcontractors face. Tools, such as payment bond, prompt pay and mechanic\u2019s lien rights and claims, can help secure payment. Additionally, Ohio, unlike most other states, also permits a subcontractor to look to an owner for payment under a theory of unjust enrichment, even if the subcontractor failed to file a mechanic\u2019s lien.  Unjust enrichment provides the subcontractor with a claim against the owner \u2013 even though the subcontractor has no direct contract with the owner.

The General Contractor Must Be \u201cUnavailable for Judgment\u201d<\/u><\/em><\/strong>

The claim, however, comes with caveats. Before the subcontractor can pursue an unjust enrichment claim<\/a> against the owner, the general contractor must be \u201cunavailable for judgment,\u201d to avoid the risk that the subcontractor could recover the same amount from both the owner and the general contractor.

State and federal courts throughout Ohio differ as to when a contractor is \u201cunavailable for judgment.\u201d Some courts hold that the contractor\u2019s appearance in the lawsuit and lack of a bankruptcy filing renders the contractor available for judgment.[1]<\/a> Other courts hold that bankruptcy is merely some evidence of the party\u2019s insolvency, and that evidence of financial struggles also determines a contractor\u2019s unavailability for judgment.[2]<\/a>  In 2022, the Eighth Appellate District considered the lack of the contractor\u2019s bankruptcy filing, without any other compelling evidence regarding the contractor\u2019s solvency, to be sufficient evidence of the contractor\u2019s availability for judgment.[3]<\/a>

A Bankruptcy Filing by the General Contractor is Not Required<\/u><\/em><\/strong>

On October 26, 2023, the Eighth District Court of Appeals, in The Company, Inc. v. Capstone Constr. Co.<\/em>, 2023-Ohio-3882, further clarified the \u201cunavailability for judgment\u201d issue by concluding that the totality of the facts regarding the contractor\u2019s insolvency, and not just a bankruptcy filing, establishes the contractor\u2019s unavailability for judgment.

In Capstone, <\/em>Capstone Construction Co., Inc. failed to fully pay its subcontractor, VMI Group Inc., for work it provided to two separate projects: a skilled nursing facility owned by Progressive Broadview Heights Realty, LLC and a tennis facility owned by New Wembley, LLC. Litigation ensued, including VMI\u2019s unjust enrichment claims against the owners. The owners defended against VMI\u2019s claims by asserting Capstone\u2019s availability for judgment, pointing to Capstone\u2019s participation in the case, lack of a bankruptcy filing, and failure to dissolve Capstone.

Capstone was \u201cUnavailable for Judgment\u201d without Filing Bankruptcy<\/u><\/em><\/strong>

At trial, the uncontroverted evidence presented by VMI confirmed that Capstone had no work, no offices, no assets, no employees and was not conducting any business. The president and an owner of Capstone testified that if a judgment were to be rendered against Capstone, it would be unable to pay any portion of that judgment. VMI also presented certified copies of court documents filed in the owner\u2019s personal bankruptcy proceeding evidencing the trustee\u2019s determination that the owner\u2019s shares in Capstone had zero value.  

Regardless of this evidence of Capstone\u2019s insolvency, the trial court found Capstone to be available for judgment because it had not filed for bankruptcy and remained a party to the lawsuit, where it was pursuing Progressive for the same payment sought by VMI on its unjust enrichment claim. As a result, the trial court dismissed VMI\u2019s unjust enrichment claims against the owners.  The trial court also denied Capstone\u2019s affirmative claims and awarded a $1.7M judgment in favor of Progressive against Capstone.

VMI appealed the trial court\u2019s determination of Capstone\u2019s availability for judgment.  The Eighth District Court of Appeals agreed with VMI, finding that the evidence submitted by VMI demonstrated Capstone\u2019s insolvency and unavailability for judgment. The appellate court further clarified that the lack of a bankruptcy filing \u201cdoes not end the inquiry into Capstone\u2019s availability for judgment,\u201d because \u201cevidence that a party has filed for bankruptcy is merely some evidence that the party is insolvent . . . . a bankruptcy filing is not conclusive nor is it necessary to find that a contractor is unavailable for judgment.\u201d[4]<\/a>

There is No Risk of Double Recovery<\/u><\/em><\/strong>

Capstone\u2019s failed affirmative claims, and the judgment rendered against it, solidified its inability to recover payment from the owners, which inherently mooted any issue with its participation in the lawsuit.  The Capstone <\/em>court also honored the purpose of the \u201cunavailability for judgment\u201d rule – – preventing a double recovery by the subcontractor – – by pointing out that all claims and all issues will be fully resolved at the conclusion of the lawsuit, and res judicata<\/em> bars further recovery or payment among the parties.

Subcontractor\u2019s Remedies<\/u><\/em><\/strong>

The Eighth Appellate District\u2019s analysis of the \u201cunavailability for judgment\u201d issue provides much-needed clarity for the potential unjust enrichment remedy.  Obviously, subcontractors also can protect their right to payment with more direct remedies such as timely mechanic\u2019s liens, attested account or payment bond claims (where applicable), but the unjust enrichment remedy provides another valuable tool.<\/p>\n\n\n\n

\n\n\n\n

[1]<\/a> Coyne v. Hodge Constr., Inc.<\/em>, 2004-Ohio 727 (9th<\/sup> Dist.) and Columbus Garage Floor Coating LLC v. Iowa Concrete, LLC<\/em>, 2022 U.S. Dist. LEXIS 33127 (S.D. Ohio)<\/p>\n\n\n\n

[2]<\/a> Meridien Mktg. Grp. v. J&E Bldg. Grp., Inc.,<\/em> 2011-Ohio-4872 (2nd<\/sup> Dist.) and AP Alts., LLC v. Rosendin Elec., Inc.,<\/em> 2020 U.S. Dist. LEXIS 86502 (N.D. Ohio).<\/p>\n\n\n\n

[3]<\/a> Sterling Contracting, LLC v. Main Event Entertainment, LP, et al.,<\/em> 2022-Ohio-2138 (8th<\/sup> Dist.). <\/p>\n\n\n\n

[4]<\/a> Co. v. Capstone Constr. Co.<\/em>, 2023-Ohio-3882 (8TH<\/sup> Dist.) at 29-30.<\/p>\n\n\n\n

\n\n\n\n

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Melissa Jones | Frantz Ward Non-payment: the dreaded issue all subcontractors face. Tools, such as payment bond, prompt pay and mechanic\u2019s lien rights and claims, can help secure payment. Additionally, Ohio, unlike most other states, also permits a subcontractor to look to an owner for payment under a theory of unjust enrichment, even if the… Continue reading Unjust Enrichment: The Subcontractor\u2019s Claim Against the Owner When the General Contractor is \u201cUnavailable for Judgment\u201d<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[10772],"tags":[9895,441,11459],"class_list":["post-901856","post","type-post","status-publish","format-standard","hentry","category-mechanics-lien-law","tag-advise-consult","tag-mechanics-liens","tag-unjust-enrichment-claim","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nUnjust Enrichment: The Subcontractor\u2019s Claim Against the Owner When the General Contractor is \u201cUnavailable for Judgment\u201d - 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