Unjust Enrichment: The Subcontractor’s Claim Against the Owner When the General Contractor is “Unavailable for Judgment”

Non-payment: the dreaded issue all subcontractors face. Tools, such as payment bond, prompt pay and mechanic’s 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’s lien.  Unjust enrichment provides the subcontractor with a claim against the owner – even though the subcontractor has no direct contract with the owner.
 
The General Contractor Must Be “Unavailable for Judgment”
 
The claim, however, comes with caveats. Before the subcontractor can pursue an unjust enrichment claim against the owner, the general contractor must be “unavailable for judgment,” 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 “unavailable for judgment.” Some courts hold that the contractor’s appearance in the lawsuit and lack of a bankruptcy filing renders the contractor available for judgment.[1] Other courts hold that bankruptcy is merely some evidence of the party’s insolvency, and that evidence of financial struggles also determines a contractor’s unavailability for judgment.[2]  In 2022, the Eighth Appellate District considered the lack of the contractor’s bankruptcy filing, without any other compelling evidence regarding the contractor’s solvency, to be sufficient evidence of the contractor’s availability for judgment.[3]
 
A Bankruptcy Filing by the General Contractor is Not Required
 
On October 26, 2023, the Eighth District Court of Appeals, in The Company, Inc. v. Capstone Constr. Co., 2023-Ohio-3882, further clarified the “unavailability for judgment” issue by concluding that the totality of the facts regarding the contractor’s insolvency, and not just a bankruptcy filing, establishes the contractor’s unavailability for judgment.
 
In Capstone, 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’s unjust enrichment claims against the owners. The owners defended against VMI’s claims by asserting Capstone’s availability for judgment, pointing to Capstone’s participation in the case, lack of a bankruptcy filing, and failure to dissolve Capstone.
 
Capstone was “Unavailable for Judgment” without Filing Bankruptcy
 
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’s personal bankruptcy proceeding evidencing the trustee’s determination that the owner’s shares in Capstone had zero value.  
 
Regardless of this evidence of Capstone’s 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’s unjust enrichment claims against the owners.  The trial court also denied Capstone’s affirmative claims and awarded a $1.7M judgment in favor of Progressive against Capstone.
 
VMI appealed the trial court’s determination of Capstone’s availability for judgment.  The Eighth District Court of Appeals agreed with VMI, finding that the evidence submitted by VMI demonstrated Capstone’s insolvency and unavailability for judgment. The appellate court further clarified that the lack of a bankruptcy filing “does not end the inquiry into Capstone’s availability for judgment,” because “evidence 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.”[4]  
 
There is No Risk of Double Recovery
 
Capstone’s 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 court also honored the purpose of the “unavailability for judgment” 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 bars further recovery or payment among the parties.
 
Subcontractor’s Remedies
 
The Eighth Appellate District’s analysis of the “unavailability for judgment” 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’s liens, attested account or payment bond claims (where applicable), but the unjust enrichment remedy provides another valuable tool.