In the case of MCM Products USA, Inc. v. Aliusta Design, the court addressed the issue of whether a subcontractor could make an unjust enrichment claim against a property owner when the contract is between the general contractor (GC) and the subcontractors. This case occurred due to the GC’s insolvency and the resulting situation in which subcontractors were not paid for work that they did on the project. This led them to try to get paid through the owners of the property instead, who had paid the GC rather than the subcontractors.
How Did This Case Start?
It all started when MCM leased a space for their luggage and accessories store in Manhattan. They hired a general contractor and signed a $1.4 million contract to renovate the leased property in June 2014. This GC hired subcontractors to do the construction, but there was not a contractual relationship between MCM and any of the subcontractors that actually did the majority of the work.
On March 2015, the GC filed a mechanic’s lien against the property and some subcontractors did as well. The lease that MCM had signed with the landlord required that MCM discharge any mechanic’s liens against the property promptly. MCM filed a lawsuit in May 2015 seeking a judgment, declaring that they did not owe the subcontractors any money. Counterclaims for unjust enrichment were filed against MCM by several subcontractors, saying that the leased property unjustly benefitted from the work done for which payment was not made, and that MCM should be responsible for payment. MCM moved for dismissal of the counterclaims.
A Decision Came Down
When the court came to a decision, they dismissed the unjust enrichment counterclaims made by the subcontractors. The court followed previous case law to hold that a claim of unjust enrichment is not able to be supported simply because a company benefited from the work done by the subcontractor. If there is an express contract between a GC and subcontractor, the law is very clear that the owner is not liable, unless the owner has agreed to pay the subcontractor themselves. The consent of the owner to allow the subcontractor to work on the property is not enough. The owner has to take action that would show clear indication that they were going to pay the subcontractor themselves, rather than the GC doing so. The court did not address the validity of the mechanic’s liens in this decision at all.
To reach their decision, the court used existing New York law to bar the unjust enrichment case, simply because there was no evidence that the owner (MCM) had indicated any intention to pay the subcontractors. In some cases, however, a subcontractor could have a valid unjust enrichment claim if they can show that an owner had direct dealings with the subcontractor, even if there was not a contractual relationship. Included in this are situations in which the owner pays the subcontractor director or indicates that they will pay the subcontractor. This backed up existing law in New York.