Contract – General Contractor – Claim of Lien – Order of Attachment – Control Analysis – G.S. § 87-10

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Signature Development, LLC v. Sandler Commercial at Union, LLC  (Lawyers Weekly No. 10-07-1057, 33 pp.) (Linda Stephens, J.) Appealed from Union County Superior Court (Christopher M. Collier, J.). N.C. App. Click here to read the full text of the opinion.

Holdings:  Since the plaintiff did not exercise the requisite control over a development project to be considered the general contractor, the trial court erred in dismissing the plaintiff’s complaint under Rule 12(b)(6) based on the plaintiff’s failure to obtain a general contractor’s license. The trial court did not err by dismissing the plaintiff’s claim of lien where the claim of lien was based on a percentage of profits, not upon debts owing for labor done or professional design or surveying services or material furnished, as required under G.S. § 44-8. The trial court erred by dissolving the plaintiff’s order of attachment because it did not make adequate findings under G.S. § 1-440.3 to justify doing so.

Facts

The plaintiff and defendant entered into a development management agreement for the development of 16 acres of the defendant’s property, to be undertaken in three phases.

Under the agreement the plaintiff acted as the defendant’s agent in managing, developing, constructing, marketing and leasing the property. In exchange, the defendant would pay to the plaintiff an initial development fee, a base development fee, a leasing fee, a sales fee and a participation fee.

The plaintiff alleged that the defendant failed to pay the participation fee of $2,338,806.

The plaintiff placed a lien on the defendant’s property and filed a complaint alleging breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, fraud, negligent misrepresentation and unfair and deceptive trade practices.

The plaintiff obtained an order of attachment against the property, filed a notice of lis pendens, and issues summonses of garnishee and notices of levy upon tenants in the property.

Wells Fargo sought to dissolve the order of attachment, alleging that it had first and second priority lien rights to rent payments from tenants under mortgages on the property totaling $12 million.

The defendant filed a Rule 12(b)(6) motion to dismiss, alleging that the plaintiff was not a general contractor, and that unlicensed general contractors are barred from recovering monies from a property owner on any claim.

The trial court partially granted the defendant’s motion to dismiss, struck the claim of lien and dissolved the order of attachment. The court ordered the plaintiff to provide an accounting of amounts received pursuant to the order of attachment and forward it to Wells Fargo.

The plaintiff appealed.

Dismissal Based on Contractor Status

The plaintiff argued that the trial court erred in partially granting the defendant’s motion to dismiss based on the trial court’s finding that the plaintiff was an unlicensed general contractor.

One who undertakes a project as a general contractor in North Carolina is required to comply with the licensing requirements set forth in G.S. § 87-10.

Our Supreme Court held in Bryan Builders Supply v. Midyette, 274 N.C. 264 (1968) that a contractor may not recover on a contract or in quantum meruit when he has ignored the licensing statute.

In order to determine whether the plaintiff was the general contractor, we determine the degree of control plaintiff exercised over the entire project.

The agreement in this case unambiguously vested control over the entire project in the defendant.

By the terms of the agreement, the plaintiff assumed no responsibility for costs, timeliness, or quality of the project.

After considering the contractual provisions in the agreement, we conclude that the plaintiff was not a general contractor but instead served as the defendant’s agent under a pure project management arrangement.

Taking the allegations of the complaint in the light most favorable to the plaintiff, it appears that the defendant engaged the plaintiff not to perform the work of a general contractor in the construction of the project, but to act as the defendant’s agent in the day-to-day management of the project; that the plaintiff satisfactorily completed its duties under the agreement; and that the defendant has failed to pay the plaintiff the participation fee as required by the agreement.

The defendant’s failure to pay the participation fee was a direct result of the defendant’s having inadequate financial resources to meet its obligations under the agreement, a condition which the plaintiff certainly did not bring upon itself.

The licensing statutes should not be used as a shield to avoid a just obligation owed to an innocent party.

Under the circumstances of this case, it was inappropriate for the trial court to dismiss the plaintiff’s claims on the defendant’s Rule 12(b)(6) motion. We reverse the trial court’s order on this issue.

Claim of Lien

The plaintiff argues that the trial court erred in striking its claim of lien against the property.

A lien under G.S. § 44A-8 attaches only for debts owing for labor done or professional design or surveying services or material furnished. Nothing is said about lost profits.

Since the participation fee was based on a share of profits, the trial court did not err in striking the plaintiff’s claim of lien against the property.

Order of Attachment

The plaintiff argued that the trial court erred in dissolving the order of attachment.

In accordance with G.S. § 1-440.3, the plaintiff’s affidavit stated as grounds for attachment that the defendant is “(1) a nonresident; (2) a foreign corporation; and (3) a person or domestic corporation which, with intent to defraud his/her or its creditors… has removed or is about to remove, property from this state… [and] has assigned, disposed of, secreted, or is about to assign, dispose of, or secrete [sic], property.”

While it was proper for the trial court to strike the plaintiff’s claim of lien, the plaintiff’s order of attachment was procured under G.S. § 1-440.3, not under Chapter 44A.

It is undisputed that the defendant is a foreign corporation, and the plaintiff’s action based on the defendant’s failure to pay the participation fee is pending.

Accordingly, the trial court erred in dissolving the order of attachment, and the trial court’s order on this issue is reversed.

Wells Fargo asserted that the attachment would have been dissolved anyway because the rent proceeds were never property of the plaintiff for the purpose of attachment or levy. They were Wells Fargo’s, pursuant to G.S. §§ 1-440.43 and 1-440.36.

The trial court made no findings of fact pursuant to G.S. § 1-440.36(c) in its order.

Accordingly, we remand this matter to the trial court for consideration of Wells Fargo’s application.

Reversed in part; Affirmed in part; Remanded in part.