Title: Carolina Bldg. Serv.' Windows & Doors, Inc. v. Boardwalk, LLC
Citation: 362 N.C. 262
Docket Number: 444PA06
State: north-carolina
Issuer: north-carolina Supreme Court
Date: April 11, 2008

CAROLINA BUILDING SERVICES’ WINDOWS & DOORS, INC. v. BOARDWALK,
LLC; MILLER BUILDING CORPORATION; DEBORAH C. LEE; SHANNON W.
MYERS; JOHN C. CZERWINSKI and wife, JEANETTE M. CZERWINSKI;
MANISH G. PATEL; ALLEN H. VAN DYKE and wife, PERRY G. VAN DYKE;
GEORGE CORNELSON and wife, KIMBERLYE F. CORNELSON; AFSHIN GHAZI;
and CHARLES H. HUNTLEY
No. 444PA06 
FILED: 11 APRIL 2008
Liens–subcontractor’s–not extinguished by default of general contractor
A default judgment in favor of an owner against a general contractor cannot be used as
the basis for extinguishing a subcontractor’s lien under N.C.G.S. § 44A-23.  In this case, the
subcontractor (Carolina Building) presented an affidavit that raised a genuine issue of material
fact concerning the property owner’s liability to the contractor, and summary judgment should
not have been granted for the property owner (Boardwalk) on Carolina Building’s lien.
Justice TIMMONS-GOODSON dissenting.
Justice BRADY joins in this dissenting opinion.
On discretionary review pursuant to N.C.G.S. § 7A-31 of the
unanimous, unpublished decision of the Court of Appeals, 178 N.C.
App. 561, 631 S.E.2d 893 (2006), affirming orders entered on 28
March 2005 by Judge Larry Ford in Superior Court, Iredell County. 
 Heard in the Supreme Court 13 September 2007.
Erwin and Eleazer, P.A., by L. Holmes Eleazer, Jr.,
Fenton T. Erwin, Jr., and Lex M. Erwin, for plaintiff-
appellant.
Johnston, Allison & Hord, P.A., by Martin L. White and
Greg C. Ahlum, for defendant-appellee Boardwalk, LLC;
and Horack, Talley, Pharr & Lowndes, by D. Christopher
Osborn, for defendant-appellees individual unit owners.
NEWBY, Justice.
This case presents the question of whether a default
judgment in favor of an owner against a general contractor can
form the basis for extinguishing a subcontractor’s lien on
property under N.C.G.S. § 44A-23.  We hold a default judgment
cannot be used for this purpose.
Before September 2001, Boardwalk, LLC (“Boardwalk”)
entered into a contract with Miller Building Corporation
(“Miller”) whereby Miller agreed to serve as the general
contractor for Boardwalk’s condominium project.  In February
2002, well before completion of the project, Miller removed its
personnel and equipment from the job site.  Miller failed to
fully pay its subcontractors, including Carolina Building
Services’ Windows and Doors, Inc. (“Carolina Building”).
Carolina Building gave notice of a lien on funds to
Boardwalk on 22 February 2002 and filed a subrogation lien on
Boardwalk’s property on 25 February 2002.  On 24 April 2002,
Carolina Building filed suit against Boardwalk and Miller
asserting claims based on the liens, breach of contract against
Miller, and quantum meruit.  There is no dispute that Carolina
Building furnished nearly $189,704.41 worth of materials to
Miller, which were used on Boardwalk’s property and for which
Miller failed to pay.  Miller never answered or appeared, and
Carolina Building obtained an entry of default against Miller on
28 June 2002 and a default judgment on 10 December 2002.
Over two years later on 24 June 2004, Boardwalk filed a
crossclaim against Miller alleging negligence and breach of
contract.  Again, Miller did not answer or appear.  Boardwalk
obtained an entry of default against Miller on 26 January 2005. 
Boardwalk then sought a default judgment in the amount of
$185,420.38 against Miller.  Carolina Building objected to the
entry of that judgment.  Boardwalk’s motion for default judgment
against Miller was consolidated with Boardwalk’s and Carolina
Building’s cross-motions for summary judgment, and the matter was
heard on 28 February and 1 March 2005.
Boardwalk presented affidavits asserting it incurred
excess costs to complete the project thereby preventing Carolina
Building from any monetary recovery against Boardwalk under the
lien statutes.  In opposition, Carolina Building presented an
affidavit asserting Boardwalk completed the project for less than
its contract price with Miller.  The trial court concluded
Carolina Building lacked standing to contest a default judgment
in an action between Boardwalk and Miller and entered a default
judgment against Miller on Boardwalk’s crossclaim in the amount
of $172,265.63, the difference asserted in Boardwalk’s affidavits
between the contract price and the cost to complete the project. 
Next, despite the competing affidavits presented by Boardwalk and
Carolina Building, the trial court granted summary judgment for
Boardwalk as to Carolina Building’s claims, relying solely on the
default judgment against Miller.
The Court of Appeals found the trial court did not err
in holding Carolina Building lacked standing to object to
Boardwalk’s motion for default judgment against Miller.  Carolina
Bldg. Servs.’ Windows & Doors, Inc. v. Boardwalk, LLC, 178 N.C.
App. 561, 631 S.E.2d 893, 2006 WL 1984639, at *2-3 (July 18,
2006) (No. COA05-1030) (unpublished).  As to Carolina Building’s
lien on funds, the Court of Appeals held summary judgment for
Boardwalk was appropriate because both parties agreed that
Boardwalk did not owe Miller any sum of money on 22 February 2002
(the date Boardwalk received notice of the lien on funds) and
Boardwalk paid no funds to Miller after receiving Carolina
Building’s notice.  Id., at *6.  Finally, the Court of Appeals
held that the trial court did not err in granting summary
judgment in favor of Boardwalk as to Carolina Building’s lien on
real property because the lien was subrogated to Miller’s rights
and that the default judgment in favor of Boardwalk against
Miller meant that Miller had no right to a lien against
Boardwalk’s real property.  Id., at *7.  On 25 January 2007, we
allowed Carolina Building’s petition for discretionary review as
to the last issue addressed by the Court of Appeals:  whether a
default judgment for an owner against a general contractor who
does not appear may be the basis for extinguishing a
subcontractor’s lien on the owner’s real property.  Carolina
Bldg. Servs.’ Windows & Doors, Inc. v. Boardwalk, LLC, 361 N.C.
218, 642 S.E.2d 245 (2007).
We decide this issue by examining the statutory scheme
provided by the General Assembly in Chapter 44A.  Recently, this
Court dealt with a question concerning a lien on funds under
N.C.G.S. §§ 44A-18 and 44A-20 and stated:
The materialman’s lien statute is
remedial in that it seeks to protect the
interests of those who supply labor and
materials that improve the value of the
owner’s property.  A remedial statute must be
construed broadly “in the light of the evils
sought to be eliminated, the remedies
intended to be applied, and the objective to
be attained.”
O & M Indus. v. Smith Eng’g Co., 360 N.C. 263, 268, 624 S.E.2d
345, 348 (2006) (citations omitted).  Likewise, N.C.G.S. § 44A-23
is a remedial statute that must be construed broadly.
When certain notice and perfection requirements are
met, a first tier subcontractor is subrogated to the claim of
lien on real property of the contractor.  N.C.G.S. § 44A-23(a)
(1999).  This is “a separate right of subrogation to the lien of
the contractor who deals with the owner, distinct from the rights
contained in N.C.G.S. § 44A-18,” Elec. Supply Co. of Durham, Inc.
v. Swain Elec. Co., 328 N.C. 651, 660, 403 S.E.2d 291, 297
(1991), meaning “the subcontractor may assert whatever lien that
the contractor who dealt with the owner has against the owner’s
real property relating to the project,” id. at 661, 403 S.E.2d at
297 (citing Powell & Powell v. King Lumber Co., 168 N.C. 723,
729, 168 N.C. 632, 638, 84 S.E. 1032, 1035 (1915)). 
In pertinent part, N.C.G.S. § 44A-23 states:  “Upon the
filing of the notice and claim of lien and the commencement of
the action, no action of the contractor shall be effective to
prejudice the rights of the subcontractor without his written
consent.”  N.C.G.S. § 44A-23(a).  The parties agree that Carolina
Building properly filed a notice and claim of lien and properly
commenced the action.  It is also uncontested that Miller
defaulted after Carolina Building commenced its action and that
Carolina Building did not provide written consent allowing
Miller’s actions to prejudice its rights.  However, the parties
disagree whether Miller’s default constituted an “action.”
Carolina Building presented an affidavit that raised a
genuine issue of material fact concerning Boardwalk’s liability
to Miller based on a lien against Boardwalk’s real property. 
Rather than consider this affidavit, the trial court focused on
the default judgment for Boardwalk against Miller.  By its plain
meaning, an action is “[a] thing done.”  Black’s Law Dictionary
31 (8th ed. 2004).  Thus, Miller’s choice not to defend
Boardwalk’s claims constituted an “action” which prejudiced the
rights of Carolina Building contrary to the statutory mandate of
N.C.G.S. § 44A-23.  Carolina Building should have an opportunity
to present its evidence concerning the merits of recovery under
its lien on real property. 
The decision of the Court of Appeals is reversed as to
the issue before this Court on discretionary review.  The
remaining issues addressed by the Court of Appeals are not before
this Court, and its decision as to those issues remains
undisturbed.  This case is remanded to the Court of Appeals for
further remand to the trial court for proceedings not
inconsistent with this opinion. 
REVERSED IN PART AND REMANDED.
Justice TIMMONS-GOODSON, dissenting.
Notwithstanding the default judgment in favor of Boardwalk, the
majority declares that the trial court erred in relying upon the
default judgment against Miller in granting summary judgment to
Boardwalk, and that Carolina Building may pursue its claim to
recovery on its lien on real property owned by Boardwalk.  In so
holding, the majority sub silentio overrules the settled law of
default judgments in North Carolina.  The majority moreover
contravenes the lien law hierarchy created by N.C.G.S. §§ 44A-7
to -23.  I therefore respectfully dissent.
I must first note that the majority’s decision strays
beyond the boundaries set by this Court when it agreed to
entertain the case.  The majority acknowledges that in allowing
discretionary review, we limited the scope of our review to the
second issue only, which is “whether a default judgment for an
owner against a general contractor who does not appear may be
the basis for extinguishing a subcontractor’s lien on the
owner’s real property.”  We did not grant discretionary review
to the first issue, which was that Carolina Building “lacked
standing to object to Boardwalk’s motion for default judgment
against Miller.”  Thus, under the law of this case, Carolina
Building has no standing to argue the merits of any defense
Miller may have had to Boardwalk’s claim against it.  Yet the
majority’s resolution of the case contradicts itself and
expressly allows Carolina Building to argue the merits of
Miller’s right to a lien against Boardwalk’s real property.  The
majority thereby improperly reverses the opinion of the Court of
Appeals not only as to the second issue, but as to the first
issue as well.        
Under our lien statutes, there are only two methods by
which a subcontractor may assert lien rights against the owner’s
real property: (1) a direct liability lien pursuant to N.C.G.S.
§44A-20(d); and (2) a subrogation lien pursuant to N.C.G.S.
§44A-23, as we have here.  Under N.C.G.S. § 44A-23, a
subcontractor seeking a claim of lien on real property must
first give notice of claim of lien upon funds pursuant to
N.C.G.S. §§ 44A18-19.  See N.C.G.S. § 44A-23(a).  The notice of
claim of lien upon funds statute
creates a risk shifting mechanism for
subcontractors.  Prior to notice to the
obligor, the subcontractor bears the risk of
loss or nonpayment by the general
contractor.  When notice is served, the risk
shifts to the obligor to the extent that the
obligor is holding funds.  With this notice
the burden of assuring payment of the
subcontractor’s lien shifts to the obligor
who owns the project, is receiving
construction funds, and receives the benefit
of the subcontractor’s labor and materials. 
The owner is, thus, put on notice of a
general contractor’s potential breach and is
apprised of the need to take precautions
necessary to protect the project and to
ensure that subcontractors remain on the
job.
O & M Indus. v. Smith Eng’r Co., 360 N.C. 263, 269, 624 S.E.2d
345, 349 (2006).  Once notice of claim of lien upon funds is
given, the subcontractor, “may, to the extent of this claim,
enforce the claim of lien on real property of the contractor.” 
N.C.G.S. § 44A-23(a).  A subcontractor’s claim of lien on real
property is subrogated to the contractor’s claim of lien on real
property, and the lien is therefore necessarily limited to the
amount of money the owner owes the contractor.  N.C.G.S. § 44A-
23(a); Electric Supply Co. of Durham v. Swain Electrical Co.,
328 N.C. 651, 661, 403 S.E.2d 291, 297 (1991).  If the general
contractor has no right to a lien, the first tier subcontractor
likewise has no such right.  See N.C.G.S. § 44A-23(a); Watson
Elec. Constr. Co. v. Summit Cos., 160 N.C. App. 647, 650-51, 587
S.E.2d 87, 91 (2003).  
In the present case, it is undisputed that any claim by
Carolina Building on Boardwalk’s real property is subrogated to
Miller’s claim.  Both parties also agree that after receiving
Carolina Building’s notice, Boardwalk paid no funds to Miller. 
Carolina Building’s claim on Boardwalk’s real property is
therefore limited to the amount of money owed by Boardwalk to
Miller.  The entry of default and default judgment entered
against Miller conclusively established that Boardwalk owed no
money to Miller and Miller had no claim of lien upon Boardwalk’s
real property.  “‘Once the default is established defendant has
no further standing to contest the factual allegations of
plaintiff’s claim for relief.  If he wishes an opportunity to
challenge plaintiff’s right to recover, his only recourse is to
show good cause for setting aside the default . . . and, failing
that, to contest the amount of recovery.’”  Bell v. Martin, 299
N.C. 715, 721, 264 S.E.2d 101, 105 (1980) (citation omitted)
(quoting Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure § 2688 (alteration in original) (footnote
omitted)).  The default judgment entered here has not been set
aside.  As it is judicially established that Miller has no right
to claim of lien on Boardwalk’s property, it follows that, as
the subcontractor, Carolina Building can have no claim of lien
on Boardwalk’s property.  As such, Boardwalk was entitled to
judgment as a matter of law, and the trial court did not err in
granting summary judgment in favor of Boardwalk.  
The majority does not expressly address the interplay
between N.C.G.S. § 44A-23 and the law of default judgments, but
determines that Carolina Building is entitled to “an opportunity
to present its evidence concerning the merits of recovery under
its lien on real property.”  The majority thereby necessarily
concludes that the default judgment entered here has no effect
and may be regarded as a nullity in the face of N.C.G.S. § 44A-
23(a)’s provision that “no action of the contractor shall be
effective to prejudice the rights of the subcontractor.”  The
majority offers no authority in support of its holding beyond a
mere definition of the word “action.”  This holding
fundamentally contradicts the settled law of default judgments
in this State and ignores the lien law hierarchy created by
N.C.G.S. §§ 44A-7 to -23.  Notably, the majority makes no
attempt to limit its holding to situations involving contractors
and subcontractors, which throws into question the continued
validity of default judgments in this State.  If a validly-
entered default judgment may no longer be relied upon by a
property owner against a lien claim by a subcontractor, it begs
the question to what other statutorily-based, judicially-created
exceptions Rule 55 might be vulnerable.  Ironically, the basis
of Carolina Building’s established claim to monies owed it by
Miller -- a default judgment entered against Miller in the same
action -- is the very same type of judgment Carolina Building
and the majority deem ineffectual in the present case.     
The factual scenario of the instant case is an all too
common one, which is why the General Assembly established the
lien protections of Chapter 44A.  In a case between two innocent
parties, as we have here, the risk must fall on the party better
placed to protect its interest.  Compare O & M Indus. v. Smith
Eng’r Co., 360 N.C. at 269, 624 S.E.2d at 349 (noting that, with
a claim of lien on funds, “[p]rior to notice to the obligor, the
subcontractor bears the risk of loss or nonpayment by the
general contractor.”).  Carolina Building could have earlier
filed for a lien and thus better protected itself from potential
loss.  See, e.g., N.C.G.S. § 44A-18(5) (providing that a lien on
funds will secure amounts earned by the claimant, even before
amounts are due or performance is complete).  I fear that the
majority’s broad holding may have many unanticipated
consequences for our State’s jurisprudence.  
Justice Brady joins in this dissenting opinion.