Court Opinion

ID: 9623539
Source: CourtListenerOpinion
Date Created: 2023-08-22 06:35:36.829631+00
Date Added: 2024-06-11T09:03:05.382250
License: Public Domain

Justice TIMMONS-GOODSON,
dissenting.
Notwithstanding the default judgment in favor of Boardwalk, the majority declares that the trial court erred in relying upon the *266default 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 -23.1 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 *267of 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 evi*268dence 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.