Unjust Enrichment Claims: “Plan B” for Unperfected Mechanics Lien Claims
I work with a number of contractors in my practice, especially in the area of filing and foreclosing mechanics lien claims.
Mechanics lien laws were created in order to ensure that laborers and materialmen were paid for the improvements made by them to real property. In Minnesota, Minnesota Statutes Chapter 514 sets forth the situations when mechanics lien rights arise, as well as the requirements to perfect such a lien. Minnesota courts have held time and again that, once the technical requirements for perfecting the lien have been met, public policy strongly favors the payment of the lien claimant.
In practice, two elements in the perfection process typically trip up potential lien claimants: (1) the pre-lien notice requirement ; and (2) filing of the mechanics lien statement within 120 days of the last day of work. Contractors who lose their mechanics lien rights (as the law requires strict adherence to the perfection requirements in order to maintain the mechanics lien) are not necessarily out of luck; they should instead consider pursuing the defaulting property owner under a claim called “unjust enrichment”.
In order to establish a claim for unjust enrichment, the plaintiff must show that the defendant knowingly received something of value to which he was not entitled, and that the circumstances are such that it would be unjust for the defendant to retain the benefit. Acton Constr. Co. v. State, 383 N.W.2d 416, 417 (Minn. App. 1986) (the elements of a quasi contract are: (1) a benefit is conferred; (2) the defendant appreciates and knowingly accepts the benefit; and (3) the defendant’s retention of the benefit under the circumstances would be inequitable.).
An action for unjust enrichment does not exist simply because one party benefits from the efforts of others; instead, it must be shown that the plaintiff was unjustly enriched in the sense that the term ‘unjustly’ could mean illegally, unlawfully (e.g., fraudulent) or even morally wrongfully enriched. First Nat’l Bank of St. Paul v. Ramier, 311 N.W.2d 502, 504 (Minn. 1981).
A contractor pursuing an unjust enrichment claim should also record a notice of lis pendens against the property in question, which gives notice to the world of the pending litigation regarding that property. Recording this notice gives the contractor the equivalent of the mechanics lien in that an encumbrance is placed against the property which will prevent any closing and could ultimately mean an expeditious settlement of the claim.
An unjust enrichment claim is not a perfect substitute for a mechanics lien claim; for example, a foreclosing mechanics lien claimant can recover court costs and attorney fees whereas an unjust enrichment claimant cannot. Still, for the right claim, pursuing a defaulting owner under a theory of unjust enrichment beats writing off the debt.