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First Department Finds Mechanic’s Lien is Willfully Exaggerated Under the Lien Law

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  • Posted on: Dec 12 2022

By Jonathan H. Freiberger

Mechanic’s liens are powerful tools that can be used by contractors, laborers and materialmen, among others, to assist in getting paid for work performed in improving real property.  Indeed:

The object and purpose of [New York’s] mechanics’ lien law was to protect a person who, with the consent of the of the owner of real property, enhanced its value by furnishing materials or performing labor in its improvement, by giving him an interest therein to the extent of the value of such material or labor.  The filing of the notice of lien is the statutory method prescribed by which the party entitled thereto perfects his inchoate right to that interest.

John P. Kane Co. v. Kinney, 174 N.Y. 69, 73 (1903).  As previously noted in this Blog, due to the leverage that a mechanic’s lien provides to a lienor, the Lien Law permits a lienor to be “punished” if the filed lien is “willfully exaggerated”.  Howdy Jones Const. Co., Inc. v. Parklaw Realty, Inc., 76 A.D.2d 1018 (3rd Dep’t 1980), affirmed, 53 N.Y.2d 718 (1981).  Lien Law § 39 declares that willfully exaggerated liens are void.  Lien Law § 39-a, sets forth the penalties that can be assessed against a lienor when a lien is found to be “willfully exaggerated”.  [This Blog has discussed willful exaggeration [here] and [here].  Hyperlink to those articles for a more detailed discussion of issues surrounding willful exaggeration and the Lien Law.]

On December 8, 2022, the Appellate Division, First Department, in deciding Casella Construction Corp. v. 322 East 93rd Street LLC, unanimously affirmed the dismissal, on summary judgment, of plaintiff, contractor’s (“Contractor”) “willfully exaggerated” mechanic’s lien.  The facts in Casella are interesting.  [Eds. Note: some of the facts were obtained by reviewing the appellate briefs and record on appeal available on the NYSCEF website.]  324 E. 93 LLC (“324 Owner”) owns a building located at 324 East 93 Street in Manhattan that was destroyed by fire (the “Destroyed Building”).  Defendant 322 East 93rd Street LLC (“322 Owner”) owns the neighboring building located at 322 East 93rd Street in Manhattan (the “Liened Building”).  The Destroyed Building and the Liened Building shared a party wall (the “Party Wall”).  

After a fire irreparably damaged the Destroyed Building, the New York City Department of Buildings issued an emergency order requiring 324 Owner to, inter alia, demolish the Destroyed Building, make certain repairs to the Liened Building because of damage to the Party Wall and otherwise protect the Liened Building from further damage during demolition and related remedial work (the “Construction”).  By virtue of the Building Department’s order, 322 Owner was also required to permit access to the Liened Building so that the Contractor could proceed apace with the Construction. 

So that the Construction could procced, 324 Owner’s insurance carrier, on behalf of 324 Owner, entered into a contract with the Contractor pursuant to which the Contractor was to perform the Construction (the “Contract”).  Among other things, according to the underlying Supreme Court Order, the Contract provided that “‘the Contract Sum shall be the fixed amount of any proceeds actually paid by [324 Owner’s insurance carrier (the “Carrier”)] to [324 Owner] under [its claim for the fire damage], in connection with [324 Owner’s insurance policy (the “Policy”)], apportioned to the Work, as directed pursuant to [the violation issued by the New York City Department of Buildings] for the [Destroyed Building] necessitated as a result of the fire that occurred [at the Destroyed Building] on or about October 27, 2016.  [324 Owner] and the Contractor agree that the Insurance proceeds is the sole and total compensation due to the Contractor for the full performance of the Contract’”.  (Brackets added and ellipses omitted.)  In addition, the scope of work in the Contract included work that had to be performed on the Liened Building.  Contrary to Contractor’s assertions, there was no evidence to suggest that 322 Owner agreed to pay for any of the Construction performed on the Liened Building and, indeed, the evidence was to the contrary.

According to the operative Contract, the Contractor was paid by 324 Owner’s Carrier the amount deemed to be due under the Policy.  Nonetheless, the Contractor sought payment from 322 Owner for some of the remedial work performed on, or for the benefit of, the Liened Building.  When payment was not made by 322 Owner, Contractor filed a mechanic’s lien in an amount in excess of $200,000 against the Liened Building and, thereafter, Contractor commenced a mechanic’s lien foreclosure action.  322 Owner answered the complaint and, inter alia, asserted a counterclaim for damages resulting from the filing of a willfully exaggerated mechanic’s lien.  After discovery, 322 Owner moved for summary judgment dismissing the Complaint and for damages because of the exaggerated lien.

Supreme Court granted the motion.  In so doing, the court found that the Contractor knew that the scope of its work included the work performed at the Liened Building and that the Contractor was paid for all of the work by 324 Owner’s insurance carrier.  Therefore, the lien on the Liened Property was necessarily exaggerated because 322 Owner owed the Contractor no money.  Supreme Court granted the motion, declared the lien void and discharged under Lien Law § 39 and referred the matter to a referee to assess damages against Contractor pursuant to Lien Law § 39-a for the willfully exaggerated lien.

Contractor appealed and the First Department affirmed stating, inter alia, that:

While the issue of whether the amount of a lien has been willfully exaggerated is ordinarily determined at the trial of the foreclosure action, a claim under Lien Law § 39 is subject to summary disposition where, as here, the evidence that the amount of the lien was wilfully exaggerated is conclusive. Under the particular circumstance here, defendant met its burden of establishing willful exaggeration, and plaintiff failed to raise triable issues of fact. The contract between [Contractor] and [324 Owner] clearly provided that [324 Owner]’s insurance proceeds were “the sole and total compensation due” to plaintiff for its performance of the contract work. As a result, [Contractor] was not entitled to any additional compensation for its work on [the Liened Building], which work was covered under the [C]ontract.  [Citations and some internal quotation marks omitted.]

Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

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