Thursday, December 25, 2014

Motion to Amend Pleadings Keeps Lien Alive

Happy holidays lien lovers!  We can be thankful to the Third Department this year for continually giving us interesting and thorough discussions of the Lien Law.  Our latest gift comes courtesy of Edwards & Zuck, P.C. v. Cappelli Enterprises, Inc.  There the lienor commenced an action to foreclose upon its mechanic's lien.  As required by Lien Law Section 44, the lienor named other lien holders as necessary party defendants.  One defendant lienor, Cives Corporation, originally filed an answer that did not include a counter/cross claim to enforce its own mechanic's lien.  Pursuant to Lien Law Section 44(5), the failure to assert a counter/cross claim is a waiver of the lien.   Cives was in trouble...

However, prior to the expiration of its own lien, Cives filed a motion to amend its answer and assert a counter/cross claim to enforce its mechanic's lien.  The Supreme Court permitted the amendment and permitted the lien to survive.  On appeal, the Third Department affirmed noting that the "law governing mechanic's liens...liberally construed to ensure that its purpose is accomplished..."  The key here appears to have been that at the time the motion was filed the lien was still valid (it has not expired) and the other parties were on notice of the lien by virtue of it having been referenced in the complaint and its alleged validity and priority asserted in the original answer.  

The lesson here?  Play it safe: if you are going to appear as a defendant in the lien foreclosure action and you want to preserve and enforce your lien, assert a cross and counterclaim to foreclose.

Vincent T. Pallaci is the managing partner of the New York law firm of Kushnick | Pallaci PLLC where his practice concentrates mainly on the area of construction law including prosecuting and defending mechanic's lien claims.  With offices in the New York City metropolitan area and in Buffalo, New York, KP serves the construction industry across the State of New York.

Sunday, October 20, 2013

Free Sample New York Mechanic's Lien Form

The New York Mechanic's Lien Blog is happy to offer this free sample New York mechanic's lien form.  As with all legal issues, you should consult with an attorney before using any form or filing a mechanic's lien.






Vincent T. Pallaci is the managing partner of the New York law firm of Kushnick | Pallaci, PLLC where his practice concentrates on construction law.













Mechanic's Lien in NY may not be attached to property after transfer of deed

In V.A.L. Floors v. Marson Contracting Co., the First Department of the Appellate Division reviewed a situation where a parcel of property (a condominium) had been sold and then a mechanic's lien was filed by a contractor hired by the prior owner.  The Court found that:

"since the deed contains the statutorily required trust fund language (see Lien Law § 13[5]), and the conveyance occurred prior to the filing of plaintiff's lien, the "lien is not valid against the deed" 

 The Court further noted that the contractor's mechanic's lien was not filed because:

"Lien Law § 4 provides that a mechanic's lien "shall extend to the owner's right, title or interest in the real property and improvements, existing at the time of filing the notice of lien." Since ownership of the condominium unit passed to the Buyers at the time of delivery of the deed (seeReal Property Law § 244), and since the Buyers did not consent to the work performed outside of the unit which constituted the basis of the overwhelming majority of the Lien (see Real Property Law § 339-l[2]), the Lien was also "invalid under Lien Law § 4(1)"

Most deeds in New York do now contain the statutory trust fund language of Lien Law Section 13 so it would be uncommon to be able to attach a mechanic's lien to property after a valid transfer.  However, the potential lienor is not without recourse.  Lien Law Section 13 makes it clear that the funds received by the owner are trust funds and, if those funds are not used to satisfy claims of contractors and suppliers, the owner (and its principals) may have liability for trust fund diversions.

The lesson for contractors and suppliers here:  don't wait to file your New York mechanic's lien!  There are a number of defenses that can pop up in the window while you wait.  Even though you have time to file (depending on the type of project this may vary in duration), the property could still be transferred hence defeating your mechanic's lien.  Also, during this time the contractor could be paid in full by the owner hence defeating claims of lower tier subcontractors and suppliers.  Granted, filing a mechanic's lien immediately may not always be the proper recourse, but there is a delicate and thin line between waiting too long and filing too soon.  When in doubt, speak to your construction lawyer.

Vincent T. Pallaci is the managing partner of the New York law firm of Kushnick | Pallaci, PLLC where his practice concentrates mainly on the area of construction law including prosecuting and defending mechanic's lien claims.  With offices in the New York City metropolitan area and in Buffalo, New York, KP serves the construction industry across the State of New York.

Friday, August 16, 2013

Make Sure You Have The Right License

Bindela Construction LLC was a licensed general contractor in New York City.  Its principal, Iancu Bindela, was a licensed NYC Home Improvement Salesperson.  So when Bindela Construction LLC wasn't paid for home improvement work that it performed in New York City, it was probably confident it would have no problem pursuing the claim and enforcing a mechanic's lien.  Bindela was very wrong.

In Bindela Construction LLC v. Campo, the home owner, Mr. Campo, moved to dismiss Bindela's claim and its lien.  The argument was that Bindela failed to allege in its complaint that it was a licensed home improvement contractor and, therefore, that the complaint was fatally defective pursuant to CPLR Section 3015(e).  Because an unlicensed home improvement contractor may not recover for work performed without a license, under any theory, the lien would also be invalidated if there was no valid home improvement contractor's license.  Despite Bindela's best efforts, the Court here was not convinced that a general contractor's license or a home improvement sales person license satisfied the requirement to have a valid home improvement contractor's license in NYC and, therefore, dismissed the complaint and the lien.

Here the claimant learned a valuable, but very painful, lesson:  make sure you have the correct license when performing construction work.  In addition to being illegal, and often a crime, performing work that requires a license without that exact license usually means you forfeit the right to payment regardless of the quality of your work.

Vincent T. Pallaci is the managing partner of the law firm of Kushnick | Pallaci PLLC where his practice concentrates on construction law including prosecuting and defending mechanic's liens.  With offices in Buffalo and Long Island, KP represents the construction industry across the State of New York.

Saturday, July 13, 2013

NY Mechanic's Lien Discharge Bond May Have Impact on Other Causes of Action

Lien Law Section 19 provides that a mechanic's lien may be discharged by the filing of a bond in the amount of 110% of the lien.  The most obvious and straight forward impact of the lien discharge bond is that, once bonded, the mechanic's lien no longer attaches to the property.  This, of course, means that in a foreclosure action the property is not being foreclosed upon but, rather, that the lienor is seeking to establish the validity of the lien so that it may recover upon the lien discharge bond.  However, as we learned recently from the Second Department's decision in Holt Construction Corp. v. Grand Palais, the lien discharge bond may impact causes of action that have nothing to do with foreclosing upon the mechanic's lien itself.

In Holt Construction the lienor plaintiff sought to set aside a conveyance of the property that the lien was originally based upon.  The lienor's argument was that a transfer of the property constituted a fraudulent conveyance of the property pursuant to Debtor and Creditor Law Section 273.  While the trial Court agreed, the Appellate Division reversed on this point noting that once the owner
 "obtained a bond to discharge the mechanic's lien, the debt no longer existed for the purposes of Debtor and Creditor Law Section 273."
The trial Court in Holt touched on another interesting, and often contested, issue: does the filing of a mechanic's lien discharge bond remove the debt from the clutches of Lien Law Article 3A?  This issue has increasingly been clarified by the Courts and the 2nd Department follows form here (following the 3rd Department) in reversing the trial court and holding that
"the discharge of a mechanic's lien by the filing of a bond is not equivalent to the payment or discharge of a trust claim pursuant to Lien Law Article 3-A. Therefore, the filing of the bond did not necessitate the dismissal of the...causes of action which were to recover damages for diversion of trust assets pursuant to Article 3-a of the Lien Law."
The lesson from Holt?  The mechanic's lien discharge bond may free up the property and make it freely transferable.  But it does not extinguish the obligations of a trustee under Lien Law Article 3-a and corporate principals may continue to be held liable for trust fund diversions even after the posting of a bond.

Vincent T. Pallaci is the managing partner of the law firm of Kushnick | Pallaci, PLLC where his practice concentrates on construction law including prosecuting and defending lien law trust fund diversion class actions.  With offices in Buffalo and Long Island, KP provides legal counsel to the construction industry across the State of New York.