Appellate Court Reinstates Lien that was Vacated by Trial Court as Exaggerated

The defense of exaggeration (Lien Law Section 39 and Lien Law Section 39-a) is often, if not close to always, raised by anyone challenging a mechanic's lien.  But the strict and severe nature of the penalty has led courts to hold that exaggeration may only be determined at the trial of the foreclosure action.  In NDL Associates v. Villanova Heights the First Department said that holding a "hearing" to determine the issue of exaggeration is improper and the Court reversed the lower Court's decision to void the mechanic's lien as exaggerated.

The hearing in NDL was apparently held before the close of discovery and was presided over by the Judge. The Appellate Division found that this amounted to a bench trial prior to the close of discovery and without the lienor waiving its right to a jury trial.  This alone would appear to have been enough to overturn the decision that voided the lien but the Court went on to note that notwithstanding the improper procedure, the defendants also failed to establish willfull exaggeration.  The Court noted that even the lower court found that any excessive billing by the lienor was not malicious or done with a fraudulent intent.

Aside from the reversal of the lower court, there are a few interesting points in NDL that merit discussion.  First, the decision states that exaggeration may be determined on a motion for summary judgment (not just at trial).  This is not the first case to say that exaggeration may be determined on summary judgment but it is a rare event.  Second, the Court noted that the exaggeration finding was improper because the excessive billing was not malicious or done with fraudulent intent.  This seems, at least to me, to be a bit more than the statute requires.  Lien Law Section 39 speaks of voiding a lien that is "willfully" and "intentionally" exaggerated. There is no requirement to show malicious or fraudulent intent.  I have always looked at Lien Law Section 39 as requiring a showing that the lienor knew X dollars was due but nevertheless intentionally filed the lien for X + 1.  Malice or fraud could be an extremely high burden to meet as there is probably little documentation as to the reason behind the exaggeration.  Few lienors will get into a deposition (or a trial) and admit under oath that they filed the lien out of malice or fraud.  This could be a difficult standard for owners but good news for lienors.

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice concentrates primarily on construction law, including prosecuting and defending mechanic's lien foreclosure actions.