Friday, March 22, 2013

New York Cause of Action for "wrongfully filed mechanic's lien"? Supreme Court says "yes"

This is one of the more interesting decisions I have read in awhile and I urge anyone with the time to take a look at Neptune Estate v. Big Poll & Son Construction, LLC.  In Neptune, a property owner sought to recover damages against a contractor/lienor under various theories, including "wrongfully filed mechanic's lien."  In the hundreds of cases I have personally been involved with, and the thousands of cases I have read on mechanic's liens in New York, I have never seen a cause of action quite like the one for "wrongfully filed mechanic's lien" in the Neptune case.  But, as you will see if you read the decision, the Supreme Court is of the opinion that the cause of action exists and is alive and well in New York.

Notably, this was not a statutory exaggeration claim under Lien Law Section 39 and 39-a.  Nor was it a slander of title claim.  In fact, one of the interesting aspects of this case was that the lienor claimed the owner was seeking to recover for slander of title and had failed to meet its burden.  The Court rejected that theory stating that "plaintiff never asserted that it seeks to recover based upon slander of title and a mechanic's lien does not cast doubt on the validity of an owner's title, which is a necessary element for slander of title."   Instead, in upholding the claim for "wrongfully filed mechanic's lien" the Court noted that it was really a claim routed in injury to property.  The decision noted that "an action based upon an alleged injury to property is one sounding in tort.  Accordingly, any manner of commercial torts have been found to be within the purview of injury to property."   In citing to the First Department's decision in Lippes v. Atlantic Bank of New York, the Court said that "improperly filing a mechanic's lien upon a fictitious claim resulting in delaying building work was an injury to property."

After a bench trial, the Court found that "the proof establishes that construction on the project was stalled as a direct result of the filing of the January Lien and could not be resumed until the Lien was secured..."  Accordingly, the owner was awarded damages on the cause of action for "wrongfully filed mechanic's lien" in the amount of $150,036.41 representing the cost for flood insurance and mortgage interest accrued during the period where the lienor's "fraudulent lien delayed construction."  Even more interesting, is that the Court went on to award a judgment against the lienor's principal that signed the lien.  Finding that the one who signed the lien is sufficient participation in the wrongful conduct of the lienor to justify personal liability.

This is certainly a wake up call to lienors to be careful when filing liens.  While an exaggeration claim only exists in a foreclosure action, and is notoriously difficult to prove, this cause of action for "wrongfully filing a mechanic's lien" is offensive not defensive and can be affirmatively brought.  It also does not appear to have the high burden of proof that is required on a lien exaggeration claim.  Lienors beware.

Vincent T. Pallaci is a partner at the New York law firm of Kushnick | Pallaci, PLLC where his practice concentrates on construction law including prosecuting and defending lien actions.

No comments:

Post a Comment