Willfull Exaggeration of Lien: A difficult burden of proof

One of the most effective weapons against mechanic's lien abuse by contractors is the owner's ability to use Lien Law Section 39 and 39-a to defend against a "willfully exaggerated" lien.  However, the burden of proving the "intent" necessary to establish that the exaggeration was "willful" can often be difficult, though not impossible, to achieve.  

A recent 2017 decision from the Appellate Division, Third Department, offers a demonstration of that difficulty.  Blair v. Ferris involved a contractor foreclosing upon a mechanic's lien for funds that it believed were not paid by homeowners.  The case offers a nice discussion of the burden of proof needed to establish the amount due, including stating that oral testimony of the lienor alone, without documentary evidence, can be sufficient proof.   However, the interesting discussion revolves around the homeowner's defense and claim of exaggeration of the lien.

Based on the written decision, it appears that at trial it was established that the contractor filed a mechanic's lien for $160,633.  Given the discussion about evidence, it appears that the only evidence offered as to value was the contractor's oral testimony.  The trial court eventually ruled in favor of the contractor-lienor but only awarded damages of $57,600.  The lien, therefore, was more than $100,000 more than what plaintiff established at trial.  Moreover, the appellate division appears to believe that the calculation of $57,600 was incorrect and, in fact, reversed the award and sent it back to the trial court for further proceeding.   Though not explicit, the appellate court appears to believe that the $57,600 was too much based upon the math it could deduce from the facts.  While the decision does not directly state an amount, it appears that the court believes the actual amount established by plaintiff may be in the range of $25,000 (against a $160,633 lien).

On its face, it would appear that the lien was exaggerated because it was significantly more than the amount plaintiff established.  The real question then is whether it was "willfully" exaggerated.  Here, the appellate division said no, it was not.  The Court stated that "it is well established that inaccuracy in the amount of the lien, if no exaggeration is intended, does not void a mechanic's lien; willfulness also must be shown."   The court noted further "the fact that a lien may contain improper charges or mistakes does not, in and of itself, establish that a plaintiff willfully exaggerated a lien."  As to the burden of proof, the court unequivocally held that the owners had the burden to "show that the amounts set forth in the lien were intentionally and deliberately exaggerated" and that the Lien Law "must be strictly construed in favor" of the lienor.  Applying this strict standard, even against a lien that was apparently "exaggerated" and without documentary backup, the Court found no basis to award exaggeration damages under Section 39 or 39-a because the proof of intent was lacking and, therefore, the exaggeration (the Court never actually never even specifically calls the discrepancy an exaggeration) was not willful.

Vincent T. Pallaci is the managing member of Kushnick Pallaci PLLC.   The firm's construction lawyers regularly enforce and defend against mechanic's liens in New York including claims of willful exaggeration.

Don't wait too long to file your mechanic's lien

As the end of the year quickly approaches many companies will begin reviewing their accounts receivable and decide what to write off and what to pursue.  While mechanic's liens have deadlines to file that does not mean you should wait until the last minute.   There can be practical reasons why filing a mechanic's lien early can lead to better recoveries.   Some of the reasons include: 1) the recency is primacy principle.  The long you wait to file the lien the more likely it is that the specifics of your work and your claim will become blurred.  Deal with the claim quickly while details are fresh; 2) if the owner pays out to others the lien fund may be exhausted before your lien is recorded.   Always remember that a mechanic's lien is only as good as the fund remaining.  If you wait to long, others may be paid leaving you holding an empty bag; and 3) an early lien can put pressure on the project and force the key players to deal with you to avoid problems (such as lenders refusing to fund).  

When in doubt, speak to your attorney about the pros and cons of filing your mechanic's lien but always remember that conversation is better had months before the deadline expires - not days.  

Vincent T. Pallaci is the managing member of Kushnick Pallaci PLLC.   Kushnick Pallaci PLLC regularly counsels clients on filing and enforcing mechanic's liens.

First Department Issues New Interpretation of Lien Law Section 5

Skanska USA Building Inc. v. Atlantic Yards B2 Owner, LLC decided on October 20, 2016 by the Appellate Division, First Department, is an excellent discussion of various issues, including Lien Law Section 5, and is a good read for anyone practicing in this area.

Lien Law Section 5 provides, in part

"where no public fund has been established for the financing of a public improvement with estimated cost in excess of two hundred fifty thousand dollars, the chief financial officer of the public owner shall require the private entity for whom the public improvement is being made to post, or cause to be posted, a bond or other form of undertaking guaranteeing prompt payment of monies due to the contractor..."  

In an excellent discussion of Section 5 and the legislative history the First Department noted that prior to 2004 the statute left a "gap" in that "contractors working on projects being built by private developers, with private funds, but on public land, could not file liens against the public land or the private entity's leadhold interest."  But in 2004 the above cited language was added to Lien Law Section 5 to give those working on such projects (private projects on public land) some level of protection.

The plaintiff in Skanska apparently took the position that the guarantee provided did not comply with Lien Law Section 5 because it was not equivalent to a bond or "other form of undertaking" required by the law.  The Court noted that New York Courts are to give meaning to each word in a statute and looked at various definitions of the word "undertaking."  Ultimately, the court appears to define an undertaking for Lien Law Section 5 purposes as "simply a formal promise or guarantee."  The Court goes on to note that the legislature intended the term "undertaking" as used in Lien Law Section 5 to mean "guarantee" and points to the fact that the Governor vetoed an earlier version of the law that would have required a bond be posted in every instance disallowing "other forms of security designed to guarantee payment."  The sponsor of the amendment to Lien Law Section 5 clarified that the phrase "or some other form of undertaking" was added to satisfy the Governor's concerns.

Accordingly, the First Department determined that the Lien Law Section 5 obligations were met by  Forest City Enterprise, Inc. (a party to the case) issuing a formal "guaranty" that the owner would "fully and punctually pay and discharge any and all costs, expenses and liabilities incurred for or in connection with the work including, but not limited to, the costs of constructing...the work."  The decision notes that the language of the guarantee follows the letter of the statute and that the public owner was satisfied the by language of the guarantee.  The court notably indicated that it was irrelevant that there were better guarantees available (such as a letter of credit).

While an excellent discussion of Lien Law Section 5, and some guidance as to what Lien Law Section 5 really requires, I'm not entirely sure that this decision is great for contractors and really satisfies the intent purportedly behind giving contractors on these projects some protection.  That may just mean that the legislature needs to go back to work on Lien Law Section 5.  It will be interesteing to see if this one makes it up to the Court of Appeals for the final say.

Vincent T. Pallaci is the managing member of Kusnick Pallaci PLLC and his practice focuses on construction law.   For more information visit Kushnick Pallaci PLLC's website at www.nyconstructionlaw.com.  For more information about Kushnick Pallaci PLLC's lien services visit their mechanic's lien services page here.   

NY Appellate Court Says Incorrect Name on Lien May be Forgiven

In Matter of CAFS Mgmt. Corp. v. Q Realty & Development the Court was faced with an appeal that denied a petition pursuant to Lien Law Section19(6).  Apparently a mechanic's lien was filed that named Q Realty & Development, Inc. when, in fact, it should have listed the correct name of Q Realty & Development Group Corp.  Noting that the Lien Law affords "liberal construction to protect the beneficial interests of lienors" (see Lien Law Section 23) the Appellate Division that denial of the petition to discharge the lien was proper and that "misidentification of the lienor on the notice of lien was a nonjurisdictional defect capable of amendment pursuant to Lien Law Section 12-a(2)".

In addition, the Court affirmed the lower court's determination that the petitioner failed to establish that the property was a single family dwelling (subject to a 4 month limitations period) as opposed to a multi-family dwelling (subject to an 8 moth limitations period).

There was nothing particularly new or novel in this decision but it reaffirmed the Second Department's long standing position that a "misidentification" of a name in a mechanic's lien is curable.

Vincent T. Pallaci is the managing member of Kusnick Pallaci PLLC and his practice focuses on construction law.   For more information visit Kushnick Pallaci PLLC's website at www.nyconstructionlaw.com.  For more information about Kushnick Pallaci PLLC's lien services visit their mechanic's lien services page here.   

Case Law Update: Court allows "nunc pro tunc" amendment of lien that is in "substantial compliance" with Lien Law

Matter of Rigano v Vibar Constr., Inc.

Decided 9/30/15 by the Appellate Division: Second Department

Upon  remittitur from the Court of Appeals, the Court found that, upon re-argument, the Supreme Court should have granted Vibar Construction’s petition to amend the notice of lien nunc pro tunc and deny the petition to summarily discharge the lien. 

 The Court found that subject notice of lien was in substantial compliance with the requirements of the Lien Law and that no party would be prejudiced by the amendments.  The Court affirmed the ruling that, “in the absence of a defect upon the face of the notice of lien, any dispute regarding the validity of the lien must await trial of the foreclosure action.”