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Articles Posted in Mechanic’s Liens

Owner have limited rights to summarily remove a mechanic’s lien of record. Typically, Owners achieve this result by posting a surety bond with the County Clerk where the lien was filed. Owners can also summarily remove a mechanic’s lien if it contains a facial defect such as listing the wrong owner, or if the affidavit of service of the lien is not properly filed. Other than in these limited circumstances, an owner can only remove a lien in the context of a lien foreclosure action.

Owners often complain that a contractor has filed a mechanic’s lien that, in the view of the Owner, is clearly excessive. The question then arises as to how the amount of the lien can be summarily reduced, without the necessity of engaging in motion practice and possibly a trial.

The First Department addressed this question in Pizzarotti, LLC v. FPG Maiden Lane LLC __ A.D.3d ___ 129 N.Y.S.3d 771(1st Dep’t 2020). The rules cited by the First Department apply equally to attempts by owners or contractors who seek to reduce lien claims. The bottom line is that there is a basically no device to summarily reduce the amount of a mechanic’s lien outside the confines of a mechanic’s lien foreclosure action.

The Second Department recently found, in Degraw Construction Group, Inc. v. McGowan Builders, Inc., 178 A.D.3d 770, 114 N.Y.S.3d 395 (2d Dep’t 2019), that a lienor cannot be held liable for willfully exaggerating a mechanic’s lien if the mechanic’s lien is impermissible in the first place. DeGraw confirms that Lien Law Section 39-a remedies are only available if the subject mechanic’s lien is otherwise valid. Thus, if a mechanic’s lien is filed in contravention of an enforceable agreement precluding it, as it was in DeGraw, remedies for willfully exaggerated liens are unavailable.

In Degraw, a subcontractor and general contractor entered into a settlement agreement which provided that if either party breached the agreement, the other party’s sole remedy would be to enforce the agreement. Nonetheless, when the general contractor failed to make certain payments under the agreement, the subcontractor filed mechanic’s liens against the relevant properties and commenced lien foreclosure actions.

The general contractor moved for summary judgment, which the trial court granted, finding that the mechanic’s liens were invalid because they were barred by the settlement agreement. That court awarded the general contractor damages representing the amount of premiums for the bonds given to discharge the mechanic’s liens. The general contractor appealed, claiming it was also entitled to additional damages and attorneys’ fees based on its claim that the subcontractor willfully exaggerated the mechanic’s liens.

In J. T. Magen & Co., Inc. v. Nissan North America, Inc., 178 A.D.3d 466 (First Dep’t 2019), the court applied some basic principles concerning willful exaggeration under the Lien Law to an unusual set of facts.  While the court did not explicitly refer to Lien Law Section 39, it underlies the entire case.  Section 39 permits a court to cancel a mechanic’s lien that is found to have been willfully exaggerated.

The unusual facts are these: defendant Nissan sought to dismiss plaintiff contractor J. T. Magen’s (“JTM”) lien foreclosure action where JTM’s lien was filed against the entire building in which both Nissan and a non-party, BICOM, had leasehold interests. To confuse matters, JTM’s construction contract was with non-party BICOM only, but called for JTM to perform construction work on both BICOM’s and Nissan’s spaces.

Nissan argued that the lien was willfully exaggerated because JTM failed to differentiate and apportion its lien based on the work it performed for the two separate tenants, Nissan and BICOM.  Nissan also claimed JTM had walked off the job before it ever performed any work on Nissan’s space, so that Nissan did not benefit from the work that was the basis for JTM’s lien.

The New York Lien Law provides broad categories for the type of work, labor, or services for which a contractor can file a mechanic’s lien if it is not paid. Owner’s typically argue that a contractor, construction manager, or design professional which perform preconstruction services cannot file a mechanic’s lien if it is unpaid. Not surprisingly, contractors, construction managers, and design professionals take the opposing position. Courts have continued to grapple with this issue.  The Second Department recently adopted a nuanced opinion, finding that certain preconstruction services were lienable, but others were not.  This blog also updates a previous posting of ours (September 27, 2018), where we discussed the lower court opinion which is now the subject of this appeal.

In Old Post Road Associates, LLC v. LRC Construction, LLC, 177 A.D.3d 658 (2d Dept. 2019), a construction manager, LRC Construction, LLC (“LRC”), filed a mechanic’s lien based upon the preconstruction services it had performed. The owner (“Old Post Road”) moved to dismiss the lien pursuant to Lien Law Section 19(6) because it alleged the services in question did not permit a lien, and thus the lien contained a “facial defect.” Lien Law Sections 2(4) and 3 state, in substance, that a lien may only be filed if the work, labor or services were for “demolition, erection, alteration or repair of any structure” which constitutes a “permanent improvement” upon the property in question. Drawings, plans, or specifications prepared by an architect, engineer, or designer can also qualify in certain instances.

Old Post Road argued in support of its application that LRC’s lien included a claim for services such as consulting for construction phasing and the preparation of budgets. Various cases support the conclusion that those services are not lienable. (see, e.g., Goldberger-Raabin, Inc. v 74 Second Ave. Corp., 252 N.Y. 336, 341-342 (1929).

Contractor’s mechanic’s liens are based upon work actually performed (and unpaid). Often, contractors rely upon the payment requisitions they submitted to the owner to establish the claimed value of the work. Requisitions that were never submitted to or considered by an owner can also be used by a contractor on occasion to support its lien claim. That circumstance was addressed by the First Department in Ferro Fabricators, Inc. v. 1807-1811 Park Avenue Development Corp. 165 A.D.3d 572, 86 N.Y.S.3d 54 (1 st Dept. 2018).

The defendant in Ferro moved for summary judgment on, among other things, its counterclaim that Plaintiff’s mechanic’s lien was willfully exaggerated and thus subject to dismissal pursuant to Lien Law §39 and 39-a. Defendant pointed to the seventh payment requisition Plaintiffs had submitted, which alleged the work was only 78% complete. In opposition to the motion, however, Plaintiff provided the court with a subsequent (eighth) requisition, which had never been submitted to Defendant, but which alleged that 97% of the work was complete. Under those circumstances, the First Department held that the trial level court had properly denied Defendant’s summary judgment motion because there were disputed issues of material facts regarding the amount of work performed.

By its holding, the Court re-confirmed the long standing rule that a lienor is not strictly bound and limited by the requisitions it submitted during the course of the performance of its work. Any work which was performed after the last requisition was submitted may also form the basis of a lien. Indeed, the First Department specifically rejected Defendant’s argument that the work referenced in the eighth requisition should not be included in the lien claim merely because it was never submitted. In other words, while the timely submission of a requisition can often aid

On November 20, 2018, in Angelo A. Ferrara v. Peaches Café LLC, et al., 2018 WL 6047993 (N.Y. Nov. 20, 2018), the New York Court of Appeals upheld the Fourth Department’s decision in Ferrera v. Peaches Café LLC, 138 A.D.3d 1391, 30 N.Y.S.3d 765 (4th Dep’t 2016). As I discussed in my prior posts, “The Divide in Interpretations of Lien Law Section 3’s Consent Requirement Continues” and “Varying Interpretations of Lien Law Section 3’s Consent Requirement,” New York Courts have been at odds in their determinations of the consent requirement contained in Lien Law Section 3. Judge Wilson of the New York Court of Appeals clarified these distinctions in his recent decision.

The key facts in the underlying case are summarized as follows: Defendant Peaches Café LLC (“Tenant”) entered into a lease agreement (the “Lease”) with Defendant-Appellant COR Ridge Road Company, LLC, (“Landlord”), who also owned the subject premises. The Lease affirmatively required the Tenant to undertake the construction of various improvements at the premises. Specifically, the Lease detailed certain requirements for the electrical work. Nonparty Quinlan Ferrara Electric, Inc. (who assigned its claims to Plaintiff-Respondent Angelo A. Ferrara) (“Contractor”) contracted with Tenant to perform a portion of the electrical build-out work at the premises. Despite satisfactorily completing its work, Contractor was never paid the balance for its work performed. Accordingly, Contractor filed a mechanic’s lien against the premises and commenced a lien foreclosure action.

In the lien foreclosure action, the trial court granted Landlord’s motion to dismiss the complaint as against Landlord, because, according to Landlord, “it did not have any direct dealings with [Contractor] and did not explicitly consent to the specific electrical work performed by [Contractor.]” Peaches, 30 N.Y.S.3d at 767. The Fourth Department reversed the trial court, finding that that Landlord/owner’s consent for the electrical work was derived from the terms of the Lease, which obligated Tenant to install electrical upgrades on the premises. Thus, the Landlord/owner was obligated to pay for the reasonable value of Contractor’s services. Id at 768. Landlord appealed.

As I previously noted in my post titled “Varying Interpretations of Lien Law Section 3’s Consent Requirement,” last year the New York Court of Appeals granted a motion for leave to appeal the Fourth Department’s decision in Ferrera v. Peaches Café LLC, 138 A.D.3d 1391, 30 N.Y.S.3d 765 (4th Dep’t 2016). The appeal was argued during the week of October 16, 2018, but the Court of Appeals has not yet issued a decision.

Lien Law Section 3 provides that a contractor “who performs labor or furnishes materials for the improvement of real property with the consent or at the request of the owner thereof … shall have a lien … upon the real property improved.” In the underlying Peaches case, the Fourth Department compared First, Second and Third Department decisions concerning Lien Law Section 3’s consent requirement, all of which found, at various times, “that a lien under Lien Law Section 3 is valid only when the property owner directly authorizes the contractor to undertake the relevant improvements.” Peaches, 30 N.Y.S.3d at 768 (emphasis added). The Fourth Department, however, concluded that “consent” should be broadly interpreted because the decisions of its sister departments could not be “squared” with Jones v. Menke, 168 N.Y. 61 (1901) or McNulty Bros. v. Offerman et al., 221 N.Y. 98 (1917), two Court of Appeals cases which have not been “overturned or disavowed.” Id. at 767-8.

In both Jones and McNulty, the Court of Appeals found, generally, that contractual obligations requiring a tenant to make certain improvements to the premises satisfied the consent requirement of Lien Law Section 3.  Id. at 676. As a result, the lien claims in those cases were permitted against the underlying owner’s property. Id. Accordingly, in Peaches, the Fourth Department determined that the owner’s consent could be implied by the terms of the subject lease, even though the owner did not provide direct consent to the contractor.

Enforcing mechanic’s lien rights raises several issues which are distinct from the ability to simply file a mechanic’s lien. For example, a subcontractor must generally show that a “lien fund” existed between the owner and contractor at the time it filed its lien in order to successfully foreclose. Peri Formwork Systems, Inc. v. Lumbermens Mutual Casualty Co., 65 A.D.3d 533, 884 N.Y.S.2d 129 (2d Dep’t 2009); See also Van Clief v. Van Vechten 130 N.Y. 571 (1892). Some courts have recognized an exception when the general contractor issues back charges to a subcontractor after termination. See Spectrite Design LLC v. Elli N.Y. Design Corp., (16 Civ. 6154, N.Y.L.J. 120279380599) (S.D.N.Y., Decided July 26, 2017). Other courts have recognized that if payments are made by the owner in bad faith, and before they were otherwise due, a lienor’s ability to foreclose its mechanic’s lien should not be prejudiced. See Glens Falls Portland Tenant Co. v. Schenectady County Coal Co., 163 A.D. 757, 759-763, 149 N.Y.S. 189 (3d Dep’t 1914); Lawrence v. Dawson, 34 A.D. 211, 212-215, 54 N.Y.S. 647 (2d Dep’t 1898). The bad faith exception to the lien fund rule was recently addressed by the First Department in 3-G Services Limited v. SAPV/Atlas 845 WEA Associates NF, L.L.C., 162 A.D.3d 487, 79 N.Y.S.3d 24 (1st Dep’t 2018).

In 3-G, the owner moved to dismiss plaintiff subcontractor’s lien foreclosure claim by submitting proof that the owner had paid the contractor in full at the time the plaintiff’s lien was filed. Owner had terminated the contractor for convenience prior to the filing of the subcontrator’s lien, and issued final payment to the contractor at that time.

Plaintiff raised several grounds in attempt to show owner’s bad faith. It alleged that owner knew that the general contractor owed monies to the subcontractor when it terminated the general contractor for convenience, that the owner made an advance payment to the general contractor to avoid the Lien Law, and that owner opted to terminate general contractor for convenience when it could have terminated it for cause.

Not all work performed at or related to a construction project can form the basis of a mechanic’s lien. Rather, one can only lien for work performed or materials furnished on a privately owned project for the “improvement of real property” as set forth in Lien Law § 3. Generally speaking, only work which contributes to a “permanent improvement” of the property in question is lienable  (Lien Law § 2(4)). Sometimes, however, work is performed even before any activities actually commence on a construction site, and the issue arises whether that work is lienable in any  circumstances. That matter was recently addressed by Justice Terry J. Ruderman of the Westchester Supreme Court in Matter of Old Post Road Associates, LLC, 60 Misc. 3d 391, 77 N.Y.S.3d 283  (Sup. Ct. Westchester Co. 2018).

In Old Post Road, LRC Construction LLC (“LRC”) performed pre-construction management services for a planned project in Rye, New York. Among other things, LRC updated the budget for the  project and attended meetings to discuss phasing in connection with a site plan approval application. LRC was eventually terminated and filed a mechanic’s lien for $250,000. Thereafter, Old Post Road Associates LLC (“Owner”) commenced a special proceeding to summarily discharge the mechanic’s lien pursuant to Lien Law § 19 because the work in question was allegedly not lienable.

Pursuant to Lien Law § 19, a lien may only be dismissed if “it appears from the face” of the lien that it is invalid. Owner here alleged it met this standard in its special proceeding because LRC’s lien merely alleged it performed “pre-construction management services.”

For years the First Department has found itself at odds with the Second and Third Departments concerning who is a necessary party to enforce a mechanic’s lien against real property after a bond has been filed and the lien discharged as of record.  As explained in M. Gold & Son, Inc. v. A.J. Eckert Inc., the Second and Third Departments have held that once a bond is posted, it effectively substitutes for a mechanic’s lien, that lien is discharged and thus there is no longer a requirement that the owner be a party to the action.  See 246 A.D.2d 746 (3d Dep’t 1998).

Traditionally, however, the First Department has maintained that, in spite of an undertaking being posted, the owner of the real property remains a necessary party.  A recent case in the Supreme Court, New York County, might be a further step in a change towards uniformity in the departments.

Doma Inc. v. 885 Park Ave. Corp. (New York County Index No. 159775/2016) concerns a contractor’s disagreement with an individual who had hired the contractor to renovate her home.  As is often the case in such actions, the contractor claimed that it was owed a certain unpaid sum and, in an effort to collect, filed a mechanic’s lien against the premises.

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