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Articles Posted in Willful Exaggeration

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.

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