Damages for Willfully Exaggerated Mechanic’s Liens Unavailable for Mechanic’s Liens that Are Prohibited by Enforceable Agreements

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.

Lien Law Section 39-a provides for damages, including reasonable attorneys’ fees and the difference between the amounts claimed in a mechanic’s lien and the actual amount owed, if a mechanic’s lien is found void due to willful exaggeration. Degraw, 178 A.D.3d at 771. However, this remedy is only available if a mechanic’s lien is otherwise valid in all other respects and determined void by reason of a lienor’s deliberate and intentional exaggeration of the mechanic’s lien. Id.

In Degraw, because the terms of the parties’ settlement agreement prohibited the filing of the mechanic’s liens, the mechanic’s liens themselves were invalid. Accordingly, the Second Department held that damages under Lien Law Section 39-a were unavailable.

Although a potential lienor may be bound by an enforceable release of its lien rights (so long the release is executed after the potential lienor performed the work), a contractor or owner benefiting from such release is not entitled to a windfall under Lien Law Section 39-a in the event the lienor wrongfully files a mechanic’s lien despite an agreement prohibiting same.

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