Owners Are Possibly Not “Necessary Parties” When a Mechanic’s Lien Has Been Discharged

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.

Those premises were, in fact, owned by a cooperative corporation, of which the individual was a tenant-shareholder.  The cooperative corporation moved to dismiss on the grounds that a bond had been filed and the lien discharged.

The Court noted that the First Department’s traditional stance on this matter has been to follow Lien Law §44 (3), which provides that the owner is a necessary party in an action to enforce a lien against real property, to the letter.  However, the Doma Court determined that there was no conceivable public policy basis for forcing an owner, who has no stake in the action as a result of the bond, to remain a party to such an action. Thus the the Doma Court elected to follow the reasoning laid out by the Second and Third Departments: that the filing of the bond activates Lien Law §37 (7), which requires only that “the principal and surety on the bond, the contractor, and all claimants who have filed notices of claim prior to the date of the filing of such summons and complaint” be necessary parties to the action against the bond.

This was similar to the reasoning of other trial level courts in the First Department which were persuaded by the reasoning of the Second and Third Departments.  See Nova Bros., Inc. v James G. Kennedy & Co., Inc., 2016 NY Slip Op 32858[U] (Sup. Ct., NY County, Oct. 14, 2016), as partially adhered to on rearg 2017 NY Slip Op 32823[U] (Sup. Ct., NY County, May 17, 2017); Benfield Light. Inc. v. A.J.S. Project Mgt., Inc., 2016 NY Slip Op 30953[U], *2 (Sup. Ct., NY County, May 19, 2016); see also Danica Group LLC v Atlantic Ct. LLC, 23 Misc 3d 1111[A], 2009 NY Slip Op 50708[U], *1-2 (Sup. Ct., Kings County, April 16, 2009).

While Doma lacks precedential authority it is worth noting that it might signal a continued shift in the law on this matter.  Unfortunately, no notice of appeal was filed, so it appears that the ambiguity in the First Department will remain for a least a little while longer.