New York Commercial and Construction Lawyer Blog
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.
Nissan’s argument was rejected by the IAS court and the Appellate Division because JTM had a single contract to perform work in the building, and there is no language in the Lien Law that would have required JTM to file separate liens. The Appellate Division held that “Lien Law § 10 provides no indication that multiple liens should or must be filed for the work performed under one contract at a single premises.” By “single premises” the Appellate Division apparently meant a single building on one tax lot. A review of the appellate briefs confirms that the building in this case was a single tax lot. At the very least, JTM was not required to file separate liens given these facts.
The court also noted that the documents submitted by Nissan “do not conclusively establish that plaintiff performed no work for Nissan’s benefit before walking off the project,” and noted that Nissan at the very least benefitted from work JTM performed on common areas of the building. This suggests the intriguing possibility that if Nissan’s documentary proof had been clearer, and it had been able to “conclusively establish” that JTM “performed no work for Nissan’s benefit,” that the court might have found the lien willfully exaggerated, or at the very least dismissed the lien foreclosure cause of action against Nissan, notwithstanding that JTM’s work was “performed under one contract at a single premises.” Nissan also had an argument based on a lien waiver that the court rejected.
Courts require that a defendant “conclusively establish” a claim of willful exaggeration because “the issue of exaggeration is one that ordinarily must be determined at the trial of the foreclosure action as it requires not only a showing of exaggeration, but also that the exaggeration was done intentionally.” Nissan did not meet this standard for proving willful exaggeration without a trial.