In New York, as is the case in almost every state, the party filing a mechanics lien must do so truthfully. The mechanics lien statement must always be signed, and oftentimes must be notarized and verified, indicating that the facts and figures set forth therein are true and correct. This extends, of course, to the amount of the lien claimed.
When a mechanics lien is filed for an amount that exceeds the amount due the claim is said to be “exaggerated.” We have had occasion to discuss exaggerated lien claims on this blog in the past as it relates to a number of states (even Guam!), but most often we’ve discussed it regarding New York laws.
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A recent appeals decision makes the New York exaggerated lien laws a bit more convoluted, as we’ll discuss here. This blog post is separated into two sections. The first discusses what an Exaggerated Mechanics Lien Claim is and why it’s something you don’t want to file. The second section discusses the recent New York Appeals decision that frames how courts in that state will address exaggerated mechanics lien claims.
What An Exaggerated Mechanics Lien Claim Is And Why You Don’t Want To File One In New York
Let’s start with the definition of what an exaggerated mechanics lien claim is. This will vary state-by-state and sometimes not be contained within a statute, but in New York the definition is laid out clearly within Lien Law § 39, titled “Lien Willfully Exaggerated is Void:”
In any action or proceeding to enforce a mechanic’s lien upon a private or public improvement or in which the validity of the lien is an issue, if the court shall find that a lienor has willfully exaggerated the amount for which he claims a lien as stated in his notice of lien, his lien shall be declared to be void and no recovery shall be had thereon. No such lienor shall have a right to file any other or further lien for the same claim. A second or subsequent lien filed in contravention of this section may be vacated upon application to the court on two days’ notice.
According to this definition a mechanics lien claim is exaggerated if it “a lienor has willfully exaggerated the amount for which he claims a lien.” There are two prongs to this short phrase. First, the amount claimed in the lien must be more than the amount actually due. Second, the discrepancy must be “willfully” exaggerated.
Circumstances That Cause Exaggerated Lien Claims
There a few circumstances that can lead to your mechanics lien claim being out-of-line with the amount ultimately due. Some of these reasons are more dangerous to the lien claim than others, and include:
- Parties may have a contractual dispute about whether a change order is valid or invalid, thus the lienor’s claim may be higher than what the owner or prime contractor believe;
- Parties may have a dispute about the lienor’s workmanship, such that the owner or prime contractor feel entitled to backcharges or offsets;
- Prime contractor or owner may content that the lienor caused delay to the project and that they are entitled to compensation for that delay;
- The lienor may add attorney fees, costs, expenses, interest or other miscellaneous charges to the lien amount without statutory authority to do so;
- The lienor may just inflate the claim amount to cause anguish to the other parties or in the belief that it will make the lien claim more powerful and garner more attention.
Some of these reasons are better than the others.
The first three justifications all relate to legitimate disputes about the amount that is due. We talked about this situation in the frequently asked questions posts “There Is A Dispute About How Much I’m Owed, Do I Have Lien Rights?” and “Can I File A Mechanics Lien If My Workmanship Is In Dispute?”
In these instances the mechanics lien claim will likely survive even if it is ultimately determined to be more than the amount truly due. The claim, in other words, would not be “willfully exaggerated” because the amount claimed is subject to a bona fide good faith dispute.
The remaining two justifications are more dangerous.
First, by adding costs, attorney fees and other charges to your lien claim without statutory support or judicial authority, you are inflating the mechanics lien claim unjustly. This could result in your lien claim being nailed as exaggerated. We’ve addressed state laws and whether they do or do not allow these types of supplemental charges within a mechanics lien in the tag: Claim Amount.
The worst offender, of course, is the last justification where the lienor simply increases the mechanics lien claim amount to cause anguish or to get more attention. This is the purest form of an “exaggerated lien” claim that statutes like New York’s seeks to prevent.
It’s A Bad Idea To File An Exaggerated Lien Claim Because…
New York Lien Law §39 dictates what an exaggerated lien claim is. Lien Law §39-a indicates the “liability of lienor where lien has been declared void on account of willful exaggeration.” This is where the rubber meets the road in setting forth the consequences of filing an invalid claim of lien.
This statute provides that when a mechanics lien is invalided based on it being exaggerated, the claim is rendered void (both the exaggerated portion and the legitimate portion, if any), and damages may be awarded to the owner or contractor that can include (i) the costs of any bond; (ii) attorney fees; and (iii) “an amount equal to the difference by which the amount claimed to be due or to become due as stated in the notice of lien exceed the amount actually due or to become due thereon.”
The consequences here are obviously severe.
New York Appeals Case Makes It Even More Difficult It Is To Win An Exaggeration Argument
The New York Court of Appeals, First Department, issued an opinion last week that addressed Lien Law §39 and the Exaggerated Lien standards in NDL Associates, Inc., etc. v. Villanova Heights, Inc., et al. The opinion in this case is very, very short. In fact, we could almost quote the entire thing right in this blog post. Importantly, the appeals decision reverses a trial court decision that invalided a mechanics lien as exaggerated. Here is a quote from the opinion:
[Trial c]ourt improperly held a hearing on the issue of whether the mechanic’s lien was willfully exaggerated…That issue should be determined at trial or on a motion for summary judgment…[The] hearing effectively resulted in a bench trial on defendants’ counterclaim of willful exaggeration, prior to the close of discovery and without plaintiff waiving its right to a jury and consenting to a bench trial. Such a procedure is improper. In any event, defendants failed to demonstrate that plaintiff willfully exaggerated the lien. Indeed, even…found that any excessive billing on plaintiff’s part was not malicious or done with fraudulent intent.
That’s pretty much the entire opinion. While short, it’s packed with implications.
First, the court makes clear that the issue of whether a mechanics lien is willfully exaggerated in New York must be determined at “trial or on a motion for summary judgment…[after] the close of discovery.” This is not a proceeding, therefore, that can be done quickly or before incurring significant legal expense. Because of this, it makes the process of challenging an exaggerated mechanics lien claim not worthwhile in many instances.
Second, the court insinuates that to demonstrate a “willful exaggeration” the parties must find that the inflated lien amount must be done maliciously or “with fraudulent intent.” This would be a departure from previous cases that did not require this heightened proof. For those non-lawyers out there, it is very difficult to prove that someone had an intent to defraud or a malicious intent. It’s a state of mind, and unless the lienor admits to having the state of mind or memorializes it in writing, it’s going to be difficult to prove.
It is an interesting short decision that could have positive implications for lienors. To this second point, I’m not sure if the court is creating a requirement that the “willful” exaggeration need be done with malicious or fraudulent intent and making such a departure from the statutory language and previous case law that simply requires the inflated amount be “willful.” Instead, the court may simply be saying that the lower court’s finding that the excessive billing was not made with ill-intent is another supporting reason why it’s previous ruling requiring a trial or MSJ after close of discovery is correct.
Nevertheless, it is an interesting short decision that could have positive implications for lienors. Lienors can point to this slip opinion and argue: (i) That nothing can be done on an exaggerated lien claim until after close of discovery; and (ii) Exaggerated claims under §39 and §39-a must fail unless there is a showing of malicious or fraudulent intent to inflate the claim.