Dismissal of Mechanic’s Liens
By Bonnie Reid Berkow
The Court does not have the discretion to dismiss a mechanic’s lien except on the statutory grounds stated in the Lien Law. These are:
(1) Section 19(6) – summary discharge if the lien is defective on its face;
(2) Section 20 – payment into court of the amount of the lien;
(3) Section 37 – obtaining a bond to discharge the lien;
(4) Section 59 – after notice to the lienor to commence an action to foreclose the lien and no action is commenced within 30 days.
Section 19(6) of the Lien Law provides that a lien may be summarily discharged but only if the defect appears on the face of the lien. If the lien is facially valid (even if proven later to be wrong) it cannot be summarily discharged. For example, if the lien states that the last labor or material furnished was within 4 months of the filing of the lien, it is facially valid so an allegation that the last labor or material was not within the 4-month period requires proof and cannot be the basis of a summary discharge.
Recovery under a mechanic’s lien is limited to claims for unpaid labor and materials furnished. It cannot include claims for delay damages, insurance, overhead, or profit. Therefore, failure to separately state the amount of labor unpaid and materials furnished unpaid may be grounds for dismissal of the lien as facially invalid pursuant to Section 19(6) of the Lien Law.
Section 38 of the Lien Law provides that the owner may demand an itemized, verified statement setting forth the items of labor and/or material and the value thereof which is claimed in the lien. If the lienor fails to comply within 5 days or delivers an insufficient statement, then the owner can petition the Court to compel a sufficient statement or dismiss the lien.
Section 59 of the Lien Law provides that the owner can send a notice to the lienor, requiring the lienor to commence an action to enforce the lien within 30 days or show cause as to why the lien should not be vacated or canceled. If the lienor does not commence an action to foreclose the lien within such time period, the owner can apply to the Court to have the lien vacated. The owner might want to do this because Section 39 of the Lien Law provides that a claim may be made to discharge a mechanic’s lien on the grounds it is willfully exaggerated, but only as a counterclaim in an action by the lienor to enforce the lien. Smith v. Otis–Charles Corp., 279 A.D. 1, 107 N.Y.S.2d 233 (4th Dept. 1951), affd. 304 N.Y. 684 (1952).
Section 39-a provides for liability of the lienor for a willfully exaggerated lien, but only after the lien has been discharged for willful exaggeration. Liability penalties will not be imposed if the lien is discharged for any other reason (e.g. that it was not timely filed).
Grounds to defeat a mechanic’s lien
Lienor’s right to recover is limited by the contract price or the reasonable value of the labor and materials provided; the lienor must offer proof of the price of the contract or the value of labor and materials supplied. Extended general conditions, insurance, and profit may not properly be included in a mechanic’s lien pursuant to New York Lien Law and applicable case law in New York. Lien Law §3; DiSario v. Rynston, 138 A.D.3d 672, 30 N.Y.S.3d 129 (2d Dept. 2016); (Lienor’s right to recover is limited by the contract price or the reasonable value of the labor and materials provided; lienor must offer proof of the price of the contract or the value of labor and materials supplied); DHE Homes Ltd. V. Jamnik, 121 A.D.3d 744, 994 N.Y.S.2d 349 (2d Dept. 2014) (Court erred in awarding increased general costs relating to delays in action to foreclose mechanic’s lien). A claim for damages consisting of lost profits may not be included in a Mechanic’s Lien (see, Goldberger–Raabin, Inc. v. 74 Second Ave. Corp., 252 N.Y. 336, 169 N.E. 405; E. Hills Metro, Inc. v. J.M. Dennis Const. Corp., 183 Misc. 2d 439, 441, 703 N.Y.S.2d 897, 899 (Sup. Ct.), aff’d, 277 A.D.2d 348, 717 N.Y.S.2d 202 (2000).
Willful exaggeration of lien
Under New York Lien Law § 39, if a Court finds that a lienor has willfully exaggerated the amount for which the lienor claims a mechanic’s lien, the lien “shall be declared to be void and no recovery shall be had thereon.” Additionally, if a lien is voided under this provision, the property owner is entitled to damages equal to the amount that the lien was exaggerated, along with the costs and attorney’s fees associated with bonding and discharging the lien. Id. § 39-a. A claim under Lien Law § 39 may be subject to a summary disposition where the evidence that the amount of the lien was “willfully exaggerated” is conclusive (see Strongback Corp. v. N.E.D. Cambridge Ave. Dev. Corp., 25 A.D.3d 392, 808 N.Y.S.2d 654 (1st Dept. 2006); Northe Grp., Inc. v. Spread NYC, LLC, 88 A.D.3d 557, 931 N.Y.S.2d 231 (1st Dept. 2011); Casella Constr. Corp. v. 322 E. 93rd St. LLC, 211 A.D.3d 458, 459, 181 N.Y.S.3d 20, 21 (1st Dept. 2022).
Lien Law § 39 provides:
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 wilfully 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.
Section 39-a of the Lien Law sets forth the penalty for willfully exaggerating a lien and provides:
Where in any action or proceeding to enforce a mechanic’s lien upon a private or public improvement, the Court shall have declared said lien to be void on account of wilful exaggeration. The person filing such notice of lien shall be liable for damages to the owner or contractor. The damages which said owner or contractor shall be entitled to recover shall include the amount of any premium for a bond given to obtain the discharge of the lien or the interest on any money deposited for the purpose of discharging the lien, reasonable attorney’s fees for services in securing the discharge of the lien, and 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 exceeded the amount actually due or to become due thereon.
Lien Law § 39-a’s remedies and damages are “available only where the lien was valid in all other respects and was declared void by reason of willful exaggeration after a trial of the foreclosure action.” Matrix Staten Island Dev., LLC v. BKS-NY, LLC, 204 A.D.3d 1004, 1006 (2nd Dep’t 2022). In circumstances where a lien is discharged “for reasons unrelated to its supposed exaggeration, there remains no lien to be declared void by the court.” Wellbilt Equip. Corp. v. Fireman, 719 N.Y.S.2d 213, 216 (1st Dep’t 2000). In this connection, section 39–a, by its terms, only permits a wilful exaggeration claim to be asserted in an action “to enforce a mechanic’s lien,” namely, a foreclosure action. Where the lien has been discharged prior to trial, the action is no longer one seeking to enforce a mechanic’s lien. The action is, at that juncture, merely one in the contract. Smith v. Otis–Charles Corp., 279 A.D. 1, 107 N.Y.S.2d 233 (4th Dept. 1951), affd. 304 N.Y. 684 (1952).
The Courts have established a very high bar to prove a willful exaggeration. Even if the amounts are wrong or excessive, if the lienor alleges ignorance or honest mistake then it will not be “willful”. The willful exaggeration of a Notice of Lien has been defined as an exaggeration that is intentional, deliberate, fictitious, or fraudulent (Collins v. Peckham Road Corp., 18 A.D.2d 860, 236 N.Y.S.2d 415). The burden is on the opponent of the Mechanic’s Lien to show that the amounts set forth in the Notice of Lien were intentionally and deliberately exaggerated (see, Fidelity New York, FSB v. Kensington–Johnson Corp., 234 A.D.2d 263, 651 N.Y.S.2d 86); E. Hills Metro, Inc. v. J.M. Dennis Const. Corp., 183 Misc. 2d 439, 442, 703 N.Y.S.2d 897, 899–900 (Sup. Ct.), aff’d, 277 A.D.2d 348, 717 N.Y.S.2d 202 (2000).
Bonnie Reid Berkow is a partner at Adam Leitman Bailey, P.C.