Willful Exaggeration of Lien For Extra Work
Summit Development Corp. performed waterproofing work as a subcontractor to Hudson Meridian Construction Group on a building on Second Avenue in Manhattan. The job suffered from lots of problems and delays. Stop-work orders were issued by the NYC Department of Buildings. There were threats of default and termination. There were numerous change orders and other claims for extra work. Before the job was completed, Summit filed a series of mechanic’s liens.
Litigation ensued. There were numerous claims and counterclaims. Summit sought to foreclose its mechanic’s liens. Hudson counterclaimed to dismiss one of the liens, arguing that it was willfully exaggerated to the extent it sought payment for unapproved extra work.
The court listed a few of the governing principles: The party asserting that a lien is willfully exaggerated has the burden of proof. Claims for willful exaggeration are not intended to punish honest differences of opinion. A lien may include claims for both contract work and change order work. But where a lien is found to be willfully exaggerated, it shall be declared void in its entirety.
The issue here revolved around a contract provision which had provided, with regard to change orders, that “amounts which have been approved may be included in Applications for Payment.” However, 7 of Summit’s claims for extras (totaling over $900,000) had been explicitly rejected by either Hudson or the project Architect. Therefore, Summit was not entitled to seek payment for those rejected change orders. Was it entitled to lien for them?
The court held that Summit significantly exaggerated its liens by including amounts for the rejected extra work claims. If the court’s decision stopped there, it might be problematic. Can a subcontractor really be deprived of the right to lien for disputed extra work simply because the GC or the Architect contends otherwise? Perhaps not.
Here, however, the court went on at length about the lack of credibility of many of Summit’s witnesses at trial. The court stated that “[t]his determination rests upon my credibility assessment of [Summit’s Vice President], and specifically this Court’s determination that he was fully aware this was not additional work—but work required of Summit under the base masonry subcontract—and he willfully inflated his lien by including these illegitimate claims….”
In essence, the court determined that Summit had, indeed, deliberately inflated its lien, knowing the claims to lack merit, to gain a tactical advantage at trial. Summit was not just liening for disputed extra work claims. Summit knew it was base contract work, but liened for it as extra work anyway.
Findings of willful exaggeration are infrequent since one must prove that the lienor “willfully” inflated its lien; that there was not just an honest difference of opinion. Here, that determination of willfulness was made by a court which simply did not believe the testimony of the witness who prepared the lien.
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Further information on mechanic's liens can be found on our blog:
Filing Proof of Service - No Wiggle Room
Advice on Consent: Holding a Landlord Liable on a Lien Filed for Tenant Work
Owner's Payment to GC is Absolute Defense to Sub's Mechanic's Lien Claim
Liening for Pre-Construction Services? Yes and No.
Another Mechanic's Lien Bites the Dust
Better Early Than Never: Can You File a Mechanic's Lien too Soon?
What Can You Lien For? And What Not?
You Must Renew a Bonded Lien, Or Else
Willful Exaggeration of a Mechanic's Lien - Only Established at Trial
Filing a Mechanic's Lien. Again. And Again.