A Willfully Exaggerated Lien - It's Not Just The Amount
Contractors beware. In a recent case, the court found a mechanic’s lien to be willfully exaggerated not based on the lien amount but by virtue that the mechanic’s lien should not have been filed in the first place.
Lien Law §39-a provides that a willfully exaggerated lien may be voided by the court and the person filing such a notice of lien shall be liable in damages. Typically, this has been applied where a lienor deliberately and intentionally exaggerates the lien amount. But a recent decision holds under certain circumstances willful exaggeration can be found even without examining the lien amount. In essence, filing a lien when one is not permitted to do so renders the entirety of the lien willfully exaggerated and, thus, void.
In Degraw Construction Group v. McGowan Builders, Degraw (as general contractor) and McGowan (as subcontractor) mutually agreed to terminate their subcontract “for mutual convenience.” They entered into a settlement agreement whereby McGowan agreed to pay certain sums to Degraw over time, but which sums could be offset by any latent defects in Degraw’s work which were later discovered. Significantly, the agreement provided that in the event of a failure to perform under the agreement, “the sole remedy shall be to enforce this Agreement.”
When McGowan claimed to have discovered latent defects and stopped making payouts to Degraw under the settlement agreement, Degraw filed a mechanic’s lien (in an amount greater than the balance due under the settlement agreement) and started a lien foreclosure action. McGowan moved to dismiss the action on the grounds that the lien was willfully exaggerated under Lien Law §39-a and void, and sought damages under that section.
The court saw no need to address whether the lien amount was intentionally inflated. The judge held the lien to be exaggerated solely on the ground that the settlement agreement denied Degraw the right to file the lien in the first place. Degraw’s sole remedy was to sue for breach of the settlement agreement (limited to the balance of the unpaid settlement amount). The court awarded damages to McGowan in the amount of the bond premiums it had to pay to bond the lien.
While these facts are somewhat unique, the signing of waivers of lien on construction projects is quite common. This case reminds contractors that an argument can be made that the filing of a mechanic’s lien for services performed prior to the effective date of a routine waiver of lien may constitute a willful exaggeration, and such lien may be void, irrespective of whether the amount was deliberately exaggerated.
Contact GDB Construction Law attorney Randy J. Heller, Esq. for more information.
Further information on mechanic's liens can be found on our blog:
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.