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Contractor's Lien Waiver Does Not Bar Claim For Unpaid Work

By: Robert W. Bannon II
Published: September 2017

A waiver of lien can serve as an effective tool to bar unanticipated claims for unpaid/extra work on a project. Although Courts will generally enforce an executed lien waiver as a bar to such claims, that is not always the case. In Shamrock Materials LLC v. Impact Environmental Engineering, PLLC (149 A.D.3d 1001 [2d Dept 2017]), the Appellate Division, Second Department, addressed the issue of the enforceability of a lien waiver.

The dispute in Shamrock Materials LLC arises out of a 2009-2010 project to lengthen and widen the Bay Runway at John F. Kennedy International Airport (“Project”). Tutor Perini served as the general contractor who subcontracted work to defendant, Impact Environmental Engineering. Impact Environmental Engineering, in turn, entered into a subcontract with the plaintiff, Shamrock Materials, for the removal and disposal of about 240,000 cubic yards of excavated materials. The price for Shamrock’s work was an allegedly agreed upon unit price, which was dependent on the type of material, screening needs and method of transport. Shamrock Materials claimed that it was still due and owing at least $458,450.75 in connection with the Project. Impact Environmental claimed, among other things, that during the course of the Project Shamrock Materials executed lien waivers waiving such claims, and that Impact Environmental had actually overpaid and, as a result, was owed a credit of $57,178.96.

Shamrock Materials filed a breach of contract lawsuit, which proceeded to trial. Initially, Impact Environmental moved for judgment as a matter of law, contending that Shamrock Materials had waived its claim based on a series of executed lien waivers. The Court denied this motion and permitted the jury to determine the parties’ intention as to the effect of the lien waiver documents. At trial, the jury returned a verdict in favor of Shamrock Materials in the total amount of $547,278.61, plus interests and costs.  

The Appellate Division upheld the lower court’s decision, finding that “the evidence at trial failed to establish, as a matter of law, that the plaintiff waived its claim to recover” the unpaid amounts. In its decision, the Appellate Division cited Penava Mech. Corp. v Afgo Mech. Servs., Inc. (71 AD3d 493, 495 [1st Dept 2010]). In Penava, it was held that the parties’ course of conduct was such that the subcontractor was required to sign waivers whenever it received payments, and that “the parties treated the waivers as mere receipts of the amounts stated in the waivers, not as complete waivers of all claims to that point”.

It should be noted that courts will generally enforce waiver and release documents to the extent that they are a true reflection of the intent of the parties. If there is evidence that the parties course of dealing is inconsistent with the terms of the release document, a court may decline to enforce the waiver and release against the contractor. Here, Shamrock was ultimately able to recover for unpaid work, but this result is more the exception than the rule. All too often contractors fail to carefully read waiver and release documents in the hope of receiving faster progress payments (and end up paying a substantial price for this oversight). The more prudent course of action is to carve out an exception to any waiver and release documents they sign when there is an outstanding balance or it is contemplated that additional work is to be performed at the time that the lien waiver is signed.

If you would like more information regarding this topic please contact Robert W. Bannon II at rbannon@wbgllp.com, or call 914-607-6455.

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Please understand that this column provides general information only, and should not be construed as legal advice to anyone under any circumstances. The author reserves the right to modify any questions submitted so as to broaden their appeal. While we encourage you to contact us, you should not disclose to us any information that you consider confidential unless and until we have formally established an attorney-client relationship, and agreed to represent you in your particular matter. Citations to legal authority have been omitted.