By: Alexander A. Miuccio Published: July 2016

Court Rejects Owner's Claim of Willful Exaggeration of Lien

The consequences of filing a willfully exaggerated mechanic’s lien are severe. Section 39-a of the New York Lien Law provides that such a lien is declared void and the owner or contractor can recover the difference between the amount of the exaggerated lien and the actual amount due, costs of a bond to discharge the lien, and attorney’s fees.

New York courts, however, are reluctant to find that a lien has been willfully exaggerated unless it can be proved that the lienor intentionally and deliberately exaggerated the lien. The recent case of S. DiGiacomo & Son, Inc. v. Robinson Callen demonstrates the heavy burden of establishing a willfully exaggerated lien.

Background

In January of 2014, DiGiacomo entered into a contract with Reinstein Ross LLC, a tenant of a retail space in Manhattan, to perform the interior build-out of Reinstein’s store. DiGiacomo’s scope of work included certain specified HVAC work, including the installation of heat pumps and runtal wall radiators. Work continued for approximately 6 months, at which time communications between DiGiacomo and Reinstein broke down and work stopped. Ultimately, Reinstein terminated DiGiacomo’s contract, claiming that DiGiacomo was over 110 days behind schedule in completing the contract work.

In March of 2015, DiGiacomo filed a mechanic’s lien against the property for $100,621.76 and, shortly thereafter, commenced a lawsuit to foreclose that mechanic’s lien. The amount of DiGiacomo’s lien was based on its final payment application, which certified that its work was 100% complete, and which includes 28 separate items of work and 19 change orders. Reinstein moved to dismiss the lawsuit, disputing that the work reflected in the payment application was complete (or, with regard to several items, performed at all), and disputing the validity of these claimed change orders, arguing that they were unsigned, unilateral, and not a part of the parties’ contract. In support of its motion, Reinstein submitted the affidavit of its project architect, who stated: he never saw or approved the payment application, as required by the contract; he never approved the change orders referenced in the payment application; he specifically rejected several of the change orders, including two as being duplicative; and little of what was billed was actually performed and, accordingly, he would have rejected the work as not completed. Based on this affidavit, Reinstein contended that DiGiacomo’s lien was willfully exaggerated.

In opposition to the motion, DiGiacomo disputed the architect’s account and argued that the issue of willful exaggeration of a mechanic’s lien could not be determined on affidavits alone. DiGiacomo also responded to each of the architect’s specific claims, which indicated that $8,000 of the liened cost of the HVAC system was exaggerated, $3,750 was billed for hardware that was never installed, and $550 was billed for a microwave that was never provided.

Decision

The court denied Reinstein’s motion, holding that an inaccuracy in the amount of the lien, if no exaggeration is intended, cannot serve to void the lien. As to Reinstein’s disavowal of the change orders, the court followed well settled law that a mechanic’s lien may include amounts due for change orders and extras, including amounts based on unsigned change orders—even where the contract requires any changes to be in writing. Further, in addressing the question of exaggeration, the court declined to find at the initial stage of the litigation that the mechanic’s lien was exaggerated, holding that “while [DiGiacomo] may have inserted in the lien improper charges and double-billed certain items, Reinstein offers no evidence that [DiGiacomo] willfully and intentionally exaggerated the lien”.

Comment

Although the owner failed to meet its burden of establishing that DiGiacomo willfully and intentionally exaggerated the lien, it is worth noting that the court rejected the owner’s claim of willful exaggeration of the lien before Reinstein filed its answer to DiGiacomo’s complaint to foreclose its mechanic’s lien.  The issue of willful exaggeration necessarily involves proof as to the creditability of the lienor and is ordinarily determined at the trial of the foreclosure action.  Accordingly, Reinstein will have another opportunity to show DiGiacomo intentionally exaggerated the lien rather than acting in a good faith belief, although mistaken, that the lien claim was legitimate.

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