Contractor Found Liable for Willful Exaggeration of Lien

The mechanic’s lien is one of the most fundamental instruments to secure a contractor’s right to payment.  However, many contractors are unaware of the potential exposure that lie beneath them if they should file a defective mechanic’s lien.  What happens when a contractor fails to follow the regulations set forth under the Lien Law?  The lien becomes subject to dismissal and, in certain instances, may subject the lienor to civil liability for willful exaggeration.  The issue of willful exaggeration was recently analyzed by the New York Supreme Court, New York County, in a case captioned G Builders II LLC. v. Great Midwest Ins. Co., 2025 NY Slip Op 35010[U] [Sup Ct, NY County 2025]).

In G Builders II LLC., Summit, as owner, entered into a lease with a tenant by which Summit was to construct and operate a food hall at a property in the Financial District of Manhattan.  Plaintiff, G Builders II (“Plaintiff”), was hired as the general contractor, and a dispute arose over the amount due to Plaintiff.  Plaintiff filed a mechanic’s lien in the amount of $1,484,238.29, and later filed an action to foreclose on the lien.  Defendants served a demand for itemized statement pursuant to Lien Law §38, to which Plaintiff responded by itemizing its purported costs upon which the Lien was based. Afterwards, Plaintiff filed partial releases of Lien to reduce the Lien amount to $1,230,434.90. In response to the foreclosure action, Defendants filed a counterclaim for willful exaggeration of lien under Lien Law §§39 and 39-a.  

After discovery, Defendants filed a motion for summary judgment to dismiss the complaint,and on its willful exaggeration counterclaim, on grounds there was no basis for Plaintiff’s itemization of its Lien, which was calculated as follows: $545,035 owed to subcontractors; (ii) $99,660 in labor costs (ii) $385,374.36 for insurance and bonds; (iv) $184,079.72 for overhead and lost profits; (v) $13,499.18 for general computer costs; (vi) $41,100 for pre-construction services; (vii) $47,294.38 for COVID-related costs; (viii) $43,200 for metals; and (ix) $111,495.65 for increased material costs.

The Court found that Plaintiff based its calculations on a percentage of completion method, which was inappropriate given the contractual obligations for which Plaintiff was to submit requisitions for payment.  In addition, Plaintiff did not claim to have started physical construction,and it could not provide proof that any of its subcontractors were actually paid.  Furthermore, Plaintiff failed to substantiate its other itemized costs to comport with the contractual obligations for submitting requests for payment, specifically the provision stating “the Contractor shall submit [documentation] to demonstrate... payments already made by the Contractor on account of the Cost of the Work.”  Based on the substantial lack of documentation and substantiation of costs used in calculating the lien, the Court found that this was “not a case involving a mere inaccuracy or honest mistake in setting the amount of the lien”.  Based on the fact that Plaintiff included costs not allowed by the contract, combined with a “general lack of records evidencing costs and number of alleged good faith errors”, the Court concluded that Plaintiff willfully exaggerated its Lien.

As a result, Defendants’ motion was granted, the complaint was dismissed, and the lien wasordered to be discharged.  The presiding justice also ordered a subsequent hearing to determine the amount of damages to be awarded under Lien Law §39-a, which provides that a lienor who files a willfully exaggerated lien is liable in damages for a) the amount of the premium for a bond discharge the lien, b) reasonable attorney's fees for services in securing the discharge of the lien, and 3) an amount equal to the difference by which the amount claimed to be due exceeded the actual amount due.  As such, Plaintiff’s exposure here is quite significant given the Court’s findings.

While exaggerating a mechanic’s lien will certainly get someone’s attention, this case shall serve as another harsh warning to contractors to first understand its contractual rights and obligations, and, if one should seek legal remedies to secure its right to payment, one must understand what types of costs are permitted under the Lien Law.  A failure to understand these legalities—and that exaggerating a mechanic’s lien is a really bad idea—may lead to serious consequences as seen in G Builders.  Consultation with an experienced construction attorney is vital in understanding and securing your rights as a contractor under the Lien Law.  

If you would like more information regarding this topic please contact Frank Gramarossa at fgramarossa@wbgllp.com or call (914) 607-6465