Question. Can a lienor recover for work performed outside the contract even if the lien is deemed to be willfully exaggerated
Answer. YES. This case gives us the opportunity to examine how and when a lien is deemed "willfully exaggerated" under the Mechanics Lien Law.
Architect seeks foreclosure of a mechanic's lien and money damages based upon breach of contract, quantum meruit and unjust enrichment. Owner counterclaims for damages based upon willful exaggeration of a mechanic's lien and breach of contract.
Architect entered into a written contract with Owner whereby Architect agreed to provide architectural services to Owner in connection with the construction of a multi-use building for the sum of $50,000. Pursuant to the contract, which was drafted by Architect, additional fees were permitted, for preparation of amendments to conform to as-built conditions if required. Additionally, Owner was responsible for all fees including filing fees, microfilming, and permit fees. Pursuant to the agreement, Owner paid $74,555.50 to Architect for services rendered and costs incurred. Architect's invoices, which do not seem to have been prepared or sent to Owner on a regular basis, indicate that Owner still owed Architect an additional $68,664.21.
Several months later Architect added $46,200 to Owner's invoice for "coordination of plans and applications due to excessive construction delays." Then ten days later, Architect added an additional $12,357.75, which represented 18 percent interest, to Owner's bill, even though the contract entered into between the parties made no provision for interest. This increased the amount allegedly owed to Architect to $127,938.96.
Eventually, an agreement was reached between the parties whereby Owner would pay Architect an additional $20,000 in settlement of all claims for services performed and fees incurred. As part of this agreement, Architect agreed to remove the mechanic's lien, replace some documents in the file of the Department of Buildings and obtain a final certificate of occupancy.
Owner paid Architect $15,000 and Architect filed a satisfaction of mechanic's lien. The final payment of $5,000 pursuant to the agreement was to be made upon the issuance of a final certificate of occupancy. During this time, however, Architect was being investigated and was stripped of his ability to make any filings with the Department of Buildings. Owner went to the Department of Buildings and obtained a final certificate of occupancy and refused to pay the final $5,000 to Architect.
Architect then added 18 percent interest ($8,470.42) to the invoice of Owner, and $5,000 for the filing of the final certificate of occupancy. Shortly thereafter, Architect filed mechanic's liens in the amount of $126,409.38.
While the mechanic's liens filed herein included amounts which were not authorized by the contract between the parties, the issue is whether any of the amounts charged were "wilfully exaggerated" pursuant to Lien Law §39.
The burden of proving "wilful exaggeration," namely that the amounts set forth were "intentionally and deliberately exaggerated," is on the owner of the property. To be "wilful," the exaggeration cannot be based upon an honest mistake, inaccuracies or a difference in opinion.
In this case, the parties did not memorialize most of their conversations and any agreements subsequent to the written contract. Although Owner paid Architect $39,555.50 more than the contracted amount, except for the $15,000 toward the settlement, there is no documentary evidence corresponding to or explaining any of these additional payments. Although much of the work appears to have been performed and necessary, some of the charges were clearly unilaterally concocted by Architect without any reasonable explanation. These charges include the $46,200 which was added right before the filing of the first mechanic's lien, and the seemingly random $12,357.75 and $8,470.42 of 18 percent interest charges. The interest charges were neither authorized nor mentioned in the written contract which was drafted by Architect. These interest charges cannot be claimed to be an honest mistake since a similar interest charge was made and reversed seemingly after Owner complained. Additionally, the timing of these charges support the finding of willfulness since they were made either immediately prior to the filing of a mechanic's lien and/or so far removed in time from when the charges accrued indicating that they were retaliatory and/or merely to inflate the bill. Regardless of the motive, the foregoing charges were added to Owner's invoice without any reasonable justification. Accordingly, Architect, prior to filing the mechanic's liens sought to be foreclosed knowingly, purposefully and intentionally added unauthorized charges to Owner's account in the amount of $67,028.07.
Since Owner sustained it's burden of proving willful exaggeration of the mechanic's lien, pursuant to §39 of the Lien Law, Architect's mechanic's liens should be declared to be void and Architect's cause of action to foreclose is dismissed. Additionally, Owner is entitled to damages in the amount of $67,028.17, the exaggerated amount of the liens.
Even though Architect's foreclosure action is dismissed based upon its willful exaggeration of its mechanic's lien, it's claims seeking to recover damages for unpaid work performed can still be maintained.