By: Thomas H. Welby Published: March 2019

Court Enforces Sub's Lien Claim Against Owner

New York’s Lien Law provides that contractors, subcontractors and material suppliers have the right to file a mechanic’s lien against the property improved upon.  Where public projects are involved (state, county, city and municipalities) a subcontractor or supplier can file a mechanic’s lien against the money due to the contractor from the public entity.

The lien rights of a subcontractor or supplier in either a private setting or a public improvement, however, are restricted to money due to the contractor from either the private owner or public entity.  The lien claim will be dismissed if no funds are owing to the general contractor.

In the recent case of C.C.C. Renovations, Inc. v Victoria Towers Development Corp., the appellate court affirmed the lower court’s decision that ruled in favor of the subcontractor on the critical issue of whether there was sufficient evidence to establish that there were funds due from the owner to the general contractor at the time of the filing of the subcontractor’s lien.

Background

Victoria Towers Development Corp. entered into a contract Blue Diamond Group for Blue Diamond to act as general contractor to make repairs at Victoria Towers’ property in Queens, which had been damaged in September of 2010. C.C.C. Renovations entered into four separate subcontract agreements with Blue Diamond to perform roofing, pipe scaffolding, electrical scaffolding, and sidewalk scaffolding work at the property. After the work was performed, C.C.C. remained unpaid under its subcontracts.  In November of 2011, C.C.C. filed two mechanic's liens against the property, seeking $59,500 for unpaid roofing work and $698,185 for unpaid sidewalk bridging, pipe, and electric scaffolding work. In January of 2012, Blue Diamond, as general contractor, filed its own mechanic's lien against the property, seeking $5,325,557 for unpaid work at the property. C.C.C. sued to foreclose its mechanic’s liens and, ultimately, moved for summary judgment.

Decision.

C.C.C. argued that it established both its right to recover for the subcontracted work that it performed, and that there was sufficient money owing to the general contractor, Blue Diamond, to cover the amounts of the liens. The lower court agreed and granted C.C.C. summary judgment. Victoria Towers appealed.  The appellate court affirmed the lower court’s decision.

In affirming the grant of summary judgment to the lienor-subcontractor, the appellate court relied on Section 3 of the Lien Law, and the case law interpreting that statute, holding that the mechanic’s lien remedy is limited by the principles of subrogation.  The subcontractor essentially steps into the shoes of the general contractor (in effect becoming “subrogated” to the general contractor’s claims against the owner), and those claims cannot exceed whatever claims the general contractor itself could assert against the owner.  If the general contractor is not owed any amount under its contract with the owner at the time the subcontractor's notice of lien is filed, then the subcontractor may not foreclose on its mechanic’s lien.

Here, however, the lower court found, and the appellate court affirmed, that C.C.C. established its entitlement to summary judgment because it established both the amounts owed for the work it performed at the property under the subcontracts, and that those amounts did not exceed the amount owed by the owner to the general contractor. The appellate court noted that Victoria Towers, in opposition, failed to demonstrate that a triable issue of fact existed to deny C.C.C. enforcement of its mechanic’s lien claim.

Comment

As this case demonstrates, the rights of subcontractor and material supplier lienors are derivative of the rights of the general contractor, and those rights are limited by the amount remaining due from the owner to the general contractor.  The subcontractors and suppliers cannot recover more than the amount owed from the owner to the general contractor.

A critical issue in the enforcement of liens is whether the owner had paid the general contractor in full at the time of the filing of the subcontractor’s or materialman’s lien.  Obviously, a mechanic’s lien filed without delay increases the likelihood that the lien will attach to monies due from the owner to the contractor.  The prudent subcontractor or material supplier should promptly file a mechanic’s lien once it becomes apparent that there is a problem with payment on the project.

 

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