Mechanic’s liens, if available, can be useful tools for unpaid contractors, subcontractors and suppliers to get paid for their work. Like any tool, it is subject to abuse; such as by the filing of an unwarranted, or exaggerated, lien. While there is a statutory remedy in those cases where the lien is shown to be willfully exaggerated, such remedy is only available where the lienor actually seeks to foreclose on the lien in court.
Where there is no lien foreclosure action, what is a contractor-lienee, aggrieved by the filing of an allegedly exaggerated lien, to do? In the recent case of Centrifugal Associates Group LLC v Newell Contracting, Inc., a court showed us what cannot be done: extend liability for the claimed misuse of a mechanic’s lien to the principal of the subcontractor-lienor on a theory of defamation.
Centrifugal Associates Group LLC, was hired by the Durst Organization to serve as the general contractor on a construction project on 26th Avenue in Queens. Centrifugal, in turn, hired Newell Contracting, Inc. as a subcontractor to perform certain mechanical work. Newell performed work under the contract and claimed that it wasn’t being paid. On September 17, 2018, Newell filed a mechanic’s lien against Durst’s property in the amount of $320,000, claiming that it was owed that amount by Centrifugal, as GC. Newell, however, never sought to foreclose the lien. Centrifugal disputed the debt.
On November 26, 2018, Centrifugal commenced a lawsuit against Newell and its president, Krzysztof Bielak. Centrifugal’s claims against Newell were for the claimed breach of the subcontract, for which Centrifugal sought damages in excess of $8 million. As to Bielak, Centrifugal claimed that his statements made in the mechanic’s liens were false because no money was owed to Newell, and that Bielak caused the mechanic’s lien to be filed solely to cause harm to Centrifugal (and that the resulting harm was the removal of Centrifugal from Durst’s approved contractors list).
Both Newell and Bielak failed to answer the complaint, and Centrifugal sought a default judgment against both. Newell did not oppose the motion, but Bielak did—and also cross moved to dismiss the claims against him. In support of his motion, Bielak argued that he could not be held liable for acts undertaken in his corporate capacity and, regardless, the statements made in a mechanic’s lien are not actionable as defamation, as a matter of law.
The court first dispatched Bielak’s corporate capacity argument, citing to well established case law providing that an individual can be personally liable for a tort committed in a corporate capacity (as opposed to a breach of contract, which would not support personal liability). However, the court was more receptive to Bielak’s argument that he did not commit defamation as a result of filing the mechanic’s lien. New York recognizes certain privileged situations where a person can undertake what may otherwise be considered defamation with impunity. One such privilege involves statements made in the course of a judicial proceeding. As a mechanic’s lien is pertinent to a lien foreclosure action, the court held, the statements could not be considered defamation, as a matter of law. In that regard, the court granted Bielak’s motion and dismissed the defamation claim against him.
As can be seen from the court’s holding in Centrifugal, the remedies against a lienor whose lien is exaggerated are limited, outside of the foreclosure context. However, as the court tangentially referenced, those remedies are not nonexistent and may include claims for fraud, disparagement of title, interference with contract, interference with prospective business advantage, extortion, malicious prosecution and malicious abuse of process. Accordingly, although Centrifugal stands for the proposition that a lienor’s principal cannot be held liable on a defamation theory, there is other recourse available to the target of the improper mechanic’s lien—even if the lienor refrains from foreclosing. In that regard, contractors should take away the importance of always being accurate and truthful when filing a mechanic’s lien.