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.
In our August 2019 article (https://www.wbgllp.com/single-publication.php?type=3&id=300), we explored the question of what a contractor-lienee, aggrieved by the filing of an allegedly exaggerated lien, can do where there is no lien foreclosure action. Based on the then-recent case of Centrifugal Associates Group LLC v Newell Contracting, Inc., we discussed how a court held that liability could not be extended for the claimed misuse of a mechanic’s lien to the principal of the subcontractor-lienor on a theory of defamation. On a motion for reargument (which asks the court to change its mind), that same court has now held that a claim for injurious falsehood may lie under those same circumstances.
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. The court granted Bielak’s cross motion, finding that New York recognizes certain privileged situations where a person can undertake what may otherwise be considered defamation with impunity, and that as a mechanic’s lien is pertinent to a lien foreclosure action, the privilege involving statements made in the course of a judicial proceeding precluded the claim. The plaintiff moved to reargue, contending that the court incorrectly characterized the claim as defamation, and that upon considering that the claim is actually one for injurious falsehood, the court should sustain the claim.
The trial court granted rearguement and, upon so granting, reversed itself and restored the plaintiff’s claim (which is not common). In doing so, the court noted that the elements for injurious falsehood were that statements were published with malice or reckless disregard for the truth, that the statements were false, and that the plaintiff suffered special damages as a result. As a result, the court held that the plaintiff made allegations to the effect that the amount of the lien was false, and that it was made in order to harm the plaintiff. (For purposes of the motion, the court had to accept these allegations as true.) As to the third element, damages, the court noted that the plaintiff had also alleged that it lost at least one customer, which constituted actual damages, but went on to hold that as a statement that “tends to injure another in his or her trade”, such damages may be presumed under the applicable case law, as a matter of law, without needing to be specifically alleged and proven.
It is generally recognized that the remedies against a lienor whose lien is exaggerated are limited outside of the foreclosure context. However, as the court tangentially referenced in its prior decision, and as it specifically holds now, those remedies are not nonexistent. While the two Centrifugal cases establish that a defamation claim is not available, and an injurious falsehood claim is, the remedies against such an exaggerated lien may also include claims for fraud, disparagement of title, interference with contract, interference with prospective business advantage, extortion, malicious prosecution and malicious abuse of process. This case simply reinforces the advice set forth in the previous article, that as there is other recourse available to the target of the improper mechanic’s lien—even if the lienor refrains from foreclosing—contractors should take away the importance of always being accurate and truthful when filing a mechanic’s lien.