It is widely known in the construction industry that one way to get the attention of an upstream contractor that is not remitting payment is to file a mechanic’s lien against the project. Aside from the obvious claim against the title of the property, a mechanic’s lien can also have the effect of putting an upstream contractor in default of its obligations under its contract, putting the property owner in default of its mortgage, and preventing a sale transaction from going forward, amongst others. However, notwithstanding these effects, there are contractors who may be tempted to give their lien a little extra “oomph” by increasing the amount of the lien beyond what they are actually owed. In the recent case of LaPenna Contracting v Mullen, an appellate court reminded us that this is always a very bad idea.
In July of 2016, LaPenna Contracting entered into a contract to construct an extension on the Mullens’ home. Problems arose between LaPenna and the Mullens, and LaPenna’s services were terminated in March of 2017. The Mullens retained one of LaPenna’s subcontractors to complete the project. At the time of its termination, LaPenna had been paid $36,350 from construction loan proceeds, and an additional $9,515.48 directly by the Mullens. LaPenna promptly asserted a mechanic’s lien for $33,870, and immediately commenced a lawsuit to foreclose that lien. The Mullens asserted a counterclaim in that lawsuit to recover the money they paid to LaPenna’s former subcontractor to complete the project. The Mullens also claimed that LaPenna’s mechanic’s lien was exaggerated. The case ultimately went to trial.
The trial court found that LaPenna’s work was deficient and defective, and that the Mullens properly terminated LaPenna for its breach of contract. At the time LaPenna was terminated, the trial court found that there was only limited progress made on the Mullens’ home, and that the approximate value of that work was only $36,350—even though LaPenna had been paid $45,865.48. Accordingly, the trial court awarded the Mullens the amount that they had to pay to complete the home, as well as the difference between the amount of work actually performed by LaPenna and what was paid by the Mullens. The trial court also found that LaPenna’s mechanic’s lien was exaggerated, and it awarded the Mullens damages accordingly. LaPenna appealed.
The appellate court affirmed, finding that an award to LaPenna on its mechanic’s lien would result in a payment to LaPenna of $79,735.48, or 94% of the contract price, when the evidence established that the value of that work was only $36,350—and LaPenna submitted no evidence to suggest otherwise. Given this math, there was no other conclusion to be drawn other than the mechanic’s lien was willfully exaggerated. Accordingly, the award to the Mullens of the amount of the exaggeration (here, the entire lien) and attorney’s fees—on top of what the Mullens were awarded on their breach of contract counterclaim—was upheld.
Mechanic’s liens are a powerful tool because they not only involve the upstream contractor who is not paying, but they also attach to the title of the property itself. Accordingly, in order to prevent abuse of this powerful tool, the state legislature put in a safeguard in the form of an award against an exaggerating lienor of not only the attorney’s fees incurred in discharging the exaggerated lien and the interest on monies deposited to discharge the exaggerated lien (or the premium for any lien discharge bond), but an amount of money equal to the amount of the exaggeration itself. One can see here that even though LaPenna’s work was legitimately worth $36,350, after the award of the amount of the exaggeration (which was the entire lien), LaPenna was left with only $2,480 to show for its efforts.
Contractors should be forewarned of the bitter penalties that can be imposed if they exaggerate a lien. Accordingly, one should consult with construction counsel to determine what evidence you have available to meet your burden of proving the reasonable value of the work performed such as would support the filing of the lien.