Court Limits Owner's Right To Itemized Statement Of Lien As Contract Was Fully Performed

As this column has often noted, a mechanic’s lien is a powerful tool to help a contractor to get paid. Because of the power of this tool—and the ability of a stranger to the property, and perhaps even a stranger to the contract with the owner, to affect title to the property—there are certain protections built into the Lien Law to provide balance. One of these balancing tools is the ability of an owner to demand a verified itemized statement of the lien, pursuant to Section 38 of the Lien Law. This statement is designed to provide the owner or upstream contractor with a line-by-line breakdown of what comprises the mechanic’s lien (which court holdings over time have demonstrated that, as a practical matter, should resemble a time and materials billing statement). The statement may also help identify whether the lien is exaggerated. The penalty for failing to provide the required verified itemized statement is the cancellation and discharge of the lien. Courts have also held that defenses to the requirement to provide such a statement are very limited. Accordingly, some who are the subject of a mechanic’s lien will use the demand for a verified itemized statement as a weapon to attempt to discharge the lien through the attrition of litigating the sufficiency of the response, as opposed to forcefully litigating the substance of the lien in a foreclosure action. For that reason, in the recent case of York Restoration Corp. v Pedrol Contracting Inc., a court reaffirmed that where a stipulated sum contract is substantially complete, a statement of the terms of that contract, together with a statement of the amounts owing, will be sufficient to apprise the owner of the basis for the lien.

Background

In August of 2018, York Restoration and Pedrol Contracting entered into a purchase order contract whereby Pedrol would rent certain scaffolding equipment to York for use on a construction project in Manhattan. The contract required Pedrol to provide 5 two-point scaffold, including 10 motors and accessories, as well as a “rigging license”. Each scaffold cost $1,200 per month, and the license cost $400 per month; the total cost for all equipment was agreed to be $6,400 per month. The rental ran through February of 2021, during which time York accrued $128,000 in arrears.

To secure its right to collect, Pedrol filed a mechanic’s lien on July 25, 2021 with the New York County Clerk. On August 26, 2021, York served a demand for an itemized statement, pursuant to Section 38 of the Lien Law, which required Pedrol to set forth the items of labor and material, and the value of same, together with the terms of the contract under which such were furnished, in a written and verified statement, within 5 days of the demand. Because Pedrol failed to comply with the demand, on September 16, 2021, York brought a special proceeding to compel Pedrol to comply. Alternatively, if Pedrol did not comply with the court order compelling production, York sought a further order cancelling the lien.

In opposition, Pedrol provided a copy of the contract setting forth the terms of the rental, together with the statements previously sent to York setting forth the computation of the amounts owed. As these documents set forth the accounting by which Pedrol arrived at the amount of its lien, it argued that such were sufficient to meet Pedrol’s burden under Section 38 of the Lien Law.

Decision

The court denied York’s motion and dismissed its petition. In doing so, the court focused on the language in Section 38 that an itemized statement “may” be required of a lienor, following well settled law that such language establishes that there is no absolute right to an itemized statement where it would not serve the purpose of apprising the property owner of the details of the leinor’s claim. Here, the court found that as the contract had been substantially completed, and as the information as to what comprised the lien was easily ascertainable by multiplying the fixed price per month times the number of months of the rental—neither of which York disputed—there was no need for anything further to satisfy Pedrol’s obligations under Section 38. The court went on to note that while a more detailed statement may be required in certain complex contractual disputes, such was not required here because the owner was sufficiently apprised of the basis of the lien.

Comment

The demand for an itemized statement of lien, like its cousin the demand for a verified statement of trust, is a useful tool to ascertain certain information in an expeditious fashion without having to await a lawsuit and its often arduous discovery process. However, like the discovery process in a lawsuit, these tools can be abused—particularly where, as here, a failure to comply with the demand can lead to a discharge of the lien (or, in the case of the demand for a verified statement of trust, a presumptive finding that trust funds were diverted). Accordingly, in order to prevent an overly litigious party from abusing the process in order to short circuit the lien—particularly with regard to a substantially complete project at a fixed price, where the computation of the amount owed is a matter of simple mathematics—the court will look to see whether the purpose of the statute (apprising the owner of the basis for the lien) has been met. Where it has, then any further litigation will be reserved for the foreclosure action.

While the court here held that the appraisal requirement was met because the contract was complete and the computation of damages was relatively simple (fixed sum times number of months), the court did leave open that a more thorough statement may be required where the computation is more complicated, or where the work is disputed. Accordingly, because the sanction for failing to adequately comply with these statutory requirements is cancellation of the lien, lienors would be well advised to consult with experienced construction counsel to determine what kind of a response is necessary under your particular set of circumstances.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100