Court Rebuffs Claim For "payment Over Mechanic's Lien"

This column has often reminded those in the construction industry that the statutory remedy of a mechanic’s lien is a powerful tool that enables unpaid contractors, subcontractors, and suppliers to seek payment directly from property owners who may be strangers to the contractual relationship from which the payment obligation arises. Because of the power of this tool, there are also protections in the Lien Law for owners, such as the insulation from being made to pay for the same improvement twice (which is why it is necessary for a plaintiff in a lien foreclosure action to establish the pool of monies available to pay lien claimants [the “lien fund”]). A similar protection is that a property owner who has not yet been served with the mechanic’s lien cannot be held liable for making payments in good faith to other contractors before that owner receives notice of the lien. The converse of this protection is that an owner who has been served with a mechanic’s lien cannot use subsequent payments to deplete the lien fund, and will not have the “good faith payment” defense available upon the foreclosure of the lien. However, in the recent case of Crisafulli Bros. Plumbing & Heating Contractors, Inc. v Pirri Builders, LLC, when an inventive subcontractor sought to transform that defense into an affirmative claim in a lawsuit, an appellate court held that the legislature never intended to create yet another type of claim other than the lien foreclosure claim, and it rebuffed the attempt to invent the new one.

Background

In early 2017, Pearl Enterprises entered into a contract with Pirri Builders to serve as the general contractor for a renovation project in Albany. In March of 2017, Pirri entered into a subcontract with Crisafulli Brothers Plumbing and Heating Contractors for the HVAC and plumbing scopes of work. Crisafulli claimed that it performed its work without objection (but without payment), and as a result was owed a total of $164,708.19. Crisafulli filed two mechanic’s liens, one in October of 2018, and the other in January of 2019. After being served with these liens, Pearl made two payments, totaling $227,502.00, to Pirri—not Crisafulli.

Crisafulli sued both Pearl and Pirri. As against Pearl, it not only sued to foreclose the mechanic’s lien, but it also asserted a cause of action for “payment over mechanic’s lien”, based on Pearl’s two post-lien payments to Pirri. Pearl moved to dismiss the “payment over lien” claim, arguing that it did not exist under New York law.

Decision

The motion court dismissed the “payment over lien” claim, and the appellate court affirmed. In doing so, the court reviewed the plain language of the statute and found that, at best, it provided a safe harbor provision against liability for payments made before the property owner had notice of the mechanic’s lien, and not a separate claim. Under such a reading, the “payment over lien” theory could only be a contractor’s defense against an owner’s attempt to use the safe harbor provision to reduce the lien fund.

Comment

The mechanic’s lien provided for under the Lien Law is a powerful tool. However, as a remedy that was not available at common law, it is read strictly so as to not give greater rights than the legislature intended. Accordingly, because the legislature did not clearly provide for the additional claim for the “payment over lien”, the court properly declined to create the claim by judicial fiat.

As a practical matter, Crisafulli had already started a lien foreclosure action, which, upon the facts presented, appears sufficient to enforce Crisafulli’s rights to payment. The safe harbor provision of the lien law—which Pearl was well outside—already exposed Pearl for making the subject payments after having had knowledge of Crisafulli’s lien. While it is understandable for a contractor to want to bring every weapon to bear in order to collect monies owed, in an attempt to create a claim that did not exist, the only thing that this subcontractor did was to buy itself motion practice, and an expensive trip to the Appellate Division.

P.S.- If you are served with a lien, think twice before writing out any checks. Protect yourself.