Court Reinstates Mechanic's Lien To Permit Exaggeration Counterclaim To Proceed

Thomas H. Welby

Founder & Senior Counsel

Gregory J. Spaun

Partner

T: (914) 607-6425

E: gspaun@wbgllp.com

This column has warned many times that it is always a bad idea to exaggerate the amount of a mechanic’s lien. While the exaggerating lienor may succeed in getting the owner’s or upstream contractor’s attention, the negative boomerang effects—such as having the lien declared void, being prohibited any recovery on the contract, being forced to pay the costs and attorney’s fees associated with the discharge of the exaggerated lien and, most importantly, being subject to an award of damages against the lienor in the amount of the exaggeration—greatly outweigh the shock value of a big number on the lien. There are instances where lienors try to have their proverbial cake and eat it too by asserting an exaggerated lien, and then withdrawing the foreclosure claim in the face of the exaggeration counterclaim. In Adria Infrastructure, LLC v Henick-Lane, Inc., an appellate court recently demonstrated the lengths that courts will go to prevent such chicanery, going so far as to not only deny a motion to amend a complaint to remove a lien foreclosure cause of action, but actually ordering the reinstatement of the lien—at a value of $0—so that it existed at the time of trial, as was required in order to pursue the exaggeration counterclaim.

Background

Prior to 2010, Henick-Lane entered into a contract with DASNY to serve as the general contractor on a public works project for the refurbishing of the courthouse on Staten Island. In January of 2010, Henick-Lane contracted with Adria Infrastructure to provide needed plumbing, steamfitting, and like work for the project. In 2013, Adria filed a mechanic’s lien against the project in the amount of $742,651, and in 2015 it commenced a lawsuit to foreclose that lien. Shortly thereafter, Adria filed a second mechanic’s lien against the project in the amount of $4,180,706, and it amended its complaint in the existing lawsuit to foreclose that lien. In 2016, Adria successfully moved to reduce its lien to $2,949,538, based on a prior partial settlement. After discovery (in which it became readily apparent that the liens were willfully exaggerated), Adria released its liens and moved for leave to file an amended complaint to remove its cause of action to foreclose those liens. In response, Henick-Lane moved to void the release of lien, and reduce the amount of Adria’s lien to $0.

Decision

The court denied Adria’s motion to remove its foreclosure claims, and granted Henick-Lane’s motion to effectively reinstate Adria’s lien at $0 value. In doing so, the court cited well settled law that although amendments to claims should ordinarily be freely granted, the purpose of the proposed amendment here was to evade the willful exaggeration claim—a result which the court would not countenance. Further, because the predicate of a successful willful exaggeration claim is the existence of a valid mechanic’s lien, the court voided the release of lien and valued the lien at $0 so that the willful exaggeration claim could proceed. On Adria’s appeal, the Appellate Division affirmed, finding, like the motion court, that the drastic remedies set forth in the Lien Law for a willfully exaggerated lien were “available only where the lien was valid in all other respects and was declared void by reason of willful exaggeration after a trial of the foreclosure action”, and that by releasing the lien, Adria attempted to deprive Henick-Lane of the ability to seek redress for the willful exaggeration.

Comment

Mechanic’s liens are a powerful tool because they not only involve the upstream contractor who is not paying, but they also attach to either the title of the property itself, or the public funds held by the municipal owner. 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, together with 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. While many exaggerating lienors try to avail themselves of the shock value of an exaggerated lien while later avoiding the ramifications, Adria Infrastructure is a reminder of the lengths to which courts will go to prevent such chicanery—even going so far as to reinstate a mechanic’s lien for $0 in order that a lien will be in effect at time of trial, as is necessary to allow the exaggeration claim to proceed.
Contractors should be forewarned of the bitter penalties that can be imposed if they exaggerate a lien. Those on the receiving end of an exaggerated lien should also fight back. Accordingly, one should consult with construction counsel to determine what legitimate methods are available to get an upstream contractor’s or owner’s attention, such as by also asserting a bond claim, by having a copy of the lien directed at the property’s lender, or the like; or, alternatively, learn how to counter-attack the exaggerating lienor. Regardless, contractors must keep in mind that exaggerating a mechanic’s lien is always a bad idea.

If you would like more information regarding this topic please contact Thomas H. Welby at

twelby@wbgllp.com or Call (914) 428-2100
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