Court Voids Lien Law Lien Because of Exaggerated Claim

On April 23, 2020, Justice Masley of the New York County Commercial Division issued a decision in GPK 31-19 LLC v. L&L Constr. Dev. Inc., 2020 NY Slip Op. 31046(U), voiding a Lien Law lien because it was excessive, explaining:

Lien Law 39 states that a lien willfully exaggerated in amount is void. The elements of a cause of action for willful exaggeration of a lien are: (i) a lien was filed; (ii) the amount of the lien was exaggerated relative to the underlying claim; and (iii) this exaggeration is willful and not due to honest mistake. Defendants also noted that:

A claim under Lien Law 39-a is subject to summary disposition where the evidence concerning whether or not lienor willfully exaggerated the lien is conclusive. Such a burden necessarily involves proof as to the credibility of the lienor. Accordingly, the issue of willful or fraudulent exaggeration is one that is ordinarily determined at the trial of the foreclosure action, and not on summary disposition.

In most cases, claims for willful exaggeration must be resolved at trial. However, where the lienor has included in its lien amount items that are not for labor or materials, as its own itemization makes plain and does not offer a good faith explanation for their inclusion, a grant of summary judgment on a cause of action of willful exaggeration is appropriate.

Defendants not only fail to present evidence that Contractor's lien is not willfully exaggerated but instead admit facts which require denial of their motion to dismiss the willful exaggeration claim. In paragraph 7 of his affidavit, Xiangbo declares that the largest portion of Contractor's $315,039.14 mechanic's lien, L&L's 2/16/17 Notice of Mechanic's Lien) represents what Contractor projected to be its lost profit from the Project, 10% of the Contract price, approximately $220,000. Lost profits cannot be recovered through a mechanic's lien. For the same reason, the request of Owner and Westchester to void the lien and release the lien discharge bond must be granted.

This is not a case of mere inaccuracy or honest mistake in setting the amount of the lien. Rather, defendants admit that Contractor received $220,000 from Owner, for the excavation and construction of the foundation, yet defendants fail to show that Contractor expended any of these funds in payments to subcontractors or materialmen toward completion of this Work. The court is compelled to grant the motion of Owner and Westchester for an order voiding the lien, pursuant to Lien Law § 39, and directing that the lien discharge bond be released.

(Internal quotations and citations omitted).

We frequently litigate disputes over construction contracts and the sale or leasing of commercial property. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you are involved in a dispute regarding a commercial real estate transaction.