Pigs Get Fed and Hogs Get Slaughtered: Willful Exaggeration Under New York's Lien Law

Sections 39 and 39-A of New York's Lien Law deal with willful exaggeration of mechanic's liens and the penalties that may be assessed against the contractor who files such liens. These penalties include the difference between the amount actually owed the lienor and the amount claimed. Costs to bond or otherwise discharge the lien, as well as reasonable attorney's fees for services in securing the discharge of the lien, are also recoverable from the lienor if willful exaggeration in established. Contrary to popular belief, the lienor's subsequent failure to submit proof supporting the lien amount does not, in and of itself, establish willful exaggeration.[1] Instead, the willful exaggeration must be shown to be an intentional and deliberate inflation of the lien amount by the lienor before a court will award damages under §§ 39 and 39-A.

When faced with a lien filing that in no way reflects the actual work or materials provided to a project, owners frequently assert a claim of willful exaggeration by way of an action to discharge the mechanics lien. The recent case of Heavy Construction Co., Inc. v. Metro Construction Equities, Inc., et al., Index No. 25257-12 reminds us, however, of certain limitations within the lien law which prevent recovery for willful exaggeration where the lienor has not brought an action to foreclose the lien.

The Lienor in Heavy Construction Co. filed a series of public improvement mechanics liens asserting over $500,000.00 due and owing under several construction equipment contracts. The problem, however, was that no such contracts existed. Instead, the liens were the result of a prior dispute between the parties and had no relation to the liened project. As the lienor did not

furnish material or labor to be used in the performance of a public improvement contract, the Court found that its lien claim was completely invalid.

The Court then addressed the aggrieved owner's willful exaggeration claim, a claim based on the now adjudicated invalid liens. It is at this point that lien law procedure came into play. The Heavy Construction Co. action was commenced by the aggrieved contractor pursuant to §21 of the Lien Law, a section which allows a party to sue for discharge of a lien on various grounds. §§39 and 39-A, however, specifically state that willful exaggeration is available only in an action or a proceeding "to enforce a Mechanic's Lien". A claim for willful exaggeration may only be maintained where the lienor has first commenced an action to enforce the lien. See Tully Construction Co., Inc. v. United Minerals, Inc., 221 A.D.2d 697 (1995). As Metro Construction Equities, Inc. did not bring an action to foreclose its lien, the Court correctly dismissed the aggrieved contractor's claims for willful exaggeration.

What is an owner or contractor to do when faced with a clearly exaggerated lien? Must it choose between an action to discharge the lien or wait for the lienor to foreclose on the lien so as be able to assert a claim for willful exaggeration? No. Section 19 of the Lien Law allows for a notice to be served upon the lienor demanding it to commence an action to foreclose the lien within thirty (30) days. If the lienor takes no action, then the subject lien can be discharged by application to the Court. If it does foreclose upon the lien, however, the aggrieved party will have the opportunity to assert, as a stand-a-lone defense and counterclaim, willful exaggeration. The action would no longer be an action to discharge the lien but rather to enforce it. By this mechanism, the party against whom the exaggerated lien has been filed brings the issue to a head and secures its right to seek not only discharge of the lien but damages against the lienor.

_{[1] Howdy Jones Construction, Inc. v. Parklaw Realty, Inc. 76 A.D.2d 1018 (3d Dep't 1980).}