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The Supreme Court, Appellate Division, First Department, New York, recently issued a decision in Thorobird Grand LLC et al. enacted. v. M. Melnick & Co., Inc., et al., affirming the lower court's decision granting plaintiffs' motion for summary judgment…
United States
Real estate and construction
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The Supreme Court, Appellate Division, First Department, New York, recently issued a decision Thorobird Grand LLC et al. v. M. Melnick & Co., Inc., et al.thereby affirming the lower court's decision granting plaintiffs' motion for summary judgment on their cause of action alleging defendant surety's willful exaggeration of mechanics' liens.1 The court declared the surety's liens invalid and discharged them, but denied plaintiffs' claim for damages under Section 39-a of the Lien Law.
The court found that the plaintiffs had established that the surety did not meet the legal definition of a contractor under Section 2 of the Lien Act, thereby invalidating his liens. Plaintiffs had retained M. Melnick & Co., Inc. as general contractor for certain projects. Pursuant to their agreement, Melnick issued payment and performance bonds together with the surety who served as Melnick's surety. Following Melnick's termination, which triggered the surety's obligations under the performance bond, the surety elected to hire Melnick to complete the project.
The plaintiffs then filed a lawsuit asserting breach of contract claims against both Melnick and the surety. In response, the surety filed three mechanics' liens for unpaid work, while Melnick filed his own liens. The surety also filed a counterclaim against the plaintiffs and other counterclaim defendants, asserting as causes of action breach of contract, quantum meruit, unjust enrichment, declaratory judgment, and foreclosure. Plaintiffs then filed an amended complaint which included, among other things, a cause of action for willful delinquency of liens.
Plaintiffs moved for partial summary judgment on the willful exaggeration claim, asserting that the surety's liens were legally invalid because the sureties lacked standing to assert mechanics' liens. In opposition, the surety argued that it qualified as a contractor with the authority to assert liens and had not contractually waived its liens.
The court concluded that the underwriting agreement between the parties was clear and unambiguous and noted that the surety remained in his capacity as a surety and did not assume the role of a contractor. As a result, the court found that the surety did not have standing to enforce mechanics liens. However, it declined to award damages to the plaintiffs under Section 39-a of the Lien Law on the grounds that such damages are not available when a lien is lifted for reasons other than willful exaggeration.
This decision highlights the importance of precise contract language and the legal distinction between a surety and a contractor in mechanics lien disputes.
footnote
1. 2024 WL 5080524 (1st Dept. December 12, 2024)
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