Contractors are cautioned of short contractual limitations to start suit for breach of contract, and an even shorter time limitation to serve a notice of claim. The New York statute of limitations provides for a six year period after a claim has accrued within which to commence an action for breach of contract. The courts, however, will enforce a much shorter period if the contract between the parties shortens the limitations period to start suit. 

In the recent case of Schindler Elevator Corp. v New York City Housing Authority, the court enforced contractual provisions that required 20 days after a claim has accrued to file a notice of claim and a one year period within which to commence a lawsuit.

Background 

On May 13, 2009, the New York City Housing Authority entered into a contract with Schindler Elevator to install elevator zone door locks and to perform associated capital improvements at various Housing Authority housing developments in Manhattan and Queens. The contract required Schindler, prior to making any claim for extra cost or extra compensation under the contract, to provide a notice to the Housing Authority within 20 days after the claim arises. The contract also provided that any lawsuit under the contract had to be brought within one year of its termination. The Housing Authority terminated the contract on June 15, 2010, and it notified Schindler on November 30, 2010 that its extra work claim was denied. Schindler served its notice of claim on July 12, 2011 and started its lawsuit on July 28, 2011.

In response to the lawsuit, the Housing Authority moved to dismiss Schindler’s claims based on its failure to serve a notice of claim within 20 days of the denial of the extra work claim, and Schindler’s failure to start the lawsuit within one year of the termination of the contract.

Decision

The court granted the Housing Authority’s motion and found that because the contractual language was clear, and because both parties were sophisticated entities, the two provisions were enforceable as written. In doing so, the court determined that the denial of the extra work claim after the contract had been terminated did not extend the contractual period within which to start the lawsuit and, in any event, there was no dispute that the notice of claim was not served within 20 days as was required by the contract. 

Comment

The courts will enforce time limitations voluntarily negotiated between the parties. Before they even consider the merits of a claim, courts will make certain that there has been strict compliance with the parties’ agreed-upon time limitations period. The unpaid claimant should make every effort to become thoroughly familiar with the time limitations of the contract. The claim will be lost if not brought within the contractual time limitations period. 

Under New York law, if the parties verbally agree on all of the terms of a proposed contract, they may be bound to the oral agreement even though the parties plan to enter into a formal written agreement. 

In the recent case of Moulton Paving, LLC v Town of Poughkeepsie, an appellate court addressed the question of whether the contractor and subcontractor entered into a binding contract notwithstanding the failure to reduce the agreement to a formal signed agreement.

Background 

Marquise Construction was the general contractor on a road improvement project for the Town of Poughkeepsie. Marquise’s prime contract required the Town’s engineering consultant to approve all subcontractors it intended to use on the project. Marquise submitted an unsigned subcontract to Moulton Paving. This proposed subcontract provided that Marquise is not bound to the agreement unless and until it was signed by Marquise, and that Marquise only intended to be bound to the agreement upon its complete signing. Two weeks later, after a meeting with the Town, Marquise and Moulton, Marquise advised Moulton’s representative that Moulton had been terminated because the Town rejected Moulton as a subcontractor. 

Moulton sued Marquise alleging that it had breached the subcontract by preventing Moulton from performing the work set forth in the subcontract. Marquise moved to dismiss the contract claim based on the language in the form subcontract requiring a complete signing of the agreement by an officer of Marquise, and the undisputed fact that the agreement was never signed by anyone. In opposition, Moulton argued that because it commenced work on the Project, Moulton can rely on a provision in the proposed subcontract that the agreement is “considered accepted by both parties as is, as if signed”, even if the subcontract remained unsigned by Marquise. 

The lower court decided in favor of the general contractor, holding that there was no valid contract in existence between Marquise and Moulton Paving. The subcontractor appealed the decision.

Decision

The appellate court affirmed the decision. After reciting the principle of law that a party can indeed be bound to a verbal agreement if its intent to be bound is clear, the court found that the language of the contract was explicit in setting forth Marquise’s intent not to be bound to the agreement until such time as it was fully signed.

The court rejected Moulton’s reliance on the contract provision which stated that the unsigned subcontract was considered accepted as is, as if signed, when Moulton commenced work on the project. The court interpreted this provision to provide that once an agreement is signed by an officer of Marquise and was delivered to Moulton, the agreement would be considered accepted by both parties as is, as if signed, once Moulton commenced work on the project, without Moulton having to sign the agreement.

Comment

Parties may enter into a verbal binding agreement where they agree upon the essential terms. The key to enforceability is the intent of the parties and their intent to be bound to the oral agreement. This case demonstrates that if the parties do not intend to be bound by an oral agreement until it is in writing and signed, then there is no contract. The courts will respect such intent and no contract will be found until then. 

As a general rule, courts will not allow recovery for work performed under a valid contract where the contractor committed illegal acts which are directly connected to performance under the contract. But recovery is allowed when the illegal conduct is merely collateral rather than directed connected to the contract. Since connection is a matter of degree, some illegalities are only incidental to the contract and a contractor is allowed recovery under such circumstances.

In the recent case of Alpha Interiors, Inc. v Tulger Construction Corp., an appellate court determined whether a subcontractor’s illegal kickback scheme was sufficiently connected to the contract to preclude recovery for the work performed.

Background 

Tulger was the general contractor on a construction project, and Alpha was one of its subcontractors. The subcontract between Tulger and Alpha, which was a lump sum subcontract, provided that Alpha must “comply with all laws, ordinances, rules, regulations and orders of any public authority bearing on the performance of the Work under the Subcontract”, including the requirement to pay prevailing wage and wage supplements under the Labor Law. 

After the work was completed, Alpha sued to recover its outstanding balance owed under the subcontract. Tulger moved for summary judgment dismissing the complaint, arguing that Alpha had breached the contract by requiring its workers to kick back money they received for their wage supplements. In support of the motion, Tulger submitted evidence that Alpha and its president had pleaded guilty to a willful violation of the Labor Law for failing to pay prevailing supplemental benefits. In opposition, Alpha did not deny its guilty plea, but nevertheless argued that it had performed the work under the contract and should be paid the amounts claimed to be outstanding.

Decision

The appellate court held that where a party’s illegal acts are directly connected to the obligation which forms the basis for the lawsuit, it may forfeit its right to recover. After so holding, the court found that Alpha’s requirement that its workers kick back their wage supplements were directly connected to the amount claimed owing from Tulger under the subcontract. The court elaborated that because the kickback scheme took place repeatedly during Alpha’s performance of the subcontract, the illegality was “central to or a dominant part of its whole course of conduct in performance of the contract”. Under such circumstances, the court held that public policy precludes Alpha from recovering the amounts it claims are due. 

Comment

Here, even though Alpha performed the work under a valid subcontract to the satisfaction of the general contractor, public policy forbids recovery where one party results to illegal conduct in accomplishing its performance under the contract. 

New York State’s prevailing wage laws require construction workers on public works projects to be paid the prevailing wages in the area. This requires that the contractors and/or subcontractors pay the workers no less than what the Department of Labor determines to be the prevailing wage rate and supplemental fringe benefits, such as employee retirement plans and health insurance. The DOL determines that the prevailing rate for a given job is the same as the union wage and benefit rates in the local area. By linking the prevailing wage to the union wage and benefit rates in the local area, the prevailing wage laws prevent non-union contractors from gaining an unfair advantage by basing their bids on wages lower than those prevailing in the area. 

The penalty for those who willfully fail to pay the prevailing wage to their employees are severe, as demonstrated in the case of Matter of A. Uliano & Son, Ltd. v New York State Department of Labor.

Background 

Uliano was a site work subcontractor on a construction project at Syosset High School. During the course of its work, the Department of Labor’s “Strike Force”-a designated unit within the DOL which initiates investigations into public work projects without the need for an underlying complaint-visited the work site and interviewed several of Uliano’s employees. Based on these interviews, the DOL requested Uliano’s payroll records for the project. When provided to the DOL, investigators discovered discrepancies within Uliano’s various payroll records, and that these records varied from what the workers told the DOL’s investigators. The investigators prepared an audit based primarily on the information obtained from the workers and the prime contractor’s records, which showed an underpayment of wages. 

After a hearing, the DOL found that Uliano’s workers had, in fact, been underpaid, and found that the investigator’s methodology of determining the amount of the underpayment was credible. Further, based on the inaccuracies in Uliano’s certified payroll reports, the contractor’s prior experience with public works projects, and his admitted recording of additional time for himself for which he did not work, the DOL found that the failure to pay the prevailing wage was willful.

Decision

Uliano challenged the DOL’s determination in an Article 78 proceeding, arguing that the DOL’s computations were refuted by the evidence it presented at the hearing. The Court dismissed that argument, finding that where the employer fails to keep accurate payroll records, the DOL is permitted to calculate the actual hours worked and wages owed using the best available evidence. It then becomes the employer’s burden to negate the DOL’s computations.

The Court found that the evidence supporting Uliano’s claim that the workers in question only worked on a single day (which happened to be the day that the “Strike Force” visited the worksite), was not credible, and that the DOL’s calculations, although approximate, were supported by substantial evidence in the record. Further, the Court found that, based upon Uliano’s familiarity with public works projects and its prior history of prevailing wage underpayments, the underpayment here was willful. Accordingly, the Court upheld the imposition of both the 25% penalty on the underpayment, as well as interest at the rate of 16% from the date of the underpayment. 

Comment

Once there is evidence of an underpayment of wages, the Department of Labor has broad powers to use the “best available evidence”-including evidence gleaned from interviews with the affected employees-to determine the amount of the underpayment. Further, if the underpayment is determined to be willful, the sanctions for such an underpayment are severe. The prime contractor was also found to be liable for the underpayment, including the civil penalty and interest, under the Labor Law, which makes prime contractors vicariously liable for its subcontractors’ failures to pay prevailing wage, regardless of whether the contractor knew of the subcontractor’s violation.

It is insufficient for the prime contractor to simply rely on the subcontractor’s certified payroll to assure the subcontractor’s compliance with the prevailing wage requirements. The prime contractor should require the subcontractor to provide all documents and information needed to make sure that the subcontractor is paying the appropriate prevailing wage rates. One method is for the prime contractor to compare the subcontractor’s certified payroll with what is reflected in the prime contractor’s daily activity logs or daily reports. The prime contractor may also require the subcontractor to produce copies of the subcontractor’s paychecks or paystubs to ensure that the payments match the subcontractor’s certified payroll. 

The Lien Law provides a remedy to unpaid subcontractors and suppliers by allowing them to file a mechanic’s lien directly against an owner’s property. However, this remedy is not unlimited and is balanced against the countervailing consideration of preventing the owner from having to pay twice for the same work or materials. Thus, while an unpaid subcontractor or supplier may file a mechanic’s lien, the lien is derivative of the general contractor’s right to recover from the owner. If the owner has paid the general contractor in full, there is no lien fund from which a subcontractor or supplier lienor may recover. 

In Kamco Supply Corp. v JMT Bros. Realty, LLC, which was successfully argued on appeal by this author’s associate, the appellate court dealt with the issue of whether a supplier (and, by extension, a subcontractor) can recover when the reason for the lack of a lien fund is attributable to the general contractor’s inability to recover, as opposed to the owner’s full payment to the general contractor.

Background 

J.M.T. Brothers Realty, Inc., a homeowner, retained a general contractor who turned out not to have the home improvement license required by the New York City Administrative Code. There are similar provisions applicable to home improvement contractors doing business in Westchester, Rockland, Putnam, Nassau and Suffolk Counties. Kamco Supply Corp., a supplier, entered into a contract with the unlicensed general contractor to furnish windows to the project. The supplier did not have a contractual relationship with the homeowner. The homeowner eventually terminated the general contractor and claimed various backcharges against the contractor. After the contractor was terminated, the supplier filed a mechanic’s lien against the homeowner’s property and started a lawsuit to foreclose that lien. 

Early in the lawsuit, the homeowner moved to dismiss the lien foreclosure action arguing that because the supplier’s lien rights were derivative of the general contractor’s rights, the general contractor could not recover from the homeowner because the contractor was not licensed as a home improvement contractor. Therefore, the homeowner argued, there was no lien fund from which the supplier could recover from the homeowner. The trial court agreed and dismissed the supplier’s lawsuit. The supplier appealed the decision.

Decision

The appellate court affirmed. The court held that the contractor’s unlicensed status made its contract with the homeowner unenforceable. Therefore, there could be no funds due or owing from the homeowner to the unlicensed contractor which would support the supplier’s mechanic’s lien. In the absence of a direct contractual relationship between the homeowners and the supplier, the supplier could not recover on its lien foreclosure action against the homeowner. 

Comment

A subcontractor’s or supplier’s lien can only be satisfied out of monies due and owing from the owner to the contractor at the time the lien is filed. In this case, there were no monies due to the contractor because of its unlicensed status. A subcontractor or supplier would be well advised to research the licensing status of a home improvement contractor before they contract because their lien rights may be adversely impacted if the contractor is unlicensed.

A general contractor is not typically considered an employer of its subcontractors’ employees and is not responsible for unpaid wages of the subcontractor’s workforce. There are situations, however, where a general contractor acted as a “joint” employer of a subcontractor’s employees, thereby owing unpaid wages to a subcontractor’s employees. In the case of Matter of Ovadia v Office of the Industrial Board of Appeals, the Court of Appeals, New York’s highest court, ruled on whether a general contractor is a joint employer of its subcontractor’s employees.

Background

In 2006, a real estate developer hired HOD Construction Corp. to act as a general contractor for a construction project. HOD entered into a subcontract with Well Built Construction Corp. for the project’s masonry work. Pursuant to the subcontract, HOD paid Well Built and, in turn, Well Built paid the wages of its workers. The masonry workers were employed and supervised by Well Built. While the owner of HOD visited the work site several times a day, he spoke only with Well Built’s supervisor or owner.

Because of apparent cash flow issues, Well Built periodically underpaid its laborers and, ultimately, it abandoned the job and ceased paying its workers altogether. Upon the filing of an unpaid wage claim, the Department of Labor conducted an investigation and issued an order concluding that the general contractor assumed the status of an “employer” of Well Built’s workers. DOL then ordered the general contractor to pay over $117,000, which sum represented past-due wages, along with penalties and interest. HOD sought an administrative review and after a hearing, the Industrial Board of Appeals upheld the DOL’s order. HOD commenced an Article 78 proceeding seeking to annul the Board’s ruling. The Appellate Division confirmed the Board’s determination. HOD appealed the decision to the Court of Appeals.

In holding the general contractor liable for unpaid wages owing to the subcontractor’s employees as a “joint employer”, the lower court relied on certain factors to determine whether HOD was a joint employer of the subcontractor’s employees: (1) the general contractor provided the work site and the materials to be used by the subcontractor’s workers; (2) the workers worked at the general contractor’s project for the duration of the contract; and (3) the general contractor conducted routine quality control inspections at the job site.

Decision

The Court of Appeals reversed the lower court’s decision. The Court stated the general rule that a typical general contractor is not an employer of its subcontractor’s employees. The Court held that the lower court’s reliance on the facts that the general contractor provided the work site and materials used by the subcontractor’s workers for the duration of the project and the general contractor’s routine quality control inspections “would likely render most general contractors the joint employers of their subcontractors’ employees-a proposition that does not reflect the actual relationships in the construction industry.”

The Court also noted that a general contractor is expected to conduct routine quality inspections and ensure that the coordination of the work proceeds on schedule. This fact does not render the general contractor an employer of all workers at the job site.

Comment

While the Court of Appeals recognized that the relationship between HOD and Well Built was nothing more than the usual contractor/subcontractor relationship, the Court cautioned that its holding does not mean that a general contractor in a construction setting can never be an employer of its subcontractor’s employees. The Court pointed out that there may be situations where the business relationship between a general contractor and a subcontractor may support a finding that the general contractor assumed the role of employer of the subcontractor’s employees.

Letters of intent are frequently used and relied upon in the construction industry. They are used to outline the intentions of the parties before a final agreement is reached. For example, a letter of intent expresses an intention by a contractor to enter into a subcontract with a subcontractor for a project. Such an agreement to agree in the future is typically not enforceable because the court has no way of knowing what the ultimate contract would provide.

Under certain circumstances, however, a letter of intent may be legally binding and enforceable, depending upon the language of the letter of intent and the subsequent conduct of the parties. In the case of Minelli Construction Co., Inc. against Volmar Construction, Inc, a letter of intent was found to be binding based upon its specificity and the subsequent conduct of the parties.

Background

Volmar, a general contractor, and defendant New York City School Construction Authority (SCA) entered into an agreement for the renovation of a school in Queens. Minelli claimed that Volmar sent it a “Letter of Intent” which contained all of the essential terms of an agreement for Minelli to perform the work at the project which was set forth in the SCA’s Project Bulletin No. 11. The Letter of Intent provided, among other things, that Volmar intended to enter into a subcontract with Minelli for the masonry repairs described in the Bulletin for a set price. The names of Volmar’s and Minelli’s principals were printed at the bottom of the Letter of Intent, but the Letter was not signed. Volmar defended against Minelli’s lawsuit on the ground that the Letter of Intent contained a disclaimer that it and the future contract were contingent upon the SCA’s approval, and the SCA ultimately never approved Minelli’s proposal.

Decision

The Court, after reciting the general rule that a mere agreement to agree in the future is unenforceable as a contract, found that the Letter of Intent was a legally binding agreement. In doing so, the Court noted that Volmar could not identify any material terms which had been omitted or were otherwise missing from the Letter of Intent. The Court also found that even if the Letter of Intent could not be considered a contract in and of itself, it was, at the very least, Minelli’s offer to perform the work described in SCA Bulletin No. 11 for a set price and by directing Minelli to go to work, Volmar evidenced its acceptance of Minelli’s offer.

Finally, as to Volmar’s argument that the Letter of Intent did not ripen into a contract because Minelli was never approved by the SCA, the Court noted that such a provision would effectively turn the agreement into a “pay if paid” agreement in violation of clear public policy. An unenforceable “pay if paid” clause specifically will state that payment to the general contractor by the owner is an express condition precedent to the general contractor’s obligation to pay the subcontractor.

Comment

The Court allowed the letter of intent to serve as the actual contract for two reasons: it contained all of the essential terms which would have been in the final contract, and the parties’ actual intent was evidenced by Volmar’s direction to go ahead with the work, coupled with Minelli’s full performance of the work.

A contractor who does not wish to be bound by a mere letter of intent is cautioned to refrain from making the letter so detailed that it could be substituted for the actual agreement. The contractor is also advised to refrain from taking any action which would indicate an intent to be bound by the terms of the letter.

Contractors, subcontractors and material suppliers are granted by New York statute the right to file a mechanic’s lien against the realty being improved to the extent of the work and labor performed and materials furnished. A mechanic’s lien operates much like attachment and garnishment, to make sure that a subcontractor, for example, who supplies labor or materials for a construction project and does not have a contractual relationship with the owner of the property will receive the amount due to himself or herself. The mechanic’s lien secures the amount due to the subcontractor by a lien on the real property improved. However, the rights of a subcontractor are derivative of the rights of the general contractor, and a subcontractor’s lien must be satisfied out of any monies due and owing from the owner to the general contractor at the time the lien is filed. The subcontractor cannot enforce his lien if full payment has been made by the owner to the general contractor. One way in which an owner can pay a general contractor in full is to take credits against the amount owed to the contractor based on incomplete or defective work, commonly known as back charges.

In the recent case of IMP Plumbing and Heating Corp. v 317 East 34th Street, LLC et. al., a subcontractor sought to enforce a mechanic’s lien where the owner claims that there are no monies due to the general contractor because of back charges against the general contract.

Background

In 2008, IMP entered into a plumbing subcontract with a general contractor to perform work for the project owner, New York University, for the fixed sum of $77,520. Shortly after IMP completed its work, NYU terminated the general contractor’s contract, claiming that the contractor defaulted by failing to complete the work in accordance with the project’s schedule. It was undisputed that at the time NYU defaulted the general contractor, it had only paid the contractor $358,110 of the $495,108 amount of the prime contract.

In the trial court, IMP moved for summary judgment foreclosing its subcontractor’s lien. In doing so, IMP contended that it had established that it had completed its work, and that there was money remaining due to the general contractor on the prime contract. In opposition, NYU contended that as the result of back charges against the general contractor, there was no money left owing to the general contractor.

Decision

The trial court accepted IMP’s arguments and granted its motion for summary judgment against the owner. On appeal, the trial court’s determination was revered. In doing so, the appellate court found that the trial court improperly failed to consider the merits of NYU’s claim that the general contractor had breached the contract. This breach, if established at trial, could form a defense to NYU’s payment of the amount outstanding on the prime contract. A subcontractor cannot enforce its lien against an owner where there are no monies due from the owner to the general contractor at the time the subcontractor’s lien is filed.

Comment

One way in which an owner may “pay” a general contractor is to deduct credits based upon back charges against the prime contract. Where an owner pays the general contractor in full (either by payment, by back charge credit, or through a combination of the two), an owner is generally not liable to a subcontractor. The theory is that the services performed by the subcontractor are for the benefit of the general contractor who is responsible for the completion of the improvement, not for the benefit of the owner. A mechanic’s lien filed without delay increases the likelihood that the lien will attach to monies due and owing from the owner to the general contractor. Accordingly, the prudent subcontractor or material supplier should promptly file a mechanic’s lien once it becomes clear that there is a problem with payment on the project.

New York’s competitive bidding statutes serve a dual purpose. The primary purpose is to benefit the taxpaying public by enabling government agencies to obtain the best price for public construction projects through open, competitive bidding. The secondary purpose is to assure that contractors are on an equal footing when bidding public works.

These statutes are designed to reject a contractor who is unqualified or whose bid is not responsive to the invitation to bid. The award must be made to the lowest responsible and responsive bidder. The factor most likely to cause problems in the bid selection process is responsiveness, as shown in the case of Matter of K.S. Contracting Corp. v New York City Department of Design and Construction.

Background

In September of 2010, the DDC solicited bids for a general construction project to renovate the Bronx River Arts Center. The title of the solicitation referred to the work as general construction, and the contractor requirements specified that the contractor must have completed three similar projects in scope to the required work within the past five years. These requirements permitted the bidder to use the experience of its employees gained at different entities if the employee had a significant management role in the prior entity and had a significant management rule in the bidding entity for at least six months prior to bid.

K.S. submitted a bid which ultimately turned out to be the low bid. In setting forth its experience, K.S. listed projects which involved primarily exterior renovation. K.S. also listed projects by other entities which involved its current employees. The DDC rejected K.S.’s bid, finding that it was not responsive to the solicitation. K.S. brought a lawsuit challenging the DDC’s finding.

Decision

The Court upheld the DDC’s finding that K.S.’s bid was not responsive to the solicitation because of its failure to meet the project’s experience requirements. Specifically, the Court upheld the city’s determination that because the project involved significant interior renovation work, K.S.’s exterior renovation projects were ineligible to be counted as experience sufficient to meet the bid’s requirements. In doing so, the Court held that the city’s listing of the project as a “general construction work” project, as opposed to a “major gut renovation work” did not require it accept exterior renovation experience as the equivalent of interior renovation experience. The Court also upheld the city’s discounting of the experience of one of its employees because his previous position as a “Construction Project Manager” was not a significant managerial role.

Comment

The determination of who is and who is not a responsive bidder depends on the exercise of discretion. If the municipality has a rational basis for determining that a bidder has not met the bid qualifications requirement, a court will uphold the discretionary determination of non-responsiveness.

New York’s Lien Law allows an owner to sue the contractor or subcontractor for a “willful exaggeration” of the mechanic’s lien claim. A lien that is intentionally and deliberately exaggerated is void and the lienor is held liable for damages to the owner or contractor.

Damages that may be recovered are the amount of the lien found to be willfully exaggerated, premiums paid for a bond or interest on any money given to obtain the discharge of the lien, and the reasonable attorney’s fees incurred in discharging the lien.

A lien is not void where it is simply inaccurate as the result of an honest mistake. In the recent case ofInter Metal Fabricators, Inc. v HRH Construction, LLC, a contractor was held liable for filing a willfully exaggerated mechanic’s lien.

Background

Inter Metal Fabricators, Inc. was the structural steel contractor to HRH Construction, LLC for the construction of a condominium building on Tenth Avenue in New York City. Inter Metal, in order to secure payment, filed two mechanic’s liens for work performed at the project, one for $808,787, and the other for $491,132, totaling $1,299,920. Inter Metal thereafter sued HRH for breach of contract and to foreclose its mechanic’s liens.

HRH filed various counterclaims against Inter Metal, including a counterclaim for willful exaggeration of its mechanic’s liens. HRH argued that Inter Metal’s own project documents submitted to its payment bond surety, showed that only $1,107,672 was claimed due to Inter Metal. This amount was $192,248 less than the total amount of its two liens. In addition, when confronted with what appeared to be an exaggerated markup of the crane charges, Inter Metal’s principal witness testified at his deposition that he was “entitled to mark it up to whatever number I want”, and “You know what? People do a lot of things”.

Decision

The trial court found that the discrepancies between the amounts set forth in Inter Metal’s liens and its actual charges were not honest mistakes but, rather, deliberate exaggerations. The trial court noted the overall difference between the amounts shown to its own surety and the amounts claimed in the liens. The court also pointed out that Inter Metal had offered no explanation why the numbers in its liens did not agree with its own documents. The court also relied on the deposition testimony of Inter Metal’s principal witness. When asked how to reconcile the numbers between the amount invoiced to Inter Metal by its steel material supplier and the amount billed to HRH, Inter Metal’s principal responded “Why should I give HRH the price I got from [its supplier]? Tell me why, give me a good reason why”.

The appellate court upheld the trial court’s finding that Inter Metal willfully exaggerated the amount of its liens.

Comment

A lien is not willfully exaggerated where the lienor acted in a good faith belief, although mistaken, that the lien claim was legitimate. For instance, good faith disputes as to work performed or the amount owed does not constitute a willful exaggeration. The Inter Metal case, however, presents that rare case of self-incrimination where the court relied upon the contractor’s own internal documents and testimony to hold that it intentionally inflated the amount of its lien claims. A contractor or subcontractor is well advised to consult with its attorney and thoroughly review exactly how its claim was compiled, rather than risk the consequences of a willfully exaggerated lien.