On the Level Enters., Inc. v 49 E. Houston LLC

[*1] On the Level Enters., Inc. v 49 E. Houston LLC 2012 NY Slip Op 50286(U) Decided on February 17, 2012 Supreme Court, New York County Fried, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on February 17, 2012
Supreme Court, New York County

On the Level Enterprises, Inc., Plaintiff,

against

49 East Houston LLC, CHARLES McGRATH CONSTRUCTION INC., MIDFIRST BANK and THE ENVIRONMENTAL CONTROL BOARD, Defendants.



602781/08



APPEARANCES:

Attorneys for the Plaintiffs:

Daniel Gammerman, Esq.

Martin Shaw, Esq.

6800 Jericho Turnpike

Syosset, New York 11791

Attorneys for the Defendants:

Robert M. Kaplan, Esq.

Ferber Chan Essner & Coller, LLP530 Fifth Avenue

New York, NY 10036

Stephen A. Spinelli & Associates

Stephen A. Spinelli, Esq.

1861 86th Street

Brooklyn, New York 11214

Bernard J. Fried, J.

In this action to recover on a mechanic's lien, defendant 49 East Houston LLC (LLC) moves, pursuant to CPLR 3212, for summary judgment dismissing the cross claims brought against it by defendant McGrath Construction Inc. (McGrath); an order dismissing the complaint of plaintiff On The Level Enterprises, Inc. (OTL); and for summary judgment on its second cross claim against McGrath, for McGrath's alleged willful exaggeration of the lien. McGrath cross-moves, pursuant to CPLR 3212, for summary judgment against LLC, dismissing all cross claims as against McGrath, and granting McGrath summary judgment on its first, second and third cross claims against LLC. OTL cross-moves, pursuant to CPLR 3212, for summary judgment against both LLC and McGrath, for a money judgment in the amount of $226,814.62, plus interest, or an order establishing the validity of its lien, and a recovery thereupon in the same amount.

LLC was the owner of property located at 49 East Houston Street, Manhattan, New York (property). Non-party Michael Hirtenstein (Hirtenstein) and third-party defendant Sean Largotta (Largotta)[FN1] were members of LLC.

In February 2008, LLC and McGrath entered into a Lump Sum General Contract Agreement (Contract) wherein LLC hired McGrath to be the general contractor on a project to develop a condominium on the property (project). LLC hired third-party defendant Fortress Development LLC (Fortress) to be its project representative, overseeing the project. LLC also entered a construction loan agreement (Loan Agreement) with defendant Midfirst Bank (Midfirst), pursuant to which Midfirst agreed to make advances to Fortress to pay McGrath, based on requisitions produced by McGrath to Fortress. McGrath further contracted with OTL, in March 2008, pursuant to which agreement OTL would provide consulting services to McGrath (OTL Contract). According to OTL, LLC chose OTL to work with McGrath in order to obtain OTL's expertise in applying for and obtaining certain tax abatements. However, OTL's contract was with McGrath, not LLC.

Sometime after the OTL Contract was executed, it is alleged that Hirtenstein and Largotta decided to give up the project as a losing proposition, in light of the dismal financial crisis affecting the new housing market. The project apparently never got beyond a hole in the ground. As a result, Midfirst ceased all funding of the project, and McGrath, claiming to be owed a substantial sum from LLC, was unable to pay OTL. This circumstance resulted in the filing of two mechanic's liens on the property, as against LLC; one by OTL, in the sum of $231,842.62, and one by McGrath, in the sum of $659,625.94. [*2]

LLC would have the following relief: dismissal of McGrath's first cross claim, for recovery under its lien, pursuant to New York Lien Law § 39-a, on the ground that the amount of the lien has been willfully exaggerated; dismissal of the first and second cross claims, for recovery under the Contract, as, allegedly, McGrath has already been paid more than it is entitled to; dismissal of McGrath's third cross claim for recovery in quantum meruit as unavailable because of the existence of the Contract. LLC would also have the complaint dismissed as against it on the ground that OTL cannot recover under its mechanic's lien if nothing is owed to McGrath, as LLC claims is the case. Lastly, LLC seeks summary judgment granting its second cross claim for damages and attorney's fees against McGrath, based on Lien Law § 39-a, on the theory that McGrath willfully exaggerated the amount of its lien.

On its cross motion and opposition to LLC's motion, McGrath denies that it willfully exaggerated the lien, or that LLC is entitled to damages and attorneys' fees, arguing instead that LLC deliberately breached the Contract when its principals determined to end the project, and instructed Midfirst to stop making payments to McGrath, entitling McGrath to summary judgment in its favor for the amount due under its lien. McGrath further defends its cross claim for quantum meruit, on the ground that LLC has been unjustly enriched by accepting McGrath's services without payment.

In OTL's cross motion, OTL claims that it is entitled to summary judgment from both McGrath and LLC on its lien. OTL claims that LLC should be estopped from arguing that OTL is only entitled to recover if McGrath can recover, because OTL was "hired by McGrath Construction at the insistence and direction of the LLC" (Aff. of Cosentino, at 2), somehow (as far is discernable) linking OTL and LLC in a quasi-contractual relationship.

"The proponent of a motion for summary judgment must demonstrate that there are no material issues of fact in dispute, and that it is entitled to judgment as a matter of law." Dallas-Stephenson v Waisman, 39 AD3d 303, 306 (1st Dept 2007), citing Winegrad v New York University Medical Center, 64 NY2d 851, 853 (1985). Upon proffer of evidence establishing a prima facie case by the movant, "the party opposing a motion for summary judgment bears the burden of produc[ing] evidentiary proof in admissible form sufficient to require a trial of material questions of fact.'" People v Grasso, 50 AD3d 535, 545 (1st Dept 2008), quoting Zuckerman v City of New York, 49 NY2d 557, 562 (1980). If there is any doubt as to the existence of a triable issue of fact, summary judgment must be denied. Rotuba Extruders v Ceppos, 46 NY2d 223 (1978); Gross v Amalgamated Housing Corporation, 298 AD2d 224 (1st Dept 2002).

Initially, it is determined that some of the documentary evidence produced by McGrath in its cross motion and opposition to LLC's motion, while somewhat lacking in proper authentication, due to its presentation by McGrath's attorney, and not by a party associated with McGrath, is nevertheless properly before the court on this motion. McGrath provided affidavits of its principals in its reply. Although it is well settled that evidence and arguments made for the first time in reply papers will not be considered by the court (627 Acquisition Co., LLC v 627 Greenwich, LLC, 85 AD3d 645 [1st Dept 2011]), here, the tardy affidavits of McGrath's principals merely provided more authentication for evidence already fully produced for LLC's benefit, and LLC was well aware of McGrath's opposition's content. Therefore, in the absence of prejudice to any party as a result of McGrath's temporary oversight, McGrath's evidence is acceptable to the court.

Lien Law § 39 provides, in relevant part, that: [i]n any action or proceeding to enforce a mechanic's lien ... if the court shall find that [*3]a lienor has wilfully exaggerated the amount for which he claims a lien as stated in his notice of lien, his lien shall be declared to be void and no recovery shall be had thereon.

Should the lien be found to be willfully exaggerated, the owner or contractor will be entitled to "reasonable attorney's fees for services in securing the discharge of the lien, and an amount equal to the difference by which the amount claimed to be due or to become due as stated in the notice of lien exceeded the amount actually due or to become due thereon." Lien Law § 39-a.

"A determination of willful exaggeration requires proof that the lienor deliberately and intentionally exaggerated the lien amount." Barden & Robeson Corp. v Czyz, 245 AD2d 599, 601 (3d Dept 1997). Willfulness is a matter of credibility (Rosenbaum v Atlas & Design Contractors, Inc., 66 AD3d 576 [1st Dept 2009]), as mistakes can always be honestly made. Id.; see also Goodman v Del-Sa-Co Foods, Inc., 15 NY2d 191 (1965). "Lien Law § 39-a must be strictly construed in favor of the party against whom the penalty is sought to be imposed." Capogna v Guella, 41 AD3d 522, 523 (2d Dept 2007).

LLC contends that over 90% of McGrath's lien, a total of $602,192.36 in charges, is improperly included in the lien. LLC claims that: the amount claimed in the Lien consists almost entirely of: subcontractors' charges which McGrath never paid; inflated or even fictitious claims of third-party payments; claims for McGrath's labor and materials for which no corroberating documents or testimony exist; and claims for items which are not compensable under the Construction Agreement at issue.

Aff. of Robert M. Kaplan, at 7. LLC maintains that "at most," McGrath can claim $57,433.36 of the amount claimed on its lien. Id.

Relying on a document dated June 12, 2009, and prepared by McGrath, entitled "Breakdown of Monies Due For Work Performed on 49 Houston Street, New York City, New York" (Breakdown List) (LLC Ex. K), LLC goes to great length to seek to establish, line by line, the incredibility of most of McGrath's evidentiary showing concerning the amounts McGrath claims it is owed by LLC. LLC points to several invoices for services allegedly provided by vendors to McGrath, who were never paid, claiming that McGrath cannot put such costs in a lien. LLC reveals numerous occasions in the deposition testimony of McGrath's principals, where they admit that there is no documentation for work they allege was provided to them by many vendors (such as, for example, Con Edison and a company called Acoustic Dimensions), as they are relying on their memories.

Certainly, based on the testimony of McGrath's principals, McGrath cannot prove the existence of the numerous charges appearing on the Breakdown List. As their testimony reveals, virtually no documentation exists to support the bulk of the charges. Further, debts owed to subcontractors, represented by invoices, which have not been paid, cannot be included in a mechanic's lien. Abra Construction Corp. v 112 Duane Associates, LLC, 59 AD3d 263 (1st Dept 2009). Therefore, the debts of unpaid subcontractors appearing on the Breakdown List cannot be included in the amount of the lien.

The dismal showing made by McGrath in defense of its lien requires the lien's cancellation. However, this does not establish the intentional and deliberate exaggeration on the part of McGrath [*4]as would be necessary to void the lien pursuant to Lien Law § 39-a. Rather, testimony and documentary evidence demonstrates ignorance and/or incompetence of McGrath's principals. See Howdy Jones Construction Co., Inc. v Parklaw Realty, Inc., 76 AD2d 1018, 1018 (3d Dept 1980), affd 53 NY2d 718 (1981)(there must be evidence that the lienor "intentionally and deliberately exaggerated" the amount of the lien). "It is well established that [i]naccuracy in amount of lien, if no exaggeration is intended, does not void a mechanic's lien; willfulness must be shown [internal quotation marks and citation omitted]." Fidelity New York, FSB v Kensington-Johnson Corp., 234 AD2d 263, 263 (2d Dept 1996). It can not be concluded that the requisite standard has been met to warrant application of Lien Law § 39-a. As a result, LLC is not entitled to damages and attorney's fees.

Summary judgment is not warranted regarding the quantum meruit claim. It is settled that " [t]he existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter.'" Goldman v Metropolitan Life Insurance Company, 5 NY3d 561, 572 (2005), quoting Clark-Fitzpatrick, Inc. v Long Island Rail Road Company, 70 NY2d 382, 388 (1987). The rule is different when applied to situations, as in the present case, where the defendant admittedly breached the contract by abandoning it. In such case, the plaintiff had the right of election, on the breach of the original contract by the owner ... to maintain an action on the contract for the work performed and the material furnished and for his damages flowing from the failure of the owner to permit him to complete the contract or, as he did in this case, to abandon any claim on or under the contract and sue on quantum meruit for the work, labor, and services performed and materials furnished.

Raile v Peerless American Products Co., 192 App Div 506, 508 (1st Dept 1920); see also Clark v Mayor of City of New York, 4 NY 338 (1850); Martin Iron and Construction Co. v Grace Industries, Inc., 14 AD3d 495 (2d Dept 2005). Therefore, McGrath may pursue a claim for monies for the work it performed, and the materials and services it provided to LLC, under a theory of quantum meruit. However,McGrath may not have summary judgment on its claim for quantum meruit, as innumerable questions of fact exist as to its right to any recovery.

With the cancellation of the McGrath's lien, OTL's lien falls. A subcontractor's "rights under the Lien Law are wholly derivative of the general contractor's right to payment, as a subcontractor's lien can only be satisfied out of funds due and owing from the owner to the general contractor.'" IMP Plumbing and Heating Corp. v 317 East 34th Street, LLC, 89 AD3d 593, 593-594 (1st Dept 2011), quoting Timothy Coffey Nursery/Landscape v Gatz, 304 AD2d 652, 654 (2d Dept 2003). OTL has not demonstrated that a relationship between LLC and OTC exists sufficient to estopp LLC from relying on the cancellation of the McGrath lien, such as might allow OTC's lien to continue.

In conclusion, LLC has established that OTL's lien should be cancelled, as should McGrath's, but that LLC cannot pursue a claim against McGrath for damages and attorney's fees under Lien Law § 39-a. Further, McGrath may elect to pursue a cause of action against LLC based in quantum meruit, for the "work, labor, and services performed and materials" it furnished to LLC. Raile v Peerless American Products Co., 192 App Div at 508.

Accordingly, it is [*5]

ORDERED that the part of 49 East Houston LLC's motion seeking summary judgment dismissing the cross claims of defendant Charles McGrath Construction Inc. is granted solely as to the dismissal of the first and second cross claims, and is otherwise denied; and it is further

ORDERED that a copy of this decision be served on the Clerk of the Court by defendant 49 East Houston LLC; and it is further

ORDERED that the Clerk (Room 300), upon service of this order, is directed to cancel the mechanic's lien filed on ____, by Charles McGrath Construction Inc. against 49 East Houston LLC, in the sum of $659,625.94, against the property known as 49 East Houston Street, New York, New York, block _____, lot _____; and it is further

ORDERED that the part of 49 East Houston LLC's motion for summary judgment on its second cross claim as against Charles McGrath Construction Inc. is denied; and it is further

ORDERED that the part of defendant 49 East Houston LLC's motion seeking the dismissal of the complaint brought by plaintiff On The Level Enterprises, Inc. is granted; and it is further

ORDERED that the complaint is dismisses as against defendant 49 East Houston LLC, with costs to 49 East Houston LLC as taxed by the Clerk of the Court upon presentation of an appropriate bill of costs; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly; and it is further

ORDERED that a copy of this decision be served on the Clerk of the Court by defendant 49 East Houston LLC; and it is further

ORDERED that the Clerk (Room 300), upon service of this order, is directed to cancel the mechanic's lien filed on ____, by On The Level Enterprises Inc. against 49 East Houston LLC, in the sum of $226,814.62, against the property known as 49 East Houston Street, New York, New York, block _____, lot _____; and it is further

ORDERED that the part of defendant 49 East Houston LLC's motion seeking summary judgment on its second cross claim against Charles McGrath Construction Inc. is denied; and it is further

ORDERED that the part of the cross motion brought by defendant Charles McGrath Construction Inc. for summary judgment dismissing the cross claims against it is granted as to the second cross claim, and is otherwise denied; and it is further

ORDERED that the part of the cross motion brought by Charles McGrath Construction Inc. for summary judgment on its first, second, and third cross claims against 49 East Houston LLC is denied in its entirety; and it is further

ORDERED that the cross motion brought by plaintiff On The Level Enterprises, Inc. for summary judgment on its complaint is denied in its entirety.

DATED: ________________

ENTER:

___________________________ [*6]

J.S.C. Footnotes

Footnote 1:The third-party complaint has been dismissed.