Opinion
32978/08.
Decided on April 24, 2009.
The Scher Law Firm LLP, Carle Place NY, Petitioner, Wang Law Office, Flushing NY, Respondent.
Petitioner-owner NORTHSIDE TOWER REALTY, LLC (NORTHSIDE) seeks discharge and cancellation of a $109,762.98 mechanic's lien [exhibit D of petition], docketed in the Office of the Kings County Clerk on November 21, 2008, by respondent-lienor KLIN CONSTRUCTION GROUP, INC. (KLIN), for labor performed for the improvement of NORTHSIDE's property at 142 North 6th Street, Brooklyn, New York. KLIN was a subcontractor for excavation and foundation work at the subject premises. NORTHSIDE made final payment of the $1,900,000.00 contract amount, to its general contractor, BLUE DIAMOND GROUP, CORP. (BLUE DIAMOND), for the excavation and foundation work at 142 North 6th Street, on October 7, 2008. This exhausted and satisfied its contractual obligation 45 days prior to the filing of KLIN's mechanic's lien. The KLIN mechanics's lien must be discharged and cancelled because the lien attached to nothing, with the contract sum for excavation and foundation fully paid before the filing of the KLIN mechanic's lien.
Background
Petitioner NORTHSIDE, a domestic limited liability company, on or about November 1, 2007, entered into a general contractor's agreement (THE AGREEMENT) [exhibit A of petition], with BLUE DIAMOND, to improve its real property located at 142 North 6th Street, Brooklyn, New York. THE AGREEMENT was retroactive to and effective from April 18, 2007. Pursuant to the terms of THE AGREEMENT, petitioner was obligated to pay BLUE DIAMOND $1,900,000.00 for the "Excavation and Foundation" (E F) portion of the construction project. The "Schedule of Values" (SOV) [exhibit C of petition and exhibit I of THE AGREEMENT] describes this in detail. The SOV established the maximum lienable value for the E F work, for BLUE DIAMOND, as the general contractor, and for any subcontractors that might make claims through the general contractor for payment of outstanding amounts for E F work performed at the subject property.
KLIN, on or about November 27, 2007, entered into a subcontract (THE SUBCONTRACT) with BLUE DIAMOND to perform a substantial portion of the E F work, for $1,850,000.00 [exhibit B of petition]. THE AGREEMENT was incorporated by reference into THE SUBCONTRACT [ § 1.1]. Thus, KLIN was on notice that the maximum lienable value was $1,900,000.00 for E F work at the subject premises. NORTHSIDE, in its petition, claims that it made full payment of its $1,900,000.00 contractual obligation to BLUE DIAMOND for the performance of the E F work at the subject property. Further, there weren't any change orders between petitioner-owner and the general contractor for the E F work. This was not refuted by respondent. NORTHSIDE submitted detailed documentary proof detailing its payment of the contractual $1,900,000.00 for E F work to BLUE DIAMOND, including payments that BLUE DIAMOND directed to be paid directly to KLIN [exhibit E of petition]. The E F work was completed on or about July 31, 2008.
Subsequent to July 1, 2008, a dispute arose between NORTHBROOK and BLUE Diamond as to whether the entire $1,900,000.00 for E F work had been paid. Petitioner, to resolve the dispute, retained a forensic accountant [exhibit G of petition] to verify if the full $1,900,000.00 had been paid for the E F work. On or about October 7, 2008, the forensic accountant determined that NORTHSIDE owed a final payment of $77,105.00 to BLUE DIAMOND to exhaust and completely satisfy its contractual obligations. NORTHSIDE made the final payment of $77,105.00 on October 7, 2008, and the payment was acknowledged by BLUE DIAMOND [exhibit F of petition].
On November 21, 2008, 45 days subsequent to petitioner making its final payment to BLUE DIAMOND, KLIN filed and docketed the instant mechanic's lien, for $109,762.98, with the Office of the Kings County Clerk, claiming that this sum was due from petitioner and BLUE DIAMOND, in that the "labor performed was excavation and foundation."
Petitioner contends that the KLIN lien must be discharged and cancelled because, pursuant to THE AGREEMENT, the $1,900,000.00 for E F work was fully paid on October 7, 2008, prior to the filing of the mechanics's lien. Thus, pursuant to Lien Law § 4 (1), the mechanic's lien was untimely filed and does not attach to any monies unpaid by NORTHSIDE to BLUE DIAMOND for "excavation and foundation" work at the subject property.
KLIN opposes the petition on both procedural and substantive grounds. KLIN's attorney alleges that NORTHSIDE appointed its attorney as its agent for service, and thus personal service by NORTHSIDE's attorney, as a party to the action who delivered the notice of petition upon respondent and respondent's attorney, is barred by CPLR Rule 318. Substantively, relying on Lien Law § 19 (6), respondent contends that any dispute regarding the validity of its mechanic's lien must await a foreclosure trial.
Discussion
KLIN's challenge to jurisdiction, based upon alleged improper service, is baseless and devoid of merit. KLIN's counsel, in ¶ 3 of his affirmation in opposition to the petition, alleges" . . . papers may be served by any person not a party of the age of eighteen years or over.' CPLR 2103 (1). Petitioner is a corporation whose agent designated for service is Mr. Scher [petitioner's counsel] and thus the party to the action. CPLR 318. Service of process by the party itself is a jurisdictional defect, which renders the action subject to dismissal." Petitioner presents a New York State Department of State website search revealing that petitioner's authorized agents for service of process are Anthony Ciuffo and Paul Vallario, and not Jonathan L. Scher, Esq. [exhibit 1 of reply affirmation]. Respondent's counsel cites CPLR Rule 318 to support his argument of improper service, but presents no proof that petitioner appointed its law firm "in a writing, executed and acknowledged in the same manner as a deed, with the consent of the agent endorsed thereon," or that "the writing . . . [is] filed in the office of the clerk of the county in which the principal to be served resides or has its principal office."
Respondents counsel admitted receipt of personal service of the notice of petition on December 9, 2008, in ¶ 4 of his affirmation in opposition to petition, and in a December 18, 2008-letter to Mr. Scher [exhibit 2 of reply affimration].
A mechanic's lien by a subcontractor is a statutory creation, operating much like attachment and garnishment, to make sure that a subcontractor 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. (Lien Law § 3; Modern Era Const., Inc. v Shore Plaza, LLC ,51 AD3d 990 [2d Dept 2008]; Zimmerman v Carlson, 293 AD2d 744 [2d Dept 2002]; Martens v O'Neill, 121 AD 123 [2d Dept 1909]).
Petitioner NORTHSIDE correctly argues in its moving papers that, pursuant to Lien Law § 4 (1), 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 funds due and owing from the owner to the general contractor at the time the lien is filed. Lien Law § 4 (1) states:
If labor is performed for, or materials furnished to a contractor or subcontractor for an improvement, the lien shall not be for a sum greater than the sum earned and unpaid on the contract at the time of filing of the notice of lien, and any sum subsequently earned thereon. In no case shall the owner be liable to pay by any reason of all liens created pursuant to this article a sum greater than the value or agreed price of the labor and materials remaining unpaid, at the time of filing notices of such liens. [ Emphasis added]
The Appellate Division, Third Department, discussed the derivative rights of a lienor in Electric City Concrete Co. Inc. v Phillips ( 100 AD2d 1, 4 [3d Dept 1984], holding: Pursuant to the Lien Law, a mechanic's lien is valid to the extent of "the sum earned and unpaid on the contract at the time of filing the notice of lien, and any sum subsequently earned thereon" (Lien Law § 4; see, also, Albert J. Bunce, Ltd, v Fahey, 73 AD2d 623 [2d Dept 1979]). In the case of a subcontractor, a mechanic's lien will attach only to those funds due and owing to the general contractor at the time of its filing, or which may thereafter become due and owing ( Hartman v Travis, 81 AD2d 692, 993 [3d Dept 1981]; Albert J. Bunce, Ltd, v Fahey, supra). Indeed, it is well established that the rights of lienors are "derivative of those of the general contractor and are restricted to satisfaction out of the amount established to be due and owing from the owner to the general contractor" ( Strain Son v Baranello Sons, 90 AD2d 924, 925 [3d Dept 1982]; see, also, Central Val. Concrete Corp. v Montgomery Ward Co., 34 AD2d 860, 861 [3d Dept 1970]; 37 NY Jur., Mechanic's Liens, §§ 17, 18, pp 134-137). [ Emphasis added]
(S ee Timothy Coffey Nursery/Landscape, Inc. v Gatz, 304 AD2d 652, 653-654 [2d Dept 2003]; 104 Contractors, Inc. v R.T. Golf Associates, L.P., 270 AD2d 817, 818 [4th Dept 2000]; Di Veronica Bros. v Basset, 213 AD2d 936, 937 [3d Dept 1995])
"Moreover a subcontractor bears the burden of demonstrating that there is money due and owing to the general contractor from the owner based on the primary contract ( See GCDM Ironworks v GCH Constr. Corp., 292 AD2d 495 [2d Dept 2002]; Falco Constr. Corp. v P F Trucking, 158 AD2d 510 [2d Dept 1990])." ( Timothy Coffey Nursery/Landscape, Inc. v Gatz, at 654). ( See Franco Belli Plumbing and Heating and Sons, Inc. v Imperial Development Const. Corp. , 45 AD3d 634, 637 [2d Dept 2007]).
Respondent-lienor KLIN failed to present any facts that preclude judgment, including documentary evidence, demonstrating that there was any money due and owing to general contractor BLUE DIAMOND from petitioner-owner NORTHSIDE on the day that it filed the instant mechanic's lien. Petitioner, on the other hand, provided extensive documentary evidence demonstrating that no money was due and owing to the general contractor for E F work prior to the filing of the instant mechanic's lien. "No lien may attach if the owner has discharged his obligation to the contractor, and it appears that has been done." ( W.E. Blume Inc. v Postal Tel. Cable Co., 265 AD 1062 [2d Dept 1943]). The Court, in Perma Pave Contracting Corp. v Paerdegat Boat and Racquet Club, Inc. ( 156 AD2d 550, 552 [2d Dept 1989]), held that to establish, as a matter of law, that full payment had been made by the owner to the general contractor, the owner must provide the court with checks and/or any other financial documents demonstrating the date of full payment. NORTHSIDE, in the instant case, submitted proof to the Court in the form of "copies of checks or similar financial documents which demonstrated the date of full payment [ Perma Pave at 552]," that NORTHSIDE is entitled to the full payment defense.
Respondent KLIN, in opposition to NORTHSIDE's petition, quotes from Retek v City of New York ( 14 AD3d 708, 709 [2d Dept 2005]), claiming that the Court "has no inherent power to vacate or discharge a notice of lien except as authorized by Lien Law § 19 (6) (see Matter of Lowe , 4 AD3d 476; Dember Const. Corp. v P R Elec. Corp., 76 AD2d 540)." Further, citing Retek at 709, respondent alleges that "[w]here there [is] no defect upon the face of the notice of lien, any dispute regarding the validity of the lien must await trial thereof by foreclosure' Dember Constr. Corp. v P R Elec. Corp., supra)."
Respondent's reliance on Lien Law § 19 (6) to defeat the instant petition is correct when unpaid money owed to a subcontractor exists. However, in the instant action, the full payment for E F work by NORTHSIDE was made to BLUE DIAMOND on October 7, 2008. When KLIN filed its mechanic's lien on November 21, 2008, 45 days later, no money was owed by NORTHSIDE to BLUE DIAMOND for E F work. In the absence of any unpaid money for E F work owed by the owner to the general contractor, KILN's lien attached to nothing but thin air. The Appellate Division, Second Department, in Timothy Coffey Nursery/Landscape, Inc. v Gatz, supra at 304 AD2d 652, 653-654, instructed that:
the rights of a subcontractor are derivative of the rights of thegeneral contractor and a subcontractor's lien must be satisfied out of funds "due and owing from the owner to the general contractor" at the time the lien is filed ( Electric City Concrete Co. Inc. v Phillips (100AD2d 1, 4 [1984], quoting Strain Son v Baranello Sons, 90 AD2d 924, 925[1982]; see also Di Veronica Bros. v Basset, 213 AD2d 936, 937 [1995]; Tibbetts Contr. Corp. v O E Constr. Co., 15 NY2d 324 [1965]; 104 Contractors, Inc. v R.T. Golf Associates, L.P., 270 AD2d 817, 818 [2000]; Falco Constr. Corp. v P F Trucking, 158 AD2d 510 [1990]).
Petitioner-owner NORTHSIDE has clearly established the absence of any funds "due and owing from the owner to the general contractor [ Strain Son v Baranello Sons, supra at 925]" for E F work on November 21, 2008. Respondent-lienor KLIN failed to demonstrate that "there is money due and owing to the general contractor from the owner based on the primary contract [ GCDM Ironworks v GCH Constr. Corp., supra at 496]." Therefore, the Court must grant NORTHSIDE's petition
to discharge and cancel KILN's instant mechanic's lien for $109,762.98 for labor performed for E F work at 142 North 6th Street, Brooklyn, New York.
Conclusion
Accordingly, it is
ORDERED, that petitioner-owner NORTHSIDE TOWER REALTY, LLC's petition for the discharge and cancellation of the $109,762.98 mechanic's lien, docketed in the Office of the Kings County Clerk on November 21, 2008, by respondent-lienor KLIN CONSTRUCTION GROUP, INC., for labor performed for the improvement of the property at 142 North 6th Street, Brooklyn, New York, owned by petitioner NORTHSIDE TOWER REALTY, LLC, is granted; and it is further
ORDERED, that the Kings County Clerk is directed to mark the Lien Docket to reflect that the above-referenced November 21, 2008 mechanic's lien for $109,762.98, docketed by respondent-lienor KLIN CONSTRUCTION GROUP, INC., for labor performed for the improvement of the property at 142 North 6th Street, Brooklyn, New York, owned by petitioner NORTHSIDE TOWER REALTY, LLC, is discharged and cancelled.
This constitutes the decision and order of the Court.