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Ruling Has Significant Impact for Construction Industry
In a case of first impression in New York, a New York Supreme
Court judge ruled that sureties have no mechanic’s lien
rights.
The ruling arose in connection with a summary judgment order
granted to Sheppard Mullin clients Thorobird Grand LLC and Grand
Apartments Housing Development Fund Corporation
(“Client”), affordable housing developers that developed
three residential buildings in the South Bronx.
After the default and termination of the general contractor, the
client and the performance bond surety, Federal Insurance Company,
executed a takeover agreement pursuant to which Federal assumed the
obligation to complete the project. At the completion of the
project, the Client sent a notice of withholding and stopped making
any further payments as provided under the takeover agreement due
to the contract damages it incurred. The Client also commenced a
breach of contract action in Bronx County Supreme Court. In
response to the withholding, Federal filed three mechanic’s
liens — one on each property — that had a total value of over
$3.4 million and counterclaimed to foreclose on the liens in the
Bronx County Supreme Court action.
In an issue of first impression in New York, the Court found
that a surety has no statutory right to file mechanic’s liens
under the New York Lien Law and discharged the liens in full.
“Liens have serious consequences,” said Sheppard
Mullin partner Ira Schulman. “Our client is grateful that it
will be able to get back the millions of dollars it was forced to
post as collateral to obtain bonds to discharge these unlawful
liens.”
Read the summary judgment order
here.
In addition to Ira Schulman, the Sheppard Mullin team included
Cesar Pereira, Sophia Cahill, and Sylvia Waghorne.
The content of this article is intended to provide a general
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about your specific circumstances.
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