Lien Law § 39-a Attorneys’ Fees Must Reflect Work to Secure Discharge of a Willfully Exaggerated Mechanic’s Lien (Not an Arbitrary Percentage)

1. Introduction

Consumer Protection Restoration, LLC v Hickory House Tenants Corp. (2025 NY Slip Op 01350, Appellate Division, Second Department, decided March 12, 2025) arises out of a dispute between contractors (the plaintiffs) and a cooperative housing corporation (Hickory House Tenants Corp.) concerning work performed and payment. The plaintiffs commenced an action, among other things, to foreclose two mechanic’s liens and to recover damages for breach of contract and unjust enrichment.

The key issues on appeal were:

  • Whether Hickory House properly prevailed on its counterclaim under Lien Law §§ 39 and 39-a to void the liens as willfully exaggerated and recover damages and attorneys’ fees.
  • How attorneys’ fees should be calculated under Lien Law § 39-a—specifically, whether a court may use an arbitrary percentage formula.
  • Whether the plaintiffs were entitled to prejudgment interest on their quantum meruit/unjust enrichment award under CPLR 5001.

2. Summary of the Opinion

After a nonjury trial addressing (i) plaintiffs’ quantum meruit/unjust enrichment claim and (ii) Hickory House’s Lien Law §§ 39 and 39-a counterclaim (and damages/fees on that counterclaim), the Supreme Court awarded:

  • Plaintiffs: $1,595,258.08 on unjust enrichment, without prejudgment interest.
  • Hickory House: $3,776,026.16 as damages for willful exaggeration (the overstatement amount), plus $261,692.17 in attorneys’ fees.

The Second Department:

  • Affirmed the damages findings (plaintiffs’ unjust enrichment damages; Hickory House’s willful-exaggeration damages).
  • Affirmed the denial of prejudgment interest to plaintiffs under the circumstances.
  • Modified the judgment by vacating the attorneys’ fee award because it was calculated by an arbitrary 12% formula.
  • Remitted for a new attorneys’ fee determination limited to fees incurred in securing discharge of the liens and litigation efforts tied to that discharge determination (and related challenges), not to other issues such as damages calculations or the unjust enrichment dispute.

3. Analysis

3.1. Precedents Cited

The court anchored its analysis in a set of Lien Law and interest precedents that collectively define (a) the stringent requirements for willful exaggeration penalties and (b) the proper scope of recoverable attorneys’ fees under Lien Law § 39-a.

A. Willful exaggeration: elements, burdens, and strict construction

  • Adria Infrastructure, LLC v Henick-Lane, Inc., 207 AD3d 604: Quoted for the statutory framework and for the proposition that § 39 voids a willfully exaggerated lien and § 39-a supplies damages once voided. The decision reinforces that § 39-a damages include (i) the overstatement amount and (ii) “reasonable attorneys’ fees for services in securing the discharge of the lien.”
  • Degraw Constr. Group, Inc. v McGowan Bldrs., Inc., 178 AD3d 770 (quoting Saratoga Assoc. Landscape Architects, Architects, Engrs. & Planners, P.C. v Lauter Dev. Group, 77 AD3d 1219): Cited for the core limitation: the § 39-a remedy requires a finding that the lienor deliberately and intentionally exaggerated the lien amount and is available only where the lien is otherwise valid. This is critical because § 39-a is penal in nature and not triggered by mere error.
  • Park Place Carpentry & Bldrs., Inc. v DiVito, 74 AD3d 928 (quoting Capogna v Guella, 41 AD3d 522; see also Goodman v Del-Sa-Co Foods, 15 NY2d 191): Establishes that improper charges or mistakes do not automatically prove willful exaggeration—supporting the principle that intent must be shown.
  • Capogna v Guella, 41 AD3d 522: Reaffirmed for strict construction: “Lien Law § 39-a must be strictly construed in favor of the party against whom the penalty is sought to be imposed.” This frames the court’s reluctance to expand § 39-a beyond its text.
  • Garrison v All Phase Structure Corp., 33 AD3d 661 (quoting Fidelity N.Y. v Kensington-Johnson Corp., 234 AD2d 263): Cited for burden of proof: the opponent of the lien must show the lien amounts were “intentionally and deliberately exaggerated.”

B. Summary judgment and appellate review standards

  • LMF-RS Contr., Inc. v Kaljic, 126 AD3d 436; Abra Constr. Corp. v 112 Duane Assoc., LLC, 59 AD3d 263; cf. Ebenezer Full Gospel Assembly v Makan Exports, Inc., 8 AD3d 329: Used to support the affirmance of summary judgment on the willful-exaggeration counterclaim where plaintiffs failed to raise a triable issue after Hickory House’s prima facie showing.
  • McGowan v State of New York, 79 AD3d 984 (quoting Northern Westchester Professional Park Assoc. v Town of Bedford, 60 NY2d 492); see also Castaldi v Syosset Cent. Sch. Dist., 203 AD3d 690: Restates the broad scope of appellate review after a nonjury trial—allowing the Appellate Division to render the judgment warranted by the facts, while recognizing the trial judge’s advantage in seeing witnesses.
  • Bedoya v Rodriguez, 186 AD3d 1308; DiSario v Rynston, 138 AD3d 672: Cited to support the conclusion that the trial court’s damages determinations were warranted by the record.

C. Prejudgment interest on quantum meruit/unjust enrichment

  • Tesser v Allboro Equip. Co., 73 AD3d 1023 (citing Brent v Keesler, 32 AD2d 804): Quoted for the general rule that predecision/preverdict interest under CPLR 5001 on quantum meruit damages is generally mandatory, akin to breach of contract awards.
  • Precision Founds. v Ives, 4 AD3d 589: Cited for the important qualification: interest may be denied in the court’s discretion in appropriate circumstances.
  • Atlas Refrigeration-Air Conditioning, Inc. v Lo Pinto, 33 AD3d 639; Brent v Keesler, 32 AD2d 804: Provide timing rules: interest typically runs from demand for payment, but if demand predates completion, then from completion. The court distinguished these rules because services here were not completed and the amount due could not be known until the court’s determination.

3.2. Legal Reasoning

A. Attorneys’ fees under Lien Law § 39-a: reasonableness and scope

The decision’s central doctrinal contribution is its insistence that § 39-a attorneys’ fees must be tethered to the statute’s purpose and text. Section 39-a authorizes “reasonable attorneys’ fees for services in securing the discharge of the lien.” The Supreme Court’s fee award—computed as 12% of Hickory House’s net award—was reversed because it was not a reasonableness determination based on services performed, but an arbitrary formula detached from the statutory category of compensable work.

The Second Department also cabined what work qualifies as “securing the discharge” in the procedural posture of this case:

  • The liens were discharged when Hickory House obtained summary judgment on the first counterclaim. Therefore, compensable fees include those incurred to obtain that discharge determination.
  • Compensable fees may also include fees related to subsequent challenges to that discharge/summary-judgment determination (e.g., efforts by plaintiffs to undo that result).
  • But fees should exclude work on “other issues,” expressly including: (i) litigation over the amount of damages on the willful exaggeration counterclaim and (ii) litigation over the plaintiffs’ unjust enrichment recovery.

This is a meaningful boundary-setting move: the court treated § 39-a fee shifting as purpose-limited—compensating the owner for the legal cost of removing the lien cloud— not as a general prevailing-party fee entitlement across the entire construction-payment dispute.

B. Willful exaggeration: affirmance of liability and damages

While the opinion does not re-litigate the underlying evidentiary details (noting they are summarized in related appeals decided “herewith”), it affirms that the record supported both:

  • the finding that the liens were willfully exaggerated, and
  • the damages measure of the difference between the lien amount claimed and the amount actually due (the statutory overstatement measure).

In doing so, the court aligned with the established doctrine that § 39-a is penal, requires intentional exaggeration, and is strictly construed, but—once its prerequisites are met—authorizes a robust remedy.

C. Prejudgment interest: discretion in unusual quantum meruit circumstances

The court acknowledged the general rule (from Tesser v Allboro Equip. Co.) that quantum meruit interest is “generally mandatory,” yet held the trial court providently exercised discretion to deny it here because:

  • the services were not completed,
  • Hickory House could not know the amount of the quantum meruit award until the court’s decision, and
  • the quantum meruit award functioned as a setoff against Hickory House’s larger statutory recovery—meaning there was no clearly ascertainable “amount due” earlier.

This portion of the holding is narrowly framed and fact-dependent, but it signals that even in quantum meruit cases (where interest often follows as a matter of course), trial courts retain room to deny interest when fairness and ascertainability concerns predominate.

3.3. Impact

A. Fee applications under Lien Law § 39-a will become more segmented

The decision is likely to influence how courts and litigants structure and prove fee claims under § 39-a:

  • No percentage shortcuts: Courts are discouraged from using a “percent of recovery” heuristic. Parties should expect the court to require traditional proof of reasonableness (time records, rates, task descriptions).
  • Task-based allocation: Owners seeking § 39-a fees should segregate time entries for: (i) obtaining the discharge and (ii) defending that discharge determination—separately from broader merits litigation.
  • Reduced fee exposure for lienors (relative to a full-case fee shift): Lienors facing § 39-a will still face serious penalties, but this ruling restrains fees to the statute’s “discharge” function rather than all downstream litigation.

B. Prejudgment interest arguments will focus more on completion, demand, and ascertainability

Although the court reaffirmed that quantum meruit interest is generally expected, litigants should note the court’s willingness to deny interest where: (i) the work is incomplete, (ii) the payable amount is not reasonably knowable until adjudication, and (iii) the award operates chiefly as a setoff. Future parties may litigate “ascertainability” more aggressively in atypical quantum meruit contexts.

4. Complex Concepts Simplified

  • Mechanic’s lien: A statutory claim placed on real property by someone who provided labor or materials, securing payment.
  • Willfully exaggerated lien (Lien Law § 39): Not just “wrong,” but intentionally overstated; the penalty is voiding the lien.
  • Lien Law § 39-a damages: If a lien is declared void for willful exaggeration, the lienor must pay damages that can include: (i) the overstatement amount and (ii) “reasonable attorneys’ fees” for securing the discharge of the lien.
  • Quantum meruit / unjust enrichment: An equitable claim seeking the reasonable value of services when a contract claim may not be available or fully provable.
  • Prejudgment interest (CPLR 5001): Interest added for the time between when payment should have been made and the judgment—often awarded as of right in contract-like cases, but discretionary in equitable cases and fact-sensitive in application.
  • Setoff: When one party’s recovery is used to reduce what it owes the other party, resulting in a netted amount.
  • Remittal: The appellate court sends the case back to the trial court to redo a specific determination (here, the fee amount) under the appellate court’s guidance.

5. Conclusion

Consumer Protection Restoration, LLC v Hickory House Tenants Corp. tightens the administration of Lien Law § 39-a by enforcing a disciplined, text-based approach to attorneys’ fees: fees must be reasonable and must correspond to legal work performed in securing (and defending) the discharge of a willfully exaggerated lien—rather than being set by an arbitrary percentage or expanded to cover unrelated disputes. At the same time, the decision illustrates that even where quantum meruit interest is “generally mandatory,” courts may deny it when the work is incomplete, the payable amount is unknowable until adjudication, and the award functions as a setoff.

The opinion’s broader significance lies in reinforcing that statutory penalties and fee shifting—especially under a strictly construed, penal provision like § 39-a—must be applied with precision, both in proof and in calculation.