Fraudulent construction liens: Willful exaggeration or good faith dispute?

• Author: Nelles, Matthew S.
• Position: Florida

File an action on behalf of your contractor client to foreclose a construction lien these days and there is a good chance that you will be confronted with an affirmative defense asserting that the lien is not enforceable because it is fraudulent. Your opponent may even file a counterclaim seeking damages as a result of your purportedly fraudulent lien. Having known your client for many years, you have come to learn that he is an honest contractor who has an excellent reputation, and you dismiss this threat as simply a boilerplate defense having no application to your foreclosure case. Besides, you search your memory banks and you recall something about good faith mistakes in the claim of lien being an exception to the fraudulent lien statute. You accordingly do not take the time to thoroughly review exactly how your client compiled the claim. What you may not realize is that your client may have compiled the lien in a manner that, under the prevailing case law, will be found fraudulent and unenforceable, and that your client may be liable for punitive damages in an amount equal to the difference between his claim and the amount actually determined to be owed.

The purpose of this article is to explore the different scenarios when fraudulent lien claims commonly arise, and to review the case law that may control how that claim may be resolved. This article, which highlights the most significant and oft-cited cases, can then be used as a starting point in researching and evaluating potential fraudulent lien cases.

Background

A contractor who complies with the provisions of the Florida Mechanics Lien Law, F.S. Ch. 713, has a lien on the improved real property for any money that is owed to him or her for labor, services, materials, or other items required by, or furnished in accordance with, the direct contract.(1) The "direct contract" is the agreement between the owner and any other person for improving real property.(2) Thus, as a starting point in evaluating the validity of a claim of lien, the claim must be for work or materials that the lienor supplied in accordance with a contract to which the owner was a party.

Section 713.13(2)(a) defines a fraudulent lien in three ways:

Any lien asserted under this part in which the lienor has willfully exaggerated the amount for which such lien is claimed or in which the lienor has willfully included a claim for work not performed upon or materials not furnished for the property upon which he or she seeks to impress such lien or in which the lienor has compiled his or her claim with such willful and gross negligence as to amount to a willful exaggeration shall be deemed a fraudulent lien.

Subsection (2)(b) states that if the lien is found fraudulent, then this provides the owner with a complete defense to any action to enforce the lien. That subsection was amended in 1990 to include a very significant clarification to the willful exaggeration standard, the good faith dispute exception, which is discussed in detail below.

In addition to providing an affirmative defense to lien foreclosure actions, fraudulent lien claims may, under [sections] 713.31(2)(c), be asserted as counterclaims, crossclaims, or independent actions by owners, contractors, subcontractors, or sub-subcontractors who have suffered damages as a result of the filing of the fraudulent lien. Recoverable damages include attorneys' fees, the amount of any premium for a bond given to obtain the discharge of the lien, and punitive damages in an amount not exceeding the difference between the amount claimed by the lienor to be due and the amount actually due.(3)

Because most actions to foreclose construction liens include claims for breach of contract, when a jury trial is requested, both the judge and the jury will be involved in resolving the case. The appropriate way to resolve these cases is for the jury to try the breach of contract claims and counterclaims, and for the trial court, based upon the evidence adduced at trial, to decide the lien foreclosure claims and fraudulent lien counterclaim issues.(4)

The following sections describe the more common scenarios in which fraudulent lien cases are asserted.

Asserting a Lien for Work Admittedly Not Performed

When there is evidence that the claim of lien was compiled based on work that was admittedly not performed, the owner has a pretty good chance of establishing a fraudulent lien. Such was the case in Viyella Co. v. Gomes, 657 So. 2d 83 (Fla. 3d DCA 1995). In that case, the contractor, who made certain improvements to residential property, filed a claim of lien for the remainder of the full contract price, $57,675, stating that he had completely...