By: Richard E. Guttentag, Esq., Stearns, Roberts & Guttentag, LLC
Florida law defines a fraudulent lien as “[a]ny lien . . . 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.” The court in Iberiabank v. Coconut 41, LLC, 2013 WL 6061883 (M.D. Fla. 2013) analyzed this law to determine whether a contractor’s claim of lien was fraudulent.
The case of Iberiabank v. Coconut 41, LLC, 2013 WL 6061883 (M.D. Fla. 2013) involves the development of a mixed-use commercial retail center (“Project” and/or “Property”). Land Development Group, LLC executed a Purchase and Sales Agreement to purchase property in Estero, Florida to develop the Project. Prior to closing on the Purchase and Sale Agreement, Land Development Group formed Coconut 41, LLC (Coconut 41) under which it conveyed its interest in all of the Property (designated as Development Area 1, Development Area 2, and various “out-parcels”) to Coconut 41. At the closing, Coconut 41 sold Development Area 2 to H.G. Coconut, LLC (“HG Coconut”).
Westwind Contracting (“Contractor”) entered into two contracts with Coconut 41 to furnish work on the Project. One contract was for on-site infrastructure work (infrastructure contract), and the other contract was for off-site road work (off-site contract). HG Coconut was not a party to either contract, had no role in the negotiation of the contracts, and had no obligations in the performance or supervision of the contracts. The Contractor did perform some on-site infrastructure work on Development Area 2 pursuant to the engineering plans, and coordinate the work it did for Coconut 41 with the plans prepared by HG Coconut for the future development of Development Area 2.
The Contractor completed its work on or about September 28, 2009, but had not been paid in full for its work under the off-site contract with Coconut 41. Consequently, the Contractor recorded a Claim of Lien in the amount of $195,554.32 on Development Area 1, Development Area 2, and the out parcels. The Contractor made a formal demand on Coconut 41 for payment, a copy of which was provided to HG Coconut, among others. The Contractor never submitted any payment applications to HG Coconut or sought payment from HG Coconut.
The Contractor brought two claims against HG Coconut, one of which was to enforce its lien against HG Coconut’s Development Area 2 under the off-site contract. HG Coconut denied the substance of the claim, and asserted a counterclaim against the Contractor for Fraudulent Lien, among other claims. The Contractor released the Claim of Lien prior to trial, however the trial proceeded on HG Coconut’s action for Fraudulent Lien and other claims.
HG Coconut argued that the Contractor’s lien recorded against Development Area 2 was fraudulent because (i) the Contractor willfully exaggerated the amount of the Claim of Lien to include amounts unrelated to off-site work, for work not yet completed, or for work already paid for by Coconut 41 on its property; and (ii) the Contractor did not furnish labor, materials or services on property owned by HG Coconut.
There are two forms of relief for recording a fraudulent lien. First, establishing that a lien is fraudulent is a complete defense to any action to enforce the lien, thereby forfeiting any right to lien the property. Second, the owner of the improperly liened property is given the right to file an action for damages caused by the fraudulent lien against the contractor that files the lien. A lienor’s exaggeration of the amount of a lien by the inclusion of amounts which are not recoverable under the contract, are not authorized, or are arbitrary renders the lien fraudulent and unenforceable.
In this case, the Court determined that the Contractor furnished work on Development Area 2, and that there was no evidence that the amount of the lien included amounts unrelated to the offsite work, or amounts which had already been paid. Thus, HG Coconut’s assertion that there was no work performed on Development Area 2, that the lien included amounts unrelated to the offsite work, or amounts which had already been paid were incorrect.
However, the Court held that the filing of a single lien for the full amount due on four different properties, which included Development Area 2 was improper because the properties were owned by different owners. Florida law provides that the owner under the direct contract must be the same person for all properties against which a single claim of lien is recorded. The Court also found that the amount of the lien was willfully exaggerated as to Development Area 2, as the Contractor admitted that the amount of lien as to Development Area 2 was $61,540.94, not $195,554.
Nevertheless, the Court held that the lien was not fraudulent because HG Coconut failed to prove that it incurred damages as a result of the lien. The court explained that there was no evidence that HG Coconut incurred damages, such as court costs, clerk’s fees, attorneys’ fees or costs for services in securing the discharge of the lien. Therefore, the Court concluded that HG Coconut failed to establish its claim for fraudulent lien.
This case demonstrates the elements that must be proved in order to establish a claim for fraudulent lien. As shown in this case, even if it is determined that the amount of the lien was wilfully exaggerated, if the claimant did not incur damages as a result of the lien, a claim for fraudulent lien may not be established.
About the Author: Richard E. Guttentag is a partner with Stearns, Roberts & Guttentag, LLC, and is Board Certified in Construction Law by the Florida Bar. Mr. Guttentag exclusively in construction law including construction lien claims and defense, payment and performance bond claims and defense, bid protests, construction contract preparation and negotiation, and construction and design defect claims and defense. He can be reached for consultation at [email protected].