Contractors Entitled To Jury Trial In Mechanics’ Lien Foreclosure Case

Contractors often seek to amicably resolve disputes with property owners over payment disputes. Despite these efforts, contractors typically find the need to file a mechanic’s lien against the property they worked on to secure payment for their labor and services, followed by the commencement of litigation in which they must not only foreclose on the mechanic’s lien, but also assert their claim for breach of contract, or other damages they may have sustained.

Since the action to foreclose on the mechanic’s lien is considered “equitable” and not “legal”, the contractor often expects that the assertion of the claim for foreclosure of its mechanic’s lien will waive any right to a jury on its “legal” claims for breach of contract or other damages its sustained. Also, to the extent the owner responded to the contractor’s action by asserting a claim against the contractor for breach of contract or other damages it seeks arising out of the contractor’s alleged delay in performance or inferior work, the contractor may also expect to waive its right to a jury on each of those claims – – again because the contractor asserted a claim to foreclose on the mechanic’s lien.

Contractors in New York may, however, be entitled to demand a jury trial on their legal claims despite the joinder of these claims with the claim for lien foreclosure. A New York state supreme court justice rejected a property owner’s motion to strike a contractor’s demand for a jury on its claims against the property owner for breach of contract and unjust enrichment, and on the Owner’s counterclaims for breach of contract seeking more than twice the amount unpaid for alleged defective work.

In Sorbara Construction Co. v. Thatch Ripley, Inc., Index No. 600983/2007, (N.Y. Sup. Ct., Mar. 30, 2009) (Lowe, J.), (“Decision”) Plaintiff, the superstructure concrete sub-contractor commenced an action against, inter alia, the owner, seeking to foreclose on its mechanics lien, and asserting legal claims for breach of contract and unjust enrichment. Owner answered, asserting certain defenses as counterclaims which included claims for back charges to the subcontractor to remedy alleged deficiencies in the subcontractor’s work and a claim for willful exaggeration of the lien.

Contractor filed its Note of Issue demanding a jury trial on all claims and counterclaims except the lien foreclosure and willful exaggeration claim. Owner immediately moved to strike the jury demand claiming Contractor waived its right to a jury trial by joining equitable and legal claims. Owner relied on New York Civil Practice Law and Rule §4102 and Lien Law §45 as a basis to strike the jury demand. Owner argued that New York law creates a “special defendant-protection policy” whereby only a defendant is entitled to seek a jury trial on legal claims that are joined with equitable claims as plaintiff commenced the action and therefore waived its right to a trial by jury.

Contractor countered that where the gravamen of an action involves legal claims, a party is entitled to have those claims tried before a jury regardless of the inclusion of equitable claims into the pleadings. Cowper Co. v. Buffalo Hotel Development Venture, 99 A.D.2d 19, 471 N.Y.S.2d 913 (4th Dep’t 1984). See also Hudson View II Assocs. v. Gooden, 222 A.D.2d 163, 644 N.Y.S.2d 512 (1st Dep’t 1996); Chichilnisky v. Trustees of Columbia Univ., 52 A.D.3d 206, 859 N.Y.S.2d 143 (1st Dep’t 2008). Further, Contractor asserted its constitutionally protected right to a jury trial on the Owner’s counterclaims citing Cowper Co, supra, and Stokes v. Johnston, 138 A.D.2d 481, 526 N.Y.S.2d 27 (2nd Dep’t 1988).

In Cowper the defendant asserted both legal and equitable claims against the plaintiff. Id. at 20. The plaintiff, opposed to a jury trial, argued that the action was strictly for lien foreclosure even though the plaintiff also brought legal claims sounding in breach of contract. Id. at 20-21. In holding that the defendant was entitled to a jury trial on all legal claims, the court stated “[d]espite inclusion of the lien foreclosure claim, the lawsuit is essentially one to recover money damages for breach of contract and the critical factual issues should be resolved by a jury.” Id. at 22 (citations omitted). Cowper does not promulgate a “special defendant only protection rule” as Owner contended. Rather, Cowper stands for the proposition that a jury trial shall be conducted in all cases, for both plaintiffs and defendants, where the essence of the action is legal in nature – – cases where money damages alone afford a complete remedy.

Further, in Hudson View II Assocs., 222 A.D.2d 163, 644 N.Y.S.2d 512, plaintiff sought to strike defendant’s jury demand on plaintiff’s legal claims based on the assertion by defendant of equitable defenses. The court held that the defendant did not waive its right to a jury trial on the plaintiff’s legal claims by the mere assertion of equitable defenses. In reliance on the decision in Cowper, the First Department also held that the defendant was entitled to a jury trial on plaintiff’s equitable claims and its equitable defenses, because the legal and equitable claims were so intertwined as to “make trial of all the causes of action appropriate”. 222 A.D.2d at 169; 644 N.Y.S.2d at 516. Finally, the court held that the jury may serve exclusively in an advisory capacity as to those issues of fact which relate solely to the equitable claims.” Id. at 516.

Thereafter, in Chichilnisky, 52 A.D.3d 206, 859 N.Y.S.2d 143, the court held that even if plaintiff waived her right to a jury trial by joining claims for legal and equitable relief, plaintiff was nevertheless entitled to a jury trial on those claims because: (a) plaintiff was entitled to a jury on the defendant’s counterclaims, which were purely legal in nature (see infra); and (b) because the counterclaims were sufficiently intertwined with the main claims so as to “make one trial of all causes of action appropriate” (citing Hudson View, 222 A.D.2d at 169, 644 N.Y.S.2d at 516). See also Miller v. Epstein, 293 A.D.2d 282 (1st Dep’t 2002) (denial of defendant’s motion to strike the plaintiff’s jury demand was proper where plaintiff asserted both legal and equitable claims; plaintiffs’ claims were primarily legal in nature as plaintiff could obtain full relief by means of a monetary award); Stokes v. Johnston, 138 A.D.2d at 482, 526 N.Y.S.2d at 28.

The Court in Sorbara, agreed with Contractor and held that “the gravamen of the entire dispute [was] for breach of a construction contract” Decision, p. 4. Since an award of monetary damages to the Contractor would afford full and complete relief, the action was held to be “legal in nature”, and Contractor was entitled to a jury trial on its claims for breach of contract and unjust enrichment. Id., pp. 4-5.

Owner, however, also sought to preclude the subcontractor from obtaining a jury on the counterclaims for back charges, relying on § 45 of the Lien Law, which provides:

The court may adjust and determine the equities of all the parties to the action and the order of priority of different liens, and determine all issues raised by any defense or counterclaim in the action. But in no case shall the court determine any issue between the state and the contractor where a claim has been or can be submitted to the court of claims for adjudication and in case a counterclaim is set forth by any defendant in his answer, such defendant shall be deemed to have waived a trial by jury of the issues raised thereby.

Contractor countered that the language this section is merely permissive, and allows a Court the latitude of submitting Defendant’s counterclaims to a jury since the statute provides that a court “may” determine the equities of a party. Owner claimed that the last sentence is not permissive, and directs that the defendant be held to waive a jury trial on any counterclaims asserted in a lien foreclosure action.

The Court in Sorbara, rejected Owner’s position finding instead that “[w]hen read in context, the second sentence of Lien Law 45 applies to matters brought against the State and not generically to all defendants who may assert a legal counterclaim in a foreclosure action”. Decision p. 4.

Likewise, the Court rejected Owner’s contention that Plaintiff subcontractor waived its right to a jury since at the time of commencement of the action, the Owner’s claims for back charges and other damages were foreseeable. Id. Rather, the Court found that Owner’s arguments as to forseeability was “an insufficient basis to deprive a party of their constitutional right to defend a legal counterclaim, by way of a jury trial. Id.

Owner also asserted that CPLR 4102(c) precluded Contractor from obtaining a jury trial as Contractor’s equitable claim for lien foreclosure and legal claims for breach of contract and unjust enrichment arise out of the same transaction, and therefore by joining the claims, Contractor was not entitled to a jury trial on any of its claims, or on any of the Owner’s counterclaims. The decisions of the First Department in Chichilnisky and Hudson View discussed above address this issue, and held that even in such circumstance, a court is bound to examine the entire action, and if it is determined that the non jury claims are so intertwined with other jury claims, the entire matter should be heard by a jury, with the court enabling the jury to render an advisory opinion on the equitable claims.

The Court did not directly address Owner’s arguments based on CPLR § 4102(c), but did find that the claims and counterclaims were so intertwined and related that one trial for all causes of action was “both desirable and necessary”. Decision p. 4. See also Wisell v. Indo-Med Commodities, Inc., 303 A.D.2d 749, 757 N.Y.S.2d 460 (2nd Dep’t 2003) (denying Owner’s motion to strike plaintiffs request for a trial by jury on Owner’s legal counterclaims especially where “the legal and equitable counterclaims are intertwined”).

The Court thus directed that the entire action – – both legal and equitable claims – – be tried before a jury. The Court further directed that the jury’s determination on the equitable claims for foreclosure of the mechanic’s lien, and the Owner’s claim for willful exaggeration of the lien, would be advisory, meaning that the court was not bound by such determination, but could consider it in issuing a decision of the lien foreclosure and willful exaggeration claims.

The decision appears to be the first decision that has addressed the jury trial issue head on for a plaintiff contractor seeking to foreclose on a lien as well as assert legal claims for breach of contract. The decision is significant, to both contractors and owners because, by commencing an action to foreclose on a lien, most contractors and owners believe that the contractor is waiving its right to a jury trial on all other claims – including counterclaims asserted by the owner for back charges arising out of the contractor’s allegedly defective work and for delay damages. Now, it appears a choice exits.
Although it is often the belief that construction claims present issues that are either too complex for a jury, or so highly technical that there is a risk that the jury’s interest will be lost, there are circumstances where a jury trial is beneficial. This is an important decision for contractors and owners, as now they will be able to choose whether the jury or the court will determine the resolution of their monetary disputes.