Carl A. Morse, Inc. v. Rentar Industrial Development Corp. , 391 N.Y.S.2d 425 ( 1977 )

Gulotta, P. J.

In an action to foreclose certain mechanics’ liens, and for other related relief, the appeal is from an order of the Supreme Court, Queens County, which denied appellants’ motion for partial summary judgment dismissing the first cause of action. We affirm.

Under date of May 15, 1972, the plaintiff and defendant Rentar Industrial Development Corporation (Rentar) entered into a written contract for the construction of a warehouse in Queens County, New York, pursuant to which plaintiff, "the contractor”, as "agent for the owner”, agreed "to arrange for all [of] the labor and materials and [to] do all [of] the things necessary for the proper construction and completion of the * * * [contemplated] building”. Rentar, as "owner”, agreed to compensate plaintiff in accordance with an agreed schedule of payments, whereupon the work was commenced.

Subsequently, and within the time limited by statute (Lien Law, § 10), plaintiff caused to be filed against the premises four separate mechanics’ liens, totaling in excess of $1,000,000, for work, labor and services rendered pursuant to the agreement. When a dispute as to payment arose, plaintiff commenced this action, inter alia, to foreclose its liens, whereupon defendants moved for summary judgment dismissing the first (foreclosure) cause of action on the following two grounds: (1) that plaintiff, having contracted and performed as defendants’ agent, was not a valid lienor and (2) that article 2 of the Lien Law is unconstitutional insofar as it purports to authorize the filing of a mechanic’s lien without prior notice or the opportunity to be heard, thus constituting an impermissible taking of property without due process of law.

The Special Term rejected the latter contention, sustained the constitutionality of the statute and found a triable issue of fact as to plaintiff’s lienor status. We are in complete agreement therewith.

Beginning with a consideration of the constitutional issue, it is appellants’ contention that the creation of an interest in real property by the filing of a mechanic’s lien, without prior judicial approval, constitutes an unconstitutional deprivation of property without due process of law, citing Sniadach v Family Finance Corp. (395 US 337); Fuentes v Shevin (407 US 67); Mitchell v Grant Co. (416 US 600); and North Georgia Finishing v Di-Chem (419 US 601). The Special Term agreed generally with this analysis, but held that the deprivation resulting from the filing of a mechanic’s lien was de minimis, and therefore not such as would require prior court sanction, citing Spielman-Fond, Inc. v Hanson’s, Inc. (379 F Supp 997 [DC Ariz, 1973], affd 417 US 901). Significantly, none of the cases cited, with the exception of Spielman-Fond, involved a mechanic’s lien situation.

In Sniadach, for example, the Supreme Court of the United States held unconstitutional, as violative of due process, a Wisconsin prejudgment garnishment statute, pursuant to which a creditor could, without notice and a prior hearing, freeze up to 50% of the wages of an alleged debtor, upon application by the creditor’s attorney to the court clerk. As the Supreme Court later noted in Mitchell v Grant Co. (supra, p 614), it was not clear under the statute whether the debtor could immediately challenge the garnishment and thus obtain a prompt postseizure hearing, but in recognition of the obvious fact that a garnishment of wages under the Wisconsin statute involved "a specialized type of property presenting distinct problems in our economic system” which "may as a practical matter drive a wage-earning family to the wall”, the court concluded that because no extraordinary circumstances justified the statutory scheme, "absent notice and a prior hearing * * * this prejudgment garnishment procedure violates the fundamental principles of due process” (Sniadach v Family Finance Corp., supra, pp 340-342).

Somewhat similarly, the Supreme Court, three years later in Fuentes v Shevin (supra), struck down, as violative of due process, the replevin statutes of Florida and Pennsylvania, again citing the absence of prior notice and a hearing. Under the replevin laws of each of those two States, a creditor was empowered to obtain a writ of replevin by the simple expedient of filing an appropriate form with the court clerk, and then posting a security bond. Under the Florida statute, anyone whose goods or chattels were "wrongfully detained” was entitled to obtain a writ, there being no statutory requirement that the applicant make a convincing showing that the goods were, in fact, being "wrongfully” detained; all that was required was that the applicant recite in conclusory fashion that he was "lawfully entitled to the possession”. Under the Pennsylvania statute, a creditor was not even required to formally allege his right to possession; he had merely to file an affidavit stating the value of the property to be seized. As has heretofore been stated, the creditor, in either event, was required to file a security bond when seeking the writ, and, under either statute, the buyer could regain possession by posting a counter-bond. Under the Florida statute, the debtor would "eventually” obtain a hearing as the defendant in a repossession action (which the creditor was required to commence), but, under the Pennsylvania law, there would be no hearing unless the debtor commenced an action to recover possession.

Under this factual umbrella, the Supreme Court concluded that, absent extraordinary circumstances, none of which were found to be present, the Fourteenth Amendment’s right to procedural due process required due notice and an opportunity to be heard before a person could be deprived, even temporarily, of any possessory interest in personalty (Fuentes v Shevin, 407 US 67, 80-87, supra). Thus the court stated (p 96): “We hold that the Florida and Pennsylvania prejudgment replevin provisions work a deprivation of property without due process of law insofar as they deny the right to a prior opportunity to be heard before chattels are taken from their possessor.”

The Supreme Court appeared to retreat somewhat from this position in Mitchell v Grant Co. (416 US 600, supra), decided two years later, for in Mitchell the majority sustained a Louisiana prejudgment sequestration statute which permitted a conditional vendor of personal property to obtain a writ of sequestration, ex parte, without prior notice or an opportunity to be heard. The court noted, however, that in order to obtain a writ, the creditor had to (1) file an affidavit specifying the facts he asserted in support of his claim, (2) submit the affidavit to a Judge, who was to determine its sufficiency, and (3) file a bond in order to compensate the debtor in the event of a wrongful seizure. In addition, and perhaps most importantly, the court noted that the statute provided for an immediate postseizure hearing on the question of possession, and provided further for the posting of a counter-bond, so that the debtor might regain possession in the interim. Under these circumstances, the Supreme Court opined that the requirements of due process had been satisfied, as constitionalism did not require Louisiana to ignore the fact that, under State law, both the debtor and creditor had an interest in the subject property, and that the creditor’s rights were subject to defeasance upon the transfer of possession. Moreover, the court noted, the creditor’s security interest would be irrevocably diminished if the installment payments were not maintained so as to parallel the deterioration in the value of the property through use (416 US at pp 608-609). In short, the majority concluded (p 607) that the Louisiana statutory scheme "effects a constitutional accommodation of the conflicting interests of the [several] parties”, and distinguished Sniadach and Fuentes on their facts, stating (p 609): “there is scant support in our cases for the proposition that there must be final judicial determination of the seller’s entitlement before the buyer may be even temporarily deprived of possession of the purchased goods. * * * The issue at this stage of the proceeding concerns possession pending trial and turns on the existence of the debt, the lien, and the delinquency. These are ordinarily uncomplicated matters that lend themselves to documentary proof; and we think it comports with due process to permit the initial seizure on sworn ex parte documents, followed by the early opportunity to put the creditor to his proof.”

Finally, in North Georgia Finishing v Di-Chem, Inc (419 US 601, supra), the Supreme Court appeared to rely heavily on Fuentes in striking down a Georgia prejudgment garnishment statute, but did so in a manner which clearly reflected the influence of Mitchell. Thus, the court framed its determination as follows (pp 606-607):

"Because the official seizures [in Fuentes] had been carried out without notice and without opportunity for a hearing or other safeguard against mistaken repossession, they were held to be in violation of the Fourteenth Amendment.

"The Georgia statute is vulnerable for the same reasons. Here, a bank account, surely a form of property, was impounded and, absent a bond, put totally beyond use during the pendency of the litigation on the alleged debt, all by a writ of garnishment issued by a court clerk without notice or opportunity for an early hearing and without participation by a judicial officer.

"Nor is the statute saved by the more recent decision in Mitchell v W.T. Grant Co., 416 US 600 (1974). That case upheld that Louisiana sequestration statute which permitted the seller-creditor holding a vendor’s lien to secure a writ of sequestration and, having filed a bond, to cause the sheriff to take possession of the property at issue. The writ, however, was issuable only by a judge upon the filing of an affidavit going beyond mere conclusory allegations and clearly setting out the facts entitling the creditor to sequestration. The Louisiana law also expressly entitled the debtor to an immediate hearing after seizure and to dissolution of the writ absent proof by the creditor of the grounds on which the writ was issued.

"The Georgia garnishment statute has none of the saving characteristics of the Louisiana statute. The writ of garnishment is issuable on the affidavit of the creditor or his attorney, and the latter need not have personal knowledge of the facts. § 46-103. The affidavit, like the one filed in this case, need contain only conclusory allegations. The writ is issuable, as this one was, by the court clerk, without participation by a judge. Upon service of the writ, the debtor is deprived of the use of the property in the hands of the garnishee. Here a sizable bank account was frozen, and the only method discernible on the face of the statute to dissolve the garnishment was to file a bond to protect the plaintiff creditor. There is no provision for an early hearing at which the creditor would be required to demonstrate at least probable cause for the garnishment. Indeed, it would appear that without the filing of a bond the defendant debtor’s challenge to the garnishment will not be entertained, whatever the grounds may be” (emphasis supplied).

There are, as appellants contend, several similarities between the cases just cited and the facts of the case at bar. Here, as there, we have a private dispute between private parties, and the interjection of some sort of State mechanism, viz., a lien, in aid of one of the parties to the dispute. The mechanism here, as there, can be invoked upon the ex parte application of a single party, without prior notice or the opportunity to be heard, and can, as there, be invoked incorrectly, albeit in good faith. At this point, however, the similarity ends.

Unlike the petitioners in Sniadach, Fuentes, Mitchell and North Georgia Finishing, appellants herein have neither been deprived of the use or possession of their property, nor may any of their incidents of ownership, including the right of alienation, be 'materially altered without prior judicial approval (see Lien Law, § 24, 41). Thus, while it cannot be denied that the filing of a mechanic’s lien creates a "cloud” on the owner’s title, rendering alienation "more difficult”, or perhaps "less profitable”, the fact remains that the owner is not legally prevented from selling, encumbering, renting or otherwise dealing with the property as he chooses,¹ and, once he has found himself a ready and willing buyer, etc., there is nothing in the statute or in the nature of the lien which would preclude him from consummating the transaction. The lien, therefore, does nothing more than to impinge upon the economic interests of the owner, and in this connection it is important to note that: (1) while the value of the property may be diminished by the amount of the lien, the improvements, at least theoretically, have increased the value of the property by the amount of the lien, thus minimizing the harm; (2) the lienor is required to state, specifically and under oath, the facts giving rise to his lien (Lien Law, § 9); (3) the owner may discharge the lien by depositing the amount of the lien into court, or by posting a bond (Lien Law, §§ 19, 20, 37); and (4) the owner can compel an expeditious determination on the merits, without cost to him, by demanding that the lien be foreclosed, or the lienor "show cause * * * why the notice of lien * * * should not be vacated” upon a 30-day notice (Lien Law, § 59). Moreover, in no event can the lien remain in force for a period in excess of one year from the date of filing "unless within that time an action is commenced to foreclose the lien * * * or unless an order be granted * * * by a court of record or a judge or justice thereof, continuing such lien” (Lien Law, § 17).

It is in recognition of the foregoing minimal intrusion which results from the filing of a mechanic’s lien that we conclude that due process of law in this context does not require prior notice or the opportunity to be heard, for, as the Supreme Court noted in Boddie v Connecticut (401 US 371, 378-379), "[w]hat the Constitution does require is * * * that an individual be given an opportunity for a hearing before he is deprived of any signiñcant property interest” (accord Fuentes v Shevin, 407 US 67, 90, n 21, supra; Sniadach v Family-Finance Corp., 395 US 337, 342, supra [concurring opn. per Harlan, J.]; emphasis supplied). We, however, are of the opinion that the filing of a mechanic’s lien does not result in the deprivation of any "significant property interest” (accord Spielman-Fond, Inc. v Hanson’s, Inc., 379 F Supp 997, affd 417 US 901, supra; Ruocco v Brinker, 380 F Supp 432, 436 [DC, Fla, 1974, three-Judge court]; Cook v Carlson, 364 F Supp 24 [DC, SD, 1973]; see Brook Hollow Assoc, v J. E. Greene, Inc., 389 F Supp 1322 [DC, Conn, 1975]; but, cf. Barry Props, v Fick Bros. Roofing Co., 277 Md 15 [portions of the Maryland mechanic’s lien law declared unconstitutional as violative of due process]; Roundhouse Constr. Corp. v Telesco Masons Supplies Co., 168 Conn 371 [Connecticut’s mechanic’s lien law declared unconstitutional as violative of due process]), and, moreover, that the procedural safeguards incorporated into our present statute (Lien Law, §3 et seq) "[effect] a constitutional accommodation of the conflicting interests of the [several] parties” (Mitchell v Grant Co., 416 US, at p 607).

As Chief Judge Nichol so cogently observed in Cook v Carlson (supra, pp 27-29):

"The primary purpose of the mechanics’ and materialmen’s lien * * * is to provide construction contractors with security. A secondary purpose, however, is to give notice to subsequent purchasers and encumbrancers that there is a charge on the property and that they will take subject to that charge. In that regard, it is similar to [a] * * * lis pendens notice. * * * The requiring of a hearing prior to the filing of [a] lis pendens * * * would destroy its effectiveness, since it would result in an interim period during which bona fide purchasers and encumbrancers could tie into the property, [thus] complicating the process of litigation and disappointing the expectations of the litigants. All of the above could also be said of the mechanics’ and materialmen’s lien. It is not meant to deprive the owner of possession, but to give interim protection to laborers and materialmen by giving notice of a charge on the property. * * *

"In the case of a mechanics’ and materialmen’s lien, where use of the property is only incidentally and partially hampered, it is [moreover] the view of this Court that there exists a basic and important public interest in [its] * * * summary imposition * * *. The mechanics’ and materialmen’s lien originated in the necessity of protecting the construction industry and those in its employ. Labor and materials contractors are in a particularly vulnerable position. Their credit risks are not as diffused as those of other creditors. They extend a bigger block of* credit, they have more riding on one transaction, and they have more people vitally dependent upon eventual payment. They have much more to lose in the event of default. There must be some procedure for the interim protection of contractors in this situation * * * [Considering their vulnerability, a] contractor must have some protection against subsequent bona fide purchasers between the time he completes the work and the time [that] he gets a judgment.”

To reiterate, we are of the opinion that New York’s present statutory scheme works a constitutional accommodation of these competing interests.

In voting to uphold the current statute, we are not unmindful of the forceful and well-reasoned arguments to the contrary, as typified by the present dissent. We are mindful, however, of the serious consequences which might flow from our invalidation of this statutory rule of longstanding,² and of the severe burden of proof which has been imposed upon those who would attack the constitutionality of a legislative enactment (see Mitchell v Grant Co., supra; Fenster v Leary, 20 NY2d 309, 314; Matter of Van Berkel v Power, 16 NY2d 37, 40; Defíance Milk Prods, Co. v Du Mond, 309 NY 537, 541). In this connection, we note, parenthetically, the following statement by Mr. Justice Holmes in Jackman v Rosenbaum Co. (260 US 22, 31) and quoted by Mr. Justice Black in his dissent in Sniadach (supra, p 349): " 'The Fourteenth Amendment, itself a historical product, did not destroy history for the States and substitute mechanical compartments of law all exactly alike. If a thing has been practiced for two hundred years by common consent, it will need a strong case for the Fourteenth Amendment to affect it, as is well illustrated by Ownbey v Morgan, 256 U.S. 94, 104, 112.’ ” Under the circumstances, we are of the opinion that the requisite burden of proof has not been sustained.

In light of the foregoing, and in view of the further fact that we are in agreement with the Special Term as to the existence of a triable issue of fact as to the validity of plaintiffs lienor status, we hold that the order denying partial summary judgment should be affirmed.

1 . Cf. sections 7 and 13 of the Lien Law, which attempt to protect the lienor from the owner’s possible misuse of these rights to defeat his lien.

2 . Our present statute is a direct descendant of the Lien Law of 1897, which, in turn, traces its roots to chapter 342 of the Laws of 1885.