New York District Court Holds Partial Lien Waivers May Be Avoided on Grounds of Duress

Worth Constr. Co. v. I.T.R.I. Masonry Corp.,
2001 U.S. Dist. LEXIS 2144 (S.D.N.Y. Feb. 21, 2001)

Worth Construction entered into a masonry subcontract with ITRI Masonry for a correctional facility in New York. Due to cash flow concerns, ITRI requested and Worth acquiesced to an arrangement where Worth would pay ITRI’s actual payroll costs, but not payroll taxes or benefits, on a weekly basis. These costs would then be deducted from ITRI’s monthly progress payment. Nevertheless, ITRI began to fall behind in its payments to vendors and its workforce. Subsequently Worth began paying ITRI’s payroll and suppliers by joint check. Eventually Worth terminated ITRI for nonperformance on March 13, 1998 and hired all of ITRI’s tradesmen and supervisors to complete the masonry work.

During the project, ITRI submitted requests for payment twice a month, along with a properly executed Subcontractor’s Affidavit and Release of Lien. These releases were required by the subcontract. A total of thirteen of these releases were executed, the last dated Feb. 27, 1998. ITRI claimed the liens were executed because if they were not, it would not get paid. ITRI further claimed it was prohibited from altering the lien to protect its interests.

ITRI filed a lien against the facility on April 3, 1998, asserting the actual value of the work performed to be approximately $5 million, with an unpaid balance of approximately $2.5 million. Worth filed suit alleging ITRI had released all of its claims and in any event the claim of $2.5 million could not have arisen during the two-week period between the last lien waiver (Feb. 27) and the date of termination (Mar. 8). Worth moved for a summary judgment to dismiss the lien on the basis that ITRI’s valid releases barred future liens and ITRI’s lien was willfully exaggerated.

The district court held the releases were valid and enforceable as a matter of law. However, the court held that ITRI’s defense of duress raised a genuine issue of material fact. The court noted that a reasonable trier of fact could conclude that Worth agreed to a variance from the contractual pay procedures in order to cover weekly payrolls; that at some point Worth stopped paying ITRI monies due pursuant to the monthly requisitions; and that, to pay tradesmen and to avoid defaulting on its obligations, ITRI was forced to sign releases of claims for money that it had earned and requisitioned, but that Worth refused to pay. There was a question of fact about whether Worth threatened to breach its agreement by withholding performance (payment) until ITRI agreed to release any claim to money it was lawfully owed under contract. The court stated “it defies belief that ITRI would have agreed to work on the project for less than the amount specified in its written contract, or that it would have exposed itself to civil or even criminal liability for unpaid payroll taxes by voluntarily waiving its right to collect the money needed to pay those taxes.” Thus, there remained disputed facts as to whether ITRI was compelled to sign the releases; whether an opportunity to reserve rights under the releases was denied to ITRI, and whether any threats by Worth of withholding payment under that scheme prevented ITRI from exercising its free will.

Similarly, plaintiff’s motion to dismiss based on willful exaggeration of the lien was also dismissed. Since the validity of the releases was questionable, the valuing of the lien at $5 million might not be exaggerated.

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