Opinion ID: 329551
Heading Depth: 2
Heading Rank: 1

Heading: Does Amended Complaint State a Claim for Relief?

Text: Under New York Lien Law § 3 a subcontractor who performs labor and furnishes material for the improvement of real property has a lien for the value or agreed price of the labor and material. Notice of the lien must be filed in the clerk's office of the county where the property is situated. § 10. Upon the filing of notice the lien attaches and becomes effective. Manton v. Brooklyn, etc., Realty Co., 217 N.Y. 284, 111 N.E. 819 (1916). The notice must be served upon the owner of the property to be fully enforceable against him. § 11. Section 19 relating to Discharge of Lien for private improvement provides in § 19(4) that an owner or contractor may have a lien discharged by filing with the county clerk a surety bond, approved by the court or a judge or a justice thereof. 5 1 A subcontractor may forego or waive his right to a mechanic's lien. Under Section 34 of the New York Lien Law, however, he may not do so except by an express agreement in writing specifically to that effect, signed by him or his agent. It is undisputed that the waiver executed by Matco complied with this statutory provision. 2 Matco contends, however, that notwithstanding this waiver, once the lien was filed, Beacon's exclusive remedy for attacking the lien was to serve a notice requiring the lienor to commence an action to foreclose the lien, pursuant to New York Lien Law § 59. 6 Beacon argues that the waiver provision, authorized by Section 34, is an independently enforceable covenant, that the district court was correct in holding that Matco had breached its contract when the lien notice was filed, and that 28 U.S.C. § 2201 provides an appropriate remedy. 3 It is well settled that an express waiver in a contract signed by a subcontractor in compliance with Section 34 of the New York Lien Law is binding and enforceable. In Arr-Em Plastering Corp. v. 515 East 85th Street Corp., 25 A.D.2d 59, 266 N.Y.S.2d 944, 946 (1966) the Supreme Court of New York, Appellate Division, First Department, held that such a waiver extinguishes the right to file a notice of lien, and the relinquishment of the right to file a lien cannot be recalled or expunged. The court held further that the subcontractor's waiver was inconsistent with and excludes the statutory basis for a mechanic's lien, and (w)hen the lien has been once waived it cannot afterward be revived in the absence of an express agreement to that effect with the owner . . . . (citing 57 C.J.S. Mechanics' Liens § 222, pp. 792-793). In that case a plastering corporation sought foreclosure of its mechanic's lien, and the owner of the property had moved for summary judgment dismissing the cross-complaint of the carpentry subcontractor. Reversing the lower court, it was held that the motion for summary judgment dismissing the cross-complaint of the subcontractor should have been granted. The court did not consider the procedural question here presented, but it is clear from the court's decision that if this were an action to foreclose the lien or proceedings under Section 59 of the New York Lien Law, summary judgment would be proper. 4 Although it is apparent that Beacon should prevail on the underlying merits of this litigation, Matco contends that the federal courts are powerless to grant declaratory relief and that, The only way in which the validity of the lien can be determined is in an action to foreclose the lien, or upon the failure of the lienor to commence such an action after notice given pursuant to § 59. Matco bases its argument on the New York cases which have interpreted New York Lien Law §§ 19 and 59, which prescribe procedures for determining the validity of mechanic's liens. These cases are, at first glance, very persuasive. In Application of Jos. Blitz, Inc., 36 Misc.2d 1028, 234 N.Y.S.2d 671, 672-674 (1962), a case involving the validity of a mechanic's lien filed despite a waiver, the court articulated the general approach taken by the New York courts. It recognized that prior New York cases had held that (1) where a subcontractor files a lien in violation of a waiver, the lien may not be summarily discharged by motion, but the only remedy of the owner or contractor is to proceed under section 59; and (2) The courts have no inherent power to cancel or discharge mechanic's liens on grounds other than those specified in the Lien Law. 7 5 Did these decisions of the New York courts preclude the district court from exercising its discretion to grant declaratory relief? An answer to this question requires an analysis of the purpose and effect of the Declaratory Judgment Act.
6 The Declaratory Judgment Act, 28 U.S.C. § 2201, provides that in a  case of actual controversy within its jurisdiction a court of the United States may declare the rights and other legal relations of an interested party whether or not further relief is or could be sought. Rule 57, F.R.Civ.P., expressly provides that the . . . existence of another adequate remedy does not preclude a judgment for declaratory relief in cases where it is appropriate. 7 The purpose of the Act and its use as an additional remedy were explained by Judge Parker in the leading case of Aetna Casualty & Surety Co. v. Quarles, 92 F.2d 321, 325 (4 Cir. 1937) decided soon after the enactment of the Declaratory Judgment Act: 8 The statute providing for declaratory judgments meets a real need and should be liberally construed to accomplish the purpose intended, i. e. to afford a speedy and inexpensive method of adjudicating legal disputes without invoking the coercive remedies of the old procedure, and to settle legal rights and remove uncertainty and insecurity from legal relationships without awaiting a violation of the rights or a disturbance of the relationships. 8 9 The Act confers a discretion on the courts to grant or deny declaratory relief rather than an absolute right upon the litigant. Public Service Commission v. Wycoff Co., 344 U.S. 237, 241, 73 S.Ct. 236, 239, 97 L.Ed. 291 (1952). Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. Maryland Casualty Co. v. Pacific Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826 (1940). 9 10 While a district judge has discretion in determining whether to grant declaratory relief and is not precluded from granting relief by the existence of other remedies, his discretion is not unlimited. Larson v. General Motors Corp., 134 F.2d 450, 453 (2 Cir. 1943). Moreover, in determining the propriety of entertaining a declaratory judgment action, the appellate court should exercise its own judgment and may substitute its own judgment for that of the lower court. Fay v. Fitzgerald, 478 F.2d 181, 183 (2 Cir. 1973). 11 In diversity actions an important consideration in granting declaratory relief is its effect on federal-state relationships. As the Supreme Court said in Great Lakes Dock Co. v. Huffman, 319 U.S. 293, 298, 63 S.Ct. 1070, 1073, 87 L.Ed. 1407 (1943), It is in the public interest that federal courts of equity should exercise their discretionary power to grant or withhold relief so as to avoid needless obstruction with the domestic policies of the states. 10 In view of the New York cases construing the New York Lien Law, a close and difficult question is presented in determining whether the district court properly exercised its discretion in granting declaratory relief. 12 Counsel have not cited, nor have we found, a case precisely in point. It was held in Allstate Insurance Co. v. Charneski, 286 F.2d 238, 244 (7 Cir. 1960) that the district court should have dismissed a complaint by an insurance company seeking declaratory relief with respect to insurance coverage since the Supreme Court of Wisconsin had held that an insurance company may not bring a separate declaratory judgment action under the Wisconsin Uniform Declaratory Judgment Act as being in contravention of the legislative policy declared in its direct action statute. 11 The court held that the Wisconsin rule represented the substantive policy of the state and concluded that the federal court could not assume jurisdiction in contravention of the declared state policy. 13 Charneski is distinguishable in that here there is no declared state policy prohibiting declaratory relief. Moreover, the decision in Charneski has been criticized by some commentators and textwriters. In particular, Wright & Miller, Federal Practice and Procedure, Civil § 2756 (1973) says in part: This decision was arguable when it was made and its authority has been further eroded by the later decision in Hanna v. Plumer . 12 Hanna v. Plumer, 380 U.S. 460, 468, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965) involved the question of service of process under Rule 4(d)(1), F.R.Civ.P., in a diversity action. The Court considered at some length the effect of Erie v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), noting that consideration must be given to the twin aims of the Erie rule: discouragement of forum-shopping and avoidance of inequitable administration of the law. 14 As noted in Braden v. 30th Judicial Circuit Court of Commonwealth of Kentucky, 454 F.2d 145, 147 n. 1 (6 Cir. 1972), rev'd on other grounds, 410 U.S. 484, 93 S.Ct. 1123, 35 L.Ed.2d 443 (1973), it is clear that under Rule 57 a court has Power to grant declaratory relief when another adequate remedy is available, although it may, in the exercise of its discretion, decline to do so. 'The test is whether or not the other remedy is more effective or efficient, and hence whether the declaratory action would serve a useful purpose.' 6A J. Moore, Federal Practice § 57.08(3), at 3031-32. The court suggested further that a showing that a special statutory proceeding is inadequate to protect a plaintiff's rights or that declaratory relief would afford the plaintiff broader and more efficient protection might be sufficient to justify a court in exercising its discretion to grant declaratory relief. 15 At least in the absence of an express state policy prohibiting the use of a declaratory judgment action, in our opinion no hard and fast rule can be made for determining the propriety of granting declaratory relief in diversity cases. Rather the court must balance the interests of federal-state comity and the rights and needs of the parties, giving consideration to the various factors and legal principles enumerated above. 16 With these criteria in mind, we conclude that the district court was justified in exercising its discretion in favor of granting declaratory relief. We note first that there was no state court action pending when the complaint was filed; 13 nor did the district court act in the face of a specific statute or state court ruling clearly denying the applicability of declaratory relief. Second, the parties agree that Matco's right to obtain a lien under the New York Lien Law was modified by the contract, which specifically provided that Matco waived its right to file a notice of lien. This was a binding and enforceable agreement under New York Lien Law § 34. A denial of declaratory relief would cause an inequitable administration of justice since denial would result in unnecessary delay and distortion of New York law rather than its proper application. Third, there is no indication that the plaintiff was engaged in forum-shopping. The declaratory judgment is designed to provide prompt relief in cases where the more traditional procedures are cumbersome or would result in delay. 17 We hold that declaratory relief is appropriate since the contractual rights of the parties, which are the basis of the litigation, are so apparent 14 and there is no substantial challenge to appellee's claim under those rights. Appellant attacks only the procedure appellee followed. To hold that the district court did not have discretion to grant declaratory relief would violate the spirit of the Declaratory Judgment Act, Rule 57, and Rule 1, F.R.Civ.P., which provides that the rules of procedure shall be construed to secure the just, speedy, and inexpensive determination of every action.