McNees Wallace & Nurick LLC: Construction Alert - What Was That Court Thinking?

McNees Wallace & Nurick LLC: Construction Alert - What Was That Court Thinking?

By Diane M. Tokarsky, Esquire, Chair, Construction and Procurement Law

Just when you thought you understood the rules of the game in relation to the Pennsylvania Mechanics Lien Law ("Act"), the Pennsylvania Superior Court issued the game changing decision, Bricklayers of Western Pennsylvania Combined Funds, Inc. v. Scott's Development Company, 2012 PA Super 4  (Pa. Super.) [enhanced version available to subscribers]. In this unprecedented case, the Superior Court determined that the trustees of a union employee benefit fund had standing to file a mechanics lien claim against the property of a developer in order to recoup unpaid benefit contributions owed to union members. In order to confer this right on the benefit fund, the Superior Court criticized and rejected 30 years of court cases interpreting the Act. The legal ramifications of the case go well beyond the rights of union benefit funds.

In 2007, Scott's Development Company engaged Pustelak as a general contractor. Pustelak had entered into a collective bargaining agreement ("CBA") with the Bricklayers and Trowel Trades. Under the CBA, Pustelak was obligated to pay to the Laborers Combined Funds of Western Pennsylvania (the "Trustee") health, welfare, retirement and/or fringe benefits based upon union members' hourly pay rate. The CBA incorporated by reference a trust agreement which allowed the Trustee to collect the contributions on behalf of the union members. Pustelak retained union members to work on the Scott's project, but failed to pay contributions due. The Trustee filed a claim alleging that its workers performed laborer services on the Project.Scott's argued that the claim should be dismissed as the union members were not "subcontractors" but rather employees/ laborers of Pustelak, and sought strict construction of the Act.

Under the Act, only a "contractor" and "subcontractor" are permitted to file a mechanics lien claimto recover payment for labor or materials furnished on a project. The 2007 amendment to the Act extended lien rights down an additional tier to second-tier subcontractors. The trial court in Bricklayers determined that the union members were not "subcontractors" because (1) the union members were employees of Pustelak; and (2) CBAs were not deemed to be subcontractor agreements, but rather employment contracts unrelated to the "improvements" on real property. The trialcourt found (properly, in this writer's opinion) that the Trustee did not perform work on, or furnish materials to, a project. The trial court strictly applied the rules of statutory construction and dismissed the trustee's claim for lack of standing.

The Superior Court, however, determined that the past thirty years of legal precedent requiring that the lien law was to be very strictly construed was erroneous, and that the Mechanics Lien Act was a remedial statute which should be liberally construed to effectuate the purpose of protecting payment for labor and materials. The Superior Court analyzedthe relationship between the contractor and the union and determined that the CBA created an implied contract to perform labor on Scott's property. Taking its analysis one step further, the Superior Court concluded that the CBA incorporating the trust agreement created an "implied contract" so that the Trustee of the benefit plans, as opposed to the unions, had the legal standing to assert the claim for payment on behalf of the workers. Interestingly, while the Superior Court recognized that it was liberally construed the definition of a "subcontract agreement", it indicated that it would still strictly apply theprocedural aspects of the Act (e.g., notice provisions).

For now, the Bricklayer decision is the law of Pennsylvania, until the Supreme Court acts. As a result, particular care should be taken when contracting to protect against this expanded legal and financial exposure. Any indication that a subcontractor is experiencing financial difficulty must be addressed promptly.

© 2012 McNees Wallace & Nurick LLC 
Construction Alert is presented with the understanding that the publisher does not render specific legal, accounting or other professional service to the reader. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using this material must always research original sources of authority and update this information to ensure accuracy and applicability to specific legal matters. In no event will the authors, the reviewers or the publisher be liable for any damage, whether direct, indirect or consequential, claimed to result from the use of this material.

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