By Martin J. Saunders, Of Counsel.
Pennsylvania, like many states, has a mechanic’s lien statute to ensure that contractors and subcontractors who make improvement to property will be paid for the labor and materials they furnish in the erection, construction, alteration or repair of property. It accomplishes this by affording them the right to record a lien against the improvement, be it a building, structure or other improvement.
Not infrequently in construction, however, unionized contractors fail to make contractually required contributions to the health and welfare plans for their employees. Often, these contractors and their principles will not be financially able to pay their delinquent contributions, especially if the benefit plans have allowed them to become in arrears for a length of time. A breach of contract suit by these plans against the contactors, therefore, may not be a viable remedy to collect delinquencies.
When confronted with such a situation, Trustees of the Bricklayers and Laborers Welfare Funds, in a legally creative strategy, filed a mechanic’s lien for the unpaid contributions against the owner of the property upon which the union members had worked for their construction company employers. The Pennsylvania Supreme Court, therefore, was faced with the question of whether the Trustees of union health and welfare plans, to which a construction contractor owed fringe benefit payments, could assert a mechanic’s lien against the property even though its owner may already have fully paid the construction company.
Recognizing that the Pennsylvania statute specifically disallows such a lien in favor of any person other than a contractor or subcontractor, even though such person furnished labor or materials to the improvement, the Trustees argued that they stood in the shoes of their union members and that, by virtue of the collective bargaining agreement, these union members were subcontractors of the general contractor’s contract with the property owner. The Trustees, therefore, claimed to be entitled to file a mechanic’s lien for the unpaid contributions which were owed for labor on the project.
The Pennsylvania Supreme Court rejected the Trustees’ attempt to file such a lien, [enhanced version available to lexis.com subscribers]. In doing so the Court stated that mechanic’s liens were entirely a creature of statute designed to protect persons who, before being fully paid, provided labor or materials to improve a piece of property. The Court recognized that mechanic’s liens provided a special remedy, independent of contract claims, in favor of a unique class of creditors. As such, the mechanic’s lien statute was to be strictly interpreted as it created an encumbrance on property that deprives the owner of his ability to convey clear title. To do otherwise would effectively make the innocent property owner a surety for the independent obligations of the delinquent construction contractor and unjustly put the property owner at the risk of being required to make a double payment. Rather, the Court held that the natural meaning of the word subcontractor does not denote employees of a contractor. The Court found that a subcontractor meant one who performs for, and takes from, the primary contractor a specific piece of the original contract. Laborers, thus, are not considered to be working on the credit of the building or improvement but on faith in their employer.
Pennsylvania law permits the property owner to be held responsible to ensure that subcontractors are paid, which would include any amount owed for its labor and materials. The Court, however, was not willing to construe this class of claim to include employees, or their substitutes, thereby creating an entirely new class of subcontractors; exposing the property to increased liability and an additional obstacle to new construction.
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