Time Period For The Filing Of A Mechanic’s Lien Claim

Frank Kosir, Jr., Esquire
fk@muslaw.com

Neelu Enterprises, Inc. d/b/a KB Builders v. Agarwal, 2012 PA Super 276, 2012 Pa. Super. LEXIS 4091 (2012)

 

This matter addressed the issue of whether the time period for the filing of a  mechanic’s lien claim begins to run at the initial completion of the work or at the completion of remedial work arising from the contracted-for work.  In November of 2008, Neelu Enterprises, Inc. d/b/a KB Builders (“Neelu”) entered into a Construction Agreement (the “Agreement”) with Ashok and Asha Agarwal (the “Owners”) whereby Neelu agreed to construct a residential home for the Owners on certain real property (the “Property”) situated in Hampden Township, Cumberland County, Pennsylvania, for a total consideration of Five Hundred and Eighty-Five Thousand Dollars ($585,000).  After Neelu had substantially completed the construction of the home, the Owners advised Neelu that they were terminating the Agreement.  On December 8, 2010, the parties signed a one-page handwritten agreement acknowledging the termination of the Agreement.  Thereafter, the Owners retained the services of several subcontractors to complete the construction of the home without any assistance or input from Neelu.  Neelu did, however, return to the Property on several occasions in December of 2010 and January 2011, along with its electrical and plumbing subcontractors, to address issues that the Owners had raised with regard to certain of the work performed.

 

On June 23, 2011, Neelu filed a Mechanic’s Lien claim against the Property in the Cumberland County Court of Common Pleas, alleging that it and its subcontractors had performed work at the Property from November 8, 2009 through January 11, 2011, and that it was owed One Hundred and Six Thousand Dollars ($106,000) for work completed and additional materials purchased.  In response, the Owners filed Preliminary Objections alleging, inter alia, that, as Neelu and its subcontractors had left the project on December 8, 2010, the claim was not filed within six months of the completion of the work and was therefore untimely.  The trial court sustained the Preliminary Objections and struck the lien with prejudice.

 

On appeal, the Pennsylvania Superior Court affirmed.  In issuing its ruling, the Court noted that Section 1502 of the Pennsylvania Mechanic’s Lien Law (49 P.S. § 1502) requires that a Mechanic’s Lien claimant file its claim within six months of the completion of the work from which the claim arises.  In this matter, there was no dispute that the parties had terminated their contractual relationship on December 8, 2010, or that the work from which the Mechanic’s Lien claim had arisen was completed prior to the termination date.  As such, the six-month period for filing of a Mechanic’s Lien began to run on December 8, 2010.  The court further held that, although Neelu and its subcontractors had returned to the Property in December of 2010 and January of 2011 to perform work, all of this work was remedial in nature and was performed solely for the purpose of correcting previously deficient work.  Therefore, this remedial work did not serve to extend the completion date of the work for mechanic’s lien purposes, and—as Neelu’s claim was not filed until June 23, 2011—it was untimely and properly stricken by the trial court. 

Protected Property Interest for Public Benefits Applicant

Frank Kosir, Jr., Esquire
fk@muslaw.com

McKinley vs. Housing Authority of the City of Pittsburgh, 2012 Pa. Commw. LEXIS 338 (2012)

This matter addressed the issue of whether an applicant for public benefits holds a protected property interest entitling them to judicial review of the denial of such benefits.  In 2011, Reschida McKinley (the “Applicant”) filed an application with the Housing Authority of the City of Pittsburgh (the “Authority”) seeking to participate in the Authority’s low-income public housing (“LIPH”) program.  Pursuant to Authority eligibility policy, any individual that has been convicted of certain enumerated felonies (one of which is involuntary manslaughter) is ineligible to participate in the LIPH program.  As McKinley had been convicted of involuntary manslaughter in 2002, her application was denied.  McKinley filed an appeal to the Authority, which held a grievance hearing and affirmed the denial.  McKinley then filed an appeal in the Allegheny County Court of Common Pleas, which dismissed the appeal, concluding that it lacked jurisdiction to hear the appeal.

 

On appeal, the Pennsylvania Commonwealth Court affirmed.  In issuing its ruling, the court noted that, pursuant to Section 752 of the Local Agency Law (2 Pa.C.S. § 752), a person aggrieved by any adjudication of a local agency in which that person has a direct interest shall have the right to appeal the adjudication to the appropriate court.  However, in this instance, the Applicant held no property or personal rights in the public housing for which she had applied.   Therefore, since the Applicant did not have a reasonable expectation to participate in LIPH, she was not an “aggrieved party” for purposes of Section 752 and was not entitled to due process protections inherent in the right to appeal. 

HEALTH CARE REFORM SEMINAR February 12, 2013 - What Your Business Needs to Know

 

Free Seminar - Tuesday, February 12, 2013

Are you an employer with close to 50 full-time employees?

Are you an employer with over 50 full-time employees?

 

The impact to your company will be determined by the number of full-time equivalent employees you have at your company. The penalties could range from $2000 to $3000 per employee under the "pay or play" mandate.

Please join us as we review the upcoming impact of health care reform on businesses.   

 

The government has issued proposed regulations along with questions and answers regarding which employers are subject to the "pay or play" mandate. These proposed regulations and additional guidance will develop rules for who is a full-time employee. Employers will be permitted to use periods in 2013 to determine whether an employer is subject to the "pay or play" mandate. You need to know which employees will be considered full-time employees for the "pay or play" mandate.

Learn now how to comply with the guidelines so you can determine the impact of health care reform on your business in 2014 and how to address the changes with your employees.

 

Tuesday, February 12, 2013

Registration & Hot Breakfast 8:30 am - 9:00 am Program 9:00 am - 10:30 am

 

Seminar Location - Rivers Club

301 Grant Street | One Oxford Centre, Suite 411 | Pittsburgh, PA 15219

RSVP by Friday, February 8th

rsvp@muslaw.com

 

This seminar will be hosted by Joseph A. Vater, Jr. and Jason Mettley.

 

 

Joseph A. Vater, Jr., Esquire

jav@muslaw.com

 

Since 1976, Mr. Vater has been involved in Commercial and Employment Litigation. Mr. Vater's labor and employee benefits litigation has included the defense of age, race, and sex discrimination claims, as well as litigation involving claims for benefits and breaches of fiduciary duty under ERISA. He has practiced in both the state and federal courts, as well as before state and federal agencies with jurisdiction over employment law and employee benefit issues. Mr. Vater has also litigated cases before arbitrators involving withdrawal liability under the Multiemployer Pension Plan Amendments Act.

 

 

Jason Mettley, Esquire

jm@muslaw.com

 

Jason Mettley represents employee benefit plans in all matters, including plan design and drafting, fiduciary responsibility, plan governance, and contributions collections. Mr. Mettley has litigated a broad array of ERISA cases, representing both plans and individuals. He has extensive experience working with employers and labor organizations on collectively bargained plans.

 

Pennsylvania Real Estate Seller Disclosure Law - Murder/Suicide Is A Psychological Defect

Frank Kosir, Jr., Esquire
fk@muslaw.com

Milliken v. Jacono, et al., 2012 Pa. Super 284, 2012 Pa. Super. LEXIS 4105 (2012)

 

This matter addressed the issue of whether the Pennsylvania Real Estate Seller Disclosure Law (the “Law”) (68 P.S. § 7301-7315) requires the seller of real property to disclose to prospective purchasers that a murder/suicide occurred on that property. Konstantinos Koumboulis and Georgia Koumboulis (the “Koumboulis’”) were the owners of certain real property (the “Property”) situated in Delaware County, Pennsylvania.  The Koumboulis’ died in a murder/suicide at the Property on February 11, 2006 and the Property was subsequently purchased at a September 23, 2006 real estate auction by Kathleen Jacono and Joseph Jacono (the “Jaconos.”)  The Jaconos never resided at the Property, and soon after taking title began to make arrangements to sell the Property, inquiring with the Pennsylvania Real Estate Commission as to whether the Law required disclosure of the murder/suicide to prospective purchasers.  Upon being advised that such a disclosure was not required, the Jaconos listed the Property for sale with Re/Max Real Estate and, on June 17, 2007, entered into an agreement to sell the Property to Janet S. Milliken (“Milliken”).  Simultaneous to their execution of the Agreement of Sale, the Jaconos completed a Seller Property Disclosure Statement (“Disclosure Statement”) in which they failed to disclose the murder/suicide.  A closing took place on August 10, 2007.

Several weeks after taking title, Milliken became aware of the murder/suicide and brought suit against the Jaconos and the real estate brokers involved in the transaction for their failure to disclose the murder/suicide.  Specifically, Milliken alleged that the murder/suicide constituted a material defect that negatively impacted the value of the Property and, as such, required disclosure under the Law.  The trial court, finding that a murder/suicide is not included in the list of enumerated material defects requiring disclosure pursuant to Section 7304(b) of the Act (68 P.S. § 7304(b)), concluded that a murder/suicide does not constitute a material defect and entered summary judgment for the defendants.

On appeal, the Pennsylvania Superior Court reversed and remanded the matter to the trial court for further proceedings (2011 PA Super 254, 2011 Pa. Super. LEXIS 3759 (2011)). Thereafter, the Jaconos filed a Motion for Reargument, which the Court granted, vacating its opinion.  Following reargument, the Court affirmed the trial court, concluding that a murder/suicide does not constitute a material defect requiring disclosure under the Law.  In issuing its opinion, the Court noted that Section 7304(b) of the Law sets forth a list of sixteen specific material defects requiring disclosure, and that each of these specific material defects are related to the physical structure of the home, its components, or the condition of the curtilage.  Therefore–as the fact that a murder/suicide occurred at the Property is, at most, a psychological defect, and the language of Section 7304(b) plainly establishes that the legislature did not intend for the Law to cover psychological defects–the Law did not require the Sellers to disclose that a murder/suicide had taken place on the Property.  The court further noted that requiring sellers to disclose that a murder/suicide had taken place on a particular property would create a slippery slope as to the definition of a “material defect” under the Law, potentially putting sellers in great peril if they fail to disclose any potential negative facts regarding the subject property (e.g., that a burglary occurred there several years earlier, that burglaries have occurred in the neighborhood, etc.).  The Court also questioned how recently a murder/suicide would have had to have occurred in order to require disclosure, as well as how a decrease in the monetary value of a property resulting from such an event would be accurately measured.

Non-Profit Exempt From Real Estate Tax?

In re Appeal of Dunwoody Village, 52 A.3d 408, 2012 Pa. Commw. LEXIS 195 (2012)

 

Frank Kosir, Jr., Esquire
fk@muslaw.com

This matter addressed the issue of whether a non-profit corporation that operated a continuing retirement case community qualified as an institution of purely public charity entitled to an exemption from real estate tax obligations pursuant to Article VIII, Section 2(a)(v) of the Pennsylvania Constitution. Dunwoody Village, Inc. (“DVI”) operates a continuing care retirement community on an 85.5-acre parcel of property (“Property”) situated in Newtown Township, Delaware County, Pennsylvania.  On the Property, DVI maintains 65 country houses, 174 apartments and 239 residential units. In order to be eligible to live in the residential units, an applicant is required to sign a life care contract, submit a medical application, a financial application, and pay a fee of One Thousand Dollars ($1,000.00) to be placed on a waiting list.  If an applicant is accepted, he is required to pay a one-time entrance fee, and is also required to pay a monthly rental fee.  In 2008, the non-refundable entrance fee for a couple in a 1,750 square foot, two bedroom country house was $237,000, while the entrance fee for a single person in a 420 square-foot studio apartment was $82,000.  In 2008, the monthly fees ranged from $2,203 for a studio apartment to $6,691 for a couple in two bedroom country house.  Residents are also asked to contribute to a Residents' Reserve Fund, which is used to assist those residents who can no longer afford their monthly fees.

 

In 2007, Delaware County assessed the Property at $31,000,000 for real estate tax purposes.  In response, DVI filed an appeal asserting that the Property was exempt from real estate taxation as DVI qualified as an institution of purely public charity.  The County Appeals Board held a hearing and denied the application.  On appeal, the Delaware County Court of Common Pleas affirmed concluding inter alia that, as DVI did not operate independently of profit motive, it did not qualify as a purely public charity.

 

On appeal, our Commonwealth Court affirmed.  In issuing its ruling, the court noted that, in order to qualify as an institution of purely public charity, an entity had to satisfy the five prong test established in HUP v. Commonwealth, 507 Pa. 1, 487 A.2d 1306 (1985) (“The HUP Test”), which provides that an entity qualifies as a purely public charity if it: (a) Advances a charitable purpose; (b) Donates or renders gratuitously a substantial portion of its services; (c) Benefits a substantial and indefinite class of persons who are legitimate subjects of charity; (d) Relieves the government of some of its burden; and (e) Operates entirely free from private profit motive.  In this matter, there was no evidence that DVI satisfied any of these requirements as: (a) DVI’s primary purpose was to lease residential space to medically and financially qualified seniors, not to benefit seniors in general, (b) it charges significant application and monthly fees, does not accept Medicare or any other government program, and makes no effort to accept applicants that cannot pay the requisite fees, (c) its services are only provided to those applicants who can afford the application and monthly fees, not an indefinite class of individuals that are legitimate subjects of charity, (d) it does not relieve the government of any burden since it does not accept those applicants who are unable to pay the requisite fees, and whose care may ultimately become the government’s responsibility, and (e) it does not operate entirely free of profit motive, as its executives’ compensation packages provide for bonuses and other related incentives tied to DVI's marketplace and/or financial performance.  For these reasons, DVI did not qualify as an institution of purely public charity, and its request for real estate tax exempt status was properly denied.

Deemed Approval Zoning Appeal

DeSantis v. Zoning Hearing Board of the City of Aliquippa, et. al, 2012 Pa. Commw. LEXIS 267 (2012)



Frank Kosir, Jr., Esquire
fk@muslaw.com

This matter addressed the issue of whether a trial court is required to conduct a de novo hearing when ruling on a zoning appeal arising from a deemed approval.  On July 22, 2010, the City of Aliquippa (“City”) filed an application with the Zoning Hearing Board of the City of Aliquippa (“Board”) seeking dimensional variances to construct a police substation on a parcel of property (“Property”) that it had leased from the Aliquippa School District.  The Board conducted a hearing on the application at which Antonietta and Marian DeSantis (“Landowners,”) owners of land adjacent to the Property, appeared in opposition to the application.  The Board failed to issue a timely decision, resulting in a deemed approval, and the Landowners appealed to the Beaver County Court of Common Pleas, which remanded the matter to the Board for the issuance of Findings of Fact and Conclusions of Law.  The Board issued the requested Findings of Fact and Conclusions of Law, concluding that the City was entitled to the requested variance and the trial court, concluding that its scope of review was limited to making a determination as to whether the Board had committed an error of law, or abused its discretion, affirmed the Board’s decision without holding a hearing, or taking any additional evidence.  The Landowners appealed, citing fourteen (14) points of error in the trial court’s determinations.

 

On appeal, our Commonwealth Court reversed.  In issuing its ruling, the court did not address any of the issues raised in the Landowners’ appeal.  Rather, the court concluded that, in ruling on an appeal from a deemed approval, it is improper for the trial court to rely upon the record or the determinations of the zoning board.  In such instances, the zoning board’s untimely decision is a mere nullity, and the trial court is required to conduct a hearing, afford the parties the opportunity to present additional evidence, and to make its own factual findings and legal conclusions.  As the trial court had failed to do so in this instance, the matter had to be remanded, and the trial court required to conduct such a hearing.

ABA Intellectual Property Roundtable - January 17, 2013

January Topic: “Yums v. Nike - Exploring the Boundaries of an IP Owner's Ability to Control the Existence of a Justiciable Case or Controversy"
 

David G. Oberdick, Esquire
ABA IP Roundtable Host
dgo@muslaw.com

Meyer, Unkovic & Scott is proud to sponsor the Pittsburgh Roundtable for the American Bar Association Intellectual Property Litigation Section. These quarterly meetings allow IP litigation practitioners to network with other attorneys and discuss topics of interest.
 

All practicing attorneys interested in intellectual property matters are invited to attend. Need not be members of the ABA IP Litigation Section.
 

Lunch will be provided by Meyer, Unkovic & Scott.

Thursday, January 17, 2013 @ 12:00 noon

Location:
Meyer, Unkovic & Scott LLP
Oliver Building, 12th Floor
535 Smithfield Street
Pittsburgh, PA 15222-2304
412.456.2800

Please RSVP by January 16, 2013 to: rsvp@muslaw.com or 412.456.4600

PennDOT's Highway Occupancy Permit an Exercise in Eminent Domain Power?

Ristvey, et. al v. Pennsylvania Department of Transportation, 52 A.3d 425; 2012 Pa. Commw. LEXIS 197 (2012)

 

Frank Kosir, Jr., Esquire
fk@muslaw.com

This matter addressed the issue of whether PennDOT’s issuance of a Highway Occupancy Permit constituted an exercise of its eminent domain power, or of its police power.  Michael Ristvey, Jr., Nancy K. Ristvey, Nedra J. Lewis and Chester B. Scholl, Jr. (“Owners”) are the owners of twenty-three (23) acre parcel of real property (“Property”) situated in Hermitage, Mercer County, Pennsylvania.  The Property is zoned residential, and is situated on the eastern side of State Route 18.  In 2004 Cedarwood Development Corporation (“Cedarwood”) applied to the Pennsylvania Department of Transportation (“PennDOT”) for a Highway Occupancy Permit (“HOP”) for a parcel of real property, zoned commercial, that it owned directly across Route 18 from the Property and planned to develop for a Wal-Mart Store.  As part of its application, Cedarwood sought to reconfigure the five-lane Route 18 to include, inter alia, a new traffic signal and a dedicated, north-bound, left turn stand-by lane.  PennDOT granted the application and construction was completed in 2006. 

Although being aware of Cedarwood’s application since at least early 2005, the Owners did not oppose the application, or raise any inquiries in relation thereto, until 2009, when Michael Ristvey, Jr. requested a copy of the HOP and traffic impact study prepared for Cedarwood.  Thereafter, on July 29, 2010, the Owners filed a Petition for Appointment of a Board of Viewers (“Petition”) in the Mercer County Court of Common Pleas, alleging a de facto taking of the whole of the Property.  In support of their position, the Owners alleged that the issuance of the HOP resulted in the stacking of cars in the new left turn lane, made it impossible to make a safe left turn out of the Property, and rendered the Property valueless.  In response, PennDOT filed Preliminary Objections asserting, inter alia, that its issuance of the HOP constituted an exercise of its police power, not its eminent domain power and that, as such, no compensation was due to the Owners.  The trial court sustained the Preliminary Objections, and dismissed the Petition with prejudice.  In response, the Owners appealed to the Pennsylvania Commonwealth Court asserting that, as the primary purpose of the issuance of the HOP was to provide for adequate traffic controls, the HOP served a public purpose, and was an exercise of PennDOT’s eminent domain power.

On appeal, our Commonwealth Court affirmed.  In issuing its ruling, the court noted that Section 420 of the State Highway Law (36 P.S. § 670-420) vests PennDOT with the authority to control the flow of traffic on state highways.  As such, PennDOT is vested with the power to compel a property owner to install traffic lights, turn lanes or any other traffic calming mechanisms it deems appropriate to control traffic flow in a particular circumstance.  In the matter at hand, there was no evidence that any of the requirements that PennDOT included in the HOP were unreasonable and, although PennDOT’s actions did in fact somewhat restrict the Owners’ abilities to use their property, these actions amounted to nothing more than the enforcement of its regulations.  As such, PennDOT’s actions did not constitute a taking of the Property for a public purpose, and no damages were due to the Owners.

Fluctuating Workweek Under Pennsylvania Law

Jane Lewis Volk, Esquire
jlv@muslaw.com

Employers who are currently utilizing the “fluctuating workweek” method of paying for overtime, take notice.  The Federal District Court here in Pittsburgh issued a decision on August 27, 2012, ruling that this method, approved under the federal Fair Labor Standards Act (“FLSA”), violates the Pennsylvania Minimum Wage Act (“PMWA”).

The fluctuating workweek method, recognized under federal law for decades, permits an employer to pay their non-exempt employees a fixed weekly salary, regardless of the number of hours worked and to calculate overtime obligations in a unique manner.  Each week the salary is divided by the number of hours actually worked to determine that week’s “regular” rate of pay.  Because that payment method already includes payment for hours worked in excess of 40 (when more than 40 are worked), overtime payments can then be at one- half, rather than one and one-half, of the “regular rate.”  To be legal, this arrangement must be pursuant to an agreement between the employer and employee at the outset. 

While the PMWA mirrors the FLSA in many respects, the two laws are not identical and neither pre-empts the other; Pennsylvania employers must comply with both.  The regulations promulgated under the PMWA do not permit the fluctuating workweek method unless wages are paid on a per-day or per-job basis, which was not the case in the recent federal court decision.  Under the PMWA, the overtime rate must be “not less than 1-1/2 times the regular rate.”   

While this federal court case is still ongoing and while District Court decisions are not controlling precedent, this decision is a well-reasoned one, is consistent with an earlier District Court decision and is consistent with the Pennsylvania regulations.  The Pennsylvania appellate courts have not addressed the issue.

Employers who utilize the fluctuating workweek method should reexamine their practices and all employers are reminded that their employment practices must measure up to both federal and state law. 

Grantors' Interest in Timber and Mineral Rights

Ralston, et. ux. v. Ralston, et. al, 2012 PA Super 234, 2012 Pa. Super. LEXIS 3467 (2012)

 

Frank Kosir, Jr., Esquire
fk@muslaw.com

This matter addressed the issue of whether a provision in a deed retaining the grantors’ interest in timber and minerals constituted an exception or reservation of those rights and whether, upon the grantee’s violation of a restriction on alienation set forth in the deed, those timber and mineral rights reverted to the heirs of the grantors.  Walter Francis Ralston, Sr. and his wife Elverta Ralston (“Grantors) held title to a parcel of real property (“Property”) situated in Decatur Township, Clearfield County, Pennsylvania.  By deed dated June 30, 1984, the Grantors conveyed the surface estate of the Property to their son, Walter Francis, Jr. (“Junior”), with the deed excepting and reserving in the Grantors, inter alia, “all timber, coal, gas, oil, and all other minerals in and upon the said property together with the right of ingress, egress, and regress, in cutting, digging for, drilling for, or any other appropriate method of removal for said timber, coal, gas, oil or any other minerals, and the carrying away of the same.”  The deed also included a restraint on alienation stating that the surface could not be conveyed during the natural lifetime of the Grantors and that, upon the death of both the Grantors all reservations and exceptions set forth in the deed would be null and void, and title to the timber, coal, gas, oil, and all other minerals in and upon the Property would pass to Junior.

 

Upon the 1986 death of Walter Francis Ralston, Sr., Junior conveyed the surface to himself and his wife, Patricia L. Ralston (“Patricia”) as Tenants by the Entireties. Junior died in 1993 and, by operation of law, title to the surface passed to Patricia as the surviving tenant by the entireties. The original Grantor, Elverta Ralston, died in 1996 and, in 1999, Patricia conveyed her interest in the Property to her son, Bernard R. Ralston (“Bernard.”) In 2011, Bernard and his wife Marissa commenced a quiet title action in the Clearfield County Court of Common Pleas seeking to be declared sole owners of the surface of the Property, as well as the timber, coal, gas, oil, and all other minerals excepted and reserved in the June 30, 1984 deed.  In response, several heirs of the Grantors (“Heirs”) filed a counterclaim alleging a 5/7 ownership interest in the timber, coal, gas, oil, and all other minerals reserved and accepted.  The trial court entered summary judgment for the Heirs concluding that the 1986 deed from Junior to himself and Patricia violated the restraint on alienation clause set forth in the June 30, 1984 deed.  The court further concluded that the provision relating to title in the timber, coal, gas, oil, and all other minerals was an exception to the grant and that, as a result of Junior’s breach of the restraint on alienation, the rights in timber, coal, gas, oil, and all other minerals remained in the Grantors and passed to their heirs upon death.

 

On appeal, our Superior Court affirmed in part and reversed in part. The court affirmed with regard to the restraint on alienation provision concluding that, as the provision was limited in duration, it was a reasonable restraint on alienation and enforceable under Pennsylvania law.  However, with regard to the provision relating to timber, coal, gas, oil, and all other minerals, the court reversed.  In issuing its ruling, the court agreed with the trial court’s conclusion that the language constituted an exception, not a reservation.  However, in reviewing the language of the June 30, 1994 deed as a whole, the court found no provision indicating that a violation of the restraint on alienation would work as a forfeiture of Junior’s rights in the timber, coal, gas, oil, and all other minerals, and there was no evidence that the Grantors ever sought such a forfeiture after Junior conveyed title to the Property to himself and Patricia.  Rather, the “null and void” language evidenced an intention by the Grantors that the exception would terminate upon their respective deaths, and that title to the timber, coal, gas, oil, and all other minerals would pass to Junior.  As such, the trial court erred in concluding that Junior’s violation of the restraint on alienation resulted in a forfeiture of the timber, coal, gas, oil, and all other mineral rights and, upon the death of Elverta Ralston, title to the timber, coal, gas, oil, and all other minerals passed to Patricia as the surviving entireties tenant.

Shutting Down 89/11 Sales

Kevin F. McKeegan, Esquire
kfm@muslaw.com

For many years, creative real estate lawyers and tax planners have used a sophisticated real estate transaction called an “89/11 sale” to avoid paying realty transfer tax on large real estate transfers in Pennsylvania.  But a new amendment to the law closes the tax loophole, effectively ending the practice of the 89/11 sale.

 

Pennsylvania's realty transfer tax is imposed on almost all recorded transfers of title to real estate within the Commonwealth. Real estate businesses have long avoided the tax by structuring the transfer of real estate as a “transfer of interests.”  For large real estate transactions, instead of a deed transfer, sellers would sell ownership interests in the company that owned the real estate, thus giving the buyer control of the property without recording a deed or triggering the obligation to pay transfer tax.

 

In the late 1980s, Pennsylvania limited the tax free nature of these transactions to those in which less than 90% of a company was sold within a three year period, giving rise to the so-called 89/11 sale in which a buyer would acquire 89% of a company holding real estate and defer acquisition of the transfer of the remaining 11% for three years, thus avoiding paying any portion of the real estate tax.

 

Because of their complexity, 89/11 sales were typically only used for very large real estate transactions.  Because the properties involved in 89/11 transactions might otherwise have generated many millions of dollars of transfer tax revenue, politicians and government officials have long criticized the practice as an unfair loophole that deprives the state and local governments of significant revenue and gives special tax privileges to those engaged in the sales.

 

To close this perceived loophole, recently adopted amendments to Pennsylvania's Tax Reform Code provide that 89/11 transactions will now be fully taxable if there is a legally binding commitment to execute a transfer of the remaining 11% at a later date.  

 

Ownership transfers of less than 90% will still be outside of the transfer tax statute. However, without a binding contract to acquire all outstanding interests, few buyers of real estate will be interested in deals that, in effect, make the seller the buyer’s long-term partner.  For this practical reason, once the law takes effect in January 2013, 89/11 transactions will likely become a thing of the past.

Second hand Purchaser Asserting Claim of Breach of the Implied Warranty of Habitability

Conway v. The Cutler Group, Inc., 2012 Pa. Super 242, 2012 Pa. Super. LEXIS 3480 (2012)

Frank Kosir, Jr., Esquire
fk@muslaw.com

This matter addressed the issue of whether a second hand purchaser of a residential structure can assert a claim against the builder of that structure for breach of the implied warranty of habitability. 

 

In 2003, the Cutler Group, Inc. (“Builder”) constructed a home (“Home”) in Jamison Township, Bucks County, Pennsylvania for David and Holly Fields (“Fields”).  The Fields resided in the Home for approximately three (3) years, then sold it to Michael and Deborah Conway (“Conways”) in June of 2006.  In 2008, the Conways began to notice certain water infiltration issues with the Home, and retained the services of an engineer to determine the cause of the infiltration.  The engineer performed a thorough inspection of the Home, found that the infiltration was the result of numerous construction defects including, inter alia, a lack of expansion or control joints, insufficiently sealed expansion joints, and improperly installed stucco, and concluded that the best long term solution to the issue would be to strip and replace the entire exterior of the Home.

 

Following their receipt of the engineer’s report, the Conways commenced a civil action against the Builder in the Bucks County Court of Common Pleas by filing a one-count Complaint sounding in breach of the implied warranty of habitability, In response, the Builder filed Preliminary Objections asserting that, as the implied warranty of habitability extends only from the builder to the initial arms length purchaser, the Conways could not assert a cause of action against the Builder.  The Builder further asserted that, even if the Conways could bring a suit under the implied warranty of habitability, their complaint failed to plead that any of the alleged defects rendered the Home unfit to reside in.  After oral argument, the trial court issued an order sustaining the Builder’s Preliminary Objections, and dismissing the Conways’ Complaint with prejudice.

 

On appeal, our Superior Court reversed.  In a issuing its ruling, the court pointed out that Pennsylvania appellate courts have never before been asked to rule on the issue of whether the implied warranty of habitability extends to second hand purchasers of a residential structure.  As such, the court looked to the purpose of the implied warranty of habitability and noted that such purpose was grounded not in contract, but in public policy, and was designed to assure that home purchasers were protected from unscrupulous building practices.  Specifically, as a home builder is viewed as having the expertise necessary to construct a residential dwelling, a party that purchases a newly constructed home from that builder justifiably relies on the builder’s skills and expertise to produce a home that is suitable for habitation.  Similarly, a subsequent purchaser of that home also relies upon that Builder’s skills and expertise as, due to its lack of construction knowledge, the initial purchaser is in no position to warrant the suitability of the home for habitation. In effect, in conveying title to the initial purchaser, the builder is certifying that the home will be suitable for habitation, regardless of the number of times that title is transferred and, given the fact that the implied warranty of habitability addresses defects that are not readily apparent to a purchaser through an inspection of the home, public policy requires that the protections of the warranty also inure to the benefit of subsequent purchasers.  The court further noted that its opinion would not result in endless liability for builders as, even though the protections of the implied warranty of habitability pass to subsequent purchasers, any such purchasers asserting claims still have the burden of establishing the existence of a latent defect, and all such claims must still satisfy the statue of repose (42 P.S. §5536(a)) which requires that such claims be brought within twelve (12) years of the completion of construction.

Registration Requirements - Pennsylvania Burial Grounds Act

Mount Vernon Cemetery Company v. Pennsylvania Department of State, Bureau of Professional and Occupational Affairs, State Real Estate Commission, 2012 Pa. Commw. LEXIS 313 (2012)

Frank Kosir, Jr., Esquire
fk@muslaw.com

This matter addressed the issue of whether a cemetery company that had ceased selling cemetery lots was nonetheless subject to the registration requirements of the Pennsylvania Burial Grounds Act. 

 

Mount Vernon Cemetery Company (“Company”) was established in 1856, and has continuously operated as a cemetery company since its creation.  The Company ceased selling burial plots in 1968 and, since then, has remained in existence solely for the purpose of interring those who previously purchased burial plots in the cemetery, and for maintaining the existing cemetery.  In 1982, the Pennsylvania Legislature enacted the Pennsylvania Burial Grounds Act (9 P.S. §§ 101-312) (“Act”), and Section 304(a) of the Act (9 P.S. § 304(a)) requires that all “cemetery companies” obtain a yearly registration certificate from the State Real Estate Commission (“Commission.”)  As it no longer sells cemetery lots, the Company took the position that it was no required to comply with the registration requirements of the Act, and failed to obtain a registration certificate for any year of operation.

 

 In 2010, the Pennsylvania Department of Revenue, Bureau of Professional and Occupational Affairs (“Bureau”) investigated the Company’s failure to obtain yearly registration certificates, and commenced disciplinary proceedings against the Company before the Commission.  In support of its position, the Bureau asserted that the Company fell within the definition of “cemetery company” as set forth in the Act and that its failure to satisfy the yearly registration requirement subjected it to sanctions in the amount of Ten Thousand Dollars ($10,000.00) for each year that it had failed to register.  The Commission held a hearing, concluded that the Company was in fact required to comply with the registration requirements set forth in the Act, but recommended that no monetary sanctions be imposed.

 

On appeal, our Commonwealth Court reversed.  In issuing its ruling, the court treated the matter as one of statutory construction, and noted that the Act defined “cemetery company” as “any person who offers or sells to the public the ownership, or the right to use, any cemetery lot.”  Therefore, as the record plainly established that the Company had not sold any cemetery lots since 1968, and does not presently “offer or sell” any cemetery lots to the public, the Company did not fall within the Act’s definition of “cemetery company,” and was not subject to the yearly registration requirement.

20 Years of Toys for Tots

Every year since 1992 employees of Meyer, Unkovic & Scott have joined together to collect new toys for the Toys for Tots program.  This year the firm employees collected nearly 100 toys for the annual tradition.