PA Mechanics' Lien Law Changes Now In Effect

Construction Law Client Alert

Joshua R. Lorenz
jrl@muslaw.com
412.456.2836

Amendments to Pennsylvania's Mechanics' Lien Law that took effect on Dec. 31, 2016 have new implications for owners, contractors and subcontractors. The requirements are a result of Act 142, which was passed in 2014 to establish a procedure for construction personnel to follow and a statewide web database (the Pennsylvania State Construction Notices Directory) where notices under the Mechanics' Lien Law can be filed.

No owner is obligated to register a project on the Directory. Only certain owners have the right to use it, because these amendments apply only to residential and commercial construction, repair or improvement projects totaling $1.5 million or more.

Owners of an eligible property do have an incentive to register projects. Contractors on registered projects now have additional duties, and subcontractors must take certain actions beyond what they currently do to preserve their lien rights or they forfeit their right to file liens for the services or materials they provide.

REQUIRED NOTICES

• Notice of Commencement: Required to be filed and posted by the project owner or its agent prior to the beginning of work or the furnishing of materials for the project. The owner and contractor must make "reasonable efforts" to ensure a copy of the Notice of Commencement is included in contract documents provided to subcontractors awarded work on the project. 
• Notice of Furnishing: Required to be filed by subcontractors to preserve their lien rights. A Notice of Furnishing must be filed with the Directory within 45 days after first working at or providing materials to the job site. A subcontractor failing to timely file a Notice of Furnishing waives its right to file a lien claim except in the event the subcontractor can prove its failure to file resulted from the owner or general contractor pressuring the subcontractor NOT to file, which can lead to civil or criminal action against the owner or general contractor.

The legislation includes two other types of notices (Notice of NonPayment and Notice of Completion) that can be registered in the Directory, but neither is required, nor has any substantial legal effect.

All affected parties should have their contract documents reviewed to ensure they are in compliance with the new amendments. Notably, the new amendments require specific notice language to be included in all contracts used on projects registered with the Directory. As outlined above, failure to comply could have significant consequences and create exposure to unanticipated liabilities.

For more information about the new Pennsylvania Mechanics' Lien Law changes for 2017, or any other Construction Law matter, please contact Joshua Lorenz.

This material is for informational purposes only.  It is not and should not be solely relied on as legal advice in dealing with any specific situation.

Contractors Can't Sue Owners' Individual Representatives for Payment

CONSTRUCTION LAW ALERT

The Pennsylvania Supreme Court has finally answered a key question that has plagued real estate developers, contractors and subcontractors for years: Can contractors hold the people who authorized the work individually liable for payment?

The issue stems from ambiguous language in the Pennsylvania Contractor and Subcontractor Payment Act (CASPA) of 1994. The act ensures that owners of a construction project pay contractors and subcontractors in a timely manner for their work. CASPA defines an "owner of a project" as anyone who owns an interest in the property and orders improvements to be made, including any successors who buy or inherit the property and agents of the owner who are acting on behalf of the owner.

The term "agents of the owner" became a point of contention in a recent case, Scungio Borst & Associates v. 410 Shurs Lane Developers, when a contractor tried to hold an "agent" individually liable for payment. In that case, contractor Scungio Borst & Associates completed construction work on a condominium complex owned by 410 Shurs Lane Developers. Robert DeBolt, who owned a 50% share in 410 Shurs, signed the contracts on the company's behalf, and gave verbal direction for Scungio to perform an additional $2.6 million worth of work. In November 2006, the developer terminated its contract with Scungio Borst, leaving $1.5 million in outstanding payments.

When Scungio requested payment for the outstanding amount, DeBolt refused on behalf of the company. Scungio then filed a lawsuit under CASPA against both the company and DeBolt, seeking to hold him personally liable. Scungio's suit against 410 Shurs went to trial, and a judge ordered 410 Shurs to pay nearly $2 million to Scungio.

Meanwhile, DeBolt filed for summary judgment, claiming he could not be held personally liable under CASPA because he was not a party to the contract as an individual. Rather, only the company was a party to the contract. The judge granted summary judgment in DeBolt's favor.

Scungio appealed the case to a seven-judge panel of the Superior Court, arguing that Scungio had been acting as an agent of the company when he ordered the work and, therefore, qualified as an "owner" liable for payment under CASPA. A majority of the judges disagreed with Scungio, asserting that the law was not intended to create individual liability for agents. Rather, CASPA merely grouped "agents" in with property owners to make it clear that project managers, architects and other representative agents were not contractors entitled to the payment benefits under CASPA. Thus, the Superior Court upheld the lower court's grant of summary judgment.

Three of the judges dissented, accepting Scungio's argument that the term "agents" has been used in other Pennsylvania laws, such as the Wage Payment Collection Law. In many of those cases, Pennsylvania courts have determined that an "agent" authorized to make decisions on a company's behalf could be held personally liable for payment.

Scungio appealed the question to the Pennsylvania Supreme Court, which ultimately upheld both of the lower courts' rulings. The Supreme Court emphasized that under standard contract law, a contract only imposes liability on the parties that signed the contract. The purpose of CASPA was to ensure that contractors got paid -- not to create a new class of people who are individually liable for contractual payments despite not being a party to the contract. Thus, the Supreme Court held definitively that contractors cannot hold agents for a company personally liable for contractual payments owed by the company.

For more information about liability and payment on construction projects, please contact Josh Lorenz. Josh's contact information is listed below.

This material is for informational purposes only.  It is not and should not be solely relied on as legal advice in dealing with any specific situation.

Joshua R. Lorenz is a Partner in Meyer, Unkovic & Scott's Construction Law Group. He can be reached at: 412.456.2821 or jrl@muslaw.com.

Bruno Brings Broad Changes to Construction Law

Jason Yarbrough’s article “Bruno Brings Broad Changes to Construction Law” recently appeared in the Legal Intelligencer. You can access the online version using this link.

Evening of Excellence

We are a proud sponsor of the upcoming Construction Industry Evening of Excellence hosted by the Master Builders’ Association of Western PA on February 27.

New Partners Announced

Meyer, Unkovic & Scott has named attorneys Jason Mettley, Andrew Noble, Sarah Reigle and Jason Yarbrough as new partners at the Pittsburgh-based law firm.

Jason Mettley works with clients on matters related to employee benefit plans, including plan design and drafting, fiduciary responsibility, plan governance and contributions collections. He has litigated a broad range of Employee Retirement Income Security Act (ERISA) cases and has extensive experience working with employers and labor organizations on collectively bargained retirement plans. Mettley graduated from Allegheny College and Widener University School of Law. He currently resides in Squirrel Hill.

Andrew Noble is a member of the firm’s Business Litigation, Tort Litigation and Intellectual Property Groups. He has represented large corporations and small businesses in both state and federal courts in cases involving breach of contract, copyright infringement, trade secret misappropriation, insurance coverage, oil and gas leases and commercial landlord-tenant disputes. He graduated from the University of Pittsburgh and the University of Pittsburgh School of Law. Noble is a resident of Oakmont.

Sarah Reigle is a member of Meyer, Unkovic & Scott’s Real Estate & Lending and Corporate & Business Law Groups. She focuses her practice on commercial real estate transactions, advising clients on the purchase, development, use and sale of real estate.  Reigle also represents landlords and tenants in leasing transactions involving industrial, retail, office and mixed-use properties.  In addition, she represents borrowers and lenders in connection with commercial financing transactions. Reigle graduated from Franklin & Marshall College and Cornell Law School. She resides in Franklin Park.

Jason Yarbrough is a member of Meyer, Unkovic & Scott’s Construction Law, Litigation & Dispute Resolution and Creditors' Rights Groups. Yarbrough represents corporations, officers, individuals and family-owned businesses in a variety of complex commercial, construction and real estate litigation matters.  Yarbrough serves on the Allegheny County Bar Association’s Construction Council, and has represented owners, contractors, engineers, and code enforcement officials in disputes arising out of both public and private construction projects. He also frequently litigates claims involving contractual disputes, commercial landlord-tenant matters, claims arising out of the sale or lease of commercial and residential real estate, and real property tax assessments. He graduated from the University of Notre Dame and the University of Pittsburgh School of Law. Yarbrough lives in Hampton Township.