Does the Lack of an Enforceable Contract under HICPA Spell No Recovery for Pennsylvania Contractors?

By Jacquelyn S. Bryan, K&L Gates, Pittsburgh

The Supreme Court of Pennsylvania is set to decide whether the Home Improvement Consumer Protection Act, 73 Pa. C.S. § 517.1-517.18 (“HICPA”), can bar a contractor from recovery under a theory of quantum meruit in the absence of a valid and enforceable home improvement contract under HICPA. See Shafer Elec. & Constr. v. Mantia, -- A.3d --, No. 276 WAL 2013, 2013 WL 5806466 (Pa. Oct. 29, 2013). In the Shafer case, the Superior Court of Pennsylvania reversed a lower court’s dismissal of a mechanics’ lien claim asserted by a contractor against the property of a homeowner on the grounds that the contractor lacked a valid agreement with the homeowner under HICPA. Shafer Elec. & Constr. v. Mantia, 67 A.3d 8 (Pa. Super. Ct. 2013) (relying in part on the Superior Court’s holding in Durst v. Milroy Gen. Contracting, Inc., 52 A.3d 357 (Pa. Super. Ct. 2012)).

The Superior Court rejected the homeowner’s argument that permitting contractors to assert causes of action on a theory of quantum meruit would evade HICPA’s goal of protecting homeowners. Instead, the Superior Court focused on section 517.7(g) of HICPA, which provides:

(g) Contractor’s recovery right.—Nothing in this section shall preclude a contractor who has complied with subsection (a) from the recovery of payment for work performed based on the reasonable value of services which were requested by the owner if a court determines that it would be inequitable to deny such recovery.

Shafer Elec. & Constr., 67 A.3d at 12. The Court noted that “the statute yields an absurd result of providing contractors with an equitable means of recovery under quasi-contract theory, but only whena written contract exists such that quantum meruit recovery is not needed nor allowed by law.” Id. at 13 (emphasis in original). Persuaded by the contractor’s argument that “if this were the intent of the drafters [of the HICPA], to require the contractor to comport with all of the requirements of [section 517.7(a)] to recover in [q]uantum [m]eruit, then the contractor does not need to recover on a [q]uantum [m]eruit theory, for the value of his services, because he would have a valid and enforceable contract on which to rely”, the Court held that the “the General Assembly’s obvious ‘purpose’ in drafting section 517.7(g) was to provide for an equitable remedy in situations where there was no valid and enforceable written contract under section 517.7(a).” Id.

The Supreme Court of Pennsylvania’s decision in Shafer could have important implications for contractors attempting to assert liens under Pennsylvania’s mechanics’ lien law, 49 P.S. § 1101, et seq., and should continue to be closely monitored.

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Recent Third Circuit Decision Provides Insight into Pennsylvania's Approach to CGL Coverage for Faulty Construction Claims

By: Richard F. Paciaroni & Amy Ream, K&L Gates, Pittsburgh

Despite substantial uniformity in language among commercial general liability (“CGL”) policies, the extent of coverage can vary depending upon which state’s law applies.  One contested issue among the states is whether CGL policies should extend coverage for property damage caused by faulty construction, and what the extent of any such coverage should be.  This article discusses a recent opinion reflecting the current status of Pennsylvania law with respect to CGL coverage for faulty construction claims, and briefly touches on the policy behind Pennsylvania’s existing approach.

A recent Third Circuit decision applying Pennsylvania law, Specialty Surfaces International, Inc. v. Continental Casualty Co., addressed the scope of an insurer’s duty to defend and indemnify a contractor for faulty workmanship claims under a CGL policy.  In Specialty Surfaces, the source of the defective construction allegations stemmed from a project to install synthetic turf fields and drainage systems for four schools in the Shasta Union High School District (“Shasta”).  Empire and Associates, Inc. (“Empire”) was hired as a subcontractor to provide and install synthetic turf fields manufactured by Specialty Surfaces, Inc., (“Specialty Surfaces”) as well as to install drainage systems.  Empire and Specialty Surfaces, working together as “Sprinturf,” provided an eight-year warranty for each of the fields.

To continue reading and to view footnotes, click here.

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Municipal Authority's Claim Against Surety for Bad Faith Falls Short

Intercon Constr., Inc. v. Williamsport Mun. Water Auth., 2008 WL 239554 (M.D. Pa. Jan. 28, 2008)

This case involved standard breach of contract claims and counterclaims between a general contractor and a public municipal authority.  In addition, the municipal authority also sued a performance bond surety on claims of bad faith. The municipal authority alleged that the manner in which the surety investigated and denied coverage under the performance bond, and its withholding of certain information from the authority, constituted bad faith under the Pennsylvania bad faith insurance statute. Continue Reading...
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General Contractor Recovers Final Payment on Public Contract, Even Though Subcontractor Violated Prevailing Wage Act

Worth & Co., Inc. v. Dept. of Labor & Ind., 938 A. 2d 239 (Pa. 2007)

In this case, the Supreme Court of Pennsylvania decided the appeal of a general contractor, whose final payment was being withheld by a public school district on account of the GC’s subcontractor’s failure to pay prevailing wages to its workers.  Under the authority of regulations issued by the Department of Labor & Industry’s prevailing wage division, the Department had instructed the school district to withhold final payment from the general contractor, because workers of the subcontractor remainied unpaid following the subcontractor’s default and eventual bankruptcy. Continue Reading...
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No Need for "Base of Operations" Within Municipality in Order for Contractor to be Subject to Business Privilege Tax

V.L. Rendina, Inc. v. City of Harrisburg, 938 A.2d 988 (Pa. 2007)

In this case, a plurality of the Pennsylvania Supreme Court held that a municipality may apply its business privilege tax to the gross receipts from construction work performed within its borders regardless of whether the contractor maintained a “base of operations” within the municipality.  Reversing a Commonwealth Court decision in favor of the construction company, the majority focused on whether the company’s activities in Harrisburg fell within the definitive of “business” contained in the City’s tax ordinance. Continue Reading...
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Appellate Court Accepts Measured Mile Method for Calculating Acceleration of Work Damages in Case of First Impression

James Corp. v. N. Allegheny Sch. Dist., 2007 WL 4208589 (Pa. Commw. Ct. Nov. 30, 2007)

In this case, the Commonwealth Court of Pennsylvania held that the trial court properly measured acceleration damages sustained by a general contractor under the “measured mile” theory of recovery.  In a multi-phased construction project entered into by the school district and James Corporation, the district delayed James’ performance by failing to obtain permits in a timely manner, by requiring extra work which interfered with the planned sequence of work, by relocating fencing and reconfiguring the erosion and sedimentation pond, and by requiring removal of asbestos (which was not in the contract).  Amidst the delay, the district abandoned the contract schedule, refused to consider the time impact on the contractor’s planned sequence, and then terminated the contractor after substantial completion.  The trial court awarded James damages for acceleration/compression of work, unpaid invoices, prevailing wages withheld, attorneys’ fees and expenses. Continue Reading...
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Excessive Withholding Prompts Award of Interest, Attorney's Fees and Penalties under Pennsylvania's Prompt Payment Act

Imperial Excavating and Paving, LLC v. Rizzetto Constr. Mgmt., Inc., 935 A.2d 557 (Pa. Super. Ct. 2007)

Pennsylvania’s Prompt Payment Act (the “PPPA”) is intended to protect contractors and subcontractors by providing guidelines for prompt payment on construction projects.  Under the PPPA, every subcontractor working on a project subject to the PPPA is entitled to payment, according to the proportion of the subcontract completed, within 14 days of the date when the contractor receives a progress payment on the project.  73 PA.STAT. §507(c).  The contractor is, however, entitled to withhold such payment if it has a good faith claim for deficient performance.  73 PA.STAT. §511.  If a contractor unreasonably withholds payment to the subcontractor, the contractor can be assessed interest on the payment (73 PA.STAT. §509) plus a penalty of 1percent per month of the amount that was wrongfully withheld.  73 PA.STAT. §512.  The amount a contractor may withhold is proper if it “bears a reasonable relation to the value of any claim held in good faith.”  See Ruthrauff, Inc. v. Ravin, Inc., 914 A.2d 880 (Pa. Super. Ct. 2006).

The Imperial Excavating case involved the construction of two soccer fields located at a high school.  The grading subcontractor completed its work on the project and submitted an application for payment to the contractor.  The contractor submitted its own application for payment to the owner for the subcontractor’s work, certifying that the sub’s work was completed in accordance with the contract documents.  The owner paid the contractor’s application less retainage, and the contractor paid the subcontractor. Continue Reading...
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Property Owner's Claims Against Professional Engineer Reinstated Where Contractor Placed Water Line Outside of Utility Easement

Merlini v. Gallitzin Water Auth., 934 A. 2d 100 (Pa. Super. Ct. 2007)

In this case, the Superior Court of Pennsylvania held that a professional engineer can be either “ordinarily negligent” or “professionally negligent” in the performance of his consulting engineering tasks, or both.  He can be accountable in damages for mere negligence under common law theories of trespass, even if a plaintiff is not suing him for professional negligence.

This odd outcome is the result of an engineer directing a contractor to install a water line, without right-of-way, easement or permission, in the wrong place on the property owner’s property, that is, in a location outside of the recorded easement.  When the property owner filed a complaint in the court, but did not file the technically required certificate of merit of professional negligence required by the Pennsylvania Rules of Court, the property owner’s complaint was dismissed.  The property owner appealed, and the Superior Court had to determine whether the property owner’s complaint was asserting ordinary negligence or “professional negligence.”
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Be Very Careful When Entering into Settlement Agreements

Ragnar Benson, Inc. v. Hempfield Township Mun. Auth., 916 A.2d 1183 (Pa. Super. Ct. 2007)

The Pennsylvania Superior Court untied the knottiest of two settlement agreements in this case.  Under separate written agreements, Kirby Electric contracted with the Municipal Authority to do its electrical construction, while Ragnar Benson contracted to perform general construction on the Authority’s water pollution control plant.  Each filed a lawsuit against the Municipal Authority, asserting breach of contract, and the Municipal Authority counterclaimed, and cross-claimed accordingly.  Kirby and the Municipal Authority agreed to settle their claims and counterclaims, with the provision that Kirby and Ragnar would continue in litigation and that settlement payments would be calculated based upon the outcome of the two contractors’ litigated dispute.
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