Tag: Pennsylvania

1
Pennsylvania Superior Court Holds that Economic Loss Doctrine Does Not Shield Design Professionals from Liability for Faulty Information Implicitly Represented in Design Documents
2
No Contract, No Problem: HICPA Does Not Prevent Contractors From Recovery Under A Quantum Meruit Theory
3
Pennsylvania Supreme Court Rules that Subsequent Homeowners Are Not Entitled to Implied Warranty of Habitability
4
“2 Sign or Not 2 Sign:” Which Statute of Frauds Governs Oil & Gas Leases?
5
Federal District Court in Pennsylvania Allows Negligence Suit Against Builder, Despite lack of Privity of Contract Between the Parties
6
Unions and Benefit Fund Trustees Not “Subcontractors” Under Lien Law, According to Pennsylvania Supreme Court
7
Does the Lack of an Enforceable Contract under HICPA Spell No Recovery for Pennsylvania Contractors?
8
Recent Third Circuit Decision Provides Insight into Pennsylvania’s Approach to CGL Coverage for Faulty Construction Claims
9
Municipal Authority’s Claim Against Surety for Bad Faith Falls Short
10
General Contractor Recovers Final Payment on Public Contract, Even Though Subcontractor Violated Prevailing Wage Act

Pennsylvania Superior Court Holds that Economic Loss Doctrine Does Not Shield Design Professionals from Liability for Faulty Information Implicitly Represented in Design Documents

By Michael P. Cotton, K&L Gates, Pittsburgh

In its July 8, 2015 opinion, the Superior Court of Pennsylvania held that design professionals are potentially subject to liability for negligent misrepresentation claims when it is alleged that their design documents negligently included false information via implicit representations.  Gongloff Contracting, L.L.C. v. L. Robert Kimball & Associates, Architects & Engineers, Inc., 119 A.3d 1070 (Pa. Super. 2015).  In so doing, the Superior Court clarified the scope of Section 552 of the Restatement (Second) of Torts and found that the Section does not require a design professional to make an explicit negligent misrepresentation of a specific fact for a third party to recover economic damages.

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No Contract, No Problem: HICPA Does Not Prevent Contractors From Recovery Under A Quantum Meruit Theory

By  Jackie S. Celender and Leigh Argentieri Coogan, K&L Gates, Pittsburgh

I. HICPA Does Not Foreclose Contractors From Recovery Under A Theory Of Quantum Meruit.

The Supreme Court of Pennsylvania recently held that the Home Improvement Consumer Protection Act, 73 Pa. C.S. § 517.1-517.18 (“HICPA”), does not preclude a contractor from recovering under the theory of quantum meruit in the absence of a valid and enforceable home improvement contract.  Shafer Elec. & Const. v. Mantia, 96 A.3d 989 (Pa. 2014).  The decision affirmed the holding of the Superior Court of Pennsylvania, albeit on slightly different grounds.

Instead of focusing on the General Assembly’s intent (as the Superior Court of Pennsylvania did),[1] the Court relied on Durst v. Milroy General Contracting, Inc., 52 A.3d 357 (Pa. Super. 2012), holding that “the plain, unambiguous language of Section 517.7(g)[2] does not prohibit the cause of action in quantum meruit.”  Shafer Elec. & Constr., 96 A.3d at 996.  The Court noted that “[i]t is well settled at common law . . . that a party shall not be barred from bringing an action based in quantum meruit when one sounding in breach of express contract is not available,” and that “[w]hile traditional contract remedies may not be available due to the contractor’s failure to adhere to Section 517.7(a) . . . Section 517.7(g) does not contemplate the preclusion of common law equitable remedies such as quantum meruit when a party fails to comply with subsection (a).”  Id.  The Court concluded that “[i]f the General Assembly had seen it fit to modify the right of non-compliant contractors to recover in contract or quasi-contract, statutory or common law, or otherwise, it could have done so,” but did not.  Id.

The Court’s decision has important implications for contractors’ ability to use Pennsylvania’s mechanics’ lien law, 49 P.S. § 1101, et seq. as a tool in recovering unpaid amounts owed for work performed on a home improvement project.  In Pennsylvania, mechanics’ liens must be based on a contract, either express or implied.  See 49 P.S. § 1201 (defining “contractor” as one who, by contract with the owner, express or implied, erects, constructs, alters or repairs an improvement . . . or furnishes labor, skill or superintendence . . . or supplies or hauls materials, fixtures, machinery or equipment reasonably necessary for and actually used . . .”) (emphasis added).  The Court’s holding preserves a home improvement contractor’s ability to file and obtain a judgment on a mechanics’ lien based on an implied contract and in the absence of an express contract (i.e., where the contract does not comply with Section 517.7(a) of HICPA).

II. Quantum Meruit Allows Recovery Of The Value Of The Work Performed.

The Supreme Court of Pennsylvania’s decision in Shafer makes clear that contractors found to have an invalid home improvement contract under HICPA are still able to recover money for work performed by bringing a quasi-contract claim under a theory of quantum meruit.  Where a contractor is successful in bringing a cause of action in quantum meruit, the contractor is entitled to recover the value of the benefit conferred on the homeowners.  See, e.g., Durst, 52 A.3d at 360 (quoting Am. & Foreign Ins. Co. v. Jerry’s Sport Ctr., Inc., 2 A.3d 526, 532 n.8 (2010) (“Quantum meruit is an equitable remedy to provide restitution for unjust enrichment in the amount of the reasonable value of services.”) (citing Black’s Law Dictionary (8th ed. 2004))); Com., Dep’t of Pub. Welfare v. UEC, Inc., 397 A.2d 779, 782 (Pa. 1979) (amount owed under a quantum meruit theory was “the reasonable value of the services performed”).  As such, contractors should be prepared to prove the value of the services performed and materials provided on the project to recover under a theory of quantum meruit.  Although the cost of materials and labor expended is normally a good proxy for the value conferred on a particular project, contractors should be mindful that under certain circumstances the value conferred may exceed the contractors’ costs and that, in those circumstances, relying on the contractors’ costs may undervalue the contractors’ quantum meruit claim.

III. The Case Law Interpreting HICPA Is Scarce.

There is a relative lack of caselaw interpreting HICPA and stating under what circumstances HICPA should apply.  The legislative history of HICPA suggests that HICPA should not apply to all home improvement projects—in particular, those involving sophisticated homeowners (i) who have a contractor that fully performed, and (ii) who have obtained all of the benefits of the contract but have not complied with the burdens (i.e., payment).[3]  Given the undeveloped nature of the caselaw interpreting HICPA, contractors attempting to recover payment for unpaid work based on a home improvement contract should (if the facts permit) assert causes of action (or facts supporting causes of action) for both breach of contract and, in the alternative, quantum meruit recovery.

 

[1] The Superior Court of Pennsylvania focused its rationale on canons of statutory construction to ascertain legislative intent.  See Shafter Elec. & Constr., 96 A.3d at 996.

[2] Section 517.7(g) “Contractor’s recovery right,” provides:

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., 96 A.3d at 992.

[3] The General Assembly enacted HICPA to protect vulnerable consumers, such as the elderly, infirm, and first-time homebuyers from predatory contractors (i.e., contractors that abscond with homeowners’ money without completing the work).  See 2008 Pa.H.R. Jour., No. 65 p.2292 (Statement of Representative Preston) (“If you care about the senior citizens or the young couple who is buying a first-time starter house and they want to be able to remodel it and not be able to be ripped off,” then “I am going to ask [those] members…to support the Tomlinson bill.”); 2008 Pa.H.R. Jour., No. 64, p.2199 (Statement of Representative Marsico) (the Pennsylvania Legislature’s intent behind HICPA was to “address the problems of home improvement contractors who take people’s money and leave town without doing the work”).

Pennsylvania Supreme Court Rules that Subsequent Homeowners Are Not Entitled to Implied Warranty of Habitability

By Christopher A. Barbarisi and Loly G. Tor, K&L Gates, Newark

In Conway v. Cutler Group Inc.,[1]  the Pennsylvania Supreme Court reversed a decision by the Superior Court and held that the builders’ implied warranty of habitability does not run to subsequent purchasers of homes, significantly limiting homebuilders’ potential liability to subsequent owners.

In Conway, the homeowners, Michael and Deborah Conway, purchased a three-year-old home from the original owners, who had purchased the home new from the builder.  After allegedly discovering water infiltration and construction defects in the home, the Conways filed suit against the builder for breach of the homebuilders’ implied warranty of habitability.  The trial court dismissed the Conways’ complaint, finding that the Conways’ claim for breach of the implied warranty was barred due to lack of privity. On appeal, the Superior Court reversed, finding that the implied warranty of habitability should exist independently of a contract between the builder and homeowner because the warranty is based on public policy considerations, is designed to “equalize the disparate positions” of the builder and homeowner, and exists independently of any builder representations.

In reversing the Superior Court, the Pennsylvania Supreme Court considered the history of the implied warranty of habitability and its adoption by the Court in Elderkin v. Gaster.[2]  In Elderkin, the Court rejected the doctrine of caveat emptor and instead placed the burden of risk on a builder “‘that a home which he has built will be functional and inhabitable in accordance with contemporary community standards.’”[3]  The Court also recognized that the implied warranty in Elderkin was based on the existence of a contract between the builder and the homeowner (which, of course, does not exist with a subsequent purchaser) and was limited to situations where the parties are not in privity.  After discussing the varying decisions reached by courts in other jurisdictions on this issue, the Court declined to depart from its position that the implied warranty of habitability is grounded in contract and requires privity between the parties to be enforced.  It concluded that whether to extend the warranty of habitability to subsequent homeowners is a question of public policy properly left to the legislature.  Thus, unless and until Pennsylvania’s General Assembly decides otherwise, an action for breach of implied warranty of habitability requires contractual privity between the parties, eliminating a potential source of liability to homebuilders.
 
[1] J-41-2014 (Pa. Aug. 18, 2014).
[2] 288 A.2d 771 (Pa. 1972).
[3] J-41-2014 at *4 (quoting Elderkin, 288 A.2d at 777).

 

“2 Sign or Not 2 Sign:” Which Statute of Frauds Governs Oil & Gas Leases?

By George A. Bibikos, K&L Gates, Harrisburg and David I. Kelch, K&L Gates, Pittsburgh

In a recent decision, the Pennsylvania Superior Court resolved an open question of state law regarding which one of two alternative statutes of frauds apply to oil and gas leases, in the process making clear that for an oil and gas lease, only the grantor of the interest must sign. 

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Federal District Court in Pennsylvania Allows Negligence Suit Against Builder, Despite lack of Privity of Contract Between the Parties

By Kimberly L. Karr, K&L Gates, Pittsburgh

A Federal Court in Pennsylvania has handed down a ruling that may expand the pool of potential plaintiffs in construction litigation. See AMCO Insurance Co. v. Emery and Associates, 926 F. Supp. 2d 634 (W.D. Pa. 2013). In AMCO, the court allowed the second owner of a building and its insurer to file suit for negligence against a builder, even though privity of contract did not exist between the parties. See id. at 643.

The case stems from damage to property in Armstrong County, Pennsylvania. The original owners of a property hired a general contractor, Emery, to build a hotel. The owners then sold the hotel to a second owner. Seven years after that, a fire occurred that caused significant damage to the hotel premises. See AMCO, 926 F. Supp. 2d at 637-38.

The second owner filed a claim with its insurance company, AMCO, to recover the cost of the damage due to the fire. AMCO paid their insured $4 million, and then sued the contractor for the claim amount. Among AMCO’s causes of action was an argument that the builder, Emery, acted negligently when it constructed the hotel. Specifically, AMCO alleged that Emery’s failure to comply with local and state building codes attributed (at least in part) to the fire. See id. at 637-39.

Emery petitioned the Federal District Court to dismiss AMCO’s negligence claim, with one reason being that it owed no duty to the second owner and its insurer. See id. at 642. Emery seemed to rely on the lack of direct relationship between the parties to support its claim. See id. at 642-43.

However, the court disagreed. It held that under Pennsylvania law, a “duty of care” could extend from a builder to a second owner and its insurer, even in the absence of a direct relationship (including privity of contract). Quoting a Pennsylvania Superior Court decision, F.D.P. ex rel. S.M.P. v. Ferrara, 804 A.2d 1221, 1231 (Pa. Super. 2002), the AMCO court weighed five factors to determine whether a duty of care was present: (1) the relationship between the parties; (2) the social utility of the actor’s conduct; (3) the nature of the risk imposed and foreseeability of the harm incurred; (4) the consequences of imposing a duty upon the actor; and (5) the overall public interest in the proposed solution. See AMCO, 926 F. Supp. 2d at 643. Applying these factors to Emery, the court ruled that it is reasonable for a builder to assume that a commercial building may have more than one owner, and negligent acts on the part of the builder could affect subsequent owners. The court also emphasized that it is in the public interest to impose a duty on those who are negligent in following required building codes. See id.

Owners, developers, and builders should be mindful of the AMCO decision before starting a construction project in Pennsylvania. If privity of contract is no longer the sole avenue for recovery, parties must consider all potential plaintiffs who might be owed a duty of care.

Unions and Benefit Fund Trustees Not “Subcontractors” Under Lien Law, According to Pennsylvania Supreme Court

By Kimberly L. Karr, K&L Gates, Pittsburgh

On April 17, 2014, the Pennsylvania Supreme Court ruled that Pennsylvania’s mechanics’ lien law, 49 P.S. § 1101, et seq., does not allow trustees of union benefit funds to bring claims for non-payment as subcontractors against employers and owners. See Bricklayers of W. Pa. Combined Funds Inc. v. Scott’s Dev. Co., Case No. 36 WAP 2012 (Pa. April 17, 2014); Laborers’ Combined Funds of W. Pa. et al. v. Scott’s Dev. Co., Case No. 37 WAP 2012 (Pa. April 17, 2014). The decision reverses the Superior Court, which previously ruled in favor of the unions.

Under the Pennsylvania’s mechanics’ lien law, unpaid subcontractors can record a lien on an owner’s property. See 49 P.S. § 1301. If the primary contractor continues to withhold rightful payment, the subcontractor can foreclose on the lien and force the sale of the property in lieu of compensation. See id. at § 1701.

The question before the Pennsylvania Supreme Court was whether unions and benefit fund trustees could qualify as subcontractors under the mechanics’ lien law. The dispute stemmed from construction work performed by members of two unions on a property in Erie County. General contractor J. William Pustelak Inc. hired the unions using collective bargaining agreements. The agreements specified, among other things, that when the general contractor needed bricklayers and/or laborers, it would obtain them from the unions.

After the work in Erie County went unpaid, the unions filed liens against the property owner, Scott’s Development. The unions sought approximately $42,000 in contributions owed to a fund for the workers’ health, welfare, retirement, and fringe benefits. Scott’s Development objected on the grounds that unions and benefit fund trustees were not considered contractors or subcontractors under Pennsylvania’s mechanics’ lien law. The trial judge dismissed the case, but the Superior Court reinstated it on the basis that the statute should be liberally construed.

The Supreme Court ultimately determined that unions and benefit fund trustees could not be considered subcontractors. It reasoned that a “subcontractor” by definition is a person or business “who performs for and takes from the prime contractor a specific part of the labor or material requirements of the original contract,” as opposed to ordinary laborers. Quoting Clifford F. MacEvoy Co. v. United States for Use & Benefit of Calvin Tomkins, 322 U.S. 102, 109 (1944). The court also cited language from the statute’s official legislative comments, which make a similar distinction between subcontractors and employees. Moreover, according to the court, the trustees could not assert that an implied-in-fact subcontract existed, where the trustees’ claims were based on an express collective bargaining agreement.

The Supreme Court also seemed to consider the effect that the Superior Court’s decision would have if sustained. The court determined that if union workers could be considered “subcontractors” under the mechanics’ lien law, private property owners would then be forced to act as guarantors of contractors’ general employment obligations. According to the Supreme Court, the lower court’s decision would effectively create a new class of claimants that would saddle private property owners with an undue increased risk of litigation. Accordingly, union members and laborers in Pennsylvania are left to recover payment through more traditional theories of liability, such as breach of contract.
 

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

By Jacquelyn S. Celender, 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.

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.

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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. Read More

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. Read More

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