Under the Pennsylvania Mechanic’s Lien Law (MLL), only a “contractor” or “subcontractor” is permitted to file a mechanic’s lien against an owner of property for payment of debts due by the owner to the contractor or by the contractor to any of its subcontractors for labor or materials furnished during a construction project. Generally, the term “subcontractor” is defined as a party in privity of contract, express or implied, with either a contractor or a first-tier subcontractor who furnishes labor, skill or superintendence for, among other things, the erection, construction, alteration or repair of an improvement of real property.

Traditionally, tradesmen such as electrical contractors, sheet metal contractors, mechanical contractors, plumbing contractors and material suppliers have been able to file a mechanic’s lien on an owner’s property when they have not received payment for labor furnished or materials supplied on a project. Now, in a case of first impression in Pennsylvania, an en banc panel of the Pennsylvania Superior Court held in Bricklayers of Western Pennsylvania Combined Funds v. Scott’s Development Co ., 212 WL 29299, 41 A.3d 16 (Pa. Super. 2012), that trustees of an employee union benefit fund fall within the definition of a “subcontractor” and can bring claims under the MLL for the payment of contributions due to it by a contractor under the terms of a collective bargaining agreement entered into many years prior to the performance of work on the premises.

In 2007, the property owner, Scott’s Development, entered into a contract with J. William Pustelak Inc. as a general contractor to perform construction work on its property. Several years prior, Pustelak had entered into a collective bargaining agreement with the Bricklayers and Trowel Trades Union whereby Pustelak agreed to employ union workers to perform certain construction work, according to the opinion. Under the CBA, Pustelak was obligated to pay to the Laborers’ Combined Funds of Western Pennsylvania (the trustee) health, welfare, retirement and/or fringe benefits based upon union members’ hourly pay rate. The CBA incorporated by reference a trust agreement that allowed the trustee to collect the contributions on behalf of the union members. Pustelak retained union members to work on the Scott’s project, but failed to pay contributions due. In order to collect those payments owed to them by Pustelak, the trustees of the fund filed a mechanic’s lien action against Scott’s. Scott’s then filed preliminary objections in the nature of a demurrer and moved to dismiss the trustees’ complaint, arguing the trustees did not have standing to bring the mechanic’s lien claim.

The Erie County Court of Common Pleas found that the trustee did not perform work on, or furnish materials to, a project. Strictly applying the rules of statutory construction, the court granted the preliminary objections and dismissed the trustees’ claim for lack of standing. The trustees then filed an appeal to the Superior Court, which reversed the trial court and held that the trustees of an employee benefit fund fell within the definition of a “subcontractor” entitled to mechanic’s lien rights for unpaid benefit contributions.

In concluding that a union that provides labor pursuant to a CBA to either a contractor or subcontractor is itself a subcontractor under the MLL, the court held that the term “subcontractor” is entitled to a liberal construction effectively overruling 40-plus years of case law in Pennsylvania that had strictly construed the MLL as it was in derogation of the common law. In overruling contentions by the owner that the claim should be dismissed because the union members were employees of Pustelak as opposed to subcontractors and that CBAs are employment agreements unrelated to the improvement of real property, the court held that the CBA created a second implied contract to provide labor to a particular project. In finding that the trustees of benefit funds (as opposed to the unions themselves) have standing based on the trustees’ contractual right to make the claim for the person who supplied the labor, the court created a new class of claimants entitled to pursue a mechanic’s lien in Pennsylvania.

In finding that legal precedent requiring that the MLL be very strictly construed was erroneous, the court conceded that its construction of the MLL was a liberal one and held that the MLL is a remedial statute and should be construed to effectuate the purpose of protecting payment for labor and materials. It found support for its decision in appellate decisions from other state court jurisdictions that granted unions and their benefit trustees standing to file mechanic’s liens.

The impact of the Bricklayers case is significant and has far-reaching implications to owners, contractors, subcontractors, commercial lenders, real estate brokers and title insurance companies that will now have to more closely scrutinize their contracts, lien waivers and various rights and responsibilities under the MLL to best protect themselves against this expanded legal and financial exposure. Owners and developers will have to closely monitor what kind of subcontractors their general contractors are hiring and ascertain the contractor’s financial condition and ability to make contributions due under existing labor-related agreements. Owners and lenders may increasingly require general contractors to post labor and material payment bonds. Property owners may consider adding certification requirements that the general contractor and all subcontractors utilizing union labor are current on all fund contributions or insert hold-back provisions in their construction contracts to ensure payment of required trust fund contributions. General contractors who have agreed to indemnify an owner against mechanic’s liens will now require some type of proof that all benefit fund contributions are paid as a condition precedent to payment of subcontractors. The decision may also make it more difficult for a purchaser to obtain title insurance, because insurers will be reluctant to provide coverage against mechanic’s liens.

Scott’s has filed a petition for allowance of appeal with the Pennsylvania Supreme Court that is currently pending. Some of the anticipated arguments to overturn the Superior Court’s decision will no doubt come from two dissenting opinions in the Superior Court. The dissenters argued that unions are not subcontractors under the MLL because they do not furnish any labor, and therefore, even if the trustees could stand in the shoes of union members, they could not be subcontractors under the MLL. Similarly, because the trustees did not expend any labor or money on the project that risked nonpayment, they are not parties the MLL was designed to protect.

The dissent argued that the intent of the MLL “to protect the pre-payment of labor and materials that a contractor [or subcontractor] invests in another’s property, by allowing the contractor [or subcontractor] to obtain a lien interest in the property involved” was not fostered by the majority’s opinion. The dissent also noted a legislative comment to the MLL stating that laborers employed by a contractor are not considered subcontractors under the law.

If upheld, this decision will no doubt make it easier for claimants to file a mechanic’s lien and have it upheld in court, and it will be more difficult for those who are liened to get the lien removed by courts and declared invalid. •

James R. Mall is chair of the construction law group at Pittsburgh-based Meyer, Unkovic & Scott. He can be reached at

jrm@muslaw.com

.