ALLOCATUR WATCH

The state Supreme Court has taken up a case dealing with whether Pennsylvania’s Mechanics’ Lien Law should be construed liberally. The state Superior Court, in a case of first impression earlier this year, ruled that it should.

In so holding, the en banc panel said trustees of an employee benefits fund may proceed with mechanics’ lien claims against a developer for the money owed to the unions after the contractor who hired the unions went out of business.

In taking up Bricklayers of Western Pennsylvania Combined Funds v. Scott’s Development and Laborers’ Combined Funds of Western Pennsylvania v. Scott’s Development, the justices will hear arguments about why the trustees of the unions’ benefits funds should not be able to assert that a collective bargaining agreement between them and the contractor constituted sufficient “implied contracts” with the contractor.

Scott’s Development Co., the defendant real estate owner, hired the contractor, J. William Pustelak Inc., to do construction work on its property. Pustelak hired the two unions.

Ruling 7-2, the Superior Court ruled under the Mechanics’ Lien Law that the developer may be forced to make contributions into two unions’ benefits funds, after Pustelak went out of business and failed to fulfill an agreement with the unions to make those payments.

In its November 28 grant of allocatur, the high court also took up the question of whether “even liberal construction of the Mechanics’ Lien Law would permit an employee of a contractor to assert a claim as a ‘subcontractor.’”

The Superior Court panel’s decision in the two consolidated appeals hinged on a liberal interpretation of the word “subcontractor” — in this case, the unions — and the “unique legal relationship” between the trustees and the unions themselves. In the appeals, a contractor and the unions had reached collective bargaining agreements before Scott’s retained Pustelak. Per the CBA, the contractor gave the unions the work.

According to the unions’ attorney, the contractor went out of business and could not pay the tens of thousands in benefits contributions. The attorney said the union workers did receive their base pay.

The January 6 ruling reversed an Erie County Court of Common Pleas decision to dismiss the complaints of the trustees for lack of standing.

According to the Superior Court majority, led by Judge Cheryl Lynn Allen, the 1963 version of Pennsylvania’s Mechanics’ Lien Law was a remedial measure; its aim was to protect labor and materials a contractor invests in a real estate owner’s property before getting paid.

Language stating “no lien shall be allowed in favor of any person other than a contractor or subcontractor” was not part of the act that had been replaced by the 1963 measure, Allen said in a 41-page majority opinion.

Whether “subcontractor” in the 1963 Mechanics’ Lien Law should be liberally or strictly construed was an issue of first impression, according to the Superior Court opinion.

Also critical in the panel’s holding was a 2006 amendment to the 1963 law that deleted language declaring that “sub-subcontractors” have no right to a lien claim. The amendment, the court noted, expressly included sub-subcontractors within the law’s scope.

Allen said the amendment “dramatically expanded the class of persons” entitled to a mechanics’ lien under the 1963 law.

Allen said the trustees pled “sufficient ‘implied contracts’” — the collective bargaining agreement — with the contractor who was hired by the defendant real estate owner to do construction work on its property. And the panel, with two judges dissenting, agreed.

In the cases, Scott’s retained Pustelak in 2007 to work on its property in Erie, a Hilton Garden Inn, according to a search of the address listed in the opinion.

Pustelak had previously entered into collective bargaining agreements with two unions and, pursuant to those agreements, retained members from the unions to perform work on the Scott’s property. According to Allen, Pustelak failed to pay trustees for the benefits due to workers from the Bricklayers and Trowel Trades International and the Laborers’ District Council of Western Pennsylvania. The trustees filed statements of mechanics’ lien claim against Scott’s.

One trustee, Bricklayers of Western Pennsylvania Combined Funds Inc., is seeking recovery of more than $17,000, Allen said, based on its trust agreement with Bricklayers and Trowel Trades. The other, Laborers’ Combined Funds of Western Pennsylvania, is looking to recover close to $25,000 from Scott’s in unpaid contributions to the Laborers’ District Council.

Scott’s argued that the unions’ members were employees of Pustelak, as opposed to subcontractors, and thus lacked standing.

The court noted that a line of Pennsylvania cases dealing with mechanics’ liens — “replete with references” to the notion that statutes in derogation of the common law should be strictly construed — was flawed. In fact, at least for laws enacted after 1937, just the opposite was true, Allen said.

The body of case law traces back to the Superior Court’s decision in Sampson-Miller Associated Companies v. Landmark Realty, which, as Allen put it, “erroneously rested on case law interpreting the Mechanics’ Lien Law of 1901 and inaccurately transposed it to the successor statute” from 1963.

Allen noted the rule that statutes in derogation of the common law should be strictly construed was decided to not apply to Pennsylvania laws enacted after September 1, 1937, under 1 Pa.C.S.A. Section 1928(a) and (c), “regardless of any previous case law proclamation to the contrary.”

Later, Allen noted there is competing case law in the state dealing with the level of compliance a claimant needs to reach in order to effectuate a valid mechanics’ lien claim. Some courts have required “strict compliance” and others have let pass “substantial compliance” in allowing a claim to proceed.

The court, however, faced an issue of first impression regarding what standard should be applied in assessing a class of available claimants, contractors or subcontractors under the Mechanics’ Lien Law.

And, while a strict compliance standard may be used for some issues such as notice or service, Allen said a liberal construction of subcontractor “was necessary to effectuate the Mechanics’ Lien Law’s remedial purpose of protecting prepayment of labor and materials.”

The second half of the court’s analysis was devoted to whether the unions were in fact subcontractors.

From the facts, it was a “natural and probable inference” that the unions furnished labor to Pustelak, thus creating “contracts implied in fact” between the unions and Pustelak for the Scott’s job.

While novel in this state, Allen also noted that several other states’ courts have decided trustees of employment benefit funds have standing to assert mechanics’ lien claims.

That point, among other conclusions reached by the majority, was contested in an 11-page dissenting opinion authored by Judge Judith Ference Olson, who was joined by Judge Susan P. Gantman. Gantman filed a separate dissenting statement, to which Olson concurred in the result.

According to Olson, the unions did not argue they furnished labor under implied contracts, but rather that the CBA was “an express contract” to provide labor to Pustelak on a time and material basis. She said the majority, by deciding there were “implied contracts,” reflected the court developing arguments for the trustees.

Ben Present can be contacted at 215-557-2315 or bpresent@alm.com. Follow him on Twitter @BPresentTLI. •