On November 28, 2012, the Pennsylvania Supreme Court granted the petition for allowance of appeal of Scott’s Development Co. in the matter of Bricklayers of Western Pennsylvania Combined Funds v. Scott’s Development, 41 A.3d 16 (Pa. Super. 2012) (en banc). In Bricklayers, the Superior Court found that labor unions can file and enforce mechanics’ lien claims for fringe benefits not paid by a general contractor to the unions’ members. The Superior Court reached this incredible decision even though under the collective bargaining agreements, the unions’ members were direct employees of the general contractor and despite the fact that the general contractor paid the unions’ members in full for the work that they performed on the project. In taking this appeal, the Supreme Court has the opportunity to correct this latest in a growing number of cases in which the rights of owners under Pennsylvania’s Mechanics’ Lien Law have suffered as a result of well-intentioned but flawed decisions of the Superior Court. 

Purposes of the Mechanics’ Lien Law

One of the laudable purposes of Pennsylvania’s Mechanics’ Lien Law, 49 P.S. § 1101 (the Lien Law), is to protect the prepayment of labor and materials that subcontractors (and suppliers) invest in an owner’s property. It does so by creating the extraordinary remedy of permitting subcontractors to pursue an owner – with whom they lack privity of contract – for nonpayment by a general contractor for labor and materials the subcontractors provided on the owner’s project. This remedy is more extraordinary still as it can force an owner to pay twice for the same work. That is, even where an owner has paid its general contractor in full for certain work, the Lien Law can also require the owner to pay subcontractors for the same work.

Thus, to ensure more fully that subcontractors are paid for the labor and materials they contribute to a project, the legislature has shifted some of the general contractor’s burden to the owner. Presumably, the legislature took this step because it apprehended that an owner is more equipped to bear monetary losses than subcontractors and because, at the end of the day, it is the owner that gets to use and enjoy the improved property.

But this extraordinary remedy is not entirely without cost to subcontractors. Since the passage of the first lien law in 1901, Pennsylvania’s mechanics’ lien laws have been strictly construed by the courts, and the damages awarded under those laws have been limited to the cost of labor and materials and not “to settle the contractual obligations of the parties” or to be “made the basis of a recovery for unliquidated damages for breach of contract,” according to the court in Matternas v. Stehman, 642 A.2d 1120, 1124 (Pa. Super. 1994) (citing 20 Standard Pennsylvania Practice 2d § 105:4, pp. 16-17 (footnotes omitted)). Accordingly, to enjoy the benefits of pursuing an owner who has paid in full for the work in question, subcontractors have been required to strictly comply with the procedural and substantive requirements of the Lien Law, and they are limited in the damages that they may seek – the value of the prepayment of labor and materials invested by subcontractors in a project. 

The Facts of the Bricklayers Case

As is often the case with protective legislation, however, there is a tendency by the courts, often when confronted with novel facts, to extend the legislation’s reach beyond its intended grasp. When such legislation is punitive in nature, such as anti-discrimination laws, the extension is understandable, even commendable. But when the legislation is in no way punitive – as in when it requires an owner to pay twice for the same work – our courts should refrain from doing so. In Bricklayers, the Superior Court, en banc, issued an opinion in which it extended the reach of the Lien Law miles beyond its grasp, reaching the incredible conclusion that unions have a right to recover unpaid fringe benefits from a project owner via a mechanics’ lien action.

The facts of the Bricklayers case are unusual, but straightforward. In it, an owner, Scott’s Development Co., entered into a contract with general contractor J. William Pustelak Inc. (the GC) to perform construction work on its property (the project). Years before retaining the GC, the GC entered into collective bargaining agreements with two trade unions under which the GC agreed to employ union members to perform specified work on any future projects and further agreed to pay health, welfare and retirement benefits to the unions’ trustees for each hour of labor performed on the project. Significantly, the CBAs neither referenced nor specifically contemplated the projects, and, perhaps most importantly, the CBAs declared that the unions’ members are employees of the GC. Thus, pursuant to the CBAs, the unions neither paid nor employed its members for work performed, nor did the unions risk anything, on the project.

The GC completed work on the project and fully compensated its union employees for the actual work they performed on the project. The GC failed, however, to pay the trustees required fringe benefit payments due under the CBAs. Rather than bringing suit against the GC for breach of contract seeking damages in the amount of the overdue fringe benefit payments, the trustees, in the guise of subcontractors on the project, filed mechanics’ lien claims against the owner, seeking to compel the owner to make these payments. Recognizing that the unions’ members were employees of the GC and not of the unions, however, the trial court correctly dismissed the case on preliminary objections, finding that the trustees lacked standing to assert mechanics’ lien claims as subcontractors. The Superior Court, via an en banc decision (in which Judges Judith Ference Olson and Susan Peikes Gantman dissented), reversed. 

Steps Leading to Superior Court’s Reversal

To reach its decision, the Superior Court took a number of remarkable, unprecedented steps. First, utilizing the Statutory Construction Act, 1 Pa. C.S.A. § 1928(a), the court undid over 100 years of precedent, finding that, with the exception of the procedural and notice requirements, the Lien Law should be liberally construed. Armed with its liberal construction tool, the court found that the unions qualified as subcontractors under the Lien Law, finding that the CBAs constituted an implied-in-fact contract with the GC under which the unions supplied members to work on the project. And then, relying on cases from a number of foreign jurisdictions that found that trustees of employment benefit funds have standing to assert lien claims under the lien laws of those jurisdictions, the court ruled that trustees enjoy the same right to file mechanics’ lien claims here and that they may use such rights to recover – not just the cost of the labor and materials supplied by its members on the project – but fringe benefits due to its members from the GC under the CBAs. 

The Majority Got It Wrong

As Olson described in detail in her dissenting opinion, however, virtually everything in the majority’s opinion was at variance with the plain language of the Lien Law and of the CBAs themselves.

First, the court need not have determined whether certain aspects of the Lien Law are subject to liberal interpretation, as under any interpretation the unions were not subcontractors on the project. Not only did the unions furnish no labor on the project, and not only did the CBAs neither reference nor contemplate the project (it being required under the Lien Law that a subcontractor enter into a contract to perform work on a particular improvement), but the CBAs specifically defined the unions’ members as employees of the GC. Thus, under the express contracts between the unions and the GC, the unions were the representatives of employees of the GC, and were not, therefore, subcontractors.

Second, although the majority correctly identified a host of foreign jurisdictions that found that trustees of employment funds can assert lien claims on behalf of their members, as Olson correctly observed in her dissent, unlike those jurisdictions, in Pennsylvania, “‘no [mechanics’] lien shall be allowed in favor of any person other than a contractor or subcontractor, as defined herein, even though such person furnishes labor or materials to an improvement,’” quoting from 49 P.S. § 1303(a). Furthermore, as Olson also stated: “Even though a liberal interpretation of the term ‘subcontractor’ might possibly include the employees of a contractor, the statutory comment declares: ‘prior decisional law that laborers are not subcontractors, even though employed by a contractor, remains unchanged,’” quoting from 49 P.S. § 1201. Thus, in Pennsylvania, as employees of the GC, the unions’ members have no right to file mechanics’ lien claims and, as such, the trustees, who stand in their members’ shoes, likewise have no such right.

Finally, the Lien Law is an extraordinary remedy designed to protect the pre-investment of labor and materials that contractors and subcontractors supply for a project. It is not designed as a platform to pursue a breach of contract claim or “to settle the contractual obligations of the parties,” as said in Matternas. Accordingly, the Lien Law cannot be used to recover from an owner benefits not provided to the employees of its general contractor.

With tongue planted firmly in cheek, the greatest Pennsylvanian, Benjamin Franklin, to justify his decision to break his vow to refrain from eating fish on moral grounds, quipped in The Autobiography of Benjamin Franklin that: “So convenient a thing to be a reasonable creature, since it enables one to find or make a reason for every thing one has a mind to do” (emphasis in original). While such justification worked well for the running of Franklin’s life, it does not and cannot be applied to the law.

While it is doubtless the Superior Court had the best of intentions when it extended the Lien Law to include the unions’ claims for fringe benefit payments for its members who were employees of a general contractor, it is the law and not the court’s intentions that must control. And under the Lien Law, as employees of the GC, neither the unions’ members nor their representatives (while standing in their members’ shoes) had standing to file lien claims against the owner, and even if they had the necessary standing, the Lien Law can only be used to protect the pre-investment of labor and materials that contractors and subcontractors supply for a project – not fringe benefit payments. 

The Last Word Will Go to the Supreme Court

Fortunately, the last word will go to the Supreme Court. Hopefully, that court will eschew Franklin’s reasoning and base its decision on the law. And if it does, the unions will not be permitted to (mis)use the Lien Law to recover from an owner fringe benefit payments owed to their members by a general contractor.      •

Andrew D. Klein is counsel in the Philadelphia and Princeton, N.J., offices of Drinker Biddle & Reath. A member of the commercial litigation practice group, Klein’s primary focus is complex construction, land use and real estate litigation. He can be reached at 215-988-2632 and andrew.klein@dbr.com.