Oral Argument

The state Supreme Court heard arguments last week in a case over whether Pennsylvania’s Mechanics’ Lien Law should be construed liberally, such that the trustees of an employee benefits fund can proceed with mechanics’ lien claims against a real estate developer for money owed to two unions after the contractor who hired them went bankrupt.

At last Wednesday’s arguments in Pittsburgh, a number of the court’s justices seemed reluctant to endorse a theory in which the trustees of a union could be interpreted as a contractor or subcontractor under the state’s Mechanics’ Lien Law.

The Superior Court, sitting en banc, though, found in favor of the trustees, reasoning the trustees pled "sufficient ‘implied contracts’" with the contractor who was hired by the defendant real estate owner to do construction work on its property. The court also turned on what it called a "unique legal relationship" between the trustees and the unions, themselves.

"To follow the Superior Court’s construction, the pension fund would have had to go over and build a hotel," Justice Thomas G. Saylor said to the developer’s attorney.

Saylor was referring to a Hilton Garden Inn in Erie, the construction project at issue in the companion cases of Bricklayers of Western Pennsylvania Combined Funds v. Scott’s Development and Laborers’ Combined Funds of Western Pennsylvania v. Scott’s Development. In the case, developer Scott’s Development Co. retained general contractor J. William Pustelak in 2007 to work on the hotel property. 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.

Pustelak, however, subsequently failed to pay the trustees for the benefits that were due to workers from the unions — Bricklayers and Trowel Trades International and the Laborers’ District Council of Western Pennsylvania.

The trustees, in turn, filed statements of mechanics’ lien claims against Scott’s.

The attorney for Scott’s, Bryan G. Baumann of Knox McLaughlin Gornall & Sennett in Erie, said the Pennsylvania General Assembly and state courts have been careful to preserve the idea that a claimant must have proper standing. He said the Mechanics’ Lien Law is silent as to whether a claimant — traditionally a contractor or subcontractor under the lien law — may assign a claim.

Justice Seamus P. McCaffery was the one justice appearing to take issue with Baumann’s position.

McCaffery questioned the attorney on whom the union members worked for and why the workers can’t be both union members and employees of a contractor.

"It’s like a hybrid," McCaffery reasoned.

The attorney representing the trustees of the benefits fund said the statutory definition of subcontractor within the lien law paved the way for his clients to make a claim.

Kenneth W. Lee, of Tucker Arensberg in Lemoyne, Pa., pointed to Section 1201 of the law, which defines a subcontractor as someone "who, by contract with the contractor, or pursuant to a contract with a subcontractor in direct privity of a contract with a contractor, express or implied, erects, constructs, alters or repairs an improvement or any part thereof; or furnishes labor, skill or superintendence thereto; or supplies or hauls materials, fixtures, machinery or equipment reasonably necessary for and actually used therein; or any or all of the foregoing, whether as superintendent, builder or materialman."

Justice J. Michael Eakin asked Lee what would prevent Lowe’s, the home improvement retailer, from filing a lien claim under Lee’s construction of the law.

Lee responded that, based upon the statutory definition of a subcontractor, Lowe’s could.

Eakin wasn’t persuaded.

"What did the trustees agree to provide?" he asked.

Labor, Lee responded.

"I thought the union [provided labor]," Eakin said.

Lee said that under federal law, the courts cannot ignore the trustees. They have equal status afforded to the union, he said.

Chief Justice Ronald D. Castille questioned Lee on why Scott’s should have to cover the malfeasance of Pustelak, the contractor who had gone bankrupt and could not make good on the CBA.

"I agree we have two innocent parties," Lee said, but he added that didn’t change the fact that Scott’s derived a benefit from the unions’ work and was in the best position to pay the benefits fund.

When the Superior Court decided the case, the majority of the split panel’s decision hinged on a liberal interpretation of "subcontractor."

Whether the Supreme Court decides to similarly construe the law could affect its ruling in the matter.

According to the Superior Court’s opinion, the 1963 version of Pennsylvania’s Mechanics’ Lien Law was a remedial measure aiming 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, Judge Cheryl Lynn 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 Allen.

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 Pustelak.

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