Mechanics Lien Law Takes an Expected Turn

On January 6, the Superior Court of PA overturned a March 2010 decision, which denied the Bricklayers of Western PA Combined Benefits Fund to lien Scott’s Development for unpaid benefit contributions made by a subcontractor. On two projects William Pustelak Masonry worked for Scott’s Development inEriebut did not make complete pension contributions for the union laborers employed on the jobs. Pustelak subsequently closed its doors and the Bricklayers, along with the Laborers filed a lien on Scott’s property to collect.

 A trial court found that the Bricklayers, while entitled to pursue the contributions, did not have standing as a contractor or subcontractor and therefore could not use the Mechanics Lien to collect.

 Superior Court accepted the Bricklayers Trustees’ argument that their collective bargaining agreement with Pustelak was an implied contract to provide labor for the projects and since labor was performed successfully, the Benefits Fund should be given the same rights as a subcontractor. In his majority opinion Justice Allen wrote:

“We conclude that under the applicable rules of statutory construction, the definition of “subcontractor” in the Mechanics’ Lien Law is entitled to a liberal interpretation. Contrary to the trial court, we conclude that a traditional subcontractor agreement is not a mandatory prerequisite to confer “subcontractor” status…. We further conclude that under the specific facts presented in this case, the unions are subcontractors and given the unique legal relationship that exists between the trustee and the union, the trustee has standing to assert a mechanics’ lien claim on behalf of the union.”

 The decision has surprised most observers of construction and law in Pennsylvania. Of special concern at the moment is that the amounts involved in the case are relatively minor, roughly $40,000 and the developer may be more inclined to settle the case than appeal it to the PA Supreme Court. That Court is also not obligated to hear the case. For owners, this decision means that a significant amount more due diligence will be needed or more extensive bonding used on projects to avoid liens from obligees for subcontractors that aren’t currently even required to inform the owner of their involvement.

Thus, an owner can enter into a contract with a general contractor and not only be hit with a lien from a sub that he/she isn’t aware is on the project (this is especially true of sub-subcontractors) but also from a pension fund for that sub. While there are several ways to avoid being caught off guard – none of which are free of cost or time – the logistics of verifying the status of current pension payments are more complicated by far than verifying that a supplier or secondary sub was paid.

Because the reporting of delinquent pension contributions lags by at least 60 days (and generally lags 90 days in practice) it will be impossible for owners to know at the time of payment that all union contractors are current with their benefits. In fact, it is difficult enough for owners to even ascertain which of their contractor’s subcontractors are signatory with a labor craft.

To protect himself an owner will need to require affidavits from subcontractors on the job that all benefit payments are current. It’s likely that even in good faith some of those affidavits will be inaccurate and there will doubtless be occasions when the truth is interpreted loosely. Regardless of the intent and the ultimate legal protection an owner gets from such affidavits, the purpose of contracting is to facilitate construction, not provide an owner with solid legal protection. The Bricklayers decision adds another layer of risk to an already risky proposition. For a project owner/developer, being right isn’t nearly as comforting as being completed and free of entanglements.

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