Philadelphia Construction Law Blog

Earlier this month, the United States District Court for the Eastern District of Pennsylvania decided a construction matter that focused on two issues: 1. Whether the subcontractor waived any potential claims against the general contractor by signing the periodic releases and change orders; and 2. Even if so, whether statements made by the general contractor’s employees waived the general contractor’s claim to rely on the releases and change orders. The Court concluded that the general contractor never waived its right to rely on the releases and change orders, which themselves barred the subcontractor from asserting certain claims against the general contractor, and consequently ruled in favor of the general contractor.  The case may be found at this link: http://www.paed.uscourts.gov/documents/opinions/18D0005P.pdf  

In a case of first impression, the Pennsylvania Superior Court ruled that the majority members of a limited liability company owe a fiduciary duty to the minority members that is breached if the majority sell the LLC’s assets to a new LLC controlled by the majority members.  The opinion may be found at this link: http://www.pacourts.us/assets/opinions/Superior/out/Opinion%20%20ReversedRemanded%20%2010334626430440435.pdf  

Kevin Amadio of Kaplin Stewart’s construction practice group has been appointed co-chair of the Construction and Public Contract Law Committee of the Montgomery Bar Association for 2018.  

The final version of the federal tax bill, which is expected to be passed by Congress this week, maintains for the most part the current tax status of private activity bonds which are important to the construction industry.   Private activity bonds provide tax credit incentives for investors for certain targeted developments such as affordable housing, economically distressed commercial development zones, historic building renovation, and infrastructure.    Earlier versions of the tax bill would have eliminated or sharply reduced funding for tax credit financing for affordable housing, which could have resulted in a reduction in building of up to 900,000 units over 10 years, according to some estimates. The current version restores funding for this tax credit financing, as well as funding for New Market Tax Credits, which allow private investors to secure tax credits for investment into economically disadvantaged areas.  However, because the tax bill cuts the federal corporate tax rate from 35% to 21%, there is some sentiment that the lower corporate tax rate could make tax credit investment less valuable and therefore dampen the volume of tax credit investment available from private industry. Some industry experts have estimated that this factor could result in a drop in production of affordable housing by as much as 15% annually.

A new California law requires prime contractors on private construction projects to be financially responsible for any wages, fringe benefits and union contributions left unpaid by subcontractors and their sub-subcontractors. The prime contractor’s financial responsibility under this new law, however, does not extend to any penalties or liquidated damages resulting from a subcontractor’s failure to pay wages. This law governs all private construction contracts entered into beginning January 1, 2018. As a result of this new law, prime contractors on California private construction projects will need to closely monitor their subcontractors’ payroll practices and require the submission of payroll documentation similar to that required under the Davis-Bacon Act. The new law allows prime contractors to withhold payment from any subcontractor that does not provide the required payroll records. Could we see passage of a similar law in Pennsylvania and New Jersey – two states having strong construction labor unions?

Section 1303(d) of the Mechanics’ Lien Law of 1963 provides that “No lien shall be allowed against the estate of an owner in fee by reason of any consent given by such owner to a tenant to improve the leased premises unless it shall appear in writing signed by such owner that the erection, construction, alteration or repair was in fact for the immediate use and benefit of the owner.”  However, the terms of the owner’s lease with the tenant may establish the necessary writing to permit the lien.  On November 17, 2017, the Superior Court of Pennsylvania decided Lobar Associates, Inc. v. Edward J. O’Neill, et al., and affirmed the trial court’s order granting summary judgment on mechanics’ lien claim in favor of a contractor who renovated property for the owner’s tenant.  The Court held that the provisions of the lease satisfied the “immediate use and benefit standard” of the statute because those provisions made clear the purpose of the lease was to improve the property for mutual benefit, and (a) called for collaboration of landlord and tenant in the renovation project of the Property, (b) required landlord’s prior written approval for changes, alterations and additions to the Property which would negatively impact the value of the Property, and (c) declared all improvements would be property of landlord expiration of the lease term or earlier termination. Because the evaluation of such claims are complicated, legal counsel should be consulted before filing or in connection with defending a lien claim […]

On November 9, 2017,the Occupational Safety and Health Administration issued a rule delaying for one year, until November 10, 2018, the implementation of a Construction Crane Operator Certification requirement that was scheduled to go into effect on November 10, 2017.  The  crane operator certification requirement, based on an OSHA standard published in 2010, would require an independent third party certification of crane operators via testing and training.  Comments received by OSHA from the construction community questioned whether the independent testing certification standards and evaluation protocol proposed by the OSHA rule were superior to the testing, training, and crane operator certification currently being provided by crane employers. There were also comments made suggesting that the testing and certifications currently being used by crane employers would conflict with the proposed independent certification testing standards.  To study this issue further, OSHA has delayed the implementation of the independent testing standard for an additional year.  In the interim, OSHA has extended for one year its requirement that it is the crane employer’s duty to ensure that its crane operators are competent to operate a crane safely.  Andrew B. Cohn acohn@kaplaw.com 610.941.2549      

Philadelphia is set to launch Atlas, a  comprehensive database which provides deed information, permits, 311 data, crime statistics, zoning appeals, and the registered community organization (RCO) for Philadelphia properties.  https://philly.curbed.com/2017/11/7/16617296/philadelphia-properties-land-vacant-lot-atlas-map-tool  

The Philadelphia Court of Common Pleas decision in Bertino v. Clark-Dougherty, 2017 WL 4330687 (2017) is a reminder that the service rules for mechanics’ liens in Pennsylvania must be strictly followed.  In Bertino, the court granted preliminary objections and struck a mechanics’ lien claim because service of the notice of filing of the lien was made improperly, even though the property owner actually received the notice.  The Court found that service on the out-of-state property owner by regular mail, after a certified mailing went undelivered, was improper. Further, the lien claimant failed to file an affidavit of service within twenty days of the supposed service, as required by the mechanics’ lien law.  Due to the very technical nature of the lien law’s requirements, and because these requirement will be strict enforced, potential lien claimants should always consult counsel before attempting to perfect lien rights. “Hat-tip to Lynne’s Westclip distribution”  

Two recent decisions deal with this sometimes perplexing problem.  In Burns v. Sky Zone, the Pennsylvania Superior Court affirmed the trial court’s order denying preliminary objections seeking to enforce an arbitration agreement against an injured party whose spouse had signed an arbitration agreement in his name.  To be bound to arbitrate, the Superior Court ruled, the non-signatory must have had an agency relationship with the signatory based upon (1) express authority, (2) implied authority, (3) apparent authority, and/or (4) authority by estoppel.  Finding no proof of agency under any of these bases, the Superior Court held that the non-signing spouse had no duty to arbitrate. In Scottsdale Ins. Co. v. Kinsale Ins. Co., the United States District Court for the Eastern District of Pennsylvania compelled an insurance company to arbitrate under an arbitration clause in another insurer’s policy.  The Court observed that a non-signatory cannot be bound to arbitrate unless it is bound under traditional principles of contract and agency law to be akin to a signatory of the underlying agreement, and that equitable estoppel in this context arises when a non-signatory to an arbitration clause knowingly exploits the agreement containing the arbitration clause despite having never signed the agreement.  These two cases underscore the complex factual and legal issues to be analyzed in deciding whether and when a non-signatory must arbitrate.