You’ve overindulged in chocolate and cookies, your spouse owes you hazard pay for the multiple paper cuts you suffered wrapping the presents, and you have blisters on your tongue from licking holiday cards. Here’s a calorie free end of the year treat light enough not to strain your mind or your wallet.
In 2010, three courts entered opinions regarding Pennsylvania’s Mechanic’s Lien Law. These opinions give us a pulse on how courts will interpret similar mechanic’s lien issues. Moreover, in light of the 2007 and 2009 amendments to the Mechanic’s Lien Law, construction industry insiders should stay abreast of how courts are interpreting the anti-waiver provisions of the amendments as this is a developing area of law.
1. Making a List and Checking it Twice Isn’t Just for Santa Especially Since A Valid Lien Claim Requires Strict Compliance with Pennsylvania’s Mechanic’s Lien Law
While Harmon & Davies has a blog series entitled “You Don’t Need An Attorney,” we strongly recommend retaining experienced construction counsel to file a mechanic’s lien claim because of the rigid Mechanic’s Lien Law requirements−I recommend that you make sure that the firm and attorney you retain actually concentrates a significant portion of its/his/her practice on construction law.
As an example, let’s look at the case of Penstan Supply v. Traditions of America, L.P., which was decided by the Common Pleas Court of Centre County in January 2010. Penstan Supply (a division of Hajoca Corp.) filed a mechanic’s lien claim in the amount of $75,006.64 against Traditions of America. Penstan hired counsel who according to a Westlaw database concentrated his practice area on litigation and bankruptcy. Meanwhile, Traditions of America hired counsel who according to the same Westlaw database practiced in the areas of construction law, construction contracts and construction liens, among other things.
It appears that Traditions of America’s counsel was probably more familiar with the Mechanic’s Lien Law because he aptly claimed, on Tradition of America’s behalf, that Penstan’s mechanic’s lien was defective for the following three reasons and asserted preliminary objections accordingly:
(1) Penstan failed to name the correct owner of the property;
(2) Penstan failed to provide a description of the improvement and of the property claimed to be subject to the lien as may be reasonably necessary to identify them; and
(3) Penstan failed to file separate mechanic’s lien claims with respect to each different unit that it allegedly supplied materials and apportioned the total claim to the several different units.
The court agreed with all three preliminary objections and entered a verdict in Tradition of America’s favor as discussed more fully below.
a. Penstan Failed to Name the Correct Owner
Traditions of America objected to Penstan’s mechanic’s lien claim on the basis that Penstan failed to name the correct owner of the property and asked the court to take judicial notice of the real property owner. The court held that the county recorder of deeds web-site qualified as a source for judicial notice and took notice of the fact that another party was the record owner of the property.
b. Penstan Failed to Provide a Description of the Improvement and of the Property
Although Penstan described the improvements as “erection, construction, alteration and repair” and attached a list of invoices to the claim, Traditions of America smartly argued that Penstan had conducted work on multiple structures on the property and therefore Traditions of America had no way of ascertaining, based on the description provided by Penstan, which materials were used for which structures or which improvements were made for each structure. The court agreed and held that Penstan failed to provide a description of the improvement and of the property.
c. Penstan Failed to File Separate Mechanic’s Lien Claims
Section 1306(b) of Pennsylvania’s Mechanic’s Lien Law provides that “Where a debt is incurred for labor or materials furnished by the same claimant for work upon several different improvements which do not form all or part of a single business or residential plan, the claimant shall file separate claims with respect to each such improvement…”
Traditions of America argued that the single mechanic’s lien claim filed by Penstan violated this section of Pennsylvania’s Mechanic’s Law. In response, Penstan argued that it merely shipped goods to the job site and had no way of knowing how the goods were used. The court, however, determined that Section 1306(b) does not provide an exception which encompassed this argument and therefore held that Penstan was statutorily required to file separate mechanic’s lien claims.
2. The 2007 and 2009 Amendments to Pennsylvania Mechanic’s Lien Law Apply to Subcontracts and Sub-Subcontracts Entered into After the Effective Date of the Respective Amendments, Regardless of the Date of the General Contract or Stipulation Against Liens
a. The Background: Effective January 1, 2007 a waiver by a subcontractor of lien rights for agreements entered into after January 1, 2007 became unlawful unless the requirements of either Section 1401(a) or 1401(b)(2) are met.
b. The Case: In April 2010, the Superior Court of Pennsylvania (appellate court) issued an opinion in Brubacher Excavating, Inc. v. Commerce Bank/Harrisburg, N.A. regarding the effect of the 2007 amendment on a subcontractor’s lien rights. The facts of the case are as follows:
In 2006 (before the 2007 amendment went into effect), Commerce Bank entered into a general contract with Premier Construction (“General Contractor”) and filed a Stipulation Against Liens dated September 2006. In November 2006, the General Contractor entered into a subcontract with McElroy Contractors (“Subcontractor”) and McElroy in turn subcontracted a portion of its work to Brubacher Excavating (“Sub-Subcontractor”) in April 2007.
Although Brubacher completed its work and invoiced Subcontractor, Subcontractor failed to pay Brubacher even though the General Contractor paid Subcontractor for all amounts due and owing except certain retainage. In response, Brubacher filed a mechanic’s lien on the Project and a subsequent complaint to enforce the lien in the Court of Common Pleas of Lancaster County.
The trial judge (Judge Ashworth) found that Brubacher entered into its agreement after the 2007 amendments to the Mechanic’s Lien Law became effective and therefore Brubacher rightfully believed that the amendments would apply to its contract, which amendments gave Brubacher, a sub-subcontractor, the right to assert a mechanic’s lien claim and made any waiver of lien rights unlawful. (Before the amendments became effective, sub-subcontractors could not file mechanic’s liens). Thus, Judge Ashworth entered summary judgment in Brubacher’s favor and awarded pre-judgment interest.
Commerce Bank appealed the decision arguing, among other things, that its Stipulation Against Liens filed in October 2006 predated the amendments to the Mechanic’s Lien Law and therefore waived the lien rights of every subcontractor or sub-subcontracor regardless of when their contract was signed. (Technically, the Stipulation Against Liens could not have waived sub-subcontractors’ lien rights because sub-subcontractors did not have lien rights until January 1, 2007). Commerce Bank further argued that to find otherwise would create retroactive lien rights.
The Superior Court disagreed with Commerce Bank. While the Court agreed that the amendments to the Mechanic’s Lien Law must be given prospective effect only, it found that the contract at issue was entered into after the amendments went into effect and that Act 52 expressly states that the amendments shall apply to contracts entered into on or after January 1, 2007. See 49 P.S. § 1401 (Historical and Statutory Notes). According to the Court, the Legislature intended the amendments to apply to all contracts entered into after the effective date of the amendments. The court held that because Brubacher’s sub-subcontractor agreement was entered into after January 1, 2007, the Stipulation Against Liens did not operate to waive Brubacher’s lien rights. However, the Stipulation Against Liens filed by Commerce Bank remained valid as to all agreements that were signed before January 1, 2007.
Commerce Bank also appealed the trial court’s granting of interest as part of a mechanic’s lien claim arguing that Brubacher is only entitled to amounts owed for labor and materials. In deciding this issue, the Court examined its recent decision in Wyatt Inc. v. Citizens Bank of Pennsylvania, 976 A.2d 557 (Pa.Super.2009) where in the Superior Court held that interest awarded on a mechanic’s lien claim should only be awarded at the statutory rate of 6% and that it should only be applied from the date judgment was entered, pursuant to 42 Pa.C.S.A. § 8101. Thus, the Court held that in Brubacher the trial court correctly determined that Brubacher was entitled to interest at the statutory rate, but that it erred in awarding pre-judgment interest. While Brubacher was entitled to interest at the lawful statutory rate of 6% per annum, the interest was only to be applied from the date the judgment was entered.
3. Waiver of Lien Form Need Only Describe Property with Sufficient Clarity to Put a Reasonable Contractor on Notice that the Construction Project was Covered by the Waiver
In March of 2010, the Western District of Pennsylvania (federal court) had to decide whether a contractor’s mechanic’s liens placed on certain parcels of land took priority over the bank’s mortgages on those parcels when the Waiver of Liens forms executed by the Contractor in relation to the Project omitted those parcels from the property description even though the parcels were for all intents and purposes encompassed within the Project and where the construction contracts signed by the contractor contained broad no-lien provisions.
The Court ultimately held that in light of the broad lien waiver language of the construction contracts and Waiver of Liens forms, the contractor waived its right to file mechanic’s liens on the Project and that the contractor’s technical legal argument regarding the property description did not create a “true controversy” regarding the locations covered by those agreements. Thus, the court granted summary judgment in favor of the bank.
Note: The construction contracts and Waiver of Lien forms were executed before the 2007 and 2009 amendments to Pennsylvania’s Mechanic’s Lien Laws went into effect. Therefore, no argument was raised as to whether the contractual no-lien provisions or Waiver of Lien forms were void as against public policy, which they currently are at least with respect to subcontractors and sub-subcontractors. Whether anti-lien provisions contractually agreed to by general contractors are also void as against public policy is an area ripe for judicial interpretation in light of Pennsylvania’s strong anti-wavier stance.
This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.