Supplemental Conditions

The Biggest Change to the Mechanics Lien Law Since 1963

Posted in Mechanics Liens

The New Year will bring with it the biggest change to Pennsylvania’s Mechanics Lien Law since the current law was passed in 1963.  These changes will impact owner, contractors, and subcontractors equally.  However, the biggest benefits will probably be for real estate developers and other project owners.

On December 31, 2016, Pennsylvania will go live with a website known as the State Construction Notices Directory. On that date, owners will have the option of making projects costing $1,500,000 or more “searchable projects.”  An owner makes a project a searchable project by filing with the Notices Directory a “Notice of Commencement” before works begins.  The Notice of Commencement must include the name, address, and email address of the contractor, full name and location of the searchable project, the county where the project is located, a legal description of the searchable property, and the name address, and email address of the searchable project owner. Importantly, the owner must also post a copy of this Notice of Commencement at the project site.

If an owner does this, a subcontractor wishing to maintain its lien rights must file a Notice of Furnishing within forty-five (45) of first performing work on the project.  The notice of furnishing must include the general description of the labor and materials provided, the full name and address of the person supplying the services or items, the full name of the person that contracted for the services, and a description of the searchable project.

The impact of these changes cannot be emphasized enough.  First, subcontractors can no longer wait to take action in order to preserve their lien rights.  This means no more waiting for your invoice to age a few months before filing a lien. The old rule that you have six months after completion of your work to file your lien no longer applies if you fail to act within 45 days of starting your work.

Second, owners need to diligent file the Notice of Commencement and post the Notice at the project.  It is expected that many subcontractors (at least those that do not follow this blog) will not file a required Notice of Furnishing within forty-five days of beginning their work.  That means if you – the owner – have filed the required Notice of Commencement you can bar a significant number of mechanics liens.

These rules only apply to projects beginning on or after December 31, 2016.  But failure to understand these new rules going forward will have significant consequences to owners and subcontractors.

Civil RICO Case Against Johnny Doc Is Challenging

Posted in Unions

News that a non-union contractor had filed a Lawsuit against IBEW Local 98 and its leader, John Dougherty, made headlines this week.  While making fodder for local media, the plaintiffs must bound several legal hurdles before IBEW Local 98 and “Johnny Doc” face any threat of liability.

Background on RICO

The lawsuit was filed under a set of laws known as the Racketeer Influenced and Corrupt Organizations Act (RICO).  I have written about RICO’s impact on labor unions on this blog before and predicted that recent federal court cases made RICO claims against more viable.  RICO is a Nixon era set of laws that were originally passed to combat organized crime.  There is both a civil and criminal component to RICO.  (Interestingly, the RICO act remained relatively dormant until then U.S. Attorney Rudy Giuliani began effectively using it to prosecute the mob in the 1980’s.)  Although recent decisions have made RICO claims against unions more viable, any RICO claim is still challenging.  Indeed, some courts require a plaintiff in civil RICO cases to file a separate RICO case statement detailing its allegations.  RICO claims are powerful.  Some have called RICO claims a “thermonuclear” litigation device because the law permits the award of trebel (triple) damages and attorneys fees.

The Elements of a RICO Claim

Generally, to prove a civil RICO claim, a plaintiff must prove  the following elements: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.  Racketeering activity is defined as specific “predicate acts” under the RICO.  And, by pattern, the Courts mean two or more.  RICO predicate acts are specific and include things such as murder, kidnapping, robbery, bribery, extortion, drug dealing, mail fraud and wire fraud.  Bad conduct alone, no matter how salacious, is not a predicate act.  The conduct must qualify as one of the specific predicate acts defined in the statute and most of the predicate acts are federal crimes.

The Predicate Acts in the IBEW Case

As outrageous as the allegations are against IBEW, none of those allegations matter if they do not amount to a “predicate act” under RICO.  In fact, those allegations appear to be mere window dressing because fighting, intimidation, and name calling are not predicate act. That is not to say they are not crimes.  They could be.  They just are not predicate acts under RICO. In fact, the plaintiff does not even try to argue that they are. Rather, the specific predicate acts that plaintiff identifies in the IBEW case is extortion under the Hobbs Act and under Pennsylvania law.  So, plaintiff has to prove that IBEW attempted to extort him or outright extorted him.

Under state law, extortion requires that someone actually give up property or money because of some threat.  In the IBEW case, it does not appear that IBEW acquired property from the plaintiff as a result of the threats.  Plaintiff does not even plead that happened.  Thus, it is not likely plaintiff’s case will be successful under a theory that IBEW violated state extortion laws.

However, under the Hobbs Act, the extortion need not actually occur.  Instead, a violation of the Hobbs Act occurs based upon the mere attempt at extortion.  The allegation that IBEW violated the Hobbs Act is were things could get interesting.

Thing gets interesting because of another RICO case involving a Dougherty and a labor union – Joe Dougherty in the Ironworkers criminal case.  In that case, the defendants moved to dismiss the indictment alleging that the government could not prove a predicate act under the RICO.  The predicate act that the government relied upon in that case – the Hobbs Act – is the same predicate act the plaintiff in the IBEW case relies upon.

In that case, the Court refused to dismiss the indictment against the Ironworker defendants based upon inability to use the Hobbs Act against labor unions.  The Judge in that case ruled that union can commit a violation of the Hobbs Act when it uses violence and threats of violence to obtain “services which the employer [does not seek]” or unwanted or fictitious work.  The Judge that decided that case – Judge Michael Baylson.  The Judge in the IBEW case – yep – Judge Baylson.

The Plaintiff’s Specificity Problem

While you might be thinking this is all good news for the plaintiff, not so fast my friend.  Courts require civil RICO acts to be plead with specificity.  The IBEW plaintiff claims that IBEW tried extorted him in order to obtain “wages and/or other property.”  However, the plaintiff does not explain what wages or property IBEW would have obtained from him if the extortion were successful.  Perhaps more importantly, it is not clear from the pleading that the attempted extortion to obtain the wages and property happened on more than one occasion or just the day of the fight.  It is also not clear if the union’s misconduct was in an effort to extort him or because they just didn’t like him.

IBEW lawyers will surely seize on this and other defects in the pleading in a Motion to Dismiss.  If they do, odds are they will be successful.  If they are not, then significant precedent will be set.  Furthermore, the case will proceed with discovery and things will get very interesting.

Federal Judge Rips Shady Procurement Practices at DRPA

Posted in Public Bidding

In an opinion overturning a $17,000,000 bridge painting contract for the Commodore Barry Bridge, a United States Federal Judge called the procurement practices of the Delaware River Port Authority “a black box . . . obscure and unexplained, and lacking any indicia of transparency or the hallmarks of a deliberative process.”

The case involved lead paint remediation and repainting of the Pennsylvania span of the Commodore Barry.  Seven contractors submitted bids.  Alpha Painting was the apparent low bidder.  Corcon was the second low bidder. Corcon was also the contractor that was perform the painting work on the New Jersey span of the bridge.  Like most agencies engaged in public bidding, the DRPA requires contracts to be awarded to the lowest responsible and responsive bidder.

Six weeks after the bids were opened and read aloud, “after an undocumented process shrouded in mystery and obscured from public scrutiny, the DRPA notified Alpha by an undated letter that it had determined that Alpha was ‘not responsible,’ and rejected its bid.”  After unsuccessfully protesting the decision with the DRPA internally, Alpha filed a bid protest complaint seeking injunctive relief against the DRPA.

After a three day trial, Judge Noel Hillman of the United States District Court for New Jersey, entered an order and opinion granting Alpha the injunction it requested and ordering the DRPA to award the contract to it rather than Corcon.  Judge Hillman’s opinion provides a scathing review of the DRPA’s procurement practices.  Ultimately, Judge Hillman ruled that the DRPA acting arbitrarily, capriciously, and without reason. The opinion describes a culture at the DRPA that is designed to steer contracts to favored contractors rather than to award contracts to the lowest responsible bidder.

The DRPA gave two reasons for ultimately determining – six weeks after opening its bid – that Alpha was not a responsible contractor.  First, the DRPA said that Alpha had not included certain OSHA 300 forms with its bid. Second, the DRPA claimed that Alpha’s “experience modification factor” (EMF) was too low.

As to the OSHA 300 forms, the Court noted a factual dispute as to whether the forms were included with the bid or not.  Alpha claimed they were included and the DRPA claimed they were not. Notwithstanding this, the Court concluded that whether the forms were missing or not was a red-herring as the DRPA admitted it did not rely on the forms at all in evaluating a contractor’s safety record.  Instead the DRPA admitted it simply looked to see if the forms were completed and signed.

As to the EMF score, the Court explained that an appropriate score could only be achieved by contractors that had successfully completed projects in New Jersey and Pennsylvania.  As the Court observed, “the testimony established that a company can paint the Golden Gate Bridge for ten years in a row and not hurt so much as a sea gull and it will lose a DRPA bridge contract to an incumbent contractor who has to pay a penalty rate for insurance based on its recent employee injury records in New Jersey or Pennsylvania.”  Alpha, a Maryland contractor, had not completed enough projects in Pennsylvania and New Jersey to be eligible for an EMF score.  However, the DRPA’s chief engineer testified that there was no reason to doubt that Alpha was a responsible party with a good safety record. This led the court to conclude that the DRPA’s decision to declare Alpha non-responsible based on a EMF score irrational and incapable of “withstand[ing] even a cursory review much less scrutiny.”

However, the Court did not end by simply debunking the DRPA’s stated reason for rejecting Alpha.  Instead, the Court noted that the DRPA “recalculated” the bids so that Corcon, not Alpha, was the lowest bidder.  While this would appear objectionable on its face, for good measure, the Court found that the DRPA’s policies did not permit this practice.  Furthermore, the Court found that the DRPA permitted Corcon to supplement its bid with missing information after the bids were opened.  In fact, the DRPA went so far as to call Corcon’s insurance broker directly and ask that he supply certain forms that Corcon had omitted from its bid.

Based on these circumstances, the Court awarded Alpha the relief it requested and ordered the DRPA to award the bridge painting contract to it.



Details Matter: The Importance of Strictly Following Public Bid Statutes

Posted in Construction Law

Contractors bidding on public contracts know that failing to strictly following all of the technical aspects contained in the instructions to bidders can mean the difference between a winning and losing bid.  In the span of two weeks, I was involved with two cases that underscored the importance of this axiom.  Both cases involved New Jersey’s public bid laws.  While these cases show the importance of following a specific section of New Jersey’s public bid statute, the take away – that details matter – is universal.

The case involved a sewage authority project.  I represented the second low bidder.  The first low bidder submitted a bid package that was complete except for one technical aspect.  It failed to list the name of its electrical subcontractor on the “Subcontractor List” form provided by the authority in the bid package.  Both the instructions to bidders and Section 23.2 of the New Jersey Local Public Contracts Law required that the contractor list the names of its electrical, plumbing, and mechanical subcontractors.  The apparent low bidder listed the name of its plumbing and mechanical subcontractors but not the electrical subcontractor.  Notwithstanding our objections, despite the omission of the name of the electrical subcontractor, the authority decided to award the contract to the apparent low bidder.

Therefore, we challenged the award of the contract to the apparent low bidder in Court by seeking an injunction.  We argued that the instructions to bidders and the New Jersey Public Contracts Law were clear: if a contractor fails to list the name of its electrical subcontractor it is a fatal bid defect, which the local contracting agency cannot waive. The apparent low bidder argued that its failure to list the name of its electrical subcontractor caused no prejudice to the local agency (and ultimately the taxpayers) because the name of its electrical subcontractor was identified elsewhere in the bid package.

The trial court held that the apparent low bidder’s failure to list the name of the subcontractor on the bid form was a fatal non-waivable bid defect and concluded that the authority’s decision to award the contract was in error. Throughout its opinion the trial court emphasized that strict compliance with the bid statutes and instructions to bidders is required in order for a bid to be deemed responsive.  Importantly, the trial court noted bids containing technical defects should still be rejected even when there is an increased cost to the taxpayers because “the overriding interests in insuring the integrity of the bidding process is more important than isolated savings at stake.”

New Jersey Supreme Court Issue Important Decision for Homeowners and Contractors

Posted in Construction Law

The lack of insurance coverage for a contractor’s faulty workmanship is the bane of both homeowners looking to recover damage for defective work and contractors seeking to defend against such claims.  In many states, like Pennsylvania, courts hold that faulty workmanship is not an “occurrence” that is covered by a standard commercial general liability insurance policy.  In other words, courts hold that CGL policies cover damage to other property not part of the construction project itself.

This is problematic for both the homeowner and the insured.  For the homeowner, the lack of a policy providing indemnification sometimes means the homeowner is left trying to collect against a defendant, who is otherwise but has little to no assets against which to collect a judgment.  For the contractor, the lack of a policy providing coverage means that assets are at risk and it could be forced to spend significant sums in attorneys fees defending the case.

In Cypress Point Condominium Association, Inc. v. Adria Towers, LLC, the New Jersey Supreme Court held that a contractors standard CGL policy covers consequential damages caused by defective workmanship, even if the consequential damages are to the project itself.  At issue in Cypress Point Condominium Association, was language contained in a standard ISO CGL policy that is used in as the standard language in a majority of policies.  The case arose out of a dispute between the insured contractor and its insurer over whether damage caused by leaking windows and facades was covered under the contractor’s CGL policy.  The Court held that such damages are covered holding:

“because the result of the subcontractors’ faulty workmanship here—consequential water damage to the completed and nondefective portions of Cypress Point—was an “accident,” it is an “occurrence” under the policies and is therefore covered so long as the other parameters set by the policies are met.”

The importance of this holding is significant.  First, homeowners stand a much better chance of collecting on a damage claim against a contractor found liable for defective work.  Second, contractor’s can expect coverage from their carriers in almost all defective construction claims.


NLRB Issues Decision with Significant Impact on Construction Industry

Posted in Unions

On July 11, 2016, the National Labor Relations Board issued a decision stating that unions can include both sole employees and joint employees into a single bargaining unit without the consent of both employers.  The case, Miller & Anderson, Inc., called upon the Board to revisit its holding in Oakwood Care Center, which held that a union could not seek to hold an election of a bargaining unit of solely and jointly employed individuals without the consent of both employers.  The decision has a significant impact on any contractor using temporary staffing services.

In Miller & Anderson, the sheet metal workers petitioned to represent a unit of employees solely employed by Miller & Anderson and those Miller & Anderson had leased through a construction industry staffing agency known as Tradesmen International.  The Regional Director dismissed the petition for an election based on the Board’s holding in Oakwood Care Center, which would required both Miller & Anderson and Tradesmen to consent to the election – which they did not.

The union appealed and the Board overturned the Regional Director and returned to the law that existed under its decision in M.B. Sturgis, Inc.  In doing so, the Board held that employer consent is not required for a bargaining unit of sole and joint employees so long as the employees maintained a traditional community of interest.

The decision is problematic for several reasons.  First, in the 16 years the standard has gone from no employer consent being required, to employer consent being required, and now back to employer consent not being required.  The is prejudicial to both employers and unions that seek to represent their employees because there is simply no certainty on what they law is or will be. The Regional Director’s dismissal was not overturned because he applied improper law, it was overturned because the NLRB did not like the law that existed, so the Board decided to change it by fiat.

Second, the decision will create tripartite bargaining between unions and two employers that have little common interests.  Because employers only have a duty to bargain but not to enter into an agreement with an union, it is unlikely that any workers will actual become represented by the union.

Third, make no mistake about it, this is a huge win for labor and will lead to many backdoor unionization of merit shop employers who use temporary employees, especially contractors will smaller full time employees.  For example, after Miller & Anderson, the unions can sneak salts onto a merit shop employers project.  If that contractor only had two full time employees and it leases three employees that happen to be covert union salts, the contractor will lose a union election no matter what it does.

Indicted Union Representatives Try Again to Revive Enmons

Posted in Unions

The Boston Globe reports that the Massachusetts AFL-CIO has filed a friend of the court brief seeking to have the indictment of five members of the Teamsters Union in Boston dismissed.  The Teamsters members are facing federal charges that they extorted non-union contractors and owners that employed non-union contractors.  The Massachusetts AFL-CIO is arguing that under the Supreme Court’s 1972 decision in U.S. v. Enmons the Teamsters alleged conduct was in furtherance of a legitimate union objective and, therefore, no illegal.

The move is a Hail Mary for unions.  Under Enmons, unions used to enjoy broad immunity from criminal prosecution for activities that would land anyone else in jail.  However, Federal Courts have repeatedly walked back the breadth of Enmons and recent prosecutions in New York and Pennsylvania show that Enmons does not provide unions protection from extortion claims when they seek to intimidate non-union contractors and real estate developers into giving work to union affiliate firms.

We should expect a decision from the federal court in Boston in a few months.  Hopefully, the court reaches the same result as the courts in New York and Pennsylvania.

Union Contractors Need to Read This

Posted in Unions

Earlier this year, I wrote about the indictment of the owners of a union construction company that was improperly operating a double breasted (a union firm and a related non-union firm) operation.  That indictment alleged that the owners of the union firm failed to pay union members fringe benefits and wages when the union employees worked for the non-union firm.  As I said in that post, it should be concerning that these allegations led to a criminal indictment because usually these types of allegations were dealt with in civil suits brought by the union.

This past week the U.S. Attorneys Office in Chicago announced the indictment of executives of a construction company for, among other things, failing to pay fringe benefits owed to union health, welfare, and pensions funds. This type of wrongdoing was also usually dealt with a civil lawsuit brought by the union health and welfare funds against the contractor that owed the money to the funds.

Union contractors with obligations to health and welfare funds need now need to worry that failing to pay the union funds could result in more than a simple collection action in federal court.  These two cases signal it could mean jail time.


Posted in Construction Law

Today, in a precedential opinion, the Third Circuit Court of Appeals, affirmed the District Court’s dismissal of a complaint against my client that alleged that a multi-family building was constructed in violation of the Federal Housing Administration’s (FHA) design and accessibility requirements for disabled persons.  A copy of the Opinion can be found here ( Opinion of 3rd Circuit. ) An adverse decision would have meant that my client could have been exposed to making several million dollars in alterations to its building.

A disabilities rights group filed a complaint against my client in the United States Federal District Court alleging that a multi-family (100+ units) building was constructed in violation of the FHA’s requirements for accessibility by disabled persons.  The project was a multi-million dollar renovation of an old abandoned warehouse into a state of the art apartment building.  The building was original constructed in 1912.  Although FHA and Department of Justice guidelines made clear that the FHA’s requirements did not apply to any building originally constructed before 1988, even if the property was original built and occupied for commercial purposes.  We filed a motion to dismiss the complaint which the District Court granted.  The rights group then appealed.

As the Third Circuit points out in the its opinion, there was no controlling case law on this issue, even though the FHA’s guidelines had existed for nearly 25 years.  The Third Circuit has now filed that void and issued a precedential opinion that says the FHA’s requirements indeed do not apply to building originally constructed before 1988 for any reason and then converted into residential use.

While the Court’s decision likely saved my client significant sums of money, it likely saved apartment developers and other building developers even more.


Jury Verdict Obtained in “Landmark” Case Against the City of Philadelphia

Posted in Public Contracts

Yesterday, in a case that attracted wide spread media attention (stories here and here), a jury in federal court ruled that the City of Philadelphia violated my client’s first amendment free speech rights when a Philadelphia City Councilperson blocked the sale of two city owned vacant lots to him in retaliation for my client challenging him for office.  The decision has been declared a landmark decision and the first of its kind.  It is humbling that the jury agreed with my argument and ruled in favor of my client.

The case involved an official custom and practice in Philadelphia known as Councilmanic Prerogative, which requires anyone wishing to acquire land owned by the City of Philadelphia to first obtain permission from the City Councilmember in whose District the property is located.  It then requires the same City Councilmember to introduce legislation approving the sale.  Obviously, this practices gives City Councilmembers a vast amount of power of land sales in their respective district.  If the City Councilmember does like you, you cannot acquire a parcel of land owned by the City.

In my case, my client was the highest bidder for two lots at a public auction for City owned land.  At the time, my client was was in a pitched election campaign against the City Councilmember in whose District the land was located. When it came time for the City Councilmember to introduce legislation approving the sale, the City Councilmember did something he has never done before (nor since) he refused to introduce the legislation.  After a two day trial, the jury agreed that the City Councilmember refused to introduce the legislation in retaliation against my client for engaging in protected political speech.

Some have asked if the jury’s verdict does away with Councilmanic Prerogative.  It does not.  However, it does mean that the City of Philadelphia can be held liable when it is used in an unconstitutional manner.

Of course, not everyone that is thwarted in an attempt to obtain City owned land happens to be a political candidate. But, the breadth of the jury’s verdict is not limited to that.  The First Amendment protects both our right to free speech and not to speak at all.   Although controversial, donating money to a campaign or using money for political purposes is a form of speech.  Conversely, not giving money to a political candidate or cause is also free speech.  In other words, you cannot be treated differently because you chose to remain neutral or disinterested.

Sadly, in the City of Philadelphia, the birth place of freedom, unequal treatment because of political affiliation and support is common place.  Campaign contributors have a better chance of obtaining City owned land from City Councilmembers because the Citycouncilmembers support them.  Under Councilmanic Perogative, if you have no support, you cannot obtain any land.

After yesterday, that is no longer possible.  If a Philadelphia City Councilmember treats a person that is NOT a campaign contributor differently than the way they treat someone that DOES contribute, then they have violated that non-contributor’s First Amendment right not to speak.  And, if they do the City will be liable for damages.