October 2013

A client recently came to me regarding ambiguous and conflicting specifications on a transportation project.  As with many contract ambiguities in a construction contract, the resolution of the interpretation meant the difference between a profitable and an unprofitable job for the client.  However, in construction not all ambiguities are treated equally.   Understanding the difference between the two is important in knowing whether to expect compensation for the ambiguity or not.

A contract is ambiguous when it is reasonable susceptible to two different meanings.  Generally, ambiguities in a contract are construed against the drafter.  However, the general rule does not apply on public construction projects.

Courts have created an exception to that general rule when a government construction contract contains an obvious, glaring ambiguity. In such a case the contractor is under a duty to inquire and to try to resolve the problem before entering into the contract. Failure to make such an inquiry prevents the contractor from complaining of the ambiguity after the contract is signed and problems arise.  Therefore, only latent — or non-obvious – ambiguities will be compensable.

The case of PENNDOT v. Mosites Construction Co. shows how this rule works in practice.  There the contractor entered in a contract with PennDOT for the bridge repair work.  The specifications stated that the contractor would be paid as follows:

“This work will be paid for at the contract unit price per pound for Fabricated Structural Steel Repairs, Method 1 and Method 2, which price will include welding, painting, materials, equipment, tools, labor and work incidental thereto.”

However, a drawing sheet indicated that steel weight “[d]oes not include weight of washers, and nuts and bolts, which are incidental.”  Prior to bidding, the contractor did not bring this conflict to PennDOT’s attention.  A dispute arose when PennDOT disputed payments to the contractor that included the nuts, bolts, and washers  in the weight of the steel.

The Board of Claims found in favor the contractor and PennDOT appealed.  The Commonwealth Court affirmed the Board of Claims and found that the ambiguity was not patent and, therefore, the contractor had no duty to bring to the conflict to the attention of PennDOT.

The patent ambiguity rule is especially poignant now because we may see a flood of bridge repair projects being let out to bid in the near future.

 

 

Despite the Pennsylvania Contractor and Subcontractor Payment Act’s threats of penalties of 1% interest per month, 1% penalty per month, and attorneys fees, the payment abuses it was intended to remedy remain a problem.  Generally, when an owner is threatened with a Payment Act claim they hardly run for their check books.  However, a recent unpublished opinion from the Superior Court, Scungio Borst & Assoc. v. Shurs Lane Developers, LLC, sets the stage to change everything.   There the Superior Court opens the door to holding officers and executives of owners entities personally liable for damages under CAPSA potentially making CASPA a nuclear device in a contractor’s arsenal in getting paid.

In that case, the Superior Court overturned summary judgment entered in favor of a individual member of an owner entity LLC on a contractors CASPA claim against him.  The plaintiff was a general contractor of a condominium project.  The defendants were the owner entity LLC and one of its 50% owners.  The general contractor brought claims for breach of contract and under CASPA seeking payment for over $1 million in unpaid change orders from defendants.  Specifically, the general contractor alleged that the individual had personally directed that the change order work be performed and that assured the general contractor that payment would be forth coming.  The trial court granted summary judgment in favor of the individual member of the owner entity and the general contractor appealed.

The general contractor argued that CASPA’s definition of owner made the individual member who authorized the change orders personally liable and the Superior Court agreed.  The Superior Court looked to the definition of an “owner” under CASPA.  Section 502 of CASPA defines an owner as “a person who has an interest in the real property that is improved and who ordered the improvements to be made [and] includes . . . agents of the owner acting with their authority.”  Accordingly, it remanded the case to the trial court for further proceedings.

Even though it is an unpublished opinion, and thus not binding law in Pennsylvania, the case is obviously significant.  Normally, individuals are not liable for corporate debts unless a plaintiffs can prevail under a theory of piercing the corporate veil. This is no easy task and usually requires proof that an individual used the corporate entity to commit fraud or that the corporate entity was a mere sham (i.e. it lacked capitalization and failed to follow corporate formalities.)  However, the Scungio case indicates that courts may be receptive to holding individual officers and executives personal liable under CASPA without showing any intent to defraud.

Holding a company potentially liable for the significant penalties is one thing.  However, when an individual’s personal assets are now at stake for those same penalties, owners facing CASPA litigation may think differently.

Tenants who fail to pay their rent or who are breaching other covenants in the lease are the bane of a commercial landlord’s existence.  The answer?  A confession of judgment for possession.

Pennsylvania continues to be one of the only states that permit judgments to be entered by confession in connection with commercial leases. Although seemingly archaic, confession of judgment clauses provide commercial landlords with prompt mechanisms for eviction and act as effective tools for avoiding adversary litigation that commonly arise from everyday litigation.

A confession of judgment clause in a commercial lease permits a landlord to file a “complaint in confession of judgment” upon the tenants default under the lease. When the complaint in confession of judgment is for possession of the property, the landlord will automatically obtain a judgment for eviction against the defaulting tenant as soon as it is filed with the Prothonotary.

After the judgment for possession is entered, the landlord can immediately file for a writ of possession without having to wait for the tenant’s response. Promptly after obtaining and serving the writ on the tenant, the landlord can direct the sheriff to proceed to evict the tenant from the property. Thus, the net result of the inclusion of a confession of judgment clause is the tenant’s prompt lockout, all without the need for a hearing.

This aspect of commercial leases in Pennsylvania is one of the most useful and powerful clauses in a contract. In harsh economic times, confession of judgment clauses provide a prompt mechanism for commercial landlords to ensure protection of their interest upon a tenants default in a way that saves time, money, and of course, aggravation.

In summary, if you are a commercial landlord in Pennsylvania, at the time of entry into a new lease, you will want to make sure that your lease includes a clause for confession of judgment.

ENR Risk Review has a story about an engineer’s lawsuit for additional compensation for work that was not memorialized in a formal written change order.   The case brings to mind an often unknown rule in Pennsylvania regarding verbal change orders.

Claims for additional compensation where no written change order exists are common.  What comes as a surprise to many contractors is that even when a contract requires all change orders to be in writing, a court can still award a contractor additional compensation for work not memorialized in a written change order.  In Pennsylvania, this has become known as the Universal Builder’s Rule.

The Rule gets its name after the Pennsylvania Supreme Court decision in Universal Builders, Inc. v. Moon Motor Lodge, Inc.  In that case, Universal Builders entered into a contract with Moon Motor Lodge to construct a motel and restaurant.  The contract — typical of most construction contracts — required that all change orders be in writing AND signed by the architect.  After work was complete, Universal brought suit for additional compensation for work authorized but not formally memorialized in a written change order pursuant to the contract.

Notwithstanding the clear language of the contract, the Supreme Court refused to overturn the lower court’s refusal to enforce this contractual provision.  The Court explained that several legal theories supported the lower court’s decision.  First, verbal change orders can be considered agreements separate from the written contract.  Second, the written change order requirement could be consider waived by the parties actions.

Does this mean you can now ignore a contracts requirement that all change orders be in writing?   No. First, in Universal Builders, the fact that the work extra work was ordered to be performed does not appear to be disputed.  Other courts have held that when  extra work is verbally ordered by someone who does not have any authority to order the work, then a contractor may not be able to recover under the Universal Builders rule.  Second, Universal Builders was a private construction contract.  Courts, at least in Pennsylvania, have refused to extend the rule to public contracts.

There are two takeaways here.  (1)  Contractors need to evaluate the circumstances surrounding a claim for additional compensation before walking away from it; and (2) Owners and general contractors cannot simply assume that they will not be required to pay for additional work not confirmed by a written change order in a format set forth in the contractor or subcontract.

(Reminder — if anyone has any questions, comments, or disagreements about this blog post or any other blog, please feel free to comment below or to email me at wally@zimolonglaw.com)

With a high number of their members still out of work and an increased willingness of owners to build projects using non-union construction in traditional union dominated markets, trade unions have increased their picketing activity on projects using non-union labor.  Here is a list of frequently asked questions we receive from owners and contractors working at those projects.

1.  Can you get me an injunction against the union?

No.  Probably the most frequent request we receive from clients subjected to a picket line is asking for an injunction. Both federal and state law prohibit a court from issuing an injunction prohibiting peaceful picketing.  Plus, the First Amendment permits a union — or anyone else — from peaceful protesting the grievances.  (And, as much as I abhor the unions tactics, I am incredibly thankful that I live in a country that gives them the right to protest.)

he operative word here is is a “peaceful” protest.  The unions do not enjoy an unlimited right to picketing.  The unions cannot block entrances, engage in violence, or destruction of property.  Those activities can be controlled by the courts through injunction relief.

2.  Can you control the location of the picketing?

Yes.  Federal labor law prohibits a union from picketing an employer not subject to the labor dispute.  It is important to understand who the employer is.  Owners and general contractors who subcontract their work are not considered employers of the trade contractor being picketed by the union.

Because multiple employers — subcontractors – are working on a construction site, it is possible to control the location of the union picket line through the use of a tw0-gate or dual gate system.  Under federal law, if a dual gate system is properly established, a union must confine its picketing to the gate used by the contractor subject to the labor dispute.

For example, if the electricians union is picketing your project and you establish a two gate system, the electricians union must limit its picketing to the gate used by the electrical subcontractor.  If the union fails to honor the two gate system, you can bring an unfair labor charge with the National Labor Relations Board or sue the union in federal court.

However, the two gate system must be properly established and maintained for the charge to stand.

3. I do not employ anyone working on the construction project.  Can the unions picket me?

No.  Under federal law, it is illegal for a union to threat or coerce a neural employer from doing business with a contractor subject to a labor dispute.  Therefore, the unions can only picket the contractor that is employer workers in the trade that the union represents.  If unions are picketing you and you do not employ members of the union’s trade, you can bring an unfair labor practice charge against the union or sue the union in federal court.

4. Can I be terminated and replaced by a non-union contractor because of the picketing?

No.  If you are a subcontractor that has been terminated and replaced by a union contractor because of union picketing, you could be entitled to damages against the general contractor or the union.  Under Section 303 of the Labor Management Relations Act anyone injured by an unfair labor practice can sue in federal court to recover damages. Therefore, if the union pressured the party who you maintained a contract with to terminate you and replace you with a union contractor, you could sue the union in federal court for damages alleging that you were damaged by an unfair labor practice.