April 2014

In January 2012, the Pennsylvania Superior Court issued a decision in Bricklayers of Western Pennsylvania Combined Funds v. Scott’s Development Co., that we called a “mechanics lien earthquake” because it overturned decades of prior precedent that in order to properly file and perfect a mechanics lien, a contractor or subcontractor, needed to strictly follow the requirements of the mechanics lien law.  Before Bricklayers, courts would routinely strike mechanics liens that deviated, even slightly, from the Pennsylvania mechanics lien law’s requirements.  The reasoning behind this was that because the lien law was a “creature of statute” it needed to be “strictly construed” by the courts.  However, the Superior Court turned that on its head in 2012 when it held that the lien law was not subject to strict construction, but, rather, it should be “liberally applied.”  In the Bricklayers case, the liberal construction meant union health and welfare funds and, even individual employees, enjoyed mechanics lien rights.

As can be imagined, the Superior Court’s decision in Bricklayers did not sit well with many in the construction industry and an appeal was filed.  The Pennsylvania Supreme Court granted “allocator” (allowance) of appeal in the Bricklayers case in order to review the Superior Court’s decision.  Last week, the Supreme Court issued its opinion and overturned the Superior Court’s decision in Bricklayers.  (Those wishing to read it can click HERE.)

The Supreme Court’s decision left many in the industry happy because it  held (correctly) that individual employees, laborers, and, in particular, union fringe benefit funds do not enjoy mechanics lien rights because they do not meet the definition of subcontractor under the lien law.

What the Supreme Court did not do (much to the chagrin of many construction lawyers including me) is explicitly state that the lien law should always enjoy strict construction and affirm prior holdings that any deviations from the lien law will result in a lien being dismissed.   Instead, the Court held that clear and unambiguous portions of the law should be given the intent of the General Assembly while ambiguous provisions may be subject to additional review.

What this means is that if a provision is clear, such as stating that a lien shall be filed within six months of a contractors completion of its work, then Court’s should strictly construe it and strike any lien file more than six months after completion.  However, if the provision of the law is ambiguous a contractor could have some wiggle room.  Because most of the provisions of the lien law, in our opinion, are pretty straightforward and clear, it is hard to envision a scenario where a deviation from the lien law’s requirements should not result in a dismissed lien. Moreover, because the requirements are clear, there should not be any deviations in the first place.  The lesson:  look at the lien law and follow it – its pretty starightforward.

Another week and another case of DBE fraud resulting in significant fines.  This one involves Connecticut construction firm that agree to pay $2.4 million in fines to settle the fraud allegations.  The story follows an all to familiar “pass through” fact pattern:  a construction company obtains transportation contracts, commits to performing work using certain DBE firms, and then those firms perform no commercially useful function and act as merely a pass through.

What is notable is what the firm did when it discovered the fraud.  According to the firm’s settlement agreement, when the firm first learned of the alleged fraud, it self instituted  a strong DBE compliance program.  Because of the compliance program, the firm and its employees avoided prosecution.  As I have blogged about before and discussed in my DBE compliance webinar,  a strong DBE compliance program can be a mitigating factor if your firm is accused of DBE fraud.

While the $2.4 million fine is no doubt significant, it still beats jail time for the company executives.

In early March, the United States Federal Court for the Southern District of Ohio unsealed a complaint filed by the Painters and Allied Trade’s Council No. 6 against a painting contractor under the False Claims Act.  (A copy of the complaint can be viewed here: Complaint)  The Complaint is brought against a non-union painting subcontractor performing painting work on a project subject to the Davis-Bacon Act (prevailing wage).  According to the Complaint, the Painters Union “organizing” effort (meaning picketing, hand-billing, and bannering) at the project, where it learned that the painting subcontractor was allegedly not paying Davis-Bacon wage rates to its employees but was submitting certified payroll to the general contractor that it was (a big no-no).

As we have talked about before, the False Claims Act applies to claims submitted by contractors and subcontractors on a project receiving federal funding.  The False Claims Act permits the party bringing the claim to recover up to 30% of what is recovered for the government.   As we have said, it makes bounty hunters out of former or disgruntled employees with knowledge of a contractor’s transgression. Moreover, the False Claims Act does not require actual knowledge.  A contractor can violate the Act through deliberate ignorance (see no evil, hear no evil, speak no evil) or reckless disregard (I do not know if it is false, but its non of my business).

Damages under the False Claims Act are also significant and the party bringing the action on behalf of the government is entitled to up to three times the actual loss, plus per claim penalty and attorneys fees.  As we have said, with a False Claims Act action, even when you win you lose because of the expense in defending such a claim.

The defendant in the Painters Union case has not yet filed an answer so it is unclear what its defense will be.  However, as we have seen, unions are increasingly aggressive in increasing their shrinking market share.  We will have to see if this case is a one-off isolated incident or signals a more organized effort on the part of Big Labor.