The Finality of Arbitration Awards

You obtained an award in an arbitration. The arbitrator directed your adversary to pay. But the deadline has passed and you have not received payment. Now what? The award must be confirmed by a state or federal court so that you can use judicial execution practice to collect on the award.  Under Section 9 of the Federal Arbitration Act, 9 U.S.C. 9, “the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title.”

Often, the losing party attempts to “appeal” the award to a state or federal court asking it to vacate the award. It well settled that this Court’s review of an arbitration award is “exceedingly narrow” and “highly deferential.”  Egan Jones Ratings Co. v. Pruette, 765 Fed.Appx. 659, 662 (3d Cir. 2019); Liuna v. Molfetta Indus. Co., Inc., 365 Fed.Appx. 347, 350 (3d Cir. 2010)(“Review of arbitration awarded under the FAA is “extremely deferential.”)    As the Third Circuit recently opined, “[t]he sine qua non of judicial review of an arbitration award is a heavy degree of deference to the arbitrator.”  Monongahela Valley Hosp. Inc. v. United Steel Paper & Forestry Rubber Mfg. Allied Indus. & Serv. Workers Int’l Union AFL-CIO CLC, 19-2182, 2019 WL 7286693, at *3 (3d Cir. Dec. 30, 2019).

In Hall St. Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 584 (2008), the Supreme Court resolved a Circuit split involving the grounds on which an arbitration award may be vacated or modified.  In that case, Justice Souter writing for the majority held that sections 9 and 10 of the Federal Arbitration Act (“FAA”) enumerate the exclusive grounds upon which an arbitration award may be vacated or modified.  Id. (“We now hold that §§ 10 and 11 respectively provide the FAA’s exclusive grounds for expedited vacatur and modification.”)  The exclusive grounds for vacating an award are set for in Section 10 of the FAA.  They are: “corruption, fraud, undue means,” “evident partiality or corruption in the arbitrators,” “misconduct,” “misbehavior,” “exceed[ing] … powers.” 9 U.S.C. § 10(a)(1)-(4). Erroneous findings of fact or mistakes of law are insufficient grounds to vacate an arbitration award.  New Jersey Bldg. Laborers Dist. Councils Local 325, Liuna v. Molfetta Indus. Co., Inc., 365 Fed.Appx. 347, 350 (3d Cir. 2010) (“The district court may not vacate an arbitration award merely because it would decide the merits differently.”); Egan Jones Ratings Co., 765 Fed.Appx. at 662 (“It is not proper for a reviewing court to “reexamine the evidence” when reviewing an arbitration award, and errors in factfinding do not justify reversal.”)

As the Third Circuit has held, “exceeding one’s powers, however, is not synonymous with making a mistake. Ross Dress for Less Inc v. VIWP, L.P., 750 Fed.Appx. 141, 144 (3d Cir. 2018).  As the Supreme Court explained in Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013):

“A party seeking relief under [Section 10(a)(4)] bears a heavy burden. It is not enough to show that the arbitrator committed an error—or even a serious error. Because the parties bargained for the arbitrator’s construction of their agreement, an arbitral decision even arguably construing or applying the contract must stand, regardless of a court’s view of its (de)merits. Only if the arbitrator acts outside the scope of his contractually delegated authority—issuing an award that simply reflects his own notions of economic justice rather than drawing its essence from the contract—may a court overturn his determination. So the sole question for us is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.”

Id. at 569.

Contesting an Upset Tax Sale

What is an upset tax sale?

Upset tax sales are the process by which Pennsylvania counties sell properties to recover unpaid real estate taxes. Upset sales occur in September each year.  The properties are sold at auction.

What are the notice requirements of the upset tax sale law?

It is well settled that the statutory notice provisions of the Commonwealth Tax Sale Law must be strictly followed. Maya v. County of Erie Tax Claim Bureau, 59 A.3d 50, 55 (Pa.Cmwlth.2013) (citations omitted)(“The statutory notice provisions in the Tax Sale Law must be strictly construed lest a person be deprived of property without due process.”) It is equally well settled that when a taxing authority fails to strictly comply with the Tax Sale Law’s notice provisions the tax sale of a property is void. Sabarese v. Tax Claim Bureau of Monroe County, 451 A.2d 793 (Pa.Cmwlth.1982).

The primary purpose of the Tax Sale Law is to ensure the collection of taxes, not to strip away a citizen’s property rights. Rice v. Compro Distributing, Inc., 901 A.2d 570, 575 (Pa. Cmwlth. 2006). Adequate notice is a prerequisite before the execution of any tax sale. Id. “The statutory notice provisions in the Tax Sale Law must be strictly construed lest a person be deprived of property without due process.” Maya v. County of Erie Tax Claim Bureau, 59 A.3d 50, 55 (Pa.Cmwlth.2013) (citations omitted); Smith v. Tax Claim Bureau of Pike County, 834 A.2d 1247, 1251 (Pa.Cmwlth.2003)(“[T]he focus is not on the alleged neglect of the owner, which is often present in some degree, but on whether the activities of the Bureau comply with the requirements of the statute.”)

The Tax Sale Law mandates that the taxing authority provide three types of notice: (1) published notice, (2) mail notice and (3) posted notice. 72 P.S. § 5860.602. For an upset sale to be valid, the County must strictly comply with all three of these statutorily prescribed notices. In re Upset Tax Sale Conducted on September 11, 2014, 2016 WL 916867, at *1 (Pa.Cmwlth. Mar. 8, 2016)(“In Pennsylvania, a valid tax sale requires strict compliance with three statutorily prescribed notice provisions: published notice, mail notice and posted notice.”) The Bureau, not the owner, bears the burden of proving compliance with the notice provisions.  Id. at *3. Additionally, the County must take additional efforts to contact an owner when mail is returned as unclaimed.  Those additional efforts “shall include, but not necessarily be restricted to, a search of current telephone directories for the county and of the dockets and indices of the county tax assessment offices, recorder of deeds office and prothonotary’s office, as well as contacts made to any apparent alternate address or telephone number which may have been written on or in the file pertinent to such property.” 72 P.S. § 5860.607a(a)(emphasis added).

The most common mistake a County makes is not sending mailed notice restricted delivery to an owner. Regarding statutorily required mailed notice, the Tax Sale Law requires that “at least thirty (30) days before the date of the sale, by United States certified mail, restricted delivery, return receipt requested, postage prepaid, to each owner as defined by this act.” 72 P.S. § 5860.602(e)(1)(emphasis added). This requirement applies to mailed notice sent to individuals and business entities like partnerships. Terra Properties, II v. Berks Cty. Tax Claim Bureau, 92 Pa.Cmwlth. 97, 99, 498 A.2d 57, 58 (1985)(holding that the “Personal Addressee Only” requirement applies to equally to partnerships.) The cases are legion that when, as here, a tax claim bureau fails to properly notify an owner by mail a tax sale is invalid.  In Sabarese, the Commonwealth Court affirmed the trial court’s invalidation of a tax sale because the tax sale notices were not marked “personal addressee only.” Sabarese, 451 A.2d at 793. At the time, the Section 602(e)(1) of the Tax Sale Law, required notice “[a]t least thirty (30) days before the date of the sale, by United States certified mail, personal addressee only, return receipt requested, postage prepaid, to each owner as defined by this act.” Former 72 P.S. § 5860.602(e)(1)(emphasis added).8 “Although Section 602(e)’s terminology changed from ‘personal addressee only’ to ‘restricted delivery,’ USPS’s meanings have not.” In re Upset Tax Sale Conducted on September 11, 2014, 2016 WL 916867, at *4 Both services restrict who may sign for receipt of a mailing and are synonymous. Id. Likewise, in Kemler v. Lackawanna County Tax Claim Bureau, 2015 WL 5430360 (Pa.Cmwlth. 2015), the Commonwealth Court reversed the trial court and set aside a tax sale because taxing bureau, like the Bureau here, did not meet its burden of proving that it sent notice via certified mail, restricted delivery to one of the property’s owners. Finally, in Perma Coal-Sales, Inc., the Commonwealth Court overturned a decision of the trial court and directed that an upset sale be set aside where the property was owned by a corporation and mailed notice was sent to the corporations registered address but was signed for by an individual who had no apparent authority to accept mail on behalf of the corporation.  Perma Coal-Sale, Inc., 638 A.2d at 331.

How long do you have to challenge the sale?

Following the sale, the County must file a consolidated return with the court to confirm the sale. The Court will then enter an order stating that all objections to the upset tax sale must be made within thirty days of the date of the order. However, if an owner wishes to challenge a sale after that thirty day period it can request that the Court accept the petition to side aside the sale nunc pro tunc.

The Pennsylvania Contractor and Subcontractor Payment Act

Background

73 P.S. § 501, et. seq. is known as the Contractor and Subcontractor Payment Act (“CASPA”)  is a statute that was enacted in 1994 “to cure abuses within the building industry involving payments from contractors to subcontractors and to encourage fair dealing among the parties to a construction contract.” Zimmerman v. Harrisburg Fudd I, L.P., 984 A.2d 497, 500–501 (Pa.Super.2009). CASPA is a remedial statute and it is accorded “liberal construction to effect its objects and to promote justice.” Id., at 502 n. 8.  CASPA applies to all construction projects in Pennsylvania involving the construction, except for residential construction of six or less units.  73 P.S. § 503(a).  CASPA requires that contractors pay subcontractors within fourteen days of receiving the subcontractor’s invoice. Recent amendments to CASPA, require that if a contractor is refusing to pay a subcontractor within fourteen days, it must give written notice to a subcontractor within that fourteen-day period. If a contractor fails to give written notice to the subcontractor within that fourteen-day timeframe, it waives all defenses to payment and payment is immediately owed. To further incentivize contractors to promptly pay their subcontractors, CASPA imposes 1% interest per month and 1% penalty per month on the amounts outstanding.  Finally, CASPA mandates the award of attorneys’ fees and expenses to a subcontractor that successfully pursues a claim under CASPA.

CASPA mandates payment within fourteen days

Section 507(b) of CASPA mandates that before a subcontract is executed, a contractor is required to disclose to a subcontractor the due date for receipt of payments from the owner of the Project.  73 P.S. § 507(b). If a contractor fails to disclose those due dates to a subcontractor then the contractor is deemed to have received payment from the owner.  Id.  Section 507(b) states, in relevant part, “if a contractor or subcontractor fails to accurately disclose the due date to a subcontractor, the contractor or subcontractor shall be obligated to pay the subcontractor as though the due dates established in section 5(c)1 were met by the owner.” 73 P.S. § 507(b). This means that when a contractor fails to disclose those due dates to a subcontractor the contractor cannot use lack of payment from the owner as an excuse for non-payment to its subcontractor.

Section 507(c) of CAPSA, mandates that a contractor shall pay a subcontractor within fourteen days of it receiving or being deemed as  receiving payment from the project owner. 73 P.S. § 507(c). In sum, if a contractor fails to disclose the dates it expects payment form the project owner, CASPA requires payment within fourteen days, whether a contractor has received a payment or not from its client.

 Waiving the defense that payment is withheld because of defective work

Under Section 504 of CASPA, “[p]erformance by a contractor or a subcontractor in accordance with the provisions of a contract shall entitle the contractor or subcontractor to payment from the party with whom the contractor or subcontractor has contracted.” 73 P.S. § 504. Under Section 511(b)(1) of CASPA, “if a contractor or subcontractor withholds payment from a subcontractor for a deficiency item, the contractor or subcontractor withholding payment must notify the subcontractor and the owner in writing of the good faith reason for the withholding within the time period specified in the construction contract or 14 calendar days of the date after receipt of the notice of the deficiency item.” 73 P.S. § 511(b)(1). CASPA defines a “deficiency item” as “[w]ork performed but which the owner, the contractor or the inspector will not certify as being completed according to the specifications of a construction contract.  73 P.S. § 502. Importantly, if a contractor fails to comply to Section 511(b)(1) it “shall constitute a waiver of the basis to withhold payment and necessitate payment to the subcontractor in full for the invoice.” 73 P.S. § 511(b)(2).

Zoom Webinar: State and Federal Prompt Payment Act

On Friday, November 6, 2020 at 10:00 a.m. I am hosting a free zoom webinar on federal and state prompt payment act (primarily New Jersey and Pennsylvania).  Owner learn how not to get smacked with heavy interest and attorneys fees on small payment disputes.  Contractors and subcontractors learn how to get your invoices paid and to recover your interest and attorneys fees.

https://zoom.us/webinar/register/WN_G_hopYTtRd6473th5tQmrA

Federal Arbitration Act Preempts Pennsylvania Payment Act

I am back.  It feels like an entirety since I last posted. But a hellacious trial schedule got me off the blogosphere for some time.  Plus, there was nothing to write about.

But I am back with a bang thanks to a decision from the Eastern District of Pennsylvania concerning the interplay of a forum selection clause appearing in an arbitration clause in a construction contract and the Pennsylvania Contractor and Subcontractor Payment Act.  In Bauguess Electrical Services, Inc. v. Hospitality Builders, Inc., the federal court (Judge Joyner) ruled that the federal arbitration act preempted the Payment Act’s prohibition on forum selection clauses and held that an arbitration must proceed in South Dakota even though the construction project were the work was performed was located in Pennsylvania.

The Payment Act applies to all commercial construction projects performed in Pennsylvania. As some you might know, Section 514 of the Payment Act, 73 P.S. 514, prohibits choice of law and forum selection clauses.  It states “[m]aking a contract subject to the laws of another state or requiring that any litigation, arbitration or other dispute resolution process on the contract occur in another state, shall be unenforceable.” Therefore, if a construction contract is for a project located in Pennsylvania, Pennsylvania law must apply and all disputes must be adjudicated in Pennsylvania.

The case involved a typical construction project payment dispute between a subcontractor and general contractor. Bauguess Electrical was an electrical subcontract that entered into a contract with Hospitality Builders for work on Hotel project in Delaware County Pennsylvania. Bauguess claimed it performed all of its work required under the subcontract but was still owed $80,000. Bauguess filed a petition to compel arbitration. Hospitality Builders responded to the petition claiming that under the subcontract, arbitration was required to take place in South Dakota.  Bauguess replied by stating that Section 514 of the Payment Act prohibited arbitration in South Dakota and required arbitration to occur in Pennsylvania. Defendant countered by stating that the Federal Arbitration Act preempted the Payment Act.  The federal court resolved the dispute by agreeing with the defendant that the FAA preempted the Payment Act and ordered that arbitration occur in South Dakota.

The federal court began its discussion by reiterating the federal courts’ liberal policy towards arbitration under the FAA.  The court then turned to whether the FAA preempted the Payment Act. The court found that the FAA preempted the Payment Act under a “conflict preemption” theory of preemption. Conflict preemption occurs when there is an actual conflict between the application of federal and state law.  The court held that one of the primary purposes of the FAA is “to ensure ‘that private agreements to arbitrate are enforced according to their terms.” If the parties reach an agreement to arbitrate in a forum other than Pennsylvania, there is a conflict between the purpose of the FAA and the Payment Act which would prohibit such an agreement.  The federal court concluded that under a conflict preemption, the FAA acts to preempts the Payment Act.  So it ordered the parties to resolve there dispute through arbitration in South Dakota.

The All Important Take Away

1.   As it applies to arbitration, Section 514 is essentially invalid.  Section 514 specifically applies to arbitration. But, if the parties reach an agreement to arbitrate a dispute involving a Pennsylvania construction contract in a place other than Pennsylvania, the Payment Act will not prevent that from happening.

2.   With this in mind, when reviewing a construction contract for a Pennsylvania project, if the matter is to be arbitrated, the location of the arbitration should be addressed. If you represent a smaller subcontractor, you should not agree to arbitrate in some far flung forum.

SCOTUS Opens Up Federal Courts to Land Owners

For nearly 36 years, the United States Supreme Court’s decision in Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City, 473 U.S. 172, 105 S.Ct. 3108, 87 L.Ed.2d 126 (1985)  severely frustrated, if not all but foreclosed, a property owner’s right to bring a claim in federal court based on a regulatory taking.  Under the Fifth Amendment, a property owner whose land has been “taken” by the government is entitled to just compensation.  There are two types of takings direct or “inverse” or regulatory takings.  A direct taking is where the government declares that it needs your land for public use and offers to pay you compensation.  You might disagree with the amount offered – and that often is the case.  But, a mechanism exists whereby a neutral third party – a condemnation board – will arrive at the compensation that is owed.  On the other hand, an inverse condemnation or regulatory taking occurs when the government takes some action that restricts the use of the land in such a way as to severely impact it beneficial economic use.  For example, if you own a strip of commercial property and intend to develop it and then the municipality comes along and suddenly changes the zoning classification of the parcel such that you can no longer develop it in a beneficial way, then you might have a regulatory takings case.

Under the Court’s Williamson County decision, property owners falling within the later category were required to exhaust state remedies before proceeding to federal court under a claim that their Fifth Amendment rights were violated.  The problem with this is that, as the Supreme Court explained, it creates a Catch-22. If property owners exhaust their state remedies and the state remedies result in an unfavorable outcome, the federal court is powerless to overturn that decision under the doctrines of res judicata and the full faith and credit clause of the Constitution.

Well, yesterday, the Court overturned Williamson County, in Knick v. Township of Scott, 588 U.S. _____ (2019). There the Court held unequivocally a “property owner has suffered a violation of his Fifth Amendment rights when the government takes his property without just compensation, and therefore may bring his claim in federal court under Section 1983 at that time.”

The right to bring a claim in federal court under Section 1983 is significant because that statute permits the award of attorneys fees and costs to the land owner.  What this means is that if a property owner has suffered a final adverse land use decision, he should consider an action against the government authority in federal court.  What type of adverse decisions might be subject to such a claims?

• A change in zoning classification that impacts the future use of a parcel;
• Environmental regulations that impact the future plans for the parcel;
• Revoked building permits;
• A historical designation that impacts the future development of the parcel; and
• Additional burdensome conditions placed on a previously partially approved parcel.

These a but a few of the types of cases that might be ripe for a challenge.  And, again, the upside is that a challenge could result in the government having to pay your attorneys fees and costs.

Differing Site Conditions Webinar

Government Contractors Need to Learn about Apprentice Programs

Here is a link to the model legislation that I referenced in the video:  
http://www2.lecet.org/mura/clearinghouse/assets/File/Responsible%20Contractor%20Policy.pdf