Photo of Kathleen M. Morley

Kathleen M. Morley is an Associate in the Construction Group at Cohen Seglias and concentrates her practice in construction litigation. She has experience assisting the Firm's construction industry clients with a broad range of construction-related matters including contract disputes, bid protests, injunctions, mechanics' liens and bond claims.

A New York appellate court issued a decision in 2016 that serves as an important reminder to all tiers of the construction industry: courts take the notice provisions in your construction contracts very seriously. In the Schindler Elevator Corp. v. Tully Const. Co., Inc. case, the Appellate Division dismissed a subcontractor’s claim in its entirety because emails and letters that the subcontractor provided to the prime contractor did not comply with the strict notice provision in the prime contract. Continue Reading New York Case Reminds Us That Some Courts Take Notice Provisions Very Seriously

In the construction industry, mediation has become an extremely popular vehicle for resolving disputes that develop during and after projects. It is particularly appealing because (i) it can provide an early opportunity for the parties to resolve a case in lieu of more protracted and expensive litigation and (ii) if the case does not resolve, the communications, factual, and legal positions taken during the mediation will remain confidential and cannot come into play at trial.

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Last month, the New Jersey Supreme Court handed down a decision that may profoundly affect these fundamental principles of mediation in New Jersey. In Willingboro Mall, Ltd. v. 240/242 Franklin Avenue, LLC, the Court addressed two key mediation issues: (i) whether verbal settlement agreements reached at mediation are enforceable and (ii) whether communications made in the course of such discussions are privileged from future disclosure. The Court issued two essential holdings that apply to mediations taking place in New Jersey. First, from now on, settlements reached at mediations that are not reduced to a written agreement and signed by the parties before the mediation comes to a close will not be enforceable. Second, while communications occurring during mediation ordinarily are considered privileged and confidential, that privilege can be waived by a party.

How Did The Owner Waive The Mediation-Communication Privilege?

In Willingboro, the owner of the Willingboro Mall sued a buyer over the terms of the sale. At the trial court’s direction, the parties mediated their dispute and, at mediation, agreed upon settlement terms verbally. When the buyer advised the Court that the parties settled, the property owner balked, sparking litigation over whether a settlement agreement was in place. The buyer asked the court to enforce the verbal agreement, and, in response, the seller asked the court to not to enforce it. In support of their arguments, both sides revealed communications that took place during mediation. The Supreme Court found that the owner waived the mediation-communication privilege by referencing the confidential mediation communications in its opposition to the buyer’s motion to enforce the settlement agreement. According to the Court, if the seller wanted to preserve the confidentiality of the negotiations that took place during mediation, it should have asked the court to strike the buyer’s motion without disclosing confidential mediation communications in its response.

What Are The Future Implications Of This Case?

Despite ruling that the parties’ verbal settlement agreement was enforceable, the Court held that, going forward, in order to be enforceable, settlement agreements reached at mediations in New Jersey will need to be executed in writing either before the completion of the mediation or immediately thereafter during an extension of the mediation “for a brief but reasonable period of time.” Since settlements are often reached and formalized during the days and weeks after a mediation session, parties in this situation would be wise to agree in writing that the mediation will remain open for a definitive time period so that a settlement down the road is not undermined by the Supreme Court’s ruling in Willingboro Mall. Interestingly, the Court seemed to suggest that an audio- or video-recorded agreement could meet the written agreement requirement.

With regard to the mediation communication privilege, while, as a general rule, communications between parties at mediation remain confidential and are not subject to disclosure, the Willingboro Mall case serves as a cautionary reminder that a party seeking the protection of the privilege invoke it before making a disclosure that could waive it.

Tony Byler is a Partner at Cohen Seglias Pallas Greenhall & Furman PC and a member of the Construction Group. As a trial lawyer, he focuses his practice on representing public and private owners, contractors, subcontractors and material men.

Kathleen M. Morley is an Associate with Cohen Seglias Pallas Greenhall & Furman PC and a member of the Construction Group.

By: Tony Byler and Kathleen Morley

Mechanics’ lien claims are powerful tools for contractors and suppliers who are owed payment for work or materials. To be enforceable, the contractor or supplier (“Contractor”) must file a lien claim within six months of completing its work. Recently, in Neelu Enterprises, Inc. d/b/a KB Builders v. Ashok Agarwal et al., the Pennsylvania Superior Court clarified the term “work” to exclude corrective work from its meaning. Based on the Court’s explanation of “work” as it pertains to the lien law, the six-month time clock for filing a lien could start to run well before the Contractor performs its last work at a project. In other words, Contractors should be more vigilant with regard to protecting their lien rights because those rights could start to expire well before the Contractor actually performs its last work at a project.

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Under Pennsylvania’s Mechanics’ Lien Law (the “Lien Law”), a Contractor must file its lien claim within six months of completing its work. If a Contractor files a lien claim more than six months after it has completed its work, a court can dismiss the lien and leave the Contractor without lien rights. Given such high stakes, the calculation of the six-month timeframe is critical to ensuring the preservation of lien rights.

Determining a Contractor’s last date of work for the purpose of filing a lien is not as easy as it may seem because the Lien Law does not explain the circumstances under which the Contractor has “completed” its work. For example, does the clock start running when the final punch list is complete? Is it when the Contractor was last on site, or, in the case of a supplier, the date on which the last materials were delivered? What about when warranty work or material is performed or supplied many months after demobilization? The Lien Law does not answer these critical questions, which means the courts must fill in the gaps.

The Law after Neelu Enterprises

In Neelu Enterprises, the Superior Court shed light on the issue of work completion. The issue before the Court in Neelu Enterprises was whether the Contractor had timely filed a mechanics’ lien claim within the six-month limitation period under the Lien Law. After performing significant work without being paid, the project owner terminated the Contractor. Many months after termination, the Contractor returned to the site to perform corrective work at no additional cost to the owner. Thereafter, the Contractor filed a lien claim, using its last date of corrective work as its completion date, not the date on which it was terminated. The owner argued that the Contractor’s lien claim was untimely because it was filed more than six months after the Contractor was terminated. The Contractor argued that its lien claim was timely because it had performed work (albeit corrective work) less than six months prior to the filing of its claim. The Court ultimately rejected the Contractor’s argument, finding that the Contractor’s lien rights began to expire from the date on which it was terminated, not the date on which it last performed the corrective work.

In reaching its decision, the Court found significant that the Contractor sought payment for the work it performed prior to its termination, rather than for the corrective work that the Contractor performed after the termination at no cost to the owner. Relying on an opinion of the Pennsylvania Supreme Court dating to 1890, the Court distinguished extra work from corrective work, reasoning that the performance of extra work (such as change order work) entitled the contractor to additional payment and, therefore, prolonged the running of the six-month clock. Conversely, the Court reasoned that corrective work does not entitle a contractor to additional compensation and, therefore, does not extend the six-month time limitation.

While the Court in Neelu Enterprises dealt specifically with corrective work, the Court’s reasoning could arguably apply to any type of work that is performed without cost to the owner or for which payment has already been made (e.g., punch list, warranty and gratuitous work).

Recommendation

As a result of the Neelu Enterprises decision, when Contactors are not being paid in accordance with the terms of their contracts, they must be mindful of the nature of the work they are performing because it affects how much time they have to file a lien claim. As a consequence, keep this easy-to-remember saying in mind when determining whether your company’s work is complete: “if the Owner doesn’t have to pay, the six-month lien clock is likely in play.”

Tony Byler is a Partner at Cohen Seglias Pallas Greenhall & Furman PC and a member of the Construction Group. As a trial lawyer, he focuses his practice on representing public and private owners, contractors, subcontractors and material men.

Kathleen M. Morley is an Associate with Cohen Seglias Pallas Greenhall & Furman PC and a member of the Construction Group.

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By: Kathleen M. Morley and Jennifer M. Horn

The Superior Court of Pennsylvania recently issued a decision in the case of Bennett v. Masterpiece Homes et al. in which the Court found that an owner of a construction company personally assumed liability for defects in construction work based upon his oral representations and assurances made to homeowner customers regarding the work.

The Force and Effect of “I Guarantee It”

This case involved claims brought by individuals (“Homeowners”) against a construction company and the managing member (“Owner”) of the company, which the Homeowners had hired for the construction of homes in a residential development. During construction of the homes, the Homeowners noticed certain building deficiencies and brought them to the attention of the Owner, who served as their primary contact at the company throughout construction. On numerous occasions, the Owner assured the Homeowners of the quality of the work being performed on their homes by making verbal, direct assurances often in the form of personal guarantees by saying things such as “I will take care of it,” or “I guarantee it” when questioned about the quality or remediation of certain work. Upon completion of construction, however, the Homeowners discovered significant, latent structural problems and defects in the construction of their homes requiring extensive repair.

Held to His Word

The Homeowners filed suit for breach of contract, breach of warranty and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) against both the Owner and the construction company alleging that they had built defective homes and engaged in deceptive and dishonest practices during the construction process. The trial court found that the Owner’s personal representations and guarantees regarding the homes and the quality of the construction work exposed him to personal liability for the damages and, in fact, awarded the Homeowners double the amount of damages based on what the Court found to be “misleading conduct” in violation of the UTPCPL, which is a consumer protection law that allows for the award of up to three times the amount of actual damages suffered by a member of the public as a result of unfair or deceptive business practices.

Not A Mere “Figure of Speech”

The Owner appealed the trial court’s ruling arguing on appeal that he did not assume personal liability by virtue of his personal, verbal assurances and that he could not be liable for punitive damages under the UTPCPL without evidence of fraudulent, not just misleading, conduct. With respect to his personal assurances and statements, the Owner argued that such statements were merely figures of speech and did not act as an assumption of personal liability. The Owner also argued that imposing personal liability was improper because he was acting as an agent of the construction company at the time these statements were made.

“Double” Damages Under PA’s Unfair Trade Practice and Consumer Protection Law Upheld

The Superior Court upheld the trial court’s ruling and found that the Owner’s assurances were akin to express promises guaranteeing the quality of the construction. His promises had the effect of personally obligating him for the structural soundness and integrity of the homes because the statements were made for the purpose of securing the Homeowners’ continuing performance (payment) under their respective contracts. The Court also upheld the trial court’s award of double damages, finding that the “catchall provision” of the UTPCPL, which prohibits “fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding[,]” only requires a showing that conduct was misleading to trigger liability. Accordingly, the Court held that a more stringent standard requiring a showing of fraud was not required in order to be liable for double or triple damages under the UTPCPL.

Personal Liability Attaches Despite Seemingly “Informal” Statements

The Court’s finding of personal liability based upon seemingly informal statements of assurance and guarantee should serve as a cautionary warning for construction professionals who may be quick to make such assurances to appease concerned clients when issues arise during construction. Additionally, the case demonstrates that the standard of liability for double or triple damages under the UTPCPL is low and such damages can be imposed upon construction companies, or their owners or managers, for conduct that a Court considers misleading.

Kathleen M. Morley is an Associate with Cohen Seglias Pallas Greenhall & Furman PC and a member of the Construction Group.

Jennifer M. Horn is Senior Counsel at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate.

By: Jason A. Copley and Kathleen M. Morely

Contractors and subcontractors, and really any business associated with construction, should be pleased with a new law that just took effect in Pennsylvania. In cases where there is more than one defendant, a plaintiff can only recover from each defendant the proportionate value of each defendant’s liability. In other words, each company found liable for negligence can only be required to pay the portion of liability that is attributed to them by a judge or jury.

What is Pennsylvania’s New Fair Share Act and How Does It Change Prior Law?

On June 28, 2011, Pennsylvania joined the majority of other states in adopting an act known as the “Fair Share Act“. In negligence actions where multiple defendants are at fault, the Fair Share Act limits the liability of each defendant to their share of responsibility for the loss. Prior to the adoption of the Fair Share Act, if multiple defendants were found to be liable for negligence, each defendant could be forced to pay the plaintiff for the full amount of the judgment.

To illustrate the change in the law, consider the following example under both the “old law” (prior to June 28, 2011) and the new law (the Fair Share Act): suppose a plaintiff is awarded $10,000 in damages in a negligence action involving three different defendant contractors, which the jury found to be 70% at fault (Contractor A), 25% at fault (Contractor B) and 5% at fault (Contractor C). Under the old law, even though the extent of each contractor’s fault varied considerably, each contractor was liable to the plaintiff for the full amount of the $10,000 judgment in the event the other defendants were unable to pay. That means that in this example, even though Contractor C was only 5% at fault ($500), that contractor or its carrier might be forced to pay the full $10,000. This concept is also referred to as “joint and several liability.”

In contrast, under the Fair Share Act, liability is only “several,” and not “joint,” meaning that each defendant is liable only for its percentage of liability. Therefore, in our example, under the new law, Contractor C would only be liable to plaintiff for $500 of the $10,000 award even if Contractor A and Contractor B were bankrupt and unable to pay.

Under the old law, defendants shared the risk of each defendant being able to pay his or her share of the judgment; whereas, under the Fair Share Act, a plaintiff now bears the risk of being able to collect from each defendant their actual share of liability.

Are There Any Exceptions or Limitations to the Fair Share Act’s Application?

Like most laws, there are exceptions to the Fair Share Act and limitations on the scope of its application. First, under the Fair Share Act, any defendant found to be 60% or more at fault for a plaintiff’s injuries can still be forced to pay the entire judgment just like under the old law. Second, the Fair Share Act does not affect contractual indemnity provisions. For instance, if a contract requires a subcontractor to indemnify a general contractor for injuries to third parties irrespective of fault, the contractor may seek contribution from the subcontractor pursuant to the terms of the contract. Third, the Fair Share Act only applies to claims arising after it went into effect on June 28, 2011. Therefore, the Fair Share Act would not apply to currently pending or newly instituted negligence actions that involve injuries occurring prior to June 28, 2011. Finally, the Fair Share Act does not apply to intentional torts and misrepresentations, as well as environmental and liquor law violations.

How Will the Fair Share Act Impact Contractors, Subcontractors and Pennsylvania Businesses Generally?

As with any new law, the Fair Share Act is subject to judicial interpretation and it is too early to predict with certainty what effect it will have on contractors, subcontractors and Pennsylvania businesses in general. Critics of the Fair Share Act argue that the new law will negatively impact innocent plaintiffs by limiting their ability to fully recover for injuries caused by multiple parties. Despite this criticism, however, the passage of the Fair Share Act appears, at least initially, to be a victory for Pennsylvania businesses who have frequently found themselves, or their carriers, paying a disproportionate amount of a loss.

Pennsylvania business groups, including the Pennsylvania Chamber of Business and Industry, Insurance Agents & Brokers of Pennsylvania and the Pennsylvania Association of Mutual Insurance Companies, supported the passage of the Fair Share Act and view it as favorable and necessary tort reform that will improve the Pennsylvania business climate, foster job creation, and reduce the cost of goods and services for consumers in the state.

Supporters of the Fair Share Act believe that the old law (i.e., joint and several liability) wrongly promoted frivolous litigation and lawsuits aimed at “deep pockets.” In this regard, the Fair Share Act relieves previous unwarranted pressure on solvent businesses to settle frivolous lawsuits out of fear of having to pay damages disproportionate to fault. Accordingly, at least on its face, the Fair Share Act ensures that a party’s level of financial responsibility is based upon matters of fairness and equity, rather than the extent of its coverage or ability to pay.

Our Construction Group will continue to monitor and track developments in this area of the law. A more detailed discussion of the Fair Share Act will also appear in the upcoming fall issue of Cohen Seglias’s quarterly newsletter, Construction in Brief.

Jason A. Copley is the Managing Partner at Cohen Seglias and a Partner in the Construction Group. His practice is focused on representing contractors, subcontractors and owners in the areas of construction and commercial litigation.

Kathleen M. Morley is an associate in the Construction Group.