Having designated legal counsel is critical to any comprehensive crisis management strategy. Whether you are in pre-crisis, crisis or post-crisis—having an attorney involved in your decision-making process can be the difference between surviving or even thriving in a crisis and having a crisis disrupt your business or derail your career permanently. How can your attorney help you be ready for a crisis? For starters, counsel can assess your document retention and storage policies and recommend best practices. Your counsel should also review your readiness procedures with a dedicated crisis management team of public relations and marketing professionals as well as a company spokesperson. Being prepared for a crisis requires strategic planning. Crisis flow chart

Be ready for the BIG surprise or bombshell that may be lurking in your future. Please join me and my team of crisis management experts for a half-day program of invaluable crisis management training, February 17th in Bethlehem, PA hosted by the American Subcontractors Association of Central PA. Our all-star panel will feature David Blain, Principal, of McKonly & Asbury, Doug Dvorchak, Sales/Account Executive & Risk Control Consultant, with Murray Securus and Lydia Mantle, Bond Account Executive, also with Murray Securus. Using real-world examples, we will provide tips on risk management, protecting your credit and assets, among other topics. We will answer your questions in a live Q&A. The best crisis management response takes planning, a holistic effort and a range of expertise. Take this opportunity to learn from the best and start planning now for your own synchronized response. Make the best of what will surely be a stressful situation.

Tuesday, February 17th
Event Center at Blue
4431 Easton Avenue, Bethlehem, PA

Registration & Breakfast – 7:30 a.m. – 8:00 a.m.
Program: 8:00 a.m. – 11:30 a.m.

Register here.

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

Rolled Blueprints and gavel of justice

On July 9, 2014, Pennsylvania Governor Tom Corbett signed a bill (S.B. 145) into law that amends the Pennsylvania Mechanics’ Lien Law of 1963 (the “Lien Law”). The new law took effect on September 8, 2014 and affects subcontractor lien rights on residential construction projects as well as the order of lien priority between mechanics’ liens and open-end mortgages.

Liens on Residential Property

Under the new law, an unpaid subcontractor no longer has lien rights if all three of the following conditions are satisfied:

  1. The property owner or tenant has paid the full contract price to its general contractor;
  2. The property is or is intended to be used as the owner’s or tenant’s residence; and
  3. The property in question is a one or two unit residential property or townhouse.

In other words, this amendment protects homeowners from having to pay twice for the same work (e.g., where the owner pays the general contractor but the general contractor fails to pay its subcontractor). The new law includes a procedure through which an owner can discharge or reduce the amount of the mechanics’ lien by petitioning the court and proving that he or she has paid the full contract price to the general contractor.

Changes to Lien Priority

Through S.B. 145, the Pennsylvania Legislature has also changed how the Lien Law addresses the question of lender priority. As we have blogged previously, “priority” refers to who gets paid first if a property encumbered with multiple mortgages, mechanics’ liens, or the like is sold. Before the new law was passed, a mechanics’ lien could enjoy priority over a mortgage if the work in question began before the bank recorded the mortgage and the loan proceeds secured by the mortgage were used, in part, for non-construction costs.

With the new changes to the Lien Law, these open-end mortgages will enjoy priority over a mechanics’ lien claim as long as at least 60% of the loan proceeds are used to pay the “costs of construction” (which is defined in S.B. 145 very broadly to encompass just about every conceivable construction cost including taxes, bonding, and permits). These changes appear to be the legislature’s response to situations like the one in which the Pennsylvania Superior Court encountered in the case of Commerce Bank/Harrisburg, N.A. v. Kessler. In Kessler, a contractor’s mechanics’ lien was given priority over a bank’s open-end mortgage on the property in connection with a construction loan because not all of the proceeds from the loan were used to cover the costs of construction.

What Do These Amendments Mean to Players in the Construction Industry?

For subcontractors, the risk of nonpayment on residential projects increases because the homeowner may be able to demonstrate that it paid the general contractor in full. In those instances, the subcontractor’s recourse will most likely be limited to a breach of contract lawsuit against the general contractor. It is important for all members of the construction industry to note that this new protection to owners is limited to residential properties where the owner intends to use it as his or her residence.

Lenders and title companies will likely celebrate the changes to the Lien Law because it effectively overrules the Kessler decision and defines “costs of construction” more broadly such that open-end mortgages in connection with construction loans are likely to enjoy priority over a mechanics’ lien claim under most circumstances.

As is evident from these amendments, the Lien Law is a powerful and complicated statutory remedy that affects the rights of most participants in a construction project including lenders, owners, contractors, subcontractors, and suppliers. These latest changes remind us how challenging it can be to balance and navigate the competing rights and interests of each player. Anyone with questions regarding these new changes or the Lien Law generally should feel free to contact Cohen Seglias.

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.

Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law. Dan counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals.

Pennsylvania’s Home Improvement Consumer Protection Act (“HICPA”), which went into effect in 2009, generally requires that home improvement contracts be in writing and contain thirteen specific items (including the contractor’s home improvement contractor registration number, the date of the transaction and the name, address and telephone number of the contractor).  Absent inclusion of all items, the contract is not valid or enforceable against the owner.  This means that the contractor cannot assert a claim for breach of contract if the owner fails to pay for work performed.

Home Renovation

However, in the recent case of Shafer Electric & Construction v. Mantia, the Pennsylvania Supreme Court ruled that even if a contract fails to comply with HICPA, the contractor may still be able to recover the reasonable value for its services under the equitable theory of quantum meruit, or unjust enrichment.  What this means is that a homeowner is not excused from its obligation to pay the contractor simply because the home improvement contract does not comply with HICPA.

In Shafer, the homeowners engaged the contractor to build a garage addition onto their home.  The contract, however, did not comply with most of the requirements of HICPA.  After the contractor had performed work, a dispute arose and the parties agreed that the contractor would 1) invoice the homeowners for the work completed and 2) thereafter, discontinue its efforts.  Nevertheless, the homeowners refused to pay and the contractor filed suit for breach of contract and quantum meruit.  The homeowners moved to dismiss the action pursuant to HICPA.  The trial court granted the motion.  On appeal, the Pennsylvania Superior Court reversed as to the quantum meruit claim.  The homeowners then took a further appeal to the Pennsylvania Supreme Court.

The Supreme Court determined that HICPA does not preclude a non-compliant contractor from pursuing an action in quantum meruit.  Instead, HICPA only speaks to the enforceability and validity of home improvement contracts.  Further, under common law principles, a party is not precluded from bringing a quantum meruit action when one for breach of contract is unavailable.  Significantly, the court noted that the language of HICPA does not make any reference to a claim for quantum meruit being precluded and that it would be improper to insert words into HICPA that would extinguish a claim for quantum meruit.

Shafer is helpful for contractors in the event of noncompliance with HICPA.  However, it remains our strong recommendation to contractors that your home improvement contracts comply with HICPA.  Under quantum meruit, you can only recover the reasonable value of the services rendered and not necessarily the profit under the contract.  Additionally, a violation of any aspect of HICPA is also considered a violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, which could subject you to enhanced damages and attorney’s fees in the event that a homeowner asserts a claim against you.

If you are unsure about whether your home improvement contract complies with HICPA, please do not hesitate to contact us.

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

Matthew L. Erlanger is an Associate in the Construction Group.

Forums like Angie’s List, Yelp, or even Yahoo Community Listserves allow homeowners and other contractor clients to recommend a contractor for a job well done. Just as often, however, disgruntled clients use these venues to vent about shoddy workmanship, defective construction, and unfinished contractor punchlist work. Although these forums seem safe and anonymous, anyone posting on these sites should be aware of the sometimes harsh legal consequences – and the fact that their posts (if untrue) could result in a successful defamation claim.

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Recent Case Law: In Dietz Development, LLC v. Perez, Docket No. 2012-16249, Fairfax County Circuit Court, Virginia, a Virginia homeowner posted defamatory statements about a D.C. based contractor who performed work on her home – stating that his shoddy workmanship required extensive refinishing and insinuating that he stole jewelry from her home. The contractor posted a retort alleging that the homeowner retained or stole valuable goods from him and did not pay him for his work. He subsequently sued for defamation, claiming $750,000 in lost reputation and business contracts that were cancelled after the defamatory reviews were posted.

After a year of protracted litigation, a week-long trial and eight hours of deliberation, a jury returned an interesting verdict finding that the homeowner and contractor had both defamed each other. Accordingly, the jury rationalized that these acts offset each other and that no monetary award should be made to either side. However, while no monetary damages were awarded, monetary damage award will inevitably ensue as more of these types of cases go to trial.

If You Can’t Say Anything Nice . . . Accordingly, contractors should be wary of posting negative reviews of a client or other business or posting a retort to a negative review directed at them.

The Takeaway: Moreover, should you find yourself the subject of a negative review – do not impulsively strike back. While reviews that are fact or opinion based are not necessarily actionable, those containing untruthful allegations may be. Statutes, court procedures and case law protecting both anonymous online posters as well as the targets of their defamatory posts can vary widely from state to state. Moreover, given the ubiquitous nature of the Internet, you may find yourself in an unexpected legal jurisdiction. Accordingly, it is wise to engage an attorney who can 1) carefully review, document and preserve the negative reviews as evidence, 2) negotiate with website providers to remove the posts and 3) aid in identifying the often anonymous online poster. Finally, a contractor must also consider and weigh the effect of the negative review of his or her business online with the potential negative publicity associated with pursuing a previous client in court.

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

Wendy R. Bennett is an Associate in the Construction Group.

Unfortunately, dealing with the serious and often financially debilitating issues related to defective stucco is nothing new to many Pennsylvania homeowners. In addition to repairing defective work, a homeowner’s status as a first purchaser of the home, as opposed to a subsequent purchaser, impacts his or her case against the builder. Recently, the Pennsylvania Supreme Court decided to rule on this issue – a ruling that will surely be impactful to homeowners and builders alike.

Recent History

Back in late 2012, the Pennsylvania Superior Court, in Conway v. Cutler Group, Inc., sharply altered the law governing the implied warranty of habitability (the “Warranty”) as it pertains to subsequent purchasers’ right to sue a homebuilder. There, the Superior Court extended the protection of the Warranty to subsequent home buyers, thereby altering the decades-old rule that limited standing to bring a claim against the homebuilder for breach of the Warranty to the original home buyer. This was good news for the numerous Pennsylvania homeowners impacted by defective construction involving stucco and who did not purchase their home from the homebuilder as an original owner. While the Superior Court’s decision still stands as the law in Pennsylvania, the Pennsylvania Supreme Court has decided to take up the issue for itself having granted a petition for appeal in the case.

Current Law Under Conway  Thumbnail image for Stucco Repair.jpg

Generally, the Warranty requires that homebuilders construct homes in a reasonably workmanlike manner, and that the homes be reasonably fit for living. A builder’s failure to meet these two fundamental requirements may make the builder liable to the homeowner for breach of the Warranty. Under the current law, subsequent home buyers who discover defects in the construction of their homes may bring suit against the homebuilder for a breach of the Warranty despite having had no contract or direct relationship with the builder.

Potential Impact of the Supreme Court’s Decision to Hear the Issue

Last month, the Supreme Court granted the Cutler Group, Inc.’s petition for appeal framing the issue to be decided as whether “the Superior Court wrongly decide[d] an important question of first impression in Pennsylvania when it held that any subsequent purchaser of a used residence may recover contract damages for breach of the builder’s implied warranty of habitability to new home purchasers?” The Court’s answer to this question may mean that the decades-old rule of limiting the scope of the Warranty is definitively dead, or it may mean a return to the restriction on the Warranty limiting its protection to original home purchasers. Whatever the outcome, homebuilders and homeowners alike should stay tuned for the Court’s decision. We will continue to monitor the case and will update the blog as news develops.

For questions or concerns about defective construction, including stucco, please feel free to contact us.

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

Matthew G. Tom is an Associate at Cohen Seglias 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.