Opinion
J-S41023-13 No. 2493 EDA 2012
2013-10-04
SCUNGIO BORST & ASSOCIATES, Appellants v. SHURS LANE DEVELOPERS, LLC AND KENWORTH II, LLC., Appellees
Appeal from the Order Entered September 30, 2010
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): 946 November Term, 2008
BEFORE: BENDER, J., BOWES, J., and STRASSBURGER, J. DISSENTING MEMORANDUM BY BOWES, J.:
Retired Senior Judge assigned to the Superior Court.
My distinguished colleagues in the majority vacate the order granting summary judgment in favor of Mr. DeBolt, citing genuine issues of material fact. I submit that there can only be genuine issues of material fact if one first concludes that Mr. DeBolt, a non-contracting party, is subject to liability as an "owner" under the Contractor and Subcontractor Payment Act ("CASPA"). Mr. DeBolt contends that Scungio Borst & Associates ("SBA") cannot recover CASPA damages against him as he was not a party to the construction contract and that SBA's interpretation of the statute as imposing liability against agents of owners is "not sustainable" and "would lead to an absurd and unreasonable result." Appellee's brief at 6-7. While the majority accurately summarizes the parties' arguments regarding who is liable as an "owner" for purposes of that statute, it does not resolve that threshold question, which I believe is dispositive of this appeal.
I construe CASPA as providing additional types of remedies for breach of contract enforceable against contracting parties only. Given the trial court's unchallenged finding that Mr. DeBolt was not the alter ego of Shurs Lane Developers, LLC ("SLD"), I do not believe he is subject to CASPA liability, and the genuine issues of fact identified by the majority are immaterial. Thus, I respectfully dissent.
A fact is "material" only if its existence or non-existence would affect the outcome of the suit under governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).
SBA commenced this action seeking to impose liability against SLD, Robert DeBolt, and Kenworth II, LLC ("Kenworth") for, inter alia, breach of contract, unjust enrichment, and violation of CASPA. CASPA liability was premised on their status as "owners." The trial court entered summary judgment in favor of Mr. DeBolt on all three claims. SBA asserts that this was error as Mr. DeBolt was an agent of the owner, SLD, acting with its authority, and an "owner" is subject to liability under CASPA.
Kenworth was alleged to be the successor in interest to the LLC.
Judgment in the amount of $1.9 million was subsequently entered against 410 SLD and Kenworth on breach of contract and CASPA claims.
It is undisputed that SLD, a limited liability company ("LLC"), as defined in 15 Pa.C.S. § 8903, owned the property and contracted with SBA for construction services. Mr. DeBolt was a member of the LLC who owned fifty percent of its shares and served as its President. Viewing the facts in the light most favorable to the non-moving party, Mr. DeBolt ordered additional work under the contract on behalf of SLD, and thus, for purposes of summary judgment, one can reasonably conclude that he was an authorized agent of SLD.
The controversy stems from the definition of an "owner" as including "agents of the owner acting with their authority," and the General Assembly's use of both the term "owner" and contracting party in referring to those obligated to pay under CASPA. Prefaced with the caveat that, "[t]he following words and phrases when used in this act shall have the meanings given to them in this section unless the context clearly indicates otherwise[,]" an "owner" is defined as, "A person who has an interest in the real property that is improved and who ordered the improvement to be made. The term includes successors in interest of the owner and agents of the owner acting with their authority." 73 Pa.C.S. § 502. "Person" is defined as, "A corporation, partnership, business trust, other association, estate, trust foundation or a natural individual." Id. It is undisputed that SLB is a "person" with an interest in the property that ordered the improvements, and thus, an owner for purposes of the statute. SLB is also the contracting party. The question is whether, in enacting CASPA, the General Assembly intended to make an authorized agent like Mr. DeBolt subject to personal liability for failure to pay a contractor pursuant to a construction contract when he was not a contracting party.
In cases previously decided under CASPA, we have focused on the first sentence of the definition. See e.g., Joseph F. Cappelli & Sons v. Keystone Custom Homes, 815 A.2d 643 (Pa.Super. 2003) (The Contractor and Subcontractor Payment Act defines "owner," in relevant part, as, "A person who has an interest in real property that is improved and who ordered the improvement to be made." 73 P.S. § 502.). I am unaware of any authority construing the import of the "agents of the owner acting with their authority" language.
CASPA provides generally that when a contractor or subcontractor performs in accordance with a contract, he is entitled "to payment from the party with whom the contractor or subcontractor has contracted." 73 Pa.C.S. § 504 (emphasis added). The contractor is entitled to payment from the owner who contracted for his services; the subcontractor looks to the contractor or another subcontractor with whom he contracted for payment. See 73 P.S. § 507 ("Performance by a subcontractor in accordance with the provisions of the contract shall entitle the subcontractor to payment from the party with whom the subcontractor has contracted."). Thus, the plain language of § 504 speaks in terms of the contracting party's liability for payment as either the owner, contractor or subcontractor.
Successive statutory provisions, however, address the respective duties of the owner to the contractor and the contractor to the subcontractor upon completion of performance. The duty to pay arises and the timetable for payment commences when the contractor submits a final application for payment to the owner. See Boro Constr., Inc. v. Ridley Sch. Dist., 992 A.2d 208 (Pa.Cmwlth. 2010) (holding that contract's provision requiring issuance of final payment certificate by construction manager or architect was condition precedent to payment by owner). Payment to the contractor in turn starts the time running on the contractor's duty to pay the subcontractors.
Section 505 provides that, "The owner shall pay the contractor strictly in accordance with terms of the construction contract." 73 P.S. § 505(a). The owner may also withhold payment for deficiency items according to the terms of the construction contract. Id. That section also provides that "If an owner is not withholding retainage, a contractor may withhold retainage from a subcontractor in accordance with their agreement, but that it shall be paid within 30 days after final acceptance of the work." Id. at § 505(b). The contractor pays its subcontractors, who in turn pay their subcontractors within fourteen days of the receipt of the retainage. Section 512 sets forth penalties for an owner, contractor or subcontractor's failure to comply with the Act, and provides that a court "shall award, in addition to all other damages due, a penalty equal to 1% per month of the amount that was wrongfully withheld." Further, "If an owner, contractor or subcontractor unreasonably withholds acceptance of work or fails to pay retainage as required by this section, the owner, contractor or subcontractor shall be subject to the payment of interest at the rate established in section 5(d) on the balance due and owing on the date acceptance was unreasonably withheld or the date the retainage was due and owing, whichever is applicable." 73 P.S. § 509(d).
In attempting to reconcile the inclusion of agents within the definition of owner, we first assume that the legislature intended to make the statute applicable to parties to a construction contract only. It then further designated those parties as owners, contractors and subcontractors to delineate their duties to each other under the statute. The definition of an owner as an authorized agent may be intended as descriptive of those persons whose acts and omissions should be imputed to the owner. By providing that authorized agents of the owner should be viewed as owners, the legislature was ensuring that they were not deemed "contractors" by virtue of some contractual relationship with the owner. For instance, an architect contracts with an owner. To the extent that he is authorized to act on the owner's behalf, his conduct is imputed to the owner. Given this interpretation, he would fall within the definition of an owner rather than a contractor, and he would not be entitled to avail himself of the remedies afforded to contractors under the statute.
The language could also be construed as holding the contracting party liable for payment pursuant to the construction contract, but expanding liability for CASPA's additional penalties to a broader category of owners that includes authorized agents. This is the construction urged upon us by SBA. A variation on this interpretation is viewing the term "owner" as including those authorized agents who have both an interest in the property and who ordered the improvements, regardless of whether they formally contracted. Arguably Mr. DeBolt, as a fifty percent owner in SLD, the owner of the property, was an authorized agent with an interest in the property who ordered at least some of the improvements.
In construing a statute, the rules set forth in the Statutory Construction Act of 1972, 1 Pa.C.S. § 1501 et seq., guide us. Stivason v. Timberline Post and Beam Structures Co., 947 A.2d 1279, 1281-1282 (Pa.Super. 2008). The object is "to ascertain and effectuate the intention of the General Assembly." 1 Pa.C.S. § 1921. When the words are clear, we apply the plain meaning. It is only when the statute is unclear that we use the rules contained in the Act to ascertain the legislature's intent. Id.
I find CASPA ambiguous due to the legislature's use of the terms "contracting party" and "owner" as including agents of an owner in reference to the duty to pay a contractor. The question is whether the General Assembly intended to subject non-contracting agents of owners to liability as "owners" for the principal's failure to pay. If so, did it envision extending liability to all agents, or only that subset of agents who has an interest in the improved property and who authorized improvements? I agree with Mr. DeBolt that imposing statutory liability for interest, penalties, and attorneys' fees upon non-parties to a contract is contrary to well-established agency and contract principles, and should not be undertaken without evidence of a clear legislative intent to do so.
"Words and phrases shall be construed according to the rules of grammar and according to their common and approved usage[.]" 1 Pa.C.S.A. § 1903(a). If the General Assembly defines words that are used in a statute, those definitions are binding. Commonwealth v. Kimmel, 523 Pa. 107, 565 A.2d 426, 428 (1989). Under the S[tatutory]C[onstruction] A[ct], a court may presume that in drafting the statute, the General Assembly intended the entire statute to be effective. 1 Pa.C.S.A. § 1922. Thus, when construing one section of a statute, courts must read that section not by itself, but with reference to, and in light of, the other sections. Commonwealth v. Mayhue, 536 Pa. 271, 639 A.2d 421, 439 (1994).Braun v. Wal-Mart Stores, Inc., 24 A.3d 875 (Pa.Super. 2011), appeal granted in part on other grounds, 47 A.3d 1174 (Pa. 2012).
When the words are not explicit, we discern legislative intent by examining
(1) The occasion and necessity for the statute.1 Pa.C.S. § 1921(c).
(2) The circumstances under which it was enacted.
(3) The mischief to be remedied.
(4) The object to be attained.
(5) The former law, if any, including other statutes upon the same or similar subjects.
(6) The consequences of a particular interpretation.
(7) The contemporaneous legislative history.
(8) Legislative and administrative interpretations of such statute.
This Court has held that "The underlying purpose of [CASPA] is to protect contractors and subcontractors . . . [and] to encourage fair dealing among parties to a construction contract." Ruthrauff, Inc. v. Ravin, 914 A.2d 880, 890 (Pa.Super. 2006) (emphasis supplied). We explained further that performance by either a contractor or subcontractor pursuant to a contract entitles him to payment from the party with whom he contracted. 73 P.S. § 504. Id. The statute is calculated to ensure prompt payment from owners and contractors by providing additional types of remedies, such as interest, penalty and attorneys' fees, for contractors and subcontractors who are not paid in accordance with the terms of their construction contracts and sub-contracts. Stivason, supra. Consistent with that purpose, our courts have held that in order to proceed under CASPA, one must first establish a contractual right to payment pursuant to either a written or oral contract, and breach of that contract. Thus, the construction contract is the starting point of any CASPA analysis.
SBA maintains that Mr. DeBolt is personally liable under CASPA since as the authorized agent of SLD, he is an "owner" as defined in CASPA, and owners are liable for non-payment. It further argues that CASPA's "agent of the owner" language is analogous to "agent of the employer" language in the Wage Payment and Collection Law ("WPCL") and urges us to interpret CASPA consistently with that statute.
In the WPCL, the General Assembly broadly defined "employer" to include "every person, firm, partnership, association, corporation, receiver or other officer of a court of this Commonwealth and any agent or officer of any of the above-mentioned classes employing any person in this Commonwealth." 43 P.S. § 260.2a. (emphasis added). Despite this broad definition of employer, however, the courts have narrowly construed this provision as imposing liability against agents or officers only in the event the corporation has first defaulted upon its wage payment obligation. See Amalgamated Cotton Garment & Allied Indus. Fund v. Dion, 491 A.2d 123 (Pa.Super. 1985) (construing the WPCL to impose liability on the officer of a delinquent corporation). Furthermore, in Mohney v. McClure, 568 A.2d 682, 685 (Pa.Super. 1990), we declined to impose liability upon an officer of a breaching corporation, concluding he was a "non-functioning" officer of the corporation, and therefore, not included within the class of persons intended to be held liable under the WPCL for nonpayment of wages. Id. Recently, in Int'l Ass'n of Theatrical Stage Employees, Local Union No. 3 v. Mid-Atl. Promotions, Inc., 856 A.2d 102, 105 (Pa.Super. 2004), citing Mohney, supra, this Court held that "To hold an 'agent or officer' personally liable for unpaid wages, 'evidence of an active role in decision making is required.'"
SBA cites no authority or legislative history in support of its contention that CASPA and the WPCL were intended to be parallel provisions, and that the terms "agent of owner" and "agent or officer" of employer should be similarly construed. However, in Oberneder v. Link Computer Corp., 696 A.2d 148 (Pa. 1997), our High Court construed the WPCL as providing employees with a statutory remedy against their employers and managing agents or officers to recover wages and other benefits that are contractually due to them. I find that indicative of the General Assembly's willingness to disregard the corporate entity and subject agents or officers with decision-making authority to personal liability in certain situations to protect employees.
This Court has stated that the Pennsylvania Prompt Pay Act, 62 Pa.C.S. §§ 3931-3939, a chapter of the Commonwealth Procurement Code, 62 Pa.C.S. §§ 101-4604, applicable to Commonwealth agencies and many local government units, "mirrors CASPA's purpose in the public contract sector with parallel regulations and sanctions." 62 Pa.C.S. §§ 3101-3102. Zimmerman v. Harrisburg Fudd I, L.P., 984 A.2d 497, 501 n.5 (Pa.Super. 2009). That Act does not contain the "agent of" language that is at issue herein.
This Court stated in Thomas Jefferson Univ. v. Wapner, 903 A.2d 565, 574 (Pa.Super. 2006) (citing Hartman v. Baker, 766 A.2d 347, 352 (Pa.Super. 2000), that
Pennsylvania enacted the WPCL to provide a vehicle for employees to enforce payment of their wages and compensation held by their employers. The underlying purpose of the WPCL is to remove some of the obstacles employees face in litigation by providing them with a statutory remedy when an employer breaches its contractual obligation to pay wages. The WPCL does not create an employee's substantive right to compensation; rather, it only establishes an employee's right to enforce payment of wages and compensation to which an employee is otherwise entitled by the terms of an agreement.
In Belcufine v. Aloe, 112 F.3d 633 (3d Cir. 1997), and more recently in Stoe v. Flaherty, 436 F.3d 209 (3d Cir. 2006), the Court of Appeals for the Third Circuit, applying Pennsylvania law, stated that, "the purpose of the rule is to give top corporate managers an incentive to use available corporate funds for the payment of wages and benefits rather than for some other purpose. Carpenters Health [ and Welfare Fund v. Ambrose, Inc. ], 727 F.2d 279, 282-83 (3d Cir. 1983)]. Holding the managers personally liable serves to give them an incentive not to divert funds away from the payments owed to employees."
CASPA, in contrast to the WPCL, does not supplant the traditional breach of contract action between contracting parties; it merely supplements breach of contract remedies available to contractors and subcontractors with interest, penalties, and attorneys' fees. This is an important distinction between the two statutes, and one that I believe is most indicative of the legislature's intent to impose liability against contracting parties only. The purpose of the statute is to provide an incentive to contracting parties to make timely contractual payments and the breach of the contract provides the underlying basis for the CASPA damages.
Given the statute's deference to the construction contract, I do not believe the General Assembly intended to make every authorized agent of a property owner, or even corporate decision-makers, subject to liability under CASPA as owners. Liability lies against contracting parties only. The reference to authorized agents in the definition of owner merely reinforces that such agents bind the owner and their conduct is imputed to the owner. Furthermore, it clarifies that agents acting on behalf of and with the authority of the owner are not contractors within the meaning of the statute entitled to avail themselves of the additional remedies afforded under CASPA when in a dispute with their principals. Such a construction gives effect to all contractual provisions. It is consistent with the statute's proviso that a contractor or subcontractor who performs in accordance with a contract is entitled "to payment from the party with whom the contractor or subcontractor has contracted." 73 P.S. § 504.
The statute broadly defines a contractor as "[a]person authorized or engaged by an owner to improve real property." 73 P.S. § 502. "Improve" means "[t]o design, effect, alter, provide professional or skilled services, repair or demolish any improvement upon, connected with, or on or beneath the surface of any real property, to excavate, clear, grade, fill or landscape any real property, to construct driveways and private roadways, to furnish materials, including trees and shrubbery for any of these purposes, or to perform any labor upon improvements." Id.
This interpretation is also in accord with well-settled contract and agency law, while still achieving its purpose of protecting construction contractors and subcontractors. Notably, it leaves intact a party's ability to pierce the corporate veil and hold shareholders and members of corporate entities personally liable for the debts of the corporation where the facts warrant. It is consistent with the principle that in the absence of a clear statement, the law presumes that a statute did not intend to make any change in the common law. In re Rodriguez, 900 A.2d 341, 345 (Pa. 2010). "Based on this principle of law, we must assume that the General Assembly understands the legal landscape upon which it toils, and we therefore expect the General Assembly to state clearly any intent to redesign that landscape." Id. In this case, the trial court found no evidence of the factors that would permit SBA to pierce the corporate veil and subject Mr. DeBolt to liability as SLD's alter ego. SBA has not challenged that finding on appeal.
SBA alleged in the fourth amended complaint that Mr. DeBolt was subject to liability for breach of contract as the alter ego of SLD. The trial court rejected that basis for liability, finding no evidence that would justify the piercing of the corporate veil. SBA offered no evidence in opposition to summary judgment that SLD was undercapitalized, that Mr. DeBolt failed to adhere to corporate formalities, intermingled corporate and personal affairs, or used the corporate form to perpetrate a fraud. Trial Court Opinion, 12/14/12, at 2.
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Since Mr. DeBolt is not a contracting party, he is not subject to liability under CASPA, and there are no genuine issues of material fact. Thus, I would affirm the trial court's grant of summary judgment in favor of Mr. DeBolt on the CASPA claim.