Construction Law Blog
On March 23, 2016, the United States District Court for the Eastern District of Pennsylvania granted a general contractor’s summary judgment motion as to a subcontractor’s claim against it as well as its own claim against the subcontractor. In doing so, the Court addressed the importance of construction lien waivers and releases and the practical importance of raising performance and interference issues in a timely fashion.
In Bricklayers & Allied Craftworker Local 1 of PA/DE, et. al. v. ARB Construction, Inc. et. al, the School District of Philadelphia (“Owner”) hired Ernest Bock & Sons, Inc. (“EBS”) as the general contractor for a construction project at the General Phillip Kearney School (the “Project”). Subsequently, EBS hired Arb Construction, Inc. (“AC”) to supply all labor and materials to complete the masonry portion of the Project at a cost of $777,500.00.
The subcontract terms at issue involved termination and payment. EBS had the right to terminate AC and/or subsidize AC’s work following 48 hours of written notice if EBS determined AC (1) delayed the project; (2) provided faulty workmanship; (3) failed to provide acceptable supervision, or (4) failed to pay its subcontractors or suppliers. The payment terms of the subcontract required AC to certify payrolls and release claims and liens with payment applications, among other things. Important to this action, AC was required to supply a release of liens from “subcontractors/ suppliers and any labor/union organizations before payment is made.”
Along with each payment application, AC submitted the release of liens and certified payrolls, signed and notarized by AC’s owners. These releases certified that AC had paid “all taxes, welfare and pension fund payments, and fringe benefits.”
AC hired members of the Bricklayers & Allied Craft Workers, Local 1 (“Bricklayers”) to fulfill its labor obligations under the contract. Despite certifying it complied with the union fund obligations on the payment applications, AC was delinquent on its payments to the Bricklayers. Additionally, AC failed to provide a sufficient number of masons to complete the work in accordance with the Project schedule. EBS received multiple complaints from the Owner about AC’s work and the delay it was causing. AC claimed the delay was the fault of EBS, who AC alleged had failed to properly prepare the Project for the masonry phase. AC also claimed it was forced to expend its own resources to correct errors made by other subcontractors.
EBS notified AC it had 48 hours to increase its manpower, which it did by hiring another subcontractor. Subsequently, the Bricklayers stopped supplying masons to the Project because AC was still delinquent in its payment obligations to the benefit funds. EBS declared AC in breach of the contract and terminated the agreement. AC claims the termination was wrongful, as it was delayed because of EBS’ failure to properly manage the Project.
The Bricklayers filed suit against AC for its failure to pay contributions in violation of the collective bargaining agreement (“CBA”). AC in turn filed a third-party complaint against EBS, claiming it breached the subcontract by failing to pay money it owed to AC. EBS in turn counterclaimed against AC for breach of the subcontract. After discovery, EBS moved for summary judgment on AC’s breach of contract claim against it as well as its own breach of contract claim against EBS.
First, EBS argued it was entitled to summary judgment on AC’s breach of contract claim because AC released all of its claims against EBS. In the alternative, AC failed to provide releases from its own subcontractors to EBS, which was a condition precedent to payment.
The Court agreed, holding that EBS was entitled to summary judgment on AC’s breach of contract claim because AC released all claims it could have asserted through the signed releases. The releases were clear and unequivocal, and released all claims prior to the signing without preservation or exception. AC argued that the releases were unenforceable because EBS failed to provide it with a construction work schedule or a proper work area layout and failed to supervise other subcontractors who interfered with its work. Finally, AC argued that the releases were unenforceable because EBS failed to make full payment on the payment applications.
The Court rejected AC’s defenses. If AC had an issue with accounting issues or interference with performance, it had “clear options.” AC could have accepted payment and noted its objection on the application, or refused payment and refused to sign the accompanying release. Because AC did neither, it released its claims. Further, the fact that the notarization of the Releases did not adhere to Pennsylvania law did not render the Releases unenforceable.
Second, EBS moved for summary judgment on its counterclaim, asserting that AC breached the contract by 1) failing to supply adequate manpower and materials; 2) falsely certifying payment; 3) failing to timely complete its work; and 4) submitting non-compliant payment applications. Because the undisputed evidence demonstrated AC’s failure to comply with these terms, EBS was granted summary judgment on its own claims. The Court held that there was a genuine issue of fact however, with respect to calculating the damage amounts.
The takeaway point in Bricklayers is the importance of construction lien waivers and releases. The Court will interpret these as a “contract within a contract,” and they are regularly enforced in accordance with their terms. You should not assume that a waiver is limited to Mechanic’s Lien rights; depending on the language in the waiver, signing a waiver may constitute a release of all rights you may have for payment or performance issues during that particular phase of the work. As the Court noted, if you have an issue with performance and/or payment, you have options. This Court concluded that AC could have accepted payment and noted its objection on the application or refuse the payment and refuse to sign the release. When you sign the waiver and/or release, you will typically be held to those terms.