Construction Law Blog
It is not uncommon for contractors and subcontractors to be verbally directed to perform extra work on construction projects without written change orders. Construction attorneys frequently deal with payment claims for such work if payment for that extra work is not made voluntarily. The individual directing the change, however, generally does not think that they will be held individually liable for directing a contractor/subcontractor to perform extra work. Nevertheless, that issue was recently addressed in Scungio Borst & Associates v. 410 Shurs Lane Developers, LLC, No. 2493 EDA 2012 (Pa.Super. November 20, 2014).
In Scungio, 410 Shurs Lane Developers, LLC (“410 SLD”) hired Scungio Borst & Associates (“SBA”) as the general contractor to construct SLD’s condominium project in Philadelphia, Pennsylvania (the “Project”). SBA performed the work under the contract, as well as $2.6 million in extra work at the direction of 410 SLD and its President and fifty percent shareholder, Robert DeBolt. When SBA was not paid approximately $1.5 million incurred due to the extra work, it filed suit against 410 SLD (the company) and DeBolt (the individual). DeBolt subsequently filed a motion for summary judgment as to all claims pending against him individually, which included a claim for the alleged violation of the Contractor and Subcontractor Payment Act, 73 P.S. §§ 501-516 (“CASPA”). The trial court granted DeBolt’s motion.
SBA appealed, challenging the grant of summary judgment in favor of DeBolt on the CASPA claim. The issue before the Superior Court of Pennsylvania was whether SBA can maintain a CASPA claim against DeBolt, individually, based upon 410 SLD’s failure to pay SBA. SBA’s theory of liability was that DeBolt, as an authorized agent of 410 SLD who authorized the extra work, is an “owner” as that term is defined under CASPA. Alternatively, SBA argued that DeBolt was individually liable under CASPA for failure to pay pursuant to all written and verbal change orders. The Court rejected both arguments.
Under CASPA, “Owner” means a “person who has an interest in 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 P.S. § 502 (emphasis added). “Person” means a “corporation, partnership, business trust, other association, estate, trust, trust foundation or a natural individual.” Id. The term “Agent,” however, is not defined under CASPA.
After a detailed analysis of selected sections of CASPA and statutory construction principles, the Court held CASPA liability lies against “contracting parties” only. The Court recognized, “Performances by a contractor or a subcontractor …shall entitle the contractor or subcontractor to payment from the party with whom the contractor or subcontractor has contracted.” Id. § 504 (emphasis added). Since 410 SLD contracted with SBA, not DeBolt, DeBolt was not liable to 410 SLD under CASPA. The Court added, “The reference to authorized agents in the definition of owner merely reinforces that their conduct is imputed to and binding upon the owner. Since the term ‘agent’ is not defined in the statute, conceivably that term could include architects, project managers, and designated representatives who are acting on behalf of the owner in dealing with the contractor.”
Additionally, the Court held that DeBolt was not individually liable under CASPA because there were no allegations that his dealings with SBA created a new contract with him personally. The Court reasoned that DeBolt’s verbal authorizations were part of the construction contract between SBA and 410 SLD. Accordingly, the Court found no basis to subject DeBolt to personal liability based on his verbal authorizations and change orders.
Judge Bender filed a Dissenting Opinion, which Judges Mundy and Wecht joined. Judge Bender’s characterization of the facts is as follows: The parties entered into a construction contract on September 2, 2005, in which SBA was to receive $3.8 million for the labor and materials it supplied to the Project. SBA claimed it was directed to submit all bills to 410 SLD and DeBolt. However, at the end of June 2006, SBA stopped receiving payments, but was assured by DeBolt that payment would be forthcoming. Based upon these assurances, SBA continued its performance until November 8, 2006, when SBA was informed that the contract was terminated. At that time, SBA was owed $1,544,161, plus interest and costs, which related to change orders authorized by DeBolt. Finally, 410 SLD’s position was that oral change orders were not valid. Nevertheless, SBA asserted that it was often the practice that DeBolt would verbally authorize change orders and would not sign them. SBA argued that that because DeBolt had an active role in decision making and authorizing change orders, he should be considered an agent of the owner and subject to liability pursuant to CASPA. Judge Bender agreed. As such, Judge Bender concluded that genuine issues of material fact existed and that granting summary judgment in DeBolt’s favor was improper.
The take-away from this case is that this “agent of owner” argument could be used again if, for example, a corporate constituent or member of a limited liability company, representing an owner, makes first-person and informal statements to a contractor regarding payment from the owner. In fact, the Superior Court held that there was sufficient evidence to establish that a managing member of a limited liability company which constructed new homes assumed personal responsibility when the managing member assured the purchasers of one of the homes that he would take care of their concerns regarding problems that arose during construction and that he personally guaranteed the final quality of the home. See Bennett v. A.T. Masterpiece Homes at Broadsprings, LLC, 40 A.3d 145, 150 (Pa.Super. 2012) (“person acting as an agent may assume personal liability on a corporate contract where he executes a contract in his own name or voluntarily undertakes a personal responsibility”) (emphasis added).