En Banc Pennsylvania Superior Court Rejects Extending CASPA Liability Beyond Contracting Parties

Scungio Borst & Assocs. v. 410 Shurs Lane Developers, LLC et al., 2014 Pa. Super. LEXIS 4527 (Pa. Super. Ct. 2014)

On reconsideration of an earlier panel decision of the Pennsylvania Superior Court, the Court en banc rejected a contractor’s contention that Pennsylvania’s Contractor and Subcontractor Payment Act (“CASPA”) extends liability for non-payment beyond the actual contracting parties.

This action arose out of the construction of a condominium project in Philadelphia’s Manayunk neighborhood (the “Project”).  The owner, 410 Shurs Lane Developers, LLC (the “Owner”), entered into a written contract with Scungio Borst & Associates (the “Contractor”) for the construction of the Project.  The Contractor performed the contracted-for construction services, as well as $2.6 million in additional work at the direction of the Owner and the Owner’s President and fifty percent shareholder, Robert DeBolt.  When the Contractor was not paid approximately $1.5 million incurred due to the additional work, it filed suit against the Owner and Mr. DeBolt individually, alleging, inter alia, breach of contract and violation of CASPA.

Mr. DeBolt subsequently filed a motion for summary judgment as to all claims pending against him individually, and the trial court granted the motion.  The remaining claims against the Owner were tried and the Contractor obtained a judgment for approximately $1.9 million.  Despite the judgment, the Contractor appealed, challenging the grant of summary judgment in favor of Mr. DeBolt on the CASPA claim.  The fundamental issue on appeal was whether a contractor can maintain a cause of action under CASPA against an agent or principal of a corporate owner, based upon the corporate owner’s non-payment.

The Contractor argued that the plain language of the statute subjects both owners and their agents, such as Mr. DeBolt, to CASPA liability for non-payment.  “Owner” is defined under CASPA 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.

The Contractor reasoned that Mr. DeBolt served as an “agent of the owner acting with the owner’s authority” when he was dealing with the Contractor, and thus, was an “owner” obligated to make payment under statute.  The Contractor’s argument proved convincing to the panel’s majority, which concluded in a non-precedential opinion that factual disputes over Mr. DeBolt’s authority precluded the trial court’s issuance of summary judgment.

Mr. DeBolt petitioned the court for reconsideration, claiming that the panel decision extending CASPA liability to agents of an owner improperly widened the scope of liability created under CASPA.  An en banc Pennsylvania Superior Court agreed.  Parting with the earlier panel decision, the court held that “CASPA liability lies against contracting parties only.”

The court began its analysis of the legislative intent with CASPA’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.”  Construing the statutory language in context, the court determined that CASPA is grounded in contract and speaks in terms of the contracting party’s liability for payment.  Against this backdrop, the court rejected the Contractor’s contention that 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.

The court reasoned that had the General Assembly intended to make authorized agents of property owners subject to liability under CASPA as owners, it would have clearly expressed such intent.  The court noted that well-settled agency and contract principles instruct against the imposition of statutory penalties for breach of contract upon non-parties to the contract.  And, in the absence of a clear statement to the contrary, the court concluded that the law presumes the General Assembly did not intend to deviate from these common law principles by widening the scope of liability under CASPA.

The court further reasoned that the Contractor’s proffered construction of the statute failed to give effect to all provisions.  Specifically, the court found the argument that CASPA’s “agent of the owner” language subjects owners to the same liability as owners of the improved property ignores the “contracting party” language found throughout the statute.  While acknowledging that owner’s agents were included in CASPA’s definition of “owner”, the court found that the General Assembly could not have intended to make every agent liable for a corporate property owner’s debts to its contractors.  Instead, the court found that the General Assembly must have intended to hold the principal, i.e., the owner, liable for its agents’ authorized acts in “ordering the improvement to be made.” Thus, the court concluded that reference to authorized agents in the definition of owner merely reinforces that their conduct is imputed to and binding upon the owner.

Finally, the court determined that extending liability to authorized agents of an owner, not themselves signatories to the contract or owners of the improved property, is not necessary to achieving CASPA’s purpose of protecting construction contractors and subcontractors.  As demonstrated in the underlying case, the Contractor was still entitled to avail itself of the additional remedies afforded under CASPA against the Owner.  And, the court noted that its interpretation 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.

Consequently, the court disagreed with the earlier panel decision, and instead held that liability under CASPA can attach to contracting parties only.

To view the full text of this decision, courtesy of Lexis ®, click here.

Jeffery R. Mullen

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