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Pennsylvania Supreme Court Precludes Claims Against Agents of Contracting Parties Under the Contractor and Subcontractor Payment Act

October 18, 2016

In September 2016, the Pennsylvania Supreme Court clarified Pennsylvania law, holding that actions by contractors under the Contractor and Subcontractor Payment Act (CASPA) can be maintained only against the party with whom the contractor had a contract and not against that party’s agents, including the individual president and owner on whose verbal directions the contractor performed substantial additional work for which payment was not received.  While CASPA provides significant incentives for owners and general contractors to promptly pay for work completed, including exposure to penalties and the payment of the other side’s attorney’s fees if they do not, this decision underscores CASPA’s limits and contractors should proceed accordingly.  

In Scungio Borst & Associates v. 410 Shurs Lane Developers, LLC, the issue presented to the Supreme Court review was whether a contractor could maintain an action under CASPA against a property owner’s agents.  Scungio Borst was hired in 2005 to construct a condominium project by owner 410 SLD.  The parties entered into a series of written construction contracts, which were executed by 410 SLD’s president and part owner, Robert DeBolt.  In November 2006, Scungio Borst’s contracts were terminated.  At the time, approximately $1.5 million remained unpaid, all for additional work performed at DeBolt’s verbal direction.  Scungio Borst demanded payment, but 410 SLD, through DeBolt, refused. 

Scungio Borst then filed a lawsuit under CASPA against 410 SLD and DeBolt, claiming that DeBolt was personally liable because he was an agent of 410 SLD who acted within his authority in ordering the subject work.  DeBolt was dismissed from the case before trial and Scungio Borst proceeded to secure a default judgment against 410 SLD for $1.9 million.  Presumably because the judgment against 410 SLD was uncollectible, Scungio Borst appealed DeBolt’s dismissal, arguing that the plain language of the statute subjects both owners and their agents, such as DeBolt, to CASPA liability for non-payment.  After a series of wins and losses before the intermediate appellate court, Scungio Borst presented its argument to the Supreme Court, which proceeded to settle the issue once and for all. 

“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.  According to the Act, the term includes successors in interest of the owner and agents of the owner acting with their authority.  Scungio Borst reasoned that DeBolt served as an “agent of the owner acting with the owner’s authority” in his dealings with Scungio Borst and, therefore, was an “owner” obligated to make payment under statute. 

After reviewing the statutory language upon which Scungio Borst relied and the legislative history of CASPA, and taking into account general principles of agency law especially in the corporate context, the Court rejected Scungio Borst’s appeal and held that a contractor may not maintain an action under CASPA against a property owner’s agents and, instead, was limited to recovery from the party with whom it contracted.  While limiting CASPA’a application to the contracting parties themselves, the decision 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.

For further information, please contact Anthony Twardowski at (215) 569-2800, or at  Mr. Twardowski chairs the Firm’s Commercial Litigation Department and routinely counsels owners, general contractors and subcontractors in connection with construction and related payment disputes

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