Commercial Litigation Archives

Kevin Cornish | March 11, 2015

HICPA Compliance and Unjust Enrichment Claim

March 11, 2015

This is a follow up to the June 1, 2014 blog entitled Pennsylvania Supreme Court to Decide Whether HICPA Allows Recovery under a Theory of Unjust Enrichment.

HICPA does not preclude recovery on Unjust Enrichment Claim

The Pennsylvania Supreme Court issued its decision in the case of Shafer Electric & Construction v. Mantia, 96 A.3d 989 (2014). At issue before the Supreme Court was whether the Home Improvement Consumer Protection Act, 73 P.S. §§ 517.1-517.18, bars a contractor from recovery for unjust enrichment when the home improvement contract does not comply with HICPA requirements. The Superior Court held that HICPA does not preclude a non-compliant contractor from pursuing an unjust enrichment claim, and the Supreme Court affirmed. Unjust enrichment is an equitable doctrine allowing a party to recover on the basis of a quasi-contract, or contract implied in law, when one party is enriched unjustly at the expense of another.

The Supreme Court first recognized that HICPA only bars actions for breaches of express home improvement contracts when the contract does not comply with HICPA. The Supreme Court noted that an unjust enrichment claim does not sound purely in contract and that HICPA is silent as to quasi-contract actions, such as unjust enrichment.

The Supreme Court also noted that disallowing an unjust enrichment claim when HICPA requirements have not been satisfied would allow a homeowner to avoid payment for work performed even if the work was perfect.

The Supreme Court focused primarily on the language of HICPA. While HICPA specifically states that a contract which is not compliant with HICPA is invalid and unenforceable, the Supreme Court held that HICPA’s language does not discuss the preclusion of common law equitable remedies such as unjust enrichment. The Supreme Court noted that if the Pennsylvania General Assembly wanted to modify the right of non-compliant contractors to recover under unjust enrichment, it could have done so.

Due the Supreme Court’s decision, contractors who do not comply with HICPA are permitted to bring equitable causes of action, such as unjust enrichment. Likewise, homeowners cannot avoid payment for work performed by non-compliant contractors on the sole basis that the contractor did not comply with HICPA.

Recoverable Damages

The procedural posture of Shafer Electric is also important. After the contractor brought suit against the homeowners, the homeowners filed preliminary objections to the action. Preliminary objections challenge the legal basis of a lawsuit based upon the facts alleged in the complaint, which are accepted to be true. The defendant does not have an opportunity to present its facts. In determining preliminary objections, courts assume all alleged facts to be true and determine whether the law allows for recovery.

Due to the procedural posture of the case, certain legal issues and defenses, in addition to the underlying facts of the case, were not litigated. For instance, under unjust enrichment, a plaintiff can only recover the reasonable value of services rendered. In a breach of contract action, a plaintiff could recover expectation damages, reliance damages, or restitution damages. Additionally, certain legal defenses are available to a defendant in an unjust enrichment action, such as the doctrine of unclean hands. Breach of contract actions may also implicate attorneys’ fee and interest recovery that are not available in an unjust enrichment action.

As a result of the Supreme Court’s decision, contractors who have not strictly complied with all aspects of HICPA are not precluded from bringing actions to recover money that has not been paid to them. However, a contractor’s damages may not be as expansive as those available in a breach of contract action. In order to assure the most options in the event of non-payment, contractors should comply with all aspects of HICPA and assure that written contracts are HICPA compliant.

The Supreme Court’s decision also means that homeowners cannot avoid payment to contractors based solely on a contractor’s failure to comply with HICPA. However, a homeowner may still have equitable defenses to a contractor’s claim of non-payment.

If you are a homeowner or home improvement contractor with questions regarding HICPA compliance and rights and responsibilities under HICPA, feel free to contact Kevin Cornish at 610-275-0700 or kcornish@highswartz.com.

The information above is general: we recommend that you consult an attorney regarding your specific circumstances. The content of this information is not meant to be considered as legal advice or a substitute for legal representation.

Thomas D. Rees | January 19, 2015

PA Supreme Court Will Review Superior Court's Decision on Non-compete Consideration

January 19, 2015

By Thomas D. Rees, Esq.

In my June 16, 2014 blog, I reported on the Pennsylvania Superior Court’s decision upholding the requirement of consideration for a non-competition agreement with a current employee. Socko v. Mid-Atlantic Systems of CPA, Inc., 99 A.3d 928 (Pa. Super. 2014). The Pennsylvania Supreme Court has now granted the former employer’s request to review the Superior Court’s decision. Socko v. Mid-Atlantic Systems of CPA, Inc. 2014 WL 6991669 (Pa. Dec. 11, 2014). The issue before the Supreme Court is whether the Pennsylvania Uniform Written Obligations Act, 33 P.S. § 6 (“UWOA”) eliminates a current employee’s ability to require consideration for a non-compete agreement that states that the parties intend “to be legally bound”. The former employer, who is appealing, says that consideration is unnecessary in these circumstances. The ex-employee asserts that consideration is required. The parties agree that the employer did not give consideration for the non-compete. The ex-employee brought the suit by seeking a judgment that the non-compete was unenforceable. The ex-employee won summary judgment without a trial in the Court of Common Pleas, and the Superior Court upheld this decision.

The Supreme Court rarely grants petitions for review. In the majority of recent non-compete cases where the Supreme Court has decided to review the Superior Court, the Supreme Court has overturned the Superior Court.

If the Supreme Court reverses the Superior Court, greater enforcement of post-employment non-competes may take place in Pennsylvania. This trend would run counter to trends in states such as California and Massachusetts. California prohibits non-competes by statute, but the state’s courts protect trade secrets vigorously. Massachusetts is now considering legislation to prohibit non-competes and (finally) considering enactment of the Uniform Trade Secrets Act. California attributes its vibrant high-tech economy partly to the fact that trade secret protection has primacy over non-compete enforcement.

So it is worth staying tuned on Socko. All commercial and employment lawyers will want to follow this case through briefing and argument. They may also want to ask themselves how “Uniform” the UWOA really is when Pennsylvania is the only state where the act is in effect.

For more information regarding non-compete agreements or employment law, please contact Thomas D. Rees at 610-275-0700 or by email at trees@highswartz.com.

The information above is general; we recommend that you consult with an attorney regarding your specific circumstances. The content contained herein is not meant to be considered as legal advice or as a substitute for legal representation.

Thomas D. Rees | June 16, 2014

Noncompetes: Is Consideration Needed, or Just the intention to be Legally Bound?

By Thomas D. Rees, Esquire

June 16, 2014

It has long been an article of faith – and precedent – that a Pennsylvania employer must provide an employee with consideration for an enforceable agreement prohibiting post-employment competition with the employer. In short, the employer must provide the employee with a benefit to offset the burden on an employee who may be unable to work freely after employment.

Now, in the aptly-named case of Socko v. Mid-Atlantic Systems of CPA, Inc., 2014 WL 1898584, 2014 Pa. Super. 103 (May 13, 2014), the consideration requirement is being tested. So far, the courts have upheld the requirement, but Socko raises important issues and warrants a review of the law on consideration for post-employment restrictions.

Post-Employment Restrictions

For new employees, the start of employment itself is enough of a benefit to constitute consideration. For current employees, the employer has to provide valuable benefits in addition to continued employment. Why has additional consideration been necessary for current employees? The answer is that Pennsylvania is an employment-at-will state; therefore, continued employment itself does not provide any benefit to offset the burden of the non-compete. Also, non-competes are disfavored under Pennsylvania law because the restrictions interfere with employees’ rights to earn a living.

The consideration requirement has led to a number of court decisions on questions, like, “How much in pay or benefits is enough consideration?” for current employees; or, “When does employment actually begin?” for new employees. On the latter question, some courts have required employers to treat new employees as current employees (and thus to provide additional benefits) if the employer fails to inform the employee of the non-compete while extending a comprehensive employment offer.

The Uniform Written Obligations Act

Pennsylvania’s Uniform Written Obligations Act, 33 P.S. §6 (“UWOA”), throws a wild card into this debate. The UWOA provides, “[A] written release or promise, hereafter made and signed by the person releasing or promising, shall not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement, in any form of language, that the signer intends to be legally bound.” In short, no consideration is necessary when the agreement provides that the parties “intend to be legally bound.” Despite UWOA’s “uniform” name, Pennsylvania is apparently the only state that has enacted and retained the UWOA. (Utah enacted the law but later repealed it.)

“Uniform” or not, the UWOA is all-encompassing; the law contains no exception for non-competition or non-solicitation agreements. The UWOA seems at odds with the time-honored requirement of consideration for non-competes. By and large, the courts have overlooked the UWOA until recently. The great majority of Pennsylvania courts have required additional consideration beyond continued employment in actions to enforce a non-compete. These courts have not even mentioned the UWOA in ruling on the issues. Even those courts that have expressed support for the UWOA have often found ways to side-step the issue. Some courts have held that the UWOA eliminates the need for consideration, but have gone on to find that the employer gave the employee enough consideration to enforce the non-compete. Other courts have used the UWOA to dispense with the need for consideration but have gone on to find that the non-compete itself was too burdensome to be enforced. In this uncertain context, Pennsylvania employment lawyers have continued to advise employers to provide consideration to employees who sign non-competes.

As mentioned, in Socko v. Mid-Atlantic, the consideration requirement appears to have won the battle against the UWOA. Socko dealt with a waterproofing company’s enforcement of a non-compete against an individual who had signed the document while a current employee. The covenant contained the key UWOA clause: “intending to be legally bound hereby.” The employer had provided no consideration other than continued at-will employment. The Superior Court, affirming the trial court’s grant of summary judgment, held that the non-compete was unenforceable for lack of consideration. Continued at-will employment plus an intent to be legally bound were not enough to support the restrictions. Actual valuable consideration in the form of a benefit or change in job status was necessary to support the non-compete.

What the Future May Bring

The Superior Court’s decision preserves the status quo, for now. But it is important to keep an eye on this issue. The Superior Court’s decision is likely to be challenged by petition for allowance of appeal. And, whatever the final result, questions will remain: If the courts continue to require valuable consideration, what is the purpose of the UWOA? On the other hand, if the courts say that the UWOA governs, what are the implications of dispensing with consideration for restrictive agreements that the courts disfavor?

If you wish to learn more about consideration and other employment issues, feel free to contact Tom Rees at 610-679-9588 or trees@highswartz.com.

Kevin Cornish | June 1, 2014

Pennsylvania Supreme Court to Decide Whether HICPA Allows Recovery under a Theory of Unjust Enrichment

By Kevin Cornish, Esq.
June 1, 2014

HICPA Background

In 2009, the Pennsylvania Home Improvement Consumer Protection Act (“HICPA”) went into effect (73 P.S. 517.1 et seq.). HICPA requires all home improvement contractors to register with the Bureau of Consumer Protection. Additionally, HICPA sets forth numerous requirements that must be followed in order for a home improvement contract to be valid and enforceable. For example, HICPA requires, among other things, that all home improvement contracts be in writing, include the contractor’s registration number, address, and phone number, include the date of the transaction and approximate start and finish date of the work, and include a description of the work to be performed and materials to be used. HICPA also outlines various clauses that, if contained in a home improvement contract, are voidable by the owner.

If a home improvement contract does not comply with HICPA, it is not valid or enforceable against a homeowner. This means that a home improvement contractor would not be able to assert a breach of contract claim against a homeowner to recover monetary damages for work that a homeowner did not pay for. Likewise, it provides homeowners with additional defenses to avoid paying for a home improvement contractor’s negligent or improper work.

HICPA and Unjust Enrichment

However, HICPA was not clear as to whether a home improvement contractor could recover against a homeowner under the theory of unjust enrichment or quantum meruit for work performed in the absence of a valid home improvement contract. Unjust enrichment is an equitable doctrine allowing a party to recover on the basis of a quasi-contract, or contract implied in law, when one party is enriched unjustly at the expense of another. Essentially, unjust enrichment provides an alternate means of recovery when a contract does not exist between the parties.

Shafer Electric & Construction v. Mantia

The Pennsylvania Supreme Court will soon decide this issue in the case of Shafer Electric & Construction v. Mantia (Docket no. 28 WAP 2013). In Shafer Electric, the Mantias contracted with Shafer Electric whereby Shafer Electric would construct an addition to the Mantias’ garage. Certain disputes arose between the parties relating to changes to the scope of work. Shafer Electric alleged that the Mantias owed in excess of $37,000 for labor and materials provided. Shafter Electric filed a lawsuit seeking to recover under theories of breach of contract and unjust enrichment.

To Shafer Electric’s detriment, it was not registered as a home improvement contractor under HICPA. Therefore, it did not have a valid and enforceable contract under HICPA with the Mantias. The Washington County Court of Common Pleas dismissed Shafer Electric’s complaint holding that it could not maintain a breach of contract action and that HICPA bars recovery under the theory of unjust enrichment. On appeal, the Pennsylvania Superior Court reversed and held a home improvement contractor could maintain an action for unjust enrichment even though the contractor did not comply with HICPA’s contract requirements.

The Supreme Court granted an appeal to determine whether HICPA bars a contractor from recovery for unjust enrichment in the absence of a valid and enforceable home improvement contract. The Court heard oral argument on April 8, 2014. Contractors and homeowners are awaiting the Supreme Court’s decision.

Importance of Decision

The Supreme Court’s decision will affect home improvement contractors and homeowners alike. If the Court rules that home improvement contractors can recover under the theory of unjust enrichment without complying with HICPA, then HICPA’s force will be greatly reduced. Home improvement contractors that have not complied with HICPA will still be able to pursue certain claims.

On the other hand, if the Supreme Court holds that home improvement contractors cannot recover under unjust enrichment, then homeowners will have greater protection against claims by unregistered contractors and contractors that do not comply with HICPA’s requirements. Likewise, it will be even more important for home improvement contractors to comply with all of HICPA’s registration and contract requirements.

[Updated March 11, 2015] - Click here to read.

If you are a homeowner or home improvement contractor with questions regarding HICPA, feel free to contact Kevin Cornish at 610-275-0700 or kcornish@highswartz.com.

Mark Fischer | May 20, 2014

Is a Homebuilder Liable for Hidden Defects? PA Supreme Court to Decide

By Mark R. Fischer, Esq.

May 20, 2014

No one really knows what surprises lie ahead after purchasing a home. That’s because many of the potential problems with a home cannot be seen by the purchaser, even with a reasonable inspection. Also, even though problems may exist from the time the home is built, they may not reveal themselves until years after the work is completed.

Implied Warranty of Habitability

One of the ways the law protects new home buyers against the risk of these hidden defects (i.e., latent defects) is through what is called an “implied warranty of habitability.” This type of warranty is not found in any written contract with the builder, but is instead implied in the purchase of the home. It places the risk on the builder for any hidden defects that affect the purchaser’s ability to live in the home. The types of defects covered by this implied warranty depend on the circumstances of each case and the cause of the problem, but they can range from foundation problems to leaking windows. For many years in Pennsylvania, this implied warranty of habitability has been applicable to the purchase of a new home. However, Pennsylvania law has remained unclear on whether this implied warranty passes on to a subsequent purchaser of the home. Well an answer finally appears to be on the way.

Trial Court: Case Dismissed

On May 7, 2014 the Pennsylvania Supreme Court heard oral arguments in Conway v. Cutler Group, Inc. (Docket No. 80 MAP 2013), in which they will decide whether the implied warranty of habitability extends beyond the initial purchaser of a home to subsequent purchasers. In the case, the homeowners purchased the home at issue from the original owners about three years after it was built. After moving-in the new homeowners found water infiltrating the windows in the master bedroom. An expert found the leaking to be caused by several problems with the construction of the home and recommended that the exterior of the home be stripped and redone. The homeowners brought an action against the builder asserting a claim under the implied warranty of habitability. However, the trial court dismissed the case, finding that the implied warranty only applied to the original purchasers of the home.

Initial Appeal: Implied Warranty Extended

The homeowners appealed to the Pennsylvania Superior Court [2012 PA Super. 242, 57 A.3d 155 (2012)], which reversed the trial court’s decision and ruled that the implied warranty of habitability does pass on to subsequent purchasers of a home. The Superior Court explained that because the hidden defects in a new home may not materialize for several years, it would be unfair to let the builder off the hook for such defects just because the home is sold to a second owner a few years after it is built. Although this ruling expanded the reach of this implied warranty, the Superior Court noted that there are limits to the rule. For example, Pennsylvania law requires claims relating to the construction of improvements on real property to be filed within 12 years from the date the construction is completed, meaning the implied warranty of habitability can only last for 12 years.

Will This Ruling Become Controlling Law in PA?

The Pennsylvania Supreme Court will now decide if the Superior Court’s decision should be confirmed as the controlling law in Pennsylvania. Stay tuned for an update on the Supreme Court’s decision.

If you are a homeowner or contractor with questions about this case or similar issues in Pennsylvania or New Jersey, feel free to contact Mark Fischer at 610-275-0700 or by email at mfischer@highswartz.com.