AMM Blog

Welcome to the AMM Law Blog, a tool to help you keep up to date on current legal developments over the broad spectrum of our practice areas.  We welcome your comments and suggestions to create a dynamic forum that will be of interest to readers and participants.

From time to time, a client asks about when and why a corporate seal is necessary. Even some attorneys (particularly from out of state) question during contract negotiations whether the phrase “executed under seal” should be removed from a contract as an archaic concept. Historically, seals were affixed to a document as a formality to attest to the parties’ intention to be legally bound by the promises contained in the document. In several states, however, the execution of an agreement under seal continues to have specific legal significance that is not always understood or intended by the parties.

As a general rule, the Pennsylvania Judicial Code provides that the statute of limitations for actions based on a contract is four years. For instruments that are executed under seal, however, the statute of limitations is twenty years. The guarantor of a commercial loan recently learned the hard way that his guaranty was subject to the extended statute of limitations. In Osprey Portfolio, LLC v. Izett, the lender confessed judgment under Mr. Izett’s guaranty nearly five years after the loan went into default. Mr. Izett argued that the action was precluded because it was filed after the four-year limitation period. While acknowledging that the document was executed “under seal”, Mr. Izett maintained that the twenty-year limitation period did not apply because the guaranty agreement was not an “instrument”, which he defined as instruments under Article 3 of the Uniform Commercial Code. Article 3 defines “instrument” as a “negotiable instrument”, namely “an unconditional promise to pay a fixed amount of money.” Because his guaranty related to a line of credit (not a loan for a fixed sum) and was conditional upon the default of the borrower under the note, he reasoned that it did not meet this definition of “instrument.” The Pennsylvania Supreme Court disagreed and affirmed the lower courts’ rulings. It held that the term “instrument”, as used in the Judicial Code,  should be interpreted using its ordinary meaning: a written document that defines the rights and obligations of the parties, such as a contract, will, promissory note, etc. Using this broader definition, the guaranty in question clearly qualifies as an instrument. Since the instrument was executed under seal, the twenty-year statute of limitations applied and the action was allowed to go forward.

It should be noted that the Judicial Code section providing for the twenty-year statute of limitations is due to expire on June 27, 2018. Of course, the sunset date for this provision has been extended in the past, so only time will tell whether the execution of contracts and other writings “under seal” will continue to have special legal significance in Pennsylvania.

Four years ago, the Home Improvement Consumer Protection Act (HICPA) went into effect, forcing home improvement contractors to register with the Commonwealth and to comply with various contracting requirements (for more information, see our Client Alerts on the subject https://www.ammlaw.com/general/articles.html). We have found that unfortunately many contractors remain unaware of this law. Failure to comply with HICPA could result in civil and criminal penalties. But does non-compliance also mean that a contractor is prevented from receiving payment from its customer for completed work? Not necessarily, held the Pennsylvania Superior Court, which recently gave hope to contractors when it concluded that a contractor who does not comply with HICPA may nevertheless recover the value of its services from the customer.

In Shafer Electric & Construction v. Mantia, an out-of-state contractor entered into a written contract with a Pennsylvania homeowner (who also happened to be a contractor) to build an addition to the homeowner’s garage and provided services valued at over $37,000. The contractor did not register with the Commonwealth under HICPA. After the homeowner failed to pay the amount due, the contractor sued to recover its fees. The homeowner asserted that the complaint was legally insufficient because the underlying contract was not enforceable under HICPA. The contractor countered that even if the contract were unenforceable, the contractor should be able to recover its fees under the equitable doctrine of quantum meruit, a theory which allows a party to recover the reasonable value of its services so as to avoid unjust enrichment of the other party. Unfortunately, although HICPA preserves a contractor’s right to recover its fees under a quantum meruit theory, the language of the statute appears to require compliance with HICPA as a prerequisite to recovery. The lower court, strictly interpreting the statute’s plain language, ruled in favor of the homeowner. The Superior Court reversed, holding that the plain language of the statute impermissibly limits the purpose of the provision allowing recovery under quantum meruit. It reasoned that to require the contractor to comply with HICPA before recovering under a quantum meruit theory made no sense because a compliant contractor can recover its fees under a breach of contract theory and does not need an equitable remedy such as quantum meruit.

While Shafer Electric provides reassurance for home improvement contractors doing work in Pennsylvania, the prudent contractor will not rely on it to ensure collection of its fees. Because of the hefty fines and possible criminal penalties that may be imposed for violations, we strongly encourage contractors to register and comply with the other requirements set forth in HICPA.

The Perils of Equity-Based Compensation

Written by Susan Maslow Monday, July 01 2013 14:47

Employers frequently want to attract new, super-talented management to an existing Company, or potentially worse, have already promised to give one or more trusted and loyal current employees equity as part of their compensation package as soon as the time is right.  Unfortunately, this is easier said than safely done. 

Clearly, equity can be a powerful, seemingly low-cost form of compensation and motivation.  Having your most valued employees vested in something beyond their pay check certainly seems like a fine idea.  If the Company does well, the employee shares in that growth in the form of annual distributions or a buy-out upon death, disability, retirement or other termination of employment.  So, what do I have against such an idea?

By Patricia C. Collins, Esquire Reprinted with permission from June 14, 2013 issue of The Legal Intelligencer. (c)

2013 ALM Media Properties. Further duplication without permission is prohibited.

            It is a reality of litigation that the facts of a case can change in significant ways between the filing of the complaint and trial, but litigants do not always amend pleadings to address these changes.   A recent decision by the United States Court of Appeals for the Third Circuit offers incentive to amend in those situations. In West Run Student Housing Associates, LLC v. Huntington National Bank, 7 F.3d 165 (3d Cir. 2013), the Third Circuit held that averments in a complaint that is later amended do not amount to judicial admissions.

The procedural posture of the West Run case is not unique. The plaintiff filed a complaint alleging, inter alia, a breach of contract. The plaintiff claimed that the defendant bank breached its agreement to provide financing for a housing project. The contract required the bank to provide the financing if plaintiff sold the requisite number of housing units. The original complaint included averments regarding the number of units sold, and those numbers were not sufficient to trigger the financing requirement. Defendant moved to dismiss the original complaint, and plaintiff, not unexpectedly, amended. The amended complaint did not contain averments regarding the number of housing units sold.

            Predictably, the defendant again moved to dismiss, alleging that the averments contained in the original complaint were judicial admissions, that is, admissions that cannot later be contradicted by a party, which barred the breach of contract claim. The district court agreed and dismissed the claim.

            The Third Circuit disagreed. The Court found that an amended pleading supersedes an original pleading, and parties are free to correct inaccuracies in pleadings by amendment.   The Court noted that the original pleading is of no effect unless the amended complaint specifically refers to or adopts the original pleading. In this way, the amended pleading results in “withdrawal by amendment” of the judicial admission.

Rules Applicable to Summer Internships

Written by Bill MacMinn Monday, May 06 2013 14:08

With summer just around the corner, employers are inundated with requests by students for summer internships. If your company offers such opportunities, taking a few moments to review the applicable regulations will help assure that the program complies with the law.

It goes without saying that a paid intern is an employee and subject to all applicable state and federal employment laws including those pertaining to minimum wage and overtime. Even if the internship is unpaid, failure to follow Department of Labor guidelines could lead to legal liability under the Fair Labor Standards Act.

Department of Labor Guidelines

The Fair Labor Standards Act (the FLSA) provides, of course, that individuals in an employment relationship must be paid for services performed. When is an unpaid intern an employee? According to guidelines published by the Department of Labor, if the following factors are met, there is no employment relationship and the intern need not be paid:

The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

The internship experience is for the benefit of the intern;

The intern does not displace regular employees, but works under close supervision of existing staff;

The employer that provides the training derives no immediate advantage from the activities of this intern;

The intern is not necessarily entitled to a job at the conclusion of the internship; and

The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If all of these factors are met, the Department of Labor will conclude that an employment relationship does not exist under the FLSA. In such circumstances, minimum wage and overtime provisions do not apply to the intern.

Different rules apply for governmental agencies and non-profit organizations. Internships offered by governmental agencies, private non-profit food banks and non-profit organizations providing religious, charitable, civic, or humanitarian services are generally permissible so long as the intern volunteers his or her time freely and without anticipation of compensation.

A permissible unpaid internship will include some or all of these features:

  1. It is structured around a classroom experience as opposed to the employer’s actual operations;
  2. Academic credit is offered by a sponsoring institution;
  3. The internship provides the intern with skills that can be used in multiple employment settings as opposed to specific training in the employer’s operations;
  4. The intern does not perform the routine work of the employer;
  5. The employer is not dependent upon the work of the intern;
  6. Job shadowing opportunities that allow an intern to learn certain functions under the close and constant supervision of regular employees, but the intern performs no or minimal work.
  7. The internship is of a fixed duration established at the outset of the internship.

Factors which indicate an employment relationship (and trigger the requirement to pay wages) include:

  1. The intern is engaged in the operations of the employer;
  2. The intern is performing productive work such as, for example, filing, clerical work or assisting customers;
  3. The employer uses interns in lieu of hiring additional employees or offering more hours to existing employees;
  4. The intern receives the same level of supervision as other employees;
  5. The intern is offered employment to begin immediately upon the conclusion of the internship, effectively transforming the “internship” into a trial period of employment.

Summer internships, paid or unpaid, provide valuable experience to students. Employers need only exercise some caution is structuring the internship to avoid running afoul of DOL regulations. The DOL Fact Sheet on summer internships is available at http://www.dol.gov/whd/regs/compliance/whdfs71.htm

Reprinted with permission from April 5, 2013 issue of The Legal Intelligencer. (c)
2013 ALM Media Properties.
Further duplication without permission is prohibited.

The Pennsylvania Supreme Court is set to hear argument on April 10, 2013 regarding the scope of the work product doctrine and the discovery of materials contained in a testifying expert’s file on April 10, 2013.    The specific issue on appeal is whether Pennsylvania Rule of Civil Procedure 4003.3 provides absolute work product protection for all communications between a party’s counsel and its testifying trial expert.  The decision may provide clarity and guidance to litigation counsel facing an otherwise clouded issue.

In Barrick v. Holy Spirit Hospital, 32 A. 3d. 800 (Pa. Super. 2011), the trial court was faced with a subpoena directed to a medical provider who was both a treating physician and an expert retained for the purpose of offering trial testimony.  The trial court, after an in camera inspection, ordered the enforcement of the subpoena and the disclosure of communications between the expert and the Plaintiff’s counsel.  Plaintiff appealed, arguing the application of the work product doctrine under Pennsylvania Rule of Civil Procedure 4003.3 and trial preparation materials under Rule 4003.5 protected the communications from disclosure.

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