500 James Hance Court v. Pennsylvania Prevailing Wage Appeals Bd.

• Decision Date: 23 November 2011
• Citation: 33 A.3d 555
• Parties: 500 JAMES HANCE COURT and Knauer and Gorman Construction Co., Inc. v. PENNSYLVANIA PREVAILING WAGE APPEALS BOARDBureau of Labor Law Compliance, Intervenor.Appeal of Bureau of Labor Law Compliance, Intervenor.
• Court: Pennsylvania Supreme Court

33 A.3d 555

500 JAMES HANCE COURT and Knauer and Gorman Construction Co., Inc.

v.PENNSYLVANIA PREVAILING WAGE APPEALS BOARDBureau of Labor Law Compliance, Intervenor.Appeal of Bureau of Labor Law Compliance, Intervenor.

Supreme Court of Pennsylvania.

Argued March 9, 2011.Decided Nov. 23, 2011.

James A. Holzman, PA Department of Labor & Industry, Jane Pomerantz, Department of Labor and Industry, Harrisburg, for Bureau of Labor Law Compliance.

Carl A. Ammerman, Jay R. Lantzy, Richard C. Lengler, PA Department of

Labor & Industry, Harrisburg, for Pennsylvania Prevailing Wage Appeals Board.

Joseph J. Dougherty, Lyons, Dougherty, Shaffer & Schneider, LLC, Chadds Ford, Joseph T. Doyle, Brian LeGrow, Law Offices of Vincent B. Mancini & Associates, Media, for 500 James Hance Court, L.P. and Knauer and Gorman Construction Co. Inc.Samantha Sherwood Bononno, Thomas Richard Davies, Harmon & Davies, for Appellee Amicus Curiae, Keystone Chapter Associated Builders and Contractors, Inc.Kevin Michael McKenna, Latsha, Davis, Yohe & McKenna, P.C., for Appellee Amicus Curiae, PA Coalition of Public Charter Schools.BEFORE: CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, ORIE MELVIN, JJ.

OPINION

Justice SAYLOR.

The issue of public importance centering this appeal is whether, under the Pennsylvania Prevailing Wage Act, a pre-development lease involving a charter school may implicate wage regulation in the ensuing construction of the leased premises.

I. Background

A. Parties and Interested Entities

The appellant is the Bureau of Labor Law Compliance (the “Bureau”), a unit of the Department of Labor and Industry (the “Department”), which is the Commonwealth agency charged with administration and enforcement of the Pennsylvania Prevailing Wage Act.¹ The appellees are 500 James Hance Court, L.P. (“Developer”), which operates as a commercial real estate developer, and Knauer and Gorman Construction Co., Inc. (“Contractor”) (collectively, with Developer, “Appellees”).

The Collegium Foundation (the “Foundation”) is a Pennsylvania nonprofit corporation which acts as a support organization for the Collegium Charter School (the “School”). The School, also a non-profit corporation, operates a charter school within the West Chester Area School District under the Charter School Law.²

B. Prevailing Wage Law, Generally

Under Section 5 of the Wage Act, “[n]ot less than the prevailing minimum wages as determined [under the Act] shall be paid to all workmen employed on public work.” 43 P.S. § 165–5. Public bodies proposing contracts for “any project of public work” are to request, from the Secretary of Labor and Industry, prevailing minimum wage rates (categorized by craft or classification of workers in the job locality) for incorporation into ensuing contracts. Id. §§ 165–4, 165–7. See generally Borough of Youngwood v. PWAB, 596 Pa. 603, 614, 947 A.2d 724, 730–31 (2008). In relevant part, a project is a “public work” if it is performed “under contract” and is “paid for in whole or in part” with public funds. 43 P.S. § 165–2 (definition of “public work”); see Pa. Nat'l Mut. Cas. Ins. Co. v. PWAB, 552 Pa. 385, 396–97, 715 A.2d 1068, 1074 (1998) ( “ Penn National I ”). Pursuant to the Charter School Law, boards of trustees and contractors of charter schools are made subject to the provisions of the Act. See 24 P.S. § 17–1715–A(10)(iii). Given that there may be some disharmony in the application of some of the specific elements of the Wage Act in charter-school scenarios, the Commonwealth Court has held that such elements are not strictly applicable. See Mosaica Educ., Inc. v. PWAB, 836 A.2d 185, 189–90 (Pa.Cmwlth.2003) (“ Mosaica I ”). Under Mosaica I, the payment of charter-school funds to finance construction may suffice to trigger wage regulation. See id.

C. Procedural and Factual History

On September 25, 2006, Developer entered into a construction management agreement with Contractor pertaining to the erection of a building at 500 James Hance Court, situated within the Oaklands Corporate Center in Exton, Chester County. According to the agreement, the contemplated, 68,000–square–foot structure was to be used as an elementary charter school, and the project was denominated “Collegium Charter School.”

On October 1, 2006, Developer and the Foundation entered into a long-term, pre-development lease pertaining to the above building,³ containing an option to purchase after five years. The lease also required the Foundation to tender $1.6 million in the form of a specialized “security deposit,” which Developer was to apply to acquire materials and equipment listed in the lease's “Exhibit E.” As further developed below, Exhibit E was not made available to the reviewing tribunals until a recent production per this Court's directive. In any event, the document evidences that the $1.6 “security deposit” to be provided by the Foundation was dedicated largely to funding the procurement of materials necessary to the interior construction or “fit-out” of the building for the contemplated use as a charter school and related administrative offices. This is significant, in light of the Wage Act's application to projects “paid for in whole or in part ” from public funds. 43 P.S. § 165–2 (definition of “public work”) (emphasis added). Other than in terms of this allocation, this original lease did not differentiate materially between the infrastructure construction (referred to by the parties as construction of the building shell) and the fit-out.

On October 2, 2006, Contractor entered into a subcontract with Pancoast & Clifford, Inc. (“Subcontractor”) for the physical construction of the building.

Soon after the lease and related contracts were executed, the Bureau notified the School that it was investigating the project to determine whether prevailing wages were required. In this regard, the Bureau explained that charter school construction is treated the same as a traditional school project for prevailing wage purposes. See Letter from Deputy Chief Counsel for the Bureau to the School Solicitor (Oct. 4, 2006), reproduced in Supplemental Reproduced Record (“R.R. Supp.”) at 1b–3b. See generally Mosaica I, 836 A.2d at 189.

In its response, the School represented that Developer had intended to construct an office building at the 500 James Hance Court site before the Foundation and School expressed an interest in occupancy. See Letter from the School Solicitor to the Bureau (Oct. 24, 2006), reproduced in R.R. Supp. at 4b. Furthermore, the School observed that Developer bore the responsibility for construction of the building; accordingly, the School had not awarded (and would not award) any contract of construction. Given its lack of involvement in the construction activity, the School took the position that no “funds of a public body” would be used for construction. 43 P.S. § 165–2(5). Thus, according to the School, “[b]ased upon the foregoing, we believe that the Project is not a construction project or construction-related work of a charter school and ... is not subject to the requirements of the Prevailing Wage Act.” R.R. Supp. at 5b. The School did not address the lease's allocation of a $1.6 million “security deposit” to the purchase of materials and equipment to be used in the construction.

On October 27, 2006, the Bureau issued a determination that prevailing wages were required for the project. The agency relied on the Foundation's involvement as the lessee; the intended use of the building as a charter school; rental payments by the School exceeding $600,000 annually; the option to purchase after five years; the $1.6 million “security deposit,” which the Bureau had learned was to be financed by bonds issued in 2004 by the Chester County Industrial Authority; and the Foundation's obtaining of a leasehold mortgage (apparently as a condition to the use of the bond monies), as authorized under the lease terms. See Letter from Deputy Chief Counsel for the Bureau to the School Solicitor (Oct. 27, 2006), reproduced in R.R. at 14a–15a. By way of analogy, the Bureau explained that, under a federal prevailing wage law known as the Davis–Bacon Act,⁴ a lease may implicate prevailing wage regulation. The Bureau referenced a multi-factored test employed by the United States Labor Department's Administrative Review Board to assess whether a long-term lease is a disguised public-works contract. See In re Phoenix Field Office, Bureau of Land Mgmt., ARB Case No. 01–010, 2001 WL 944696 (June 29, 2001), reproduced in Brief for Intervenor at App. 4. This test, referred to below as the Phoenix Field Office test, examines: (1) the length of the lease; (2) the government's involvement in the construction project (e.g., whether the building is built to government requirements and whether the government has inspection rights as the work progresses); (3) the extent to which the structure will be used for private rather than public purposes; (4) whether construction costs will be fully paid by the lease payments; and (5) whether the contract is written as a lease solely in order to evade prevailing wage requirements. See id. at 8–11.⁵

On December 7, 2006, Appellees responded by lodging a grievance with the Pennsylvania Prevailing Wage Appeals Board (the “Board”), under Section 2.2.(e) of the Act. See 43 P.S. 165–2.2 (entitled, “Appeals Board, powers and duties”); 34 Pa.Code § 213.8 (entitled, “Grievances arising from administration of the act”). In their grievance and the accompanying papers, Appellees conceded for the first time of record that the interior construction of the building was subject to wage regulation. According to Appellees, however, Developer and the Foundation had structured their relationship to draw a close, material distinction between the interior construction and the erection of the building shell. In this respect, Appellees represented that the building fit-out was the sole responsibility of the Foundation and the School, to be...