I. Introduction
On July 1, 2009, the Home Improvement Consumer Protection Act, 73 P.S. §§ 517.1 et seq. (the “HICPA”) became Pennsylvania law. The HICPA not only imposes potential criminal penalties upon contractors who commit home improvement fraud, but also contains a regulatory scheme that includes a list of requirements in order for home improvement contracts to be enforceable against a homeowner. Thus, the provisions of the HICPA are meaningful to both homeowners, and contractors.
However, as a relatively new statute, case law is scarce. A LEXIS® search of the phrase “home improvement consumer” in Pennsylvania yields only twelve (12) results, several of which have no instructive value in terms of the HICPA. The courts have recognized this shortage. See e.g. Durst v. Milroy Gen. Contr., 52 A.2d 357, 359 (Pa.Super. 2012)(“the HICPA is a new statute with no interpretive precedent”); Gelacek v. Lunz, 2012 Pa. Dist & Cnt. Dec. LEXIS 6, *9 (C.P. Ct. Armstrong Cty. 2012)(“[b]ecause the Home Improvement Consumer Protection Act is new, there is no relevant case law”).
Although Durst and Gelacek were both decided in 2012, as the seventh (7th) anniversary of the HICPA’s effective date approaches, the number of court decisions interpreting this law still remains limited. The purpose of this article is to provide both a recitation of the significant statutory sections, and a synopsis of the legal principles from the existing, yet limited, case law.
II. Criminal Home Improvement Fraud
Under the HICPA, the following acts are defined as home improvement fraud:
(a) Offense defined.–A person commits the offense of home improvement fraud if, with intent to defraud or injure anyone or with knowledge that he is facilitating a fraud or injury to be perpetrated by anyone, the actor:
(1) makes a false or misleading statement to induce, encourage or solicit a person to enter into any written or oral agreement for home improvement services or provision of home improvement materials or to justify an increase in the previously agreed upon price;
(2) receives any advance payment for performing home improvement services or providing home improvement materials and fails to perform or provide such services or materials when specified in the contract taking into account any force majeure or unforeseen labor strike that would extend the time frame or unless extended by agreement with the owner and fails to return the payment received for such services or materials which were not provided by that date;
(3) while soliciting a person to enter into an agreement for home improvement services or materials, misrepresents or conceals the contractor’s or salesperson’s real name, the name of the contractor’s business, the contractor’s business address or any other identifying information;
(4) damages a person’s property with the intent to induce, encourage or solicit that person to enter into a written or oral agreement for performing home improvement services or providing home improvement materials;
(5) misrepresents himself or another as an employee or agent of the Federal, Commonwealth or municipal government, any other governmental unit or any public utility with the intent to cause a person to enter into any agreement for performing home improvement services or providing home improvement materials;
(6) misrepresents an item as a special order material or to misrepresent the cost of the special order material;
(7) alters a home improvement agreement, mortgage, promissory note or other document incident to performing or selling a home improvement without the consent of the consumer; or
(8) directly or indirectly publishes a false or deceptive advertisement in violation of State law governing advertising about home improvement.
73 P.S. § 517.8(a).
Commonwealth v. Jesse, 2012 Pa. Dist & Cnty. Dec. LEXIS 48 (C.P. Ct. Westmoreland Cnty. 2012) interpreted Section 517.8(a)(2) as requiring a written contract in order for the Commonwealth to maintain a criminal charge. Id. at *7. The court reasoned that Section “517.8(a)(2) states ‘when specified in the contract’ [and], ‘[w]hen specified in the contract’ implies a written document.” Id. (emphasis original). Furthermore, the HICPA defines “home improvement contract” as “[a]n Agreement between a contractor, subcontractor or salesperson and an owner for the performance of a home improvement which includes all agreements for labor, services and materials to be furnished and performed under the contract.” Id. (emphasis original). Therefore, according to the court, “[t]he definition itself implies a detail [sic] writing of some sort.” Jesse, 2012 Pa. Dist & Cnty. Dec. LEXIS 48 at *6. Contractors and homeowners alike should be mindful that any agreement for home improvements is in writing, and complies with the statutory requirements as noted below.
In a non-precedential, but persuasive and instructive decision, the Superior Court recently addressed the fraudulent intent element of criminal home improvement fraud in Commonwealth v. Emeigh, 2015 Pa.Super. Unpub. LEXIS 4036. The Court stated “home improvement fraud requires intent not to perform or knowledge that performance would not take place when the contract is executed.” Id. at *9. In addition to failing to complete the work, the contractor in Emeigh committed several technical violations of the HICPA including: (a) holding himself out as a licensed contractor when he did not have a current license, in violation of Section 517.9(1); (b) accepting more than one-third of the contract price as a down payment in contracts involving more than $5,000, in violation of Section 517.9(10); and (c) preparing proposals without start and end dates, in violation of Section 517.7(a)(6). Id. at n.13. In support of its case, the Commonwealth also asserted that the contractor engaged in a deceptive scheme by preparing numerous confusing proposals. Id. at *10. Because “‘[c]riminal intent may be established by either direct or circumstantial evidence,’” id. at *8, quoting Commonwealth v. Parker, 564 A.2d 246, 249 (Pa.Super. 1989), the Emeigh Court reversed the trial court’s partial grant of a writ for habeas corpus (which dismissed the charge in part) and permitted the Commonwealth to proceed on its home improvement fraud count relating to all contract proposals.
A now plausible argument, based on the rationale of Emeigh, is that a contractor’s violations of the HICPA can give rise to an inference of fraudulent intent, if he also fails to perform. Thus, it is important for contractors to abide by the HICPA’s provisions. To begin, under the HICPA, “[n]o person shall hold himself out as a contractor, nor shall a person perform any home improvement without first registering with the bureau [of consumer protection].” 73 P.S. § 517.3(a). Furthermore, “[a] contractor shall include its registration number in all advertisements distributed within this Commonwealth and on all contracts, estimates and proposals with owners in this Commonwealth.” Id. at § 517.6.
If a contractor fails to register, or his registration has expired, yet he holds himself out as a registered contractor, then it is possible he may also be exposed to criminal liability under the theft by deception statute. The offense of theft by deception occurs when an individual “obtains or withholds property of another by deception.” 18 Pa.C.S. § 3922(a). A person deceives another if he intentionally “creates or reinforces a false impression, including false impressions as to law, value, intention or other state of mind; but deception as to a person’s intention to perform a promise shall not be inferred from the fact alone that he did not subsequently perform the promise.” Id. at § 3922(a)(1). In the context of home improvement contracts, this could occur when a homeowner makes a down payment to a contractor under the impression that the contractor holds a valid registration, but the contractor does not.
While standing alone, the failure to perform cannot give rise to an inference of deception or fraudulent intent, it is arguable that such failure, along with other factors, may provide circumstantial evidence of criminal intent for theft by deception or home improvement fraud. Under the HICPA, the following are considered “prohibited acts” whereby “no person shall:”
(1) Fail to register as required by this act.
(2) Fail to refund the amount paid for a home improvement within ten days of either the acceptance and execution of a return receipt for certified mail containing a written request for a refund or the refusal to accept the certified mail sent to the contractor’s last known address if all of the following apply:
(i) No substantial portion of the contracted work has been performed at the time of the request.
(ii) More than 45 days have elapsed since the starting date specified in the written contract.
(3) Accept a municipal certificate of occupancy or other proof that performance of a home improvement contract is complete or satisfactorily concluded with knowledge that the document or proof is false and the performance is incomplete.
(4) Utter, offer or use a completion certificate or other proof that a home improvement contract is complete or satisfactorily concluded when the person knows or has reason to know that the document or proof is false and is made to accomplish any of the following:
(i) Make or accept an assignment or negotiation of the right to receive payment under a home improvement contract.
(ii) Get or grant credit or a loan on security of the right to receive payment under a home improvement contract.
(5) Abandon or fail to perform, without justification, any home improvement contract or project engaged in or undertaken by a contractor. For the purposes of this paragraph, the term “justification” shall include nonpayment by the owner as required under the contract or any other violation of the contract by the owner.
(6) Deviate from or disregard plans or specifications, in any material respect, without a written change order dated and signed by both the contractor and owner, which contains the accompanying price changes for each deviation.
(7) Prepare, arrange, accept or participate in the financing of a home improvement contract with knowledge that the home improvement contract states a greater monetary obligation than the actual price of the home improvement.
(8) Advertise or offer, by any means, to perform a home improvement if the person does not intend to do any of the following:
(i) Accept a home improvement contract.
(ii) Perform the home improvement.
(iii) Charge for the home improvement at the price advertised or offered.
(9) Demand or receive any payment for a home improvement before the home improvement contract is signed.
(10) [] for a home improvement contract in which the total price is more than $5,000, receive a deposit in excess of:
(A) one-third of the home improvement contract price; or
(B) one-third of the home improvement contract price plus the cost of special order materials that will be ordered, as designated in the written contract.
* * *
(11) While acting as a salesperson, fail to account for or remit to the contractor whom the salesperson represents a payment received in connection with a home improvement.
(12) Subsequent to entering into an agreement for home improvement services or materials, changes the name of the contractor’s business, liability insurance information, the contractor’s business address or any other identifying information in a fraudulent or deceptive manner likely to cause confusion or misunderstanding without advising the owner in writing within ten days following any such change.
73 P.S. § 517.9.
As HICPA jurisprudence develops, courts may very well begin to consider the presence of these prohibited acts as other the factors which give rise to an inference of deceptive or fraudulent intent.
III. HICPA in Civil Cases
Each of the cases involved below contains substantially the same fact pattern: a homeowner hires a contractor to make improvements; the contractor makes improvements which are either in quality, or price, not to the satisfaction of the homeowner; the homeowner does not tender payment; and the contractor brings suit against the homeowner.
The first reported case to analyze the HICPA was Gelacek v. Lunz, 2012 Pa. Dist. & Cnty. Dec. LEXIS 6 (C.P. Ct. Armstrong 2012). At issue was whether an addition to an existing residence constitutes construction of a “new home” which is exempt, or whether an addition is a “home improvement” covered by the HICPA. Id. at *5. The HICPA defines “home improvement” as follows:
(1) The term includes all of the following done in connection with land or a portion of the land adjacent to a private residence or a building or a portion of the building which is used or designed to be used as a private residence for which the total cash price of all work agreed upon between the contractor and owner is more than $500:
(i) Repair, replacement, remodeling, demolition, removal, renovation, installation, alteration, conversion, modernization, improvement, rehabilitation or sandblasting.
(ii) Construction, replacement, installation or improvement of driveways, swimming pools, pool houses, porches, garages, roofs, siding, insulation, solar energy systems, security systems, flooring, patios, fences, gazebos, sheds, cabanas, landscaping of a type that is not excluded under paragraph (2)(vi), painting, doors and windows and waterproofing.
(iii) Without regard to affixation, the installation of central heating, air conditioning, storm windows or awnings.
(2) The term does not include:
(i) The construction of a new home.
73 P.S. § 517.2.
Citing this definition, as well as the definition of “addition” from Black’s Law Dictionary (“a structure that is attached to or connected with another building that predates the structure”), the court reasoned, “an addition, by its very definition, is not ‘the construction of a new home.’” Gelacek, 2012 Pa. Dist. & Cnty. Dec. LEXIS 6, at *7. Therefore, the court concluded, “that the HIPCA [sic] definition of ‘home improvement’ encompasses [] construction of an addition.” Id. at *10.
Because the HICPA contains specific written requirements for a home improvement contract, the issue in Durst v. Milroy Gen. Contr., 52 A.2d 357 (Pa.Super. 2012) was “whether the HICPA precludes lawsuits where home improvement work was conducted, but no written contract exists and the contractor is seeking to recover under a quantum meruit theory.” Id. at 359. “Quantum meruit is an equitable remedy to provide restitution for unjust enrichment in the amount of the reasonable value of services.” Am. & Foreign Ins. Co. v. Jerry’s Sport Ctr., Inc., 2 A.3d 526, 532 n.8 (Pa. 2010). “Where unjust enrichment is found, the law implies a contract, which requires the defendant to pay the plaintiff the value of the benefit conferred.” Mitchell v. Moore, 729 A.2d 1200, 1203 (Pa.Super. 1999). The Durst Court held “that quasi-contract theories of recovery survive the HICPA.” Durst, 52 A.2d at 361. Thus, homeowners cannot rely upon the HICPA as a complete defense where only an oral contract exists, but the contractor has rendered services or supplied materials.
The Superior Court decided a similar issue in the non-precential opinion of Anderson v. Buck, 2013 Pa.Super. Unpub. LEXIS 911. The issue in Anderson was “whether the HICPA precluded the trial court from granting relief to [the contractor] where there was no written contract in compliance with the HICPA.” Id. at *6. The difference from Durst was that, here, a written contract did exist, but it did not meet the HICPA’s requirements for a home improvement contract. Quoting the holding of Durst, the Court again ruled in favor of the contractor. Id. at *6-7.
To date, the Pennsylvania Supreme Court’s only weigh-in on the HICPA occurred in Shafer Elec. & Constr. v. Mantia, 96 A.3d 989 (Pa. 2014). The issue, nearly identical to that of Anderson, was “whether the [HICPA] bars a contractor from recover under a theory of quantum meruit in the absence of a valid and enforceable home improvement contract.” Id. at 260. To have an enforceable home improvement contract, the HICPA requires the following thirteen (13) elements:
(a) Requirements.–No home improvement contract shall be valid or enforceable against an owner unless it:
(1) Is in writing and legible and contains the home improvement contractor registration number of the performing contractor.
(2) Is signed by all of the following:
(i) The owner, his agent or other contracted party.
(ii) The contractor or a salesperson on behalf of a contractor.
(3) Contains the entire agreement between the owner and the contractor, including attached copies of all required notices.
(4) Contains the date of the transaction.
(5) Contains the name, address and telephone number of the contractor. For the purposes of this paragraph, a post office box number alone shall not be considered an address.
(6) Contains the approximate starting date and completion date.
(7) Includes a description of the work to be performed, the materials to be used and a set of specifications that cannot be changed without a written change order signed by the owner and the contractor.
(8) Includes the total sales price due under the contract or includes a time and materials provision wherein the contractor and owner agree in writing to the performance of the home improvement by the contractor and payment for the home improvement by the owner, based on time and materials. If the contract includes a time and materials provision:
(i) The contractor shall provide an initial cost estimate in writing to the owner before any performance of the home improvement commences.
(ii) The contract shall state:
(A) The dollar value of the initial cost estimate for the services to be performed under the time and materials provision.
(B) That the cost of the services to be performed under the time and materials provision may not exceed 10% above the dollar value indicated in the initial cost estimate.
(C) The total potential cost of the services to be performed under the time and materials provision, including the initial cost estimate and the 10% referenced in clause (B), expressed in actual dollars.
(D) A statement that the cost of the services to be performed under the time and materials provision shall not be increased over the initial cost estimate plus a 10% increase without a written change order signed by the owner and contractor.
(9) Includes the amount of any down payment plus any amount advanced for the purchase of special order materials. The amount of the down payment and the cost of the special order materials must be listed separately.
(10) Includes the names, addresses and telephone numbers of all subcontractors on the project known at the date of signing the contract. For the purposes of this paragraph, a post office box number alone shall not be considered an address.
(11) Except as provided in section 12, agrees to maintain liability insurance covering personal injury in an amount not less than $50,000 and insurance covering property damage caused by the work of a home improvement contractor in an amount not less than $50,000 and identifies the current amount of insurance coverage maintained at the time of signing the contract.
(12) Includes the toll-free telephone number [for the Attorney General].
(13) Includes a notice of the right of rescission under subsection (b).
73 P.S. § 517.7(a).
The Supreme Court stated that it agreed with the Durst Court that the HICPA “does not prohibit the cause of action in quantum meruit.” Shafer Elec., 96 A.3d at 996. Although the HICPA may operate to bar a claim for breach of contract, “[i]t is well-settled at common law [] that a party shall not be barred from bringing an action based in quantum meruit when one sounding in breach of express contract is not available.” Id. Thus, Shafer Elec. is another substantial victory for contractors.
With contractors able to assert a cause of action for quantum meruit in the absence of a valid home improvement contract, the Superior Court ventured one step further in the non-precedential decision of Wyse v. Leone, 2015 Pa.Super. Unpub. LEXIS 707. In this case, “Wyse [the contractor] pursued a cause of action sounding in breach of contract. However, when confronted with [the homeowner’s] defense that the contract was void and unenforceable under [the] HICPA, Wyse maintained that it had already provided work and materials and was seeking recovery for unjust enrichment.” Id. at *20-21. The case went to trial and Wyse rested solely on its mechanics’ lien claim, at which point the homeowner requested a directed verdict against Wyse. Id. at 21. Wyse’s counsel argued “‘[w]hether the contract technically stands up to HICPA, Section A, because of the contractor’s number not being on there, he still has the right to collect under quantum meruit.” Id.
The Court looked to Rule 1033, which provides that “[a] party, either by filed consent of the adverse party or by leave of court, may at any time change the form of action.” Pa.R.C.P. 1033. Moreover, “[a]mendments should be allowed even if proposed during trial. Whenever possible, courts should obtain determinations of cases on their merits.” Sands v. Forrest, 434 A.2d 122, 125 (Pa.Super. 1981). In Wyse, the Superior Court concluded that, “the trial court did not abuse its discretion in deciding the cause of action upon its merits.” Wyse, 2015 Pa.Super. Unpub. LEXIS 707 at *21. This case essentially permitted a contractor to successfully argue a theory of recovery that was not raised throughout any pleadings, throughout discovery, and throughout trial, but which did apply to the facts of the case.
IV. Conclusion
The distinction between criminal home improvement fraud and civil cases lies in the degree of work completed by the contractor. We predict that courts will conclude that a substantial failure to perform, coupled with other violations of the HICPA, is suggestive of intent to defraud or deceive. However, the courts have been generous to rule in favor of contractors where performance, to an extent, is attempted. In either event, a critical review of the home improvement contract is beneficial to both the homeowner, and the contractor.
If you have a question related to the Home Improvement Consumer Protection Act, please contact our firm. Sebring & Associates can provide the following services in relation to home improvement contracts:
- Negotiation of initial contracts
- Drafting of initial contracts
- Review of existing contracts for compliance
- Litigation of disputes relating to home improvements
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