Articles & Updates

Pennsylvania Contractors Working On Out-Of-State Projects, Beware…

Mar 23, 2022 | Articles & Updates

Article by Gerard Hornby, Esq.

In February, the Pennsylvania Superior Court handed down a decision that has important implications for Pennsylvania contractors.  If you are a Pennsylvania contractor working with an out-of-state business on an out-of-state project, you may face an uphill battle bringing suit in a Pennsylvania court.

In Bean Sprouts LLC v. LifeCycle Construction Servs. LLC, No. 001268-CV-2021 (Pa. Super. Feb. 17, 2022), a construction and excavating company (“Subcontractor”) from in East Stroudsburg, Pennsylvania entered into various subcontracts with Life Cycle (“Contractor), a contractor with its principal place of business in Fredericksburg, Virginia., for work on five different out-of-state projects, including a convention center at Fort Rucker, Alabama, and a recreational vehicle park at Fort Irwin, California.  When a dispute arose concerning invoice procedures under the contracts for the Alabama and California projects, Contractor withheld payment, and Subcontractor sued Contractor in Pennsylvania.

Contractor filed Preliminary Objections raising lack of personal jurisdiction, and emphasized that Contractor does not have physical office space and is not incorporated or registered to do business in Pennsylvania; Contractor’s members, managers, and officers live and work in Virginia; Contractor does not target any residents of Pennsylvania for any work; aside from general nationwide subcontractor online solicitation, Contractor does not engage in any advertising targeted to Pennsylvania residents; Contractor sought subcontracting bids from numerous different companies; the contracts were electronically signed; no employees traveled to Pennsylvania to negotiate or execute the contracts; and no in-person meetings between the parties took place in Pennsylvania.

The trial court granted Contractor’s Preliminary Objections for lack of personal jurisdiction, and Subcontractor appealed, arguing that Contractor solicited, and then selected, Subcontractor, and engaged in continuous, systematic contacts with Pennsylvania over the course of its long-term and ongoing contractual relationships with Subcontractor.

The Superior Court affirmed the trial court’s decision to grant the Preliminary Objections, and ruled that three requirements under Pennsylvania law must be met for a forum to exercise specific jurisdiction over an out-of-state defendant:

  1. Did the plaintiff’s cause of action arise out of or relate to the out-of-state defendant’s forum-related contacts?
  2. Did the defendant purposely direct its activities, particularly as they relate to the plaintiff’s cause of action, toward the forum state or did the defendant purposely avail itself of the privilege of conducting activities therein?
  3. Would the exercise of personal jurisdiction over the nonresident defendant in the forum state satisfy the requirement that it be reasonable and fair?

Focusing primarily upon the first two factors, examining all the facts listed above, the Superior Court concluded that Contractor sending a request for a bid to Subcontractor’s Pennsylvania address and communicating about the contracts while Subcontractor was in Pennsylvania did not represent a purposeful contact with the state.

Relying upon the U.S. Supreme Court’s decision in Walden v. Fiore, 571 U.S. 277 (2014), the Superior Court stressed that Bean Sprouts cannot be the only link between LifeCycle and Pennsylvania.  Instead, a court must focus on “whether [Contractor’s] actions are sufficient to establish that it intentionally relied on the machinery of Pennsylvania justice in some fashion.”  This principle is why the court was not persuaded by the fact that Subcontractor suffered its injury in Pennsylvania.  The fact is relevant, but only so far as it can establish that Contractor’s actions connected it to Pennsylvania.  The only connection the trial court found was that Contractor mailed payment to Subcontractor’s Pennsylvania address—which the Court ruled did not clearly establish purposefully availing oneself to Pennsylvania as a forum.

The decision serves as a reminder to construction companies working on out-of-state projects with out-of-state parties that, even on projects where some incidental labor occurs in Pennsylvania, if the crux of the contractual duties occurred in other states, a complaint can be thrown out for lack of personal jurisdiction.  If you want to be sure that you can sue for breach of contract in Pennsylvania, you should negotiate a venue provision and choice of law provision into the contract.