United Blower, Inc. v. Lycoming Cty. Water & Sewer Auth.

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
United Blower, Inc. :
:
v. :
:
Lycoming County Water and : No. 1383 C.D. 2019
Sewer Authority : Argued: May 11, 2020
:
G.M. McCrossin, Inc. :
:
v. :
:
Lycoming County Water and :
Sewer Authority :
:
Appeal of: Lycoming County :
Water and Sewer Authority :
BEFORE: HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE ANNE E. COVEY, Judge
HONORABLE J. ANDREW CROMPTON, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION
BY JUDGE CROMPTON FILED: July 13, 2020
Before this Court is the appeal of the Lycoming County Water and
Sewer Authority (Authority) from the order of the Lycoming County Court of
Common Pleas (Trial Court) reversing the Authority’s adjudication that G.M.
McCrossin, Inc. (McCrossin) and United Blower, Inc. (UBI) were in violation of the
Steel Products Procurement Act (Steel Act)1 and requiring McCrossin and/or UBI to
reimburse the Authority $243,505, the full cost of air blower systems and blowers
provided to the Authority in connection with a project known as the Montoursville
1
Act of March 3, 1978, P.L. 6, as amended, 73 P.S. §§1881-1887.
Regional Sewer System Waste Water Treatment Plan, Phase I Upgrade (Project).
Upon review, we affirm the Trial Court.
I. The Steel Act
Section 3 of the Steel Act states, in pertinent part:
The Pennsylvania General Assembly . . . declares it to be the
policy of the Commonwealth of Pennsylvania that all public
officers and agencies should, at all times, aid and promote the
development of the steel industry of the United States in order to
stimulate and improve the economic well-being of the
Commonwealth and its people.
73 P.S. §1883.
We note the following provisions of the Steel Act which are relevant to
our determination herein.
Section 4, relating to required contract provisions, provides:
(a) Every public agency shall require that every contract
document for the construction, reconstruction, alteration, repair,
improvement or maintenance of public works contain a provision
that, if any steel products are to be used or supplied in the
performance of the contract, only steel products as herein defined
shall be used or supplied in the performance of the contract or
any subcontracts thereunder.
(b) This section shall not apply in any case: (1) where the head
of the public agency, in writing, determines that steel products as
herein defined are not produced in the United States in sufficient
quantities to meet the requirements of the contract; or (2) to items
on a list of exempt machinery and equipment steel products,
which have been identified by the Department of General
Services as not produced in the United States in sufficient
2
quantities in the previous calendar year, and published on the
department’s publicly accessible Internet website, which
contractors, subcontractors, suppliers, bidders, offerors and
public agencies can rely upon in preparing bids and contracts.
The list of exempt machinery and equipment steel products shall
be updated annually on a date selected by the Department of
General Services . . . .
73 P.S. §1884(a)-(b).
Section 5, relating to payments under contracts; action to recover
unauthorized payments; prohibitions for violations; procedure,
provides:
(a) No public agency shall authorize, provide for or make any
payments to any person under any contract containing the
provision required by section 4 unless, when unidentified steel
products are supplied under a contract, such person has provided
documentation including, but not limited to, invoices, bills of
lading, and mill certification that the steel was melted and
manufactured in the United States, which establish that such
person has fully complied with such provision. If a steel product
is identifiable from its face, such person must submit certification
which satisfies the public agency that such person has fully
complied with the provision required by section 4. Any such
payments made to any person by any public agency which should
not have been made as a result of this section shall be recoverable
directly from the contractor, subcontractor, manufacturer or
supplier who did not comply with section 4 by either such public
agency or the Attorney General of Pennsylvania.
(b) In addition to the withholding of payments, any person who
willfully violates any of the provisions of this act shall be
prohibited from submitting any bids to any public agency for any
contract for a period of five years from the date of the
determination that a violation has occurred. In the event the
person who violates the provisions of section 4(a) is a
subcontractor, manufacturer or supplier, such person shall be
prohibited from performing any work or supplying any materials
to a public agency for a period of five years from the date of the
determination that a violation has occurred.
3
73 P.S. §1885(a)-(b).
Section 6, relating to definitions, provides:
****
“Steel Products.” Products rolled, formed, shaped, drawn,
extruded, forged, cast, fabricated or otherwise similarly
processed, or processed by a combination of two or more of such
operations, from steel made in the United States by the open
hearth, basic oxygen, electric furnace, Bessemer or other steel
making process and shall include cast iron products and shall
include machinery and equipment listed in United States
Department of Commerce Standard Industrial Classification 25
(furniture and fixture), 35 (machinery, except electrical) and 37
(transportation equipment) and made of, fabricated from, or
containing steel components. If a product contains both
foreign and United States steel, such product shall be
determined to be a United States steel product only if at least
75% of the cost of the articles, materials and supplies have
been mined, produced or manufactured, as the case may be,
in the United States . . . .
****
73 P.S. §1886 (emphasis added).
Section 7, relating to purpose of act; liberal construction,
provides:
This act is intended as remedial legislation designed to promote
the general welfare and stimulate the economy of the
Commonwealth and its people and each and every provision
hereof is intended to receive a liberal construction such as will
best effectuate that purpose and no provision is intended to
receive a strict or limited construction.
73 P.S. §1887.
4
II. Project Background
McCrossin is a contracting and construction management firm
headquartered in Bellefonte, Pennsylvania. It was the general contractor for the
Authority on the Project, and in July 2011, it entered into an agreement with the
Authority to supply eight air blower systems. The purpose of these air blower
systems is to move air from one area to another. Each system is large, mostly
enclosed, and has few moving parts. The blower systems and blowers are powered
by electricity.
In August 2011, McCrossin and the Authority agreed to a change order
for McCrossin to supply and install three new digester blowers to replace existing
blowers that otherwise would have remained at the Authority’s facility. The purpose
of this change order was to allow for ease of maintenance in the future by providing
digestive blowers from a single manufacturer. After approval of the change order,
UBI became a subcontractor on the Project. UBI is a Georgia-based company that
provides engineering, fabrication, assembly, and testing services. Reproduced
Record (R.R.) at 0190-0191; 0426. UBI’s role was to supply the air blower systems
required by the original specifications and for the replacement of the three digestive
blowers as required by the change order.
UBI prepared a submittal for the blower systems which was, in turn,
submitted by McCrossin to the Authority’s Project engineer, Brinjac Engineering
(Brinjac). As part of the submittal, McCrossin provided Brinjac/Authority with an
5
ST-3 form,2 verifying that 75% of the cost of the blowers was attributable to articles,
materials, and supplies mined, produced, or manufactured in the United States. We
note here that some of the materials used in the Project contained markings
indicating that they were from China. The total amount paid by McCrossin to UBI
for the eight blower systems and the three blowers was $239,800. The amount paid
by the Authority to McCrossin for same was $243,505.
III. The Beginning of Litigation
There came a point in time3 when individuals employed by the
Authority began to question whether McCrossin and UBI provided products that
complied with the Steel Act. Thus, the Authority held a hearing on the matter on
September 23, 2014. Subsequent to the hearing, the Authority issued an adjudication
in which it determined that, while McCrossin and UBI had not willfully violated the
provisions of the Steel Act, they had failed to provide steel products as defined
therein. The Authority further determined that the remedy for the Steel Act violation
was for McCrossin and/or UBI to pay it the full amount of what the Authority had
paid to McCrossin, i.e., $243,505, for completion of the Project. R.R. at 0650-0657.
McCrossin and UBI appealed the Authority’s adjudication to the Trial Court. The
Trial Court subsequently remanded the matter to the Authority to be heard by an
2
This is a form developed by the Pennsylvania Department of General Services for use in
public agency projects involving steel products as a means to ensure the requisite amount of United
States steel is being utilized in the project.
3
It is unclear exactly when the Authority began to believe that there was a potential
violation of the Steel Act. However, the belief occurred sometime prior to the Authority making
its final payment to McCrossin on April 30, 2013. Nonetheless, there is no dispute that the final
payment for the Project was made to McCrossin by the Authority. There are e-mails in the record
from as early as March 7, 2013, suggesting some inquiry into the issue of the amount of domestic
steel used in the project. R.R. at 0857-0859.
6
independent hearing officer (Hearing Officer). The Trial Court directed the Hearing
Officer to make findings of fact and conclusions of law for adoption by the
Authority, which would nullify and supersede the Authority’s previous findings of
fact, conclusions of law, and adjudication. R.R. at 0872. The Authority adopted the
Hearing Officer’s findings and conclusions and issued its adjudication on December
6, 2017.
IV. Hearing Officer’s Determinations/Authority’s Adjudications
In his findings and conclusions, the Hearing Officer determined that the
issues to be decided in the case were whether the products provided by UBI are steel
products governed by the Steel Act, and if so, whether they were manufactured in
the United States as required by the Steel Act. R.R. at 016-030 (Adjudication).
The Hearing Officer rejected McCrossin’s and UBI’s argument that the
blower systems and blowers at issue are not steel products as defined in the Steel
Act because they are electrical machinery. The Hearing Officer stated that he did
not agree with McCrossin’s and UBI’s assertion that the term, “except electrical,” in
the definition of “steel products”4 should be interpreted to mean that any machine
driven by electricity, regardless of the amount of steel it contains, is excluded from
the Steel Act. The Hearing Officer noted that the Steel Act was intended as remedial
legislation to stimulate Pennsylvania’s economy and to promote the general welfare
of the Commonwealth and that it should be interpreted liberally to accomplish that
purpose.5 The Hearing Officer stated that the three Standard Industrial
4
73 P.S. §1886.
5
73 P.S. §1887.
7
Classifications (SIC) in the Steel Act are simply the titles of the classifications that
were in use at the time the law was drafted and that the primary purpose of an SIC
is not to define products but to define industries. The Hearing Officer noted that the
first such classifications were made in 1937 and were updated from time to time
thereafter, until 1987. He added that “Machinery, except electrical” was the title of
Classification 35 in 1977 but that the 1987 version used different nomenclature. The
Hearing Officer opined that, currently, the most relevant SIC Code would be 3564,
“Industrial and Commercial Fans and Blowers and Air Purification Equipment.”
Thus, the Hearing Officer determined that the incorporation of the name of the SIC
at the time the Steel Act became law did not exclude the equipment at issue in the
present matter from the definition of steel products in the Steel Act.
The Hearing Officer next addressed McCrossin’s and UBI’s contention
that an exception in Section 4(b)(1) of the Steel Act6 should apply. This Section
states that the requirement of using steel products manufactured in the United States
does not apply when the head of the public agency determines, in writing, “that steel
products as herein defined are not produced in the United States in sufficient
quantities to meet the requirement of the contract.” The Hearing Officer noted that
this argument was based upon the Authority’s agreement to the change order, which
allowed for the substitution of UBI blowers in place of Dresser Roots blowers.7 The
Hearing Officer determined that McCrossin requested the change order. Thus, the
Authority’s agreement to the change did not equate to a written determination that
6
73 P.S. §1884(b)(1).
7
Dresser Roots blowers are another brand of blowers produced by a different
manufacturer.
8
there were not enough such blowers manufactured in the United States. The Hearing
Officer found this to be especially true where McCrossin and UBI provided the ST-
3 form which affirmed the UBI blowers complied with the requirements of the Steel
Act and that the cost breakdown of same reflected 75% domestic and 25% foreign
content. Having determined that the blower assemblies and blowers were steel
products under the Steel Act, the Hearing Officer turned his attention to the question
of whether same were United States steel products.
During a hearing before the Hearing Officer, UBI’s owner and
president, Mr. Miolee (President), testified to the way in which he identified
components produced outside of the United States. As part of his determination of
the total amount of foreign steel involved in Project, President applied a 10%
reduction for items UBI had required from three other companies,8 all of which
provided letters to the effect that their invoices encompassed costs involved with
importation, warehousing, and outbound shipping costs of the products and that 90%
of the invoiced dollar amounts represented the “foreign component of the product
sold, leaving at least 10% of the value of the invoice as the domestic component.”9
Hearing Officer noted that the total cost of the foreign components, after reducing
the invoices by 10% of the total amount, was $59,655, and that President then
compared that cost to the amount charged to McCrossin, i.e., $239,800, and
concluded that the foreign cost component was 24.88% of the total cost of the Project
8
API Industrial, Inc., Eurus Blower, Inc., and Worldwide Electric Corp.
9
R.R. at 0608-0610. Hearing Officer noted that the language was identical in all three
letters, except that the letter from one of the companies did not contain the words “at least.” R.R.
at 026. The letters are also part of the record. R.R. at 0608-0610.
9
– even less if the $59,655 was compared to the total cost of the project, i.e., $243,505,
the Authority paid to McCrossin. R.R. at 026-027.
The Hearing Officer noted it was crucial to determine whether it was
appropriate to reduce the invoice by 10% when attempting to discern the numerator
of the fraction to use in calculating the percentage cost of foreign components in the
Project. The Hearing Officer also acknowledged it was important to determine what
the denominator of the fraction should be, i.e., the amount that McCrossin paid to
UBI or the amount that the Authority paid to McCrossin for the blower assemblies
and blowers. The Hearing Officer found that the Authority was invoiced $243,505
by McCrossin, and if that number was used as the total cost, then the calculation
from UBI would show the cost of the foreign components to be 24.49% of the total.
However, the Hearing Officer stated he believed the appropriate foreign cost figure
to be $67,340,10 in part because he did not believe it was appropriate to allow the
10% deduction that President had applied for products from UBI’s suppliers.
Hearing Officer determined that UBI’s suppliers sold foreign components to UBI,
and that their invoices to UBI represented the “cost of the articles,” per the terms of
the Steel Act. R.R. at 026, Adjudication at 11. Hearing Officer opined that the costs
of importing, storing, and shipping the foreign components should not be deducted
from the invoice amount, especially where, as here, the invoices did not break out
those components. He believed this interpretation to be consistent with the language
of the Steel Act and its requirement to be liberally construed to protect the use of
10
This is a total amount reflected in President’s handwritten notes on Exhibit UBI-7.
However, this same document also reflects a revised foreign steel total of $59,655 which was
President’s revised calculation of the steel components in the Project, in addition to a reduction of
10%, per the letters he had received from UBI’s suppliers, i.e., API, Eurus, and Worldwide
Electric. R.R. at 0354.
10
domestic steel. Hearing Officer also determined it was most appropriate to view the
total cost of the steel product as the cost to McCrossin, rather than the cost to the
Authority. He opined that to determine otherwise would allow a contractor to
manipulate the 75%/25% domestic/foreign split in the cost of the steel product by
simply marking up the cost. The Hearing Officer further opined that, in order to
comply with the requirements of the Steel Act, the cost to the contractor is the
appropriate measuring stick, not the price that the contractor charges the customer,
and using this method, the cost of the foreign components for the blower assemblies
and blowers, in this case, was $67,340/$239,800, or 28% of the total. The Hearing
Officer added that, if the denominator was changed to reflect the cost charged to the
Authority, the result would still be steel products that were 27.7% foreign.
Accordingly, he concluded that the blower assemblies and blowers were not United
States steel products, per the Steel Act.
The Hearing Officer acknowledged that McCrossin and UBI had
argued that the blowers that were part of the change order were provided free of
charge and, thus, should not be included in the calculation. The Hearing Officer
acknowledged that the change order retained the same price for the eight assemblies
and three blowers as it had for the eight blower assemblies, but he did not believe
this justified considering the three blowers as a gift. The Hearing Officer determined
that there was no way to know if the change order would have resulted in a lower
price if the only change had been from eight Dresser Roots blower assemblies to
eight UBI blower assemblies.
11
The Hearing Officer did not make any findings about the appropriate
remedy in the matter as the parties agreed he should not do so. Accordingly, the
Hearing Officer made the following conclusions of law:
1. The blower assemblies and blowers are “steel products” as
defined by the [Steel] Act.
2. The blower assemblies and blowers were not exempted from the
[Steel] Act, as the Authority made no finding that blower
assemblies and blowers are not produced in the United States in
sufficient quantities to meet the requirement of the contract.
3. The blower assemblies and blowers cannot be considered to have
been wholly manufactured in the United States.
4. The blower assemblies contain both foreign and United States
steel.
5. The blowers inserted into the pre[]existing assemblies at the
Authority’s plant . . . contain solely foreign steel.
6. The eight blower assemblies and three blowers were treated by
the parties as a unit, even though each assembly and each blower
could be considered a steel product.
7. Less than 75% of the cost of the steel in the blower assemblies
and blowers, when considered as a unit, represent steel that has
been mined, produced, or manufactured in the United States.
8. The blower assemblies and blowers, when considered as a unit,
are not “United States steel products” as defined by the Act.
R.R. at 029.
On May 21, 2018, the Trial Court remanded the matter to the Authority
and the Hearing Officer for a determination of a remedy. R.R. at 0867. On August
21, 2018, the Hearing Officer presided over a hearing at which additional evidence
12
was taken regarding an appropriate remedy. R.R. at 0919. On January 17, 2019, the
Hearing Officer issued a subsequent adjudication as to the remedy, and on February
6, 2019, the Authority adopted the Hearing Officer’s adjudication, determining
McCrossin and UBI had violated the Steel Act and, thus, should be required to
refund to the Authority the total amount of $243,505 paid to McCrossin for Project.
R.R. 0920; 0948. The Hearing Officer determined that “the [Steel] Act draws a clear
line – a steel product is a United States steel product or it is not.” R.R. at 0946.
Thus, he believed he could not fashion a remedy based on the percentage of the
product that failed to meet the 75% domestic steel requirement of the Steel Act.
However, the Hearing Officer also determined that McCrossin and/or UBI did not
fail to act in good faith or that their violation of the Steel Act was willful. R.R. at
0946-0948. McCrossin and UBI appealed the Authority’s determination to the Trial
Court.
V. Trial Court Order
After argument,11 the Trial Court issued an order on July 31, 2019,
reversing the Authority’s Adjudication. See Trial Court Order (Tr. Ct. Order) dated
7/31/19. The Trial Court determined that the Hearing Officer and the Authority did
not properly calculate the United States-based content of the equipment under
review because the Hearing Officer did not account for the fact the Authority
received three blowers gratis and, thus, those blowers should have been excluded
from the overall foreign content calculation. The Trial Court noted that, with the
three blowers excluded from the calculations, the foreign content of the blower
The Trial Court’s order states only that argument was held. There is no indication that
11
the Trial Court requested or accepted any evidence beyond that which had already been admitted
during the proceedings before the Hearing Officer/Authority.
13
systems purchased by the Authority would fall to a level less than 25% and would
bring McCrossin and UBI within the range of Steel Act compliance. In addition, the
Trial Court determined that the Hearing Officer should have taken into account
evidence of UBI’s vendors’ “markups,” and if this 10% of the total cost had been
considered, the percentage of foreign content would have been lower than 25%. Tr.
Ct. Order at 2. In addition, Trial Court determined that, “while UBI’s entire blower
system may not fall within the definition of ‘electrical machinery,’ the electric
motors which power the blower systems would.” Tr. Ct. Order at 5. Trial Court
noted that, because Authority initially examined UBI’s blower systems component-
by-component to ascertain the origin of each, potential exclusions from the Steel Act
should have been considered in the same manner, and all electric motors should have
been omitted from the foreign cost calculations. Tr. Ct. Order at 5.
The Trial Court disagreed with the determination that the change order
to provide for three more blowers at no additional charge did not equate to a written
determination that there were not enough such blowers manufactured in the United
States. The Trial Court added that the Authority delegated the power of
determination in this regard to its project engineer, Brinjac, which had the option of
exploring other manufacturers of blower systems until the change order came into
effect, and McCrossin did not have the authority to deviate from the change order
after Brinjac signed it. The Trial Court added that McCrossin submitted its final
payment application in April 2013, Brinjac signed same, and the Authority approved
it on April 30, 2013, even though the Authority had concerns about compliance with
the Steel Act.
14
In regard to the remedy, the Trial Court did not agree that same would
be a complete forfeiture by the violating parties. Instead, the Trial Court opined that
the remedy should be proportionate to the degree of the Steel Act violation. The
Trial Court further determined that the doctrine of election of remedies was not
curtailed by the Steel Act, so the Authority was not permitted to retain the equipment
in question and also receive a full refund from McCrossin and/or UBI. The Trial
Court stated that “[t]he Court in the Department of Environmental Resources v.
Leechburg Mining Co., 305 A.2d 764, 768 (Pa. Cmwlth. 1973)[,] held that the
election of remedies doctrine applies to judicial remedies as well as administrative
remedies.” Tr. Ct. Order at 6.
Accordingly, the Trial Court reversed the adjudication, stating: “[g]iven
the above review, the de minimis nature of [McCrossin’s and UBI’s] violation of the
Steel Act,[12] and McCrossin’s and UBI’s readiness to replace the foreign steel
components with components made of U.S. steel, [the Trial Court] REVERSES [the
Authority’s] decision.” Id. The Authority now appeals.13
12
We note here that the Trial Court makes a one-time reference to the “de minimis nature
of [McCrossin’s and UBI’s] violation of the Steel Act . . . .” Tr. Ct. Order at 6 (emphasis added).
However, the Trial Court’s order did not find any such violation of the Steel Act. Thus, we
interpret this reference to mean that, had there been a violation of the Steel Act, the Trial Court
did not consider it to rise to a level that would have justified a full refund of the amount the
Authority paid to McCrossin but that any such violation may have more reasonably justified a
penalty proportionate to the amount of foreign steel in excess of the 25% limitation of the Steel
Act.
13
Because this was an appeal from an adjudication of a local agency, which produced a
full and complete record of the proceedings before it, the standard of review in the appeal is
limited, as set forth in Section 754(b) of Local Agency Law:
15
VI. Authority’s Appeal
On appeal, the Authority argues that the Trial Court erred by exceeding
the standard of review provided by the Local Agency Law, 2 Pa. C.S. § 754(b), by
finding McCrossin and UBI had not violated the Steel Act, and by refusing to affirm
the Hearing Officer’s/Authority’s imposition of the remedy specifically provided in
the Steel Act.
The Authority argues that nowhere in its opinion did the Trial Court
find any of the Hearing Officer’s findings of fact were not supported by substantial
In the event a full and complete record of the proceedings before the local
agency was made, the court shall hear the appeal without a jury on the
record certified by the agency. After hearing the court shall affirm the
adjudication unless it shall find that the adjudication is in violation of the
constitutional rights of the appellant, or is not in accordance with law, or
that the provisions of Subchapter B of Chapter 5 (relating to practice and
procedure of local agencies) have been violated in the proceedings before
the agency, or that any finding of fact made by the agency and necessary to
support its adjudication is not supported by substantial evidence. If the
adjudication is not affirmed, the court may enter any order authorized by 42
Pa. C.S. §706 (relating to disposition of appeals).
2 Pa. C.S. §754(b).
The Trial Court may only reverse where it determines that “constitutional rights were
violated, an error of law was committed, the procedure before the agency was contrary to statute,
or the necessary findings of fact were not supported by substantial evidence.” Sparacino v. Zoning
Bd. of Adjustment, City of Phila., 728 A.2d 445, 447 (Pa. Cmwlth. 1999). The substantial evidence
required to support the finding of an administrative agency is such relevant evidence as a
reasonable mind might accept as adequate to support the conclusion. Civil Serv. Comm’n v. Poles,
573 A.2d 1169 (Pa. Cmwlth. 1990).
For questions of law, the scope of review is plenary and the standard of review is de novo.
In Re Nomination Papers of James, 944 A.2d 69 (Pa. 2008).
16
evidence, that the process was contrary to the Local Agency Law, or that any
constitutional rights were violated. The Authority asserts that, instead, the Trial
Court re-weighed the evidence, came to alternative legal conclusions, and reversed
the Hearing Officer’s determination. Authority’s Br. at 17-18. The Authority
further asserts that the Hearing Officer’s conclusions were consistent with the Steel
Act’s requirement that it be liberally construed to protect the use of domestic steel
and that the Hearing Officer appropriately used the cost to the contractor and the
amount paid to the foreign manufacturer(s) as the measuring stick, rather than the
price McCrossin charged the Authority. Using this method, the cost of the foreign
components for the blower assemblies and blowers was $67,340 divided by
$239,800, or 28% of the total. The Authority contends the Hearing Officer
appropriately concluded that the blower assemblies and blowers were not United
States steel products because less than 75% of their steel cost was of domestic origin.
The Authority contends the Trial Court substituted its judgment for the judgment of
the Hearing Officer, who was present for the testimony of the witnesses and
physically inspected the blowers, and that this was a violation of the standard of
review, constituting reversible error. Authority’s Br. at 23.
The Authority contends that none of the blowers in the Project were
provided gratis, UBI paid $67,340 for the foreign steel components of the blower
system purchased by the Authority, and McCrossin paid $239,800 to UBI for the
system. The Authority adds that the three additional blowers were included as part
of the $239,800 invoice to McCrossin, and the blowers were not free or exempt from
the Steel Act simply because McCrossin issued a no-increase change order to induce
the Authority to accept UBI blowers instead of the originally specified Dresser Roots
17
blowers. R.R. at 94. The Authority posits that the Hearing Officer correctly rejected
the claim that any blowers were free or should otherwise be excluded from the total
cost calculation. The Authority argues the purpose of the change order was ease of
maintenance, as the Authority believed ongoing maintenance would be more
efficient if all digestive blowers in the facility were from the same manufacturer.
The Authority contends that McCrossin took and kept the three existing Dresser
Roots blowers as part of the exchange and that the change order was to benefit
McCrossin, not the Authority. R.R. at 0228-0229. The Authority contends it was
willing to accept UBI equipment only if three additional blowers were retrofitted to
replace three existing Dresser Roots blowers, because Dresser Roots blowers were
originally specified to be used in order to be consistent with the Authority’s existing
infrastructure. R.R. at 0228; 0732-0733. The Authority further contends that, to
find that these three blowers were exempt from compliance would frustrate the
purpose of the Steel Act because it would allow a contractor to manipulate the cost
associated with foreign steel components in order to meet the 75%/25% requirement
of the Steel Act. The Authority states it was reversible error for the Trial Court to
remove the three blowers from the calculation and that the Trial Court did not
explain the calculations it performed to arrive at its determination relative to the
75/25% split. Authority’s Br. at 24-26.
The Authority argues that the Trial Court erred by rejecting the Hearing
Officer’s determination not to include the 10% reduction in foreign steel costs, per
UBI’s testimony to same. The Authority contends that the Hearing Officer found
that there could be no deduction because the foreign cost was appropriately fixed as
the amount UBI paid for foreign steel components. R.R. at 0993. The Authority
18
asserts the Steel Act does not allow a deduction for importation, warehousing,
marketing, and shipping costs by a foreign manufacturer, i.e., the items identified by
President, and UBI’s suppliers, as the 10% domestic portion of the total cost. The
Authority contends that UBI actually paid $67,340 to obtain the foreign steel
products used in the $239,800 blower system it sold to McCrossin, and, when that
$67,340 is divided into the invoice price to McCrossin, the result is a minimum of
28% of the total cost of the blowers attributable to foreign steel. Thus, the blowers
were not, “steel products” as required by the Steel Act. Authority’s Br. at 26-28.
The Authority asserts that the Trial Court found the Steel Act was not
violated because the Authority agreed to the change order substituting the UBI
blowers in place of the Dresser Roots blowers. The Authority contends, however,
that there was no evidence that anyone at the Authority determined, in writing, that
there were insufficient quantities of United States steel products to satisfy the Project
upgrade contract requirements relative to the blowers. The Authority asserts that the
Trial Court ignored the fact that McCrossin and UBI verified, under oath, that UBI’s
blowers complied with the Steel Act. It notes that the notion the change order
created an exemption from the Steel Act was rejected by the Hearing Officer and,
thus, should not have been disturbed by the Trial Court. The Authority further
argues that McCrossin requested the change order and that the Authority’s
agreement to same was not a written determination that there were not enough of
these blowers manufactured in the United States. R.R. at 0990-0991.
The Authority argues that the use of electricity in the equipment did not
exempt the blowers from the Steel Act, and the Trial Court’s determination that all
19
electric motors are exempt was due entirely to the parenthetical reference
“(machinery, except electrical)” in the definition of steel products in the Steel Act.
However, the Authority notes, under the rules of statutory construction, parenthetical
cross-references are for identification purposes only, do not limit a statute’s
application, and in reference specifically to the Steel Act, do not create an exception
for every steel product powered by electricity. The Authority maintains that all steel
products are covered by the Steel Act, and the Act’s reference to SIC 35 is merely
for identification purposes and is not a strict limitation.
The Authority argues that, in L.B. Foster Company v. Southeastern
Pennsylvania Transportation Authority, 705 A.2d 164 (Pa. Cmwlth. 1997), this
Court held that certain parts of the definition of “steel products” are to be interpreted
based on the statutory construction rule of “noscitur a sociis - a word or phrase is
known by its associates.” Id. at 170. In L.B. Foster, we explained that “[t]he
definition makes clear that any products rolled, formed or shaped, etc., from United
States steel constitute steel products within the meaning of the [Steel] Act” and that
even if a product is not contained within one of the SICs listed, so long as it is rolled,
formed, shaped, etc., from steel, it is subject to the domestic steel composition
requirements. Id. at 169. The Authority asserts that the Hearing Officer soundly
concluded that reading a blanket “electricity” exception into the Steel Act was
inconsistent with the Steel Act’s purpose as remedial legislation. R.R. at 0989-0990.
Authority’s Br. at 32-35.
The Authority next contends there are two available remedies under the
Steel Act. First, any payment made that should not have been made because there
20
was not compliance with the Steel Act is recoverable directly by the public agency
from the violator. Section 5 of the Steel Act, 73 P.S. §1885(a). And, second, the
Steel Act provides that if the violation is determined to have been willful, the violator
is automatically subject to a five-year ban on bidding/working on public contracts
within the Commonwealth. The Authority only addresses the former remedy
because it was the only remedy ordered by the Hearing Officer. To that point, the
Authority argues compliance is a binary event: a product is either a “steel product”
and thus compliant with the Steel Act, or it is not. There is no mens rea element.
Authority’s Br. at 43. The Authority notes that significant penalties for violations
are a deterrent to future violators, and allowing a violator to cure a violation, after
the fact, would have no deterrent effect. Authority’s Br. at 51-52.
The Authority states that the Trial Court determined the violation of the
Steel Act was de minimis14 and, thus, not actionable. However, the Authority
contends that to say the violation was de minimis is not a fair statement relative to
what the Steel Act requires and that McCrossin and UBI did not prove, as the Steel
Act requires, that 75% of the steel used in the blowers was made in the United States.
Rather, McCrossin and UBI did the inverse and admitted that, at a minimum, 28%
of the total cost of the blowers was directly attributable to a foreign steel product but
did not prove 72% of the contract price was attributable to domestic steel. In
addition, the Authority argues McCrossin and UBI chose to source steel products
from China, fully understanding the penalties if they exceeded the 25% limit on
14
As we noted above, the Trial Court did not determine that there was any violation of the
Steel Act. Thus, we consider the Trial Court’s reference to a violation of a “de minimis nature” to
mean had there been a violation of the Steel Act, the Trial Court did not consider it to rise to a
level that would have justified a refund of the full cost of the Project.
21
foreign steel. The Authority maintains that, in the present matter, the Steel Act
requires forfeiture of all payments made relative to the blowers and that it does not
provide for any sort of a de minimis exception. The Authority maintains the blowers
are either steel products, as defined in the Steel Act, or they are not. Thus, the
Authority argues the required remedy was/is repayment by McCrossin and/or UBI
of the full contract price.
The Authority adds that the Steel Act does not provide a means for
McCrossin and UBI to “cure” its violation. It maintains that the Trial Court gave
credence to UBI and McCrossin’s “readiness to replace the foreign steel components
with components made of U.S. [s]teel” but should not have done so. Authority’s Br.
at 54; Tr. Ct. Order at 6. The Authority asserts that McCrossin and UBI argue that,
if they violated the Steel Act, they should only be required to pay to the Authority
the amount of foreign steel costs over the 25% threshold or, in the alternative, to
provide substitute, United States steel blowers to cure the violation. However, the
Authority contends that such remedies are in direct conflict with the provisions of
the Steel Act and to allow same would remove any incentive for contractors to
comply with the Steel Act because the only risk to them would be the possibility of
having to come into compliance at some point in the future. The Authority maintains
that the General Assembly determined how Steel Act violations are to be remedied
(via repayment of funds and/or disbarment) and did not include an opportunity to
cure or to provide a partial refund. Further, the Authority contends that, because a
statutory remedy is provided under the Steel Act, principles of equity cannot be
invoked. DeLuca v. Buckeye Coal Co., 345 A.2d 637 (Pa. 1975) (where there is a
statutory remedy which is mandatory and exclusive, equity is without power to act).
22
The Authority asserts that the express remedy of the Steel Act should be imposed.
Authority’s Br. at 56.
The Authority notes that the Trial Court found the Authority was
foreclosed from seeking repayment, citing the election of remedies doctrine within
Leechburg Mining Co., 305 A.2d 764. However, the Authority contends that
conclusion was in error. The Authority argues that, per Leechburg, the election of
remedies doctrine only applies when multiple statutory enforcement options are
available to an agency, the agency elects an option and sees it through to a final
judgment, and then the agency tries to pursue a different statutory remedy for the
same circumstances. The Authority maintains that such a scenario did not occur
here. It contends it had but one statutory remedy available to it for a Steel Act
violation, i.e., recovery of the payments through a local agency adjudication, that it
has continued to pursue that single remedy since 2014, and nothing in the Steel Act
states the Authority must return the equipment in order to pursue a violation. Thus,
the Authority asserts that applying the election of remedies doctrine would result in
it being penalized for maintaining the status quo while the case is being litigated.
Authority’s Br. at 52-57.
VII. Analysis
Upon review, we must first address the threshold question of whether
the Trial Court exceeded its authority when it reversed the adjudication in this
matter.
23
We acknowledge that the law requires reasonable deference to the local
agency’s decision and that the Trial Court may only reverse where it determines
constitutional rights were violated, an error of law was committed, the procedure
before the agency was contrary to statute, or the necessary findings of fact were not
supported by substantial evidence. Sparacino, 728 A.2d 445. However, in the
matter sub judice, the Trial Court did not reject the Hearing Officer’s credibility
determinations or assignment of weight to the evidence of record. It rejected the
adjudication on the basis that the determinations made therein were errors in the
interpretation and application of the Steel Act. Accordingly, Trial Court’s order was
within its authority per the Local Agency Law at 2 Pa. C.S. § 754(b) and Sparacino.
Having determined that the Trial Court’s order is in conformance with
the applicable law, we next address whether the blower systems and blowers
provided to the Authority by McCrossin and UBI are steel products, per the Steel
Act. To this query, we respond in the affirmative.
Although McCrossin and UBI suggest that the presence of electrical
equipment in the components and systems sold to the Authority remove the Project
from the requirements of the Steel Act, we disagree. It is true that the Steel Act’s
definition of steel products “shall include machinery and equipment listed in United
States Department of Commerce Standard Industrial Classification 25 (furniture and
fixture), 35 (machinery, except electrical) and . . . made of, fabricated from, or
containing steel components.” Section 6 of the Steel Act, 73 P.S. §1886 (emphasis
added). However, we agree with the Authority’s and the Hearing Officer’s position
that these were general descriptors and are representative of classifications in use in
24
1978 when the Steel Act was first signed into law. Once McCrossin and UBI
decided to participate in the provision of equipment/products in a public project, and
signed the ST-3 form verifying compliance with the requirements of the Steel Act,
they waived their right to later challenge the application of the Steel Act on the
grounds it did not apply to Project.
McCrossin argues that there was no waiver because it, and presumably
UBI as well, had no intention of waiving any right to challenge this aspect of the
Steel Act. McCrossin’s Br. at 15-16. However, this argument is unpersuasive in
light of the representations both made, on the ST-3 form, as part of securing their
roles as contractors on the Project. Based on our determination that the blowers and
blower systems are steel products as defined in the Steel Act, we turn our attention
to whether same are a United States steel product with “at least 75% of the cost of
the articles, materials and supplies hav[ing] been mined, produced or manufactured,
as the case may be, in the United States.” 73 P.S. §1886.
Critical to determining the respective amounts of foreign and domestic
steel in Project are the representations from UBI’s suppliers, and the testimony of
President, that 10% of the total costs are, in fact, attributable to a domestic
component. In these regards, the Hearing Officer stated in his findings and
conclusions that he relied “almost exclusively” on President’s testimony about the
composition of the steel. R.R. at 028; Adjudication at 13. Further, the Hearing
Officer did not determine there was a willful violation of the Steel Act by either
McCrossin or UBI, even if he did not agree with the method relied upon to determine
the amount of foreign steel versus domestic steel utilized in the Project.
25
In conducting our analysis of the Hearing Officer’s calculation, as
opposed to the method of calculation utilized by the Trial Court, we find it necessary
to examine the meaning of the term “cost” in the definition of steel products. Again,
we note that Section 6 of the Steel Act states that “[i]f a product contains both foreign
and United States steel, such product shall be determined to be a United States steel
product only if at least 75% of the “cost” of the articles, materials and supplies have
been mined, produced or manufactured, as the case may be, in the United States.”
73 P.S. §1886. The term “cost” was not included in the original version of the Steel
Act, and, in fact, was not added until the Steel Act was amended in 1984.15 No
definition of “cost” is provided in the statute, but Merriam-Webster Dictionary
defines “cost” as: “the amount or equivalent paid or charged for something” or “the
outlay or expenditure . . . made to achieve an object.”16 Although there is a dearth
of guidance on the interpretation of the word “cost” in the context of the Steel Act’s
definition of steel products, we view “cost,” in light of its definition, to include a
wide array of factors to be considered when assigning value to a product or service.
Accordingly, it does not seem unreasonable to us that the Trial Court interpreted the
Steel Act differently than the Hearing Officer when calculating the percentage of
foreign steel in UBI’s product.
The Hearing Officer acknowledged the total amount UBI paid its
suppliers, API, Eurus, and Worldwide Electric Corporation, without regard to the
15
See The Act of July 9, 1984, P.L. 674, No. 144.
16
https://www.merriam-webster.com/dictionary/cost (last visited on July 10, 2020).
26
portion of the cost attributable to domestic aspects of that total associated with
importing, storage, and shipping. The Hearing Officer asserted that his
determination of the foreign aspects of the project reflected the “cost of the articles,”
per the terms of the Steel Act. Authority’s Br. at 22-23; R.R. at 0026, Adjudication
at 11. He did not discredit President’s assertion that 10% of the invoice(s) from
UBI’s suppliers was for domestic costs in the total(s). Rather, he took exception to
applying a 10% reduction to the total cost of the equipment because the costs of
importing, storage, and shipping were not specifically identified within President’s
breakdown of costs, and he did not believe such costs should be included in the “cost
of the articles,” as the term appears in the Steel Act. The Trial Court applied the law
differently to give effect to all aspects involved in the cost of the articles, thus
recognizing a portion of same was attributable to value added domestically. The
Trial Court determined that shipping and other costs should be included in the total
“cost” of the articles, and if domestic in nature, should not be counted against
UBI. This is consistent with the definition of the term “cost,” which broadly
includes all of the outlay/expenditure involved in achieving a final product. Further,
since the Hearing Officer did not find that President was not credible as to his
calculations, including the 10% domestic component of the cost of the items from
his suppliers, the Trial Court’s reversal of the Hearing Officer in this regard was not
unreasonable or outside of its discretion – especially where the Steel Act’s lack of
guidance leaves it open to such interpretation.
Given the Steel Act’s focus on determining specific percentages of steel
involved in a final product, and the reference to the cost of the project to the public
entity, we must arrive at both a numerator and denominator - as both the Hearing
27
Officer/Authority and the Trial Court did. In this regard, and in accordance with our
opinion herein, we see no error by the Trial Court when it used $59,655 as the
numerator of the equation in determining the foreign component of the steel product
provided by UBI. As for the denominator of the equation, the Steel Act
unquestionably puts its focus on the public agency’s payment to the contractor. In
the present matter, that would implicate the $243,505 paid to McCrossin by the
Authority. However, here, it is not clear to us which total amount UBI was
considering when it signed the ST-3 form, i.e., the $239,800 it was paid by
McCrossin or the $243,505 McCrossin was to be paid (and ultimately was) by
Authority. R.R. at 0597, ST-3 Form. Regardless, both calculations result in a
foreign component under 25% ($59,655 divided by $243,505 results in a percentage
of 24.5%, whereas $59,655 divided by $239,800 results in a percentage of 24.9%).
Thus, there was no violation of the Steel Act. Accordingly, we need go no further
in our review of the Trial Court’s order, and the matter of a “remedy” does not need
to be decided.17
17
Although we do not reach the issue of remedy in this matter, we note that the Trial Court
did not err when it determined the Authority was not entitled to receive a full refund while, at the
same time, keeping the blower systems and blowers provided by McCrossin. In this regard, we
acknowledge that McCrossin makes a compelling argument that equity abhors a forfeiture.
Further, we believe that allowing the Authority to keep the blower systems and blowers while also
receiving a full refund from McCrossin and/or UBI would result in unjust enrichment of the
Authority. Further, Section 5(a) of the Steel Act states, in pertinent part: “[a]ny such payments
made to any person by any public agency which should not have been made as a result of this
section shall be recoverable . . . .” 73 P.S. §1885(a). It does not state that the entirety of the cost
of a project is recoverable. In fact, it, at least arguably, suggests that only the portion of the
payments made for steel products that were not compliant with the Steel Act are recoverable. For
the portion that was compliant, there would be nothing to “recover.”
28
Per the foregoing, we affirm the Trial Court’s order reversing the adjudication of the
Hearing Officer as adopted by the Authority.
______________________________
J. ANDREW CROMPTON, Judge
Judge Fizzano Cannon did not participate in the decision of this case.
29
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
United Blower, Inc. :
:
v. :
:
Lycoming County Water and : No. 1383 C.D. 2019
Sewer Authority :
:
G.M. McCrossin, Inc. :
:
v. :
:
Lycoming County Water and :
Sewer Authority :
:
Appeal of: Lycoming County :
Water and Sewer Authority :
ORDER
AND NOW, this 13th day of July 2020, the Order of the Lycoming
County Court of Common Pleas is AFFIRMED.
______________________________
J. ANDREW CROMPTON, Judge