Pennsylvania Superior Court Affirms Award to Subcontractor of Penalty Interest and Attorneys Fees Under the Pennsylvania Prompt Payment Act

Imperial Excavating & Paving, LLC v. Rizzetto Construction Management, Inc.
2007 PA Super 318, 2007 Pa. Super LEXIS 3540 (Pa. Super. Ct.. Oct. 23, 2007)

General contractor Rizzetto entered into a contract to perform extensive work for the Southern Lehigh School District, including work on the two high school soccer fields. Rizzetto contracted with subcontractor Imperial to perform earthwork on the fields including the removal of topsoil, grading and compacting of the subsoil. After Imperial’s earthwork on the fields had been completed, Rizzetto had been paid by the school less retainage and Rizzetto had paid Imperial, Rizzetto hired a landscaper to perform additional work on the fields including correction of irregularities in soil structuring, tilling and seeding, and the addition of six inches of topsoil.

After allowing the fields to remain fallow for a period of two years, the school began using the fields and experienced problems related to inadequate topsoil, improper drainage, excess rocks and inconsistent grass growth. Testing revealed that the fields did not have an even six inches of topsoil and that the topsoil was compacted, having not been culled and tilled properly. As a result, the school rejected the soccer fields and withheld $120,000 from a payment to Rizzetto for other services. In turn, Rizzetto alleged that Imperial had performed its work on the fields improperly and withheld $262,330 from payment on other work performed by Imperial. Imperial sued Rizzetto for nonpayment and Rizzetto counterclaimed, alleging that Imperial’s work on the fields had not met its contractual obligations. Judgment was rendered for Imperial, including counsel fees, penalties and interest under the Prompt Payment Act, 73 PA. STAT. §§ 501-516, and Rizzetto appealed.

The Superior Court addressed three issues: (1) whether there had been adequate evidence in the lower court to support the finding that Imperial had satisfactorily performed under the subcontract and that Rizzetto had accepted that performance, (2) whether the findings of fact that Imperial had satisfactorily performed and that Rizzetto had accepted the work were against the weight of the evidence, and (3) whether the trial court erred in awarding penalty interest and attorneys fees on the judgment. The Court found that the was sufficient to support a finding that Imperial had satisfactorily performed. The landscaper’s subcontract, not that of Imperial, required the application of six inches of topsoil and finish grading and Imperial’s work had been approved by the architect as in accordance with the project documents. Further, Rizzetto had certified in its payment application to the school district that the work had been performed in accordance with the contract documents. The Court also determined that the trial court’s findings were not against the weight of the evidence.

In addressing the final issue of whether the trial court erred in awarding attorneys’ fees and penalty interest under the Pennsylvania Prompt Payment Act, the Court commented that the purpose of the Act is to protect contractors and subcontractors by providing guidelines for prompt payment and “protects subcontractors from specious deficiency claims by contractors” by providing for interest on payment unreasonably withheld and a penalty on amounts found to have been withheld in bad faith. The Court first reviewed whether the record supported the trial court’s finding that Rizzetto had improperly withheld payment. Withholding is only proper where the amount withheld “bears a reasonable relation to the value of any claim held in good faith.” The Court found that the trial court reasoning that the $262,330 withheld from Imperial by Rizzetto did not bear a reasonable relation to the $120,000 withheld by the school district was proper and supported its decision to award penalties and interest. Next, in reviewing whether the subcontractor had properly been found to be the “substantially prevailing party” under the Act, the Court found that based on the undisputed fact that the subcontractor had commenced the suit for the purpose of recovering unpaid monies, and that the trial court had entered a judgment for such monies, that the record fully supported the trial court’s finding that there was “no question about whether Plaintiff may be considered to have substantially prevailed on these facts.” Consequently, an award of attorneys fees was not only appropriate, but required.

Click here to view full opinion as PDF (provided with the permission of LexisNexis).

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