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Pennsylvania Supreme Court Clarifies the Application of CASPA

Owen-J-Mcgrann-profile.jpgAfter years of confusion regarding the seemingly overlapping roles of the Pennsylvania Contractor and Subcontractor Payment Act ("CASPA") and the Pennsylvania Prompt Payment Act, Pennsylvania appellate courts have issued two clarifying opinions in the past three months. The first, issued by the Pennsylvania Commonwealth Court has been discussed in these pages previously.  In some ways, the Commonwealth Court opinion is a superior examination of these issues. The most recent, an opinion from the Pennsylvania Supreme Court issued on June 15, 2015 confirms the holding of the Commonwealth Court (although, oddly, it does not cite East Coast Paving & Sealcoating, Inc. v. North Allegheny School District), and clarifies when the Contractor and Subcontractor Payment Act applies to construction payment disputes versus when the Prompt Payment Act is the applicable statute.

In Clipper Pipe & Service, Inc. v. The Ohio Casualty Ins. Co., No. 59 EAP 2015, ___ A.3d ___ (Pa. 2015), the Supreme Court held that CASPA does not apply to any government projects. (A copy of the opinion is attached below for easy review.) Clipper - which was filed in federal court and included counts under both CASPA and the Prompt Payment Act - was certified over to the Pennsylvania Supreme Court to answer a very specific question: "does [CASPA] apply to a project where the owner is a governmental entity, such as the federal government?" Id. at 3-4.

Thus, the issue addressed by the Court in Clipper was, in many senses, a straightforward statutory construction issue. "Under CASPA, 'owner' is defined, in pertinent part, as '[a] person who has an interest in the real property that is improved and who ordered the improvement to be made.' Id. § 502 (emphasis added). 'Person,' in turn, is defined as '[a] corporation, partnership, business trust, other association, estate, trust foundation or a natural individual.' Id. (emphasis added)." Id. at 2. Clipper argued that the federal government qualified as a "person" because a government is inherently nothing more than an "association of its citizens." Id. at 5. Clipper further argued that CASPA's legislative goal is to protect contractors and subcontractors and, as such, should be interpreted liberally to effect that purpose. Id. at 6.

While the Court did not find these arguments preposterous, it did dispose of them with some celerity. Governments and their agencies "are dissimilar to a 'corporation,' 'partnership' 'business trust,' 'estate,' 'trust foundation,' and 'natural individual,' among which the term 'association' appears. Cf. DEP v. Cumberland Coal Res., LP, ___ Pa. ___, ___, 102 A.3d 962, 976 (2014) (explaining that, per the doctrine of ejusdem generis, catchall phrases "should not be construed in their widest context")." Id. at 7. The Court goes a step further, though, stating that even if there were some ambiguity as to whether the government qualified as an "association," the law in Pennsylvania requires any statute to be construed in favor of the sovereign. Id. In other words, because the government gets the benefit of the doubt in interpreting the application of laws against it, CASPA cannot apply because it is not specifically denoted as subject to the law. Id. at 6-7.

The practical result of Clipper is that any contractor or subcontractor who works on a public project in Pennsylvania is limited to remedies provided by the Prompt Payment Act. These remedies are not insubstantial, but they are not nearly as robust as the remedies available under CASPA. This is true even if the dispute is between a subcontractor and contractor - in Clipper, the government was a disinterested party.

The differences in remedies are worth review. Under CASPA, a contractor or subcontractor is entitled to a penalty of 1% interest per month for failure to be paid, whereas under the Prompt Payment Act, the court has discretion to evaluate whether the nonpaying entity was acting "arbitrarily" or "capriciously." In other words, a party seeking payment has a much higher chance of collecting interest on inappropriate nonpayment under CASPA. Perhaps even more important, CASPA requires the award reasonable attorney's fees for successful claims, whereas under the Prompt Payment Act, the award of attorney's fees is entirely subject to the discretion of the court. A contractor simply has far more statutory protection under CASPA than under the Prompt Payment Act.

This case makes explicit what has been a confused issue for years: CASPA applies exclusively to private projects, while the Prompt Payment Act - regardless of the nature of the dispute - applies exclusively to public projects.

Click here for the full text of Clipper.

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