Owners and contractors should be aware of a significant October 2009 Pennsylvania Superior Court decision, Zimmerman v. Harrisburg Fudd I, L.P., which clarifies the standard for the award of post-judgment interest and attorneys’ fees under the Pennsylvania Contractor and Subcontractor Payment Act (CASPA). In this case, the Superior Court held that a contractor who has obtained a judgment against an owner under CASPA may recover post-judgment interest and penalties, as well as attorney’s fees and expenses incurred to collect the money owed.
The Pennsylvania Contractor and Subcontractor Payment Act
CASPA is a Pennsylvania statute that dictates the proper timing for payment for construction work. CASPA also provides for interest, penalties (when appropriate) and attorneys’ fees when owners or contractors fail to comply with these payment obligations. According to the Zimmerman Court:
The underlying purpose of [CASPA] is to protect contractors and subcontractors… [and] to encourage fair dealing among parties to a construction contract . . . The statute provides rules and deadlines to ensure prompt payments, to discourage unreasonable withholding of payments, and to address the matter of progress payments and retainages. Under circumstances prescribed in the statute, interest, penalty, attorney fees and litigation expenses may be imposed on an owner, contractor or subcontractor who fails to make payment to a contractor or subcontractor in compliance with the statute.
Background of the Zimmerman Case
In this case, Zimmerman, a contractor, entered into a construction contract with Fudd, an owner, for the installation of floor and wall improvements for a new restaurant that Fudd was building. Following completion of its work, Zimmerman submitted an invoice for $10,108.70. Over 4 months later, he was still waiting for payment.
Refusing to wait any longer, Zimmerman elected to invoke CASPA, and filed a claim for breach of contract against Fudd. On the day the matter was scheduled for compulsory arbitration, the parties agreed to the Board’s entry of a stipulated award in favor of Zimmerman for $21,673.99, consisting of the $10,108.70 contract claim plus $11,565.29 of statutory interest, penalty and attorneys’ fees.
Zimmerman entered the arbitration award as a judgment so it could begin the collection process by garnishing one of Fudd’s bank accounts, but Fudd claimed several exemptions, prolonging Zimmerman’s attempts to obtain payment on its judgment for an additional 4 months. After finally successfully garnishing one of Fudd’s bank accounts, Zimmerman filed a motion with the trial court to recover statutory interest, penalties and attorneys’ fees for the period from the entry of the stipulated arbitration award until the date he finally received payment – amounts comprising approximately an additional $20,000. The trial court denied Zimmerman’s motion without a hearing, findings or opinion, and Zimmerman appealed.
The Pennsylvania Superior Court seized the opportunity to make a clear statement on an issue it had never before decided, and reversed the trial court decision. The Court held that the clear language of Section 512(b) of CASPA, which states that “the substantially prevailing party in any proceeding to recover payment under this act shall be awarded reasonable attorneys’ fee in an amount to be determined by the court or arbitrator,” was broad enough to encompass any phase of litigation, including the collection of judgment phase. The Court applied the same reasoning for fees incurred in an attempt to collect attorneys’ fees due under CASPA.
Most importantly, the Court emphasized that a contractor victory under CASPA would be empty, if contractors attempting to collect money that rightly belongs to them, expend their “paper recovery” on attorneys’ fees necessitated by a defendant’s delay or other actions used to hinder collection. The Court sent the matter back to the trial court for a hearing on the reasonableness of Fudd’s obstructionist tactics and the assessment of interest, penalties and fees.
Implications of the Zimmerman Case
In the year since the decision, two Pennsylvania courts have favorably cited the Zimmerman decision. On July 28, 2010, the Commonwealth Court of Pennsylvania cited Zimmerman in the case, Clairton Slag, Inc. v. Department of General Services. The U.S. District Court for the Western District of Pennsylvania also cited Zimmerman in the case, U.S. v. Travelers Casualty and Surety Company of America, decided on August 20, 2010. While neither court cited the Zimmerman decision for the proposition that attorneys’ fees and interest are recoverable post-judgment, the fact that other courts have relied upon the Zimmerman decision does suggest that it is considered good law in Pennsylvania.
Given the positive treatment of Zimmerman, parties involved in CASPA disputes must be aware of the impact of the Zimmerman case and develop their litigation strategy accordingly.