Title: Masiongale Elec.-Mechanical, Inc. v. Constr. One, Inc.

State: ohio

Issuer: Ohio Supreme Court

Document:

[Cite as Masiongale Elec.-Mechanical, Inc. v. Constr. One, Inc., 102 Ohio St.3d 1, 2004-Ohio-
1748.] 
 
 
MASIONGALE ELECTRICAL-MECHANICAL, INC., APPELLEE, v. CONSTRUCTION 
ONE, INC., APPELLANT. 
[Cite as Masiongale Elec.-Mechanical, Inc. v. Constr. One, Inc., 102 Ohio 
St.3d 1, 2004-Ohio-1748.] 
Contracts — Labor — Prompt-Payment Act — R.C. 4113.61 — Breach of a lien-
waiver or forum-selection clause of a construction contract does not 
create a disputed lien or claim involving the work or labor performed or 
material furnished by the subcontractor, within the meaning of R.C. 
4113.61(A)(1). 
(No. 2002-1861 — Submitted October 8, 2003 — Decided April 21, 2004.) 
APPEAL from the Court of Appeals for Franklin County, No. 02AP-138, 2002-
Ohio-4736. 
_______________ 
SYLLABUS OF THE COURT 
A breach of a lien-waiver or forum-selection clause of a construction contract 
does not create a disputed lien or claim involving the work or labor 
performed or material furnished by the subcontractor, within the meaning 
of R.C. 4113.61(A)(1). 
_______________ 
 
O’DONNELL, J. 
{¶1} 
In this case, we are called upon to interpret R.C. 4113.61, known 
as the Prompt-Payment Act, with respect to a contractor’s right to withhold 
payment from a subcontractor.  Construction One, Inc. appeals from a judgment 
of the Franklin County Court of Appeals, which affirmed the judgment of the 
common pleas court to award Masiongale Electrical-Mechanical, Inc. attorney 
fees and prejudgment interest as a result of Construction One’s noncompliance 
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with R.C. 4113.61.  Because Masiongale’s breaches of the lien-waiver and forum-
selection clauses in the subcontract did not create “disputed liens or claims 
involving the work or labor performed or material furnished by the 
subcontractor,” it was improper for Construction One to withhold payment 
relating to those disputes, and, therefore, we affirm the judgment of the court of 
appeals. 
I 
{¶2} 
Construction One, a general contractor, subcontracted with 
Masiongale for electrical, plumbing, heating, ventilating, and air-conditioning 
work on a construction project involving an American Eagle Outfitters store in 
Muncie, Indiana.  After Masiongale requested payment for its completed work, 
Construction One sought a $7,021 reduction of the contract price from $36,124 to 
$29,103, claiming that Masiongale had untimely and improperly performed its 
work. 
{¶3} 
In response, Masiongale, in violation of a specific contractual 
provision, filed a lien on the property, thereby forcing Construction One to 
remove the lien by posting a bond pursuant to its contract with American Eagle 
Outfitters.  Masiongale also sued Construction One in the Superior Court of 
Delaware County, Indiana, alleging breach of contract and seeking to foreclose on 
its lien.  The Indiana court dismissed the breach-of-contract claim, finding that 
Masiongale had breached a forum-selection clause in the contract requiring all 
litigation to occur in Franklin County, Ohio, but the court held the foreclosure 
action in abeyance. 
{¶4} 
Thereafter, Masiongale filed a complaint in the Franklin County 
Court of Common Pleas, alleging breach of contract for nonpayment.  
Construction One counterclaimed, asserting that Masiongale had breached the 
contract by failing to timely and adequately perform the work and by violating the 
lien-waiver and forum-selection clauses. 
January Term, 2004 
3 
{¶5} 
The court referred the matter to a magistrate, who found that 
Construction One owed Masiongale $35,349.05, after deducting back charges of 
$774.95.  The magistrate also determined that Construction One had violated the 
Prompt-Payment Act, R.C. 4113.61, by improperly withholding $29,103 and, 
therefore, awarded Masiongale prejudgment interest on that amount as well as 
$31,624.62 in attorney fees. 
{¶6} 
Regarding Construction One’s counterclaims, the magistrate found 
that Masiongale had breached the lien-waiver and forum-selection clauses and 
awarded Construction One $9,470 in damages for the premiums paid for the bond 
and the attorney fees expended to defend against the Indiana lawsuit, plus interest. 
{¶7} 
After overruling both parties’ objections, the trial court adopted the 
magistrate’s decision.  Masiongale did not appeal from the judgment that it had 
violated the lien-waiver and forum-selection clauses.  Construction One appealed 
from the trial court’s judgment that it could not withhold the amounts of 
anticipated bond premiums and litigation costs directly related to resolving the 
improperly filed lien and Indiana lawsuit.  In rejecting the argument, the appellate 
court held that “only direct, tangible amounts relating to disputes involving 
alleged faulty labor, work or materials are retainable by the contractor under R.C. 
4113.61(A)(1).”  After rejecting Construction One’s arguments on other issues, 
the appellate court affirmed the judgment. 
{¶8} 
The cause is now before this court pursuant to the acceptance of a 
discretionary appeal. 
II 
{¶9} 
The issues for this court to decide are, first, whether a breach of a 
lien-waiver or forum-selection clause of a construction contract creates a 
“disputed lien[] or claim[] involving the work or labor performed or material 
furnished by the subcontractor,” pursuant to R.C. 4113.61(A)(1), and, second, if 
they do, whether a contractor may withhold the amounts of bond premiums and 
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attorney fees reasonably anticipated to be incurred in resolving the improperly 
filed lien and lawsuit.1 
{¶10} In 1990, the Ohio General Assembly enacted prompt-payment 
legislation, codified at R.C. 4113.61(A)(1), which became effective on April 10, 
1991.2  Am.Sub.H.B. No. 238, 143 Ohio Laws, Part III, 3676, 3723.  The 
legislation essentially requires a contractor to timely pay its subcontractor or 
materialmen undisputed amounts under a contract and sets forth penalties for 
noncompliance.  See, generally, John W. Hays, Prompt Payment Acts: Recent 
Developments and Trends (2002), 22 Construction Lawyer 29; Jenkins, Inc. v. 
Walsh Bros., Inc., 2001 ME 98, 776 A.2d 1229, ¶ 31. 
{¶11} R.C. 4113.61(A)(1) provides: 
{¶12} “If a subcontractor or materialman submits an application or 
request for payment or an invoice for materials to a contractor in sufficient time to 
allow the contractor to include the application, request, or invoice in his own pay 
request submitted to an owner, the contractor, within ten calendar days after 
receipt of payment from the owner for improvements to property, shall pay to the: 
{¶13} “(a) Subcontractor, an amount that is equal to the percentage of 
completion of the subcontractor’s contract allowed by the owner for the amount 
of labor or work performed. 
{¶14} “* * * 
                                          
 
1.  Construction One expressly states that it “does not propose that a contractor may withhold 
anticipated general litigation costs to fund future litigation concerning defective work.”  
(Emphasis sic.)  It also does not argue that R.C. 4113.61 permits it to withhold the bond premiums 
and attorney fees because they are necessary to resolve the disputed claim of $7,021. 
2.  The General Assembly subsequently amended R.C. 4113.61 in Am.Sub.S.B. No. 338, 144 
Ohio Laws, Part II, 1976, 1998, effective April 16, 1993; however, the portions of the statute 
analyzed in this opinion remain the same in both versions. 
 
January Term, 2004 
5 
{¶15} “The contractor may reduce the amount paid by any retainage 
provision contained in the contract, invoice, or purchase order between the 
contractor and the subcontractor or materialman, and may withhold amounts that 
may be necessary to resolve disputed liens or claims involving the work or labor 
performed or material furnished by the subcontractor or materialman.” 
{¶16} Therefore, pursuant to R.C. 4113.61(A)(1), if a subcontractor 
makes a timely request for payment, a contractor must pay the subcontractor in 
proportion to the work completed within ten calendar days of receiving payment 
from the owner.  A contractor, however, is permitted to withhold “amounts that 
may be necessary to resolve disputed liens or claims involving the work or labor 
performed or material furnished by the subcontractor.” 
{¶17} Failure to comply with these provisions obligates a contractor to 
pay interest on the overdue payment at a rate of 18 percent per annum.  R.C. 
4113.61(A)(1) and (B)(1).  A subcontractor also may file a civil action to recover 
the amount due and the statutory interest.  R.C. 4113.61(B)(1).  If the court 
determines that the contractor has not complied with the prompt-payment statute, 
the court must award the subcontractor the statutorily prescribed interest.  Id.  In 
addition, the prevailing party is entitled to recover reasonable attorney fees, unless 
such an award would be inequitable, together with court costs.  R.C. 
4113.61(B)(1) and (B)(3). 
{¶18} In the present case, Construction One argues that R.C. 4113.61 
permits it to withhold estimated costs of securing a lien substitute, i.e., bond 
premiums, and anticipated attorney fees directly relating to resolving 
Masiongale’s breaches of the lien-waiver and forum-selection clauses.  These 
breaches, however, did not create “disputed liens or claims involving the work or 
labor performed or material furnished by the subcontractor,” within the meaning 
of R.C. 4113.61(A)(1).  (Emphasis added.)   
SUPREME COURT OF OHIO 
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{¶19} Although these breaches concern disputes arising out of a 
construction contract, the lien-waiver and forum-selection provisions at issue here 
are procedural in nature, as they relate either to the right of a party to secure its 
payment with a lien or to the situs of the tribunal for the adjudication of disputes.  
They do not, however, concern the substantive aspects of performing the work or 
labor or providing any material under the contract.  Cf. Consortium 
Communications v. Cleveland Telecommunications, Inc. (Feb. 10, 1998), Franklin 
App. No. 97APG08-1090, 1998 WL 63538 (permitting a contractor to withhold 
payment pursuant to R.C. 4113.61 when the parties disputed additional amounts 
concerning labor-related transportation expenses). 
{¶20} In R.C. 4113.61, the only justifications for withholding payment 
relate to disputed liens or claims involving the performance of work or labor or 
the furnishing of material.  If the General Assembly had intended to include other 
types of disputes, such as those over breaches of lien-waiver and forum-selection 
clauses, as further justification for a contractor to withhold payment, it could have 
expanded the statute to include these and other types of disputes.  It chose not to 
do so. 
{¶21} Our holding is in accord with other jurisdictions that allow a 
contractor to withhold payment from a subcontractor when the dispute concerns 
the performance of work or labor or the furnishing of material.  Cf. Ala.Code 8-
29-4 (a contractor may withhold payment for, inter alia, unsatisfactory job 
progress, defective construction, disputed work, property damage, and if the 
subcontract cannot be completed for the unpaid balance of the contract sum); 10 
Me.Rev.Stat. 1118(1) (a contractor may withhold payment “in an amount 
equalling the value of any good faith claims * * *, including claims arising from 
unsatisfactory job progress, defective construction or materials, disputed work or 
3rd-party claims”); Elec. Eng. & Electronics, Inc. v. E.L. Shea, Inc. (D.Me.2001), 
146 F.Supp.2d 74, 79-82 (holding that the contractor properly withheld payment 
January Term, 2004 
7 
pursuant to Maine’s prompt-payment statute for amounts relating to the 
installation of mounting brackets); Independence v. Kerr Constr. Paving Co., Inc. 
(Mo.App.1997), 957 S.W.2d 315, 323-324 (holding that Missouri’s public-works 
prompt-payment statute, Mo.Rev.Stat. 34.057, allows a contractor to withhold 
payment from a subcontractor for a claim of defective work so long as the 
contractor acts in good faith for reasonable cause). 
{¶22} Accordingly, we hold that a breach of a lien-waiver or forum-
selection clause in a construction contract does not create a disputed lien or claim 
involving the work or labor performed or material furnished by the subcontractor, 
within the meaning of R.C. 4113.61(A)(1).  Therefore, Construction One could 
not properly withhold any amounts relating to those disputes. 
{¶23} Based on the foregoing, Construction One’s first and second 
propositions of law are overruled,3 and the judgment of the Court of Appeals for 
Franklin County is affirmed. 
Judgment affirmed. 
 
MOYER, C.J., PFEIFER and O’CONNOR, JJ., concur. 
 
RESNICK, F.E. SWEENEY and LUNDBERG STRATTON, JJ., dissent. 
__________________ 
 
LUNDBERG STRATTON, J., dissenting. 
{¶24} I dissent because I believe that the Prompt-Payment Act, R.C. 
4113.61, permits a contractor to withhold anticipated costs necessary to resolve 
any lien or claim that derives directly or indirectly from the underlying “work or 
labor performed or material furnished by the subcontractor or materialman.” 
{¶25} R.C. 4113.61(A)(1) provides: 
                                          
 
3.  We decline to address Construction One’s remaining proposition of law regarding the award of 
attorney fees, and we dismiss it as having been improvidently accepted. 
 
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{¶26} “The contractor may reduce the amount paid by any retainage 
provision contained in the contract, invoice, or purchase order between the 
contractor and the subcontractor or materialman, and may withhold amounts that 
may be necessary to resolve disputed liens or claims involving the work or labor 
performed or material furnished by the subcontractor or materialman.”  (Emphasis 
added.)   
{¶27} The majority holds that the phrase “involving the work or labor 
performed or material furnished by the subcontractor” limits “liens or claims” to 
those that “concern the substantive aspects of performing the work or labor or 
providing any material under the contract.”  (Emphasis added.)  Applying this 
interpretation, the majority holds that because the breach of a lien-waiver clause 
and the breach of a forum-selection clause are “procedural in nature,” neither can 
result in a lien or a claim “involving the work or labor performed.”  I do not 
believe that the General Assembly intended such a narrow interpretation of the 
phrase “involving the work or labor performed.” 
A.  A Lien or Claim Involving Work, Labor, or Materials Includes Any 
Lien or Claim that Derives Directly or Indirectly from the Underlying Work, 
Labor, or Material 
{¶28} Words not defined in the statute must be afforded their common 
and ordinary meaning.  Kimble v. Kimble, 97 Ohio St.3d 424, 2002-Ohio-6667, 
780 N.E.2d 273, ¶ 6; R.C. 1.42.  Moreover, in examining a statute, a court cannot 
“delete any words or insert words not used.”   Lesnau v. Andate Enterprises, Inc. 
(2001), 93 Ohio St.3d 467, 471, 756 N.E.2d 97, citing State v. Jordan (2000), 89 
Ohio St.3d 488, 492, 733 N.E.2d 601.  Finally, in addition to the language of a 
statute, courts may glean intent by looking at its purpose.  Family Medicine 
Found., Inc. v. Bright, 96 Ohio St.3d 183, 2002-Ohio-4034, 772 N.E.2d 1177, ¶ 9, 
citing R.C. 1.49.   
January Term, 2004 
9 
{¶29} “Involve” means “to have within or as part of itself: CONTAIN, 
INCLUDE.”  Webster’s Third New International Dictionary (1961) 1191.  I believe 
that to constitute a lien or claim “involving the work or labor performed or 
material furnished,” the lien or claim need only contain or include issues that 
pertain to the work or labor performed or materials furnished pursuant to the 
contract.  Moreover, there is no language in R.C. 4113.61 that explicitly limits 
liens or claims to those that “concern the substantive aspects” of the work, labor, 
or material.  Accordingly, we should not interject that limitation.  Lesnau, 93 
Ohio St.3d at 471, 756 N.E.2d 97. 
{¶30} Clearly, one of the purposes of the Prompt-Payment Act is to 
ensure that contractors pay subcontractors and materialmen for their work or 
materials in a timely manner.  However, the General Assembly intended also to 
protect contractors by permitting them to withhold payment, or some portion 
thereof, due the subcontractor where a dispute arises from the work performed or 
material provided by the subcontractor or materialman.  If a contractor’s 
withholding is limited to the “substantive aspects of performing the work or labor 
or providing any material,” then much of the contractor’s protection is eroded 
because contractors will be unable to withhold amounts necessary to resolve 
actions taken by a subcontractor that ultimately derive from the underlying 
construction contract.  Thus, I believe that the majority’s narrow interpretation of 
the phrase “involving the work or labor performed or material furnished” is 
contrary to one of the purposes of the Prompt-Payment Act. 
{¶31} For these reasons, I would hold that a lien or claim “involving the 
work or labor performed or material furnished” is any lien or claim that derives 
directly or indirectly from the work or labor performed or material furnished 
under the contract.  I would therefore hold that Masiongale’s breaches of the lien-
waiver and forum-selection clauses involve work or labor that Masiongale 
performed for Construction One.  Accordingly, I believe that both breaches 
SUPREME COURT OF OHIO 
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resulted in disputed claims involving work performed under the contract within 
the meaning of R.C. 4113.61(A)(1). 
B. Amount to Be Withheld 
{¶32} The Prompt-Payment Act permits a contractor to “withhold 
amounts that may be necessary to resolve disputed liens or claims.”  R.C. 
4113.61(A)(1)(b).  This language indicates that a contractor may withhold 
amounts to cover anticipated costs required to resolve a disputed lien or claim.  
However, the withholding must be made in good faith.  Consortium 
Communications v. Cleveland Telecommunications, Inc. (Feb. 10, 1998), Franklin 
App. No. 97APG08-1090, 1998 WL 63538; see, also, Soloman v. Excel 
Marketing, Inc. (1996), 114 Ohio App.3d 20, 30-31, 682 N.E.2d 724. 
C. Remand 
{¶33} The underlying merits of the contract claims and counterclaims 
(i.e., the proper amount of the back charges, the breach of the lien-waiver clause, 
and the breach of forum-selection clause) are final and are not subject to this 
appeal.  The only issues on appeal are whether Construction One complied with 
R.C. 4113.61(A) in withholding $29,103 of the $36,124, and the determination of 
any consequences as prescribed by R.C. 4113.61(B). 
{¶34} Because I believe that Masiongale’s breaches of the lien-waiver 
and forum-selection clauses involve work or labor performed, the only remaining 
issue is whether Construction One’s withholding was proper.  I would remand this 
case to the trial court for a  determination whether Construction One acted in good 
faith as to its withholding and whether the amount withheld was necessary to 
resolve the breaches of the lien-waiver and forum-selection clauses.  Based on 
that determination, the court would then determine any relief to be awarded 
pursuant to R.C. 4113.61(B). 
{¶35} Accordingly, I respectfully dissent. 
January Term, 2004 
11 
 
RESNICK and F.E. SWEENEY, JJ., concur in the foregoing dissenting 
opinion. 
_________________ 
 
F. Harrison Green Co., L.P.A., and F. Harrison Green, for appellee. 
 
Roetzel & Andress, Michael S. Yashko, Eric S. Bravo and Kevin J. 
Osterkamp, for appellant. 
__________________