IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

November 6, 2019 Session

SNAKE STEEL, INC. V. HOLLADAY CONSTRUCTION GROUP, LLC

Appeal from the Chancery Court for Davidson County

No. 17-1037-III Ellen H. Lyle, Chancellor

No. M2019-00322-COA-R3-CV

A subcontractor sought statutory penalties against a prime contractor based on the 

contractor’s failure to comply with the Prompt Pay Act’s requirement that any retainage 

withheld be deposited into an interest-bearing escrow account as set forth in Tenn. Code 

Ann. § 66-34-104(a). The prime contractor moved to dismiss the complaint, asserting 

that the claim was barred by the one-year statute of limitations applicable to statutory 

penalties, Tenn. Code Ann. § 28-3-104(a)(1)(C). The trial court granted the prime 

contractor’s motion and dismissed the complaint. On appeal, we hold that the discovery 

rule applies to this type of claim for statutory penalties under the Prompt Pay Act and 

remand for further proceedings.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Vacated 

and Remanded

ANDY D. BENNETT, J., delivered the opinion of the Court, in which W. NEAL MCBRAYER

and CARMA DENNIS MCGEE, JJ., joined.

Dan E. Huffstutter, Nashville, Tennessee, for the appellant, Snake Steel, Inc.

Gregory L. Cashion and Petar A. Angelov, Nashville, Tennessee, for the appellee,

Holladay Construction Group, LLC.

OPINION

I. FACTUAL AND PROCEDURAL BACKGROUND

Snake Steel, Inc. (“SSI”) was a subcontractor responsible for providing structural 

and miscellaneous steel on a large construction project in Nashville. Holladay 

Construction Group, LLC (“HCG”) was the general, or prime, contractor for the project. 

The contract between SSI and HCG was dated October 8, 2013, and it provided that HCG 

01/22/2020
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would pay SSI a total of $336,722. HCG was to make monthly payments to SSI, and the 

contract permitted five percent of each payment to be withheld (“retainage”) until SSI 

substantially completed the work described in the contract. Once SSI’s work was 

substantially complete, HCG was required to pay SSI its retainage. SSI expressly 

acknowledged that its payments from HCG were contingent upon HCG’s receipt of 

payments from the owner of the project, 2200 Charlotte, Limited Liability Company 

(“the Owner”). 

The following facts are undisputed. The first payment HCG made to SSI was on 

October 25, 2013, and $1,146.50 was withheld as retainage at that time. SSI substantially 

completed its work on the project in September 2014. The total amount of SSI’s 

retainage was $18,270.58. HCG paid SSI the full contract amount less the retainage on

October 24, 2014. On May 1, 2015, HCG asked the Owner to release SSI’s retainage, 

and the Owner released SSI’s retainage to HCG on May 27, 2015. Until May 27, 2015, 

the Owner, not HCG, was in possession of SSI’s retainage. On February 19, 2016, SSI 

submitted a pay application to HCG for its retainage. On September 12, 2017, SSI sent 

HCG a certified notice that it had not received its retainage. 

On September 25, 2017, SSI filed its complaint against HCG. SSI asserted that

HCG owed it $18,270.58 in retainage and $32,480 for additional work HCG authorized 

SSI to perform and for which SSI charged HCG in an unapproved change order. SSI 

alleged HCG breached the parties’ contract by failing to pay SSI these amounts. It also 

alleged that HCG was liable to SSI for failing to comply with the requirements of the 

Prompt Pay Act of 1991 (“the PPA”), Tenn. Code Ann. §§ 66-34-101‒205. SSI sought 

interest on the amount it claimed it was due as well as its reasonable attorney’s fees and 

costs. 

Under the PPA, construction contracts may provide for the withholding of 

retainage in the amount of up to five percent of the contract amount. Tenn. Code Ann. 

§ 66-34-103(a). When the prime contract is $500,000 or greater, as was the case here, the 

PPA mandates that all retained amounts “shall be deposited in a separate, interestbearing, escrow account with a third party which must be established upon the 

withholding of any retainage.” Id. § 66-34-104(a), (i). The PPA directs that information 

regarding the escrow account is to be provided to the prime contractor:

The party with the responsibility for depositing the retained amount in a 

separate, interest-bearing, escrow account with a third party shall have the 

affirmative duty to provide written notice that it has complied with the 

requirements of this section to any prime contractor upon withholding the 

amount of retained funds from each and every application for payment, 

including:
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(1) Identification of the name of the financial institution with whom the 

escrow account has been established;

(2) Account number; and

(3) Amount of retained funds that are deposited in the escrow account with 

the third party.

Id. § 66-34-104(d). Compliance with Tenn. Code Ann. § 66-34-104 is “mandatory and 

may not be waived by contract.” Id. § 66-34-104(j). The PPA imposes a $300-per-day 

penalty for failing to deposit the retained funds into such an account:

In the event that the party withholding the retained funds fails to deposit the 

funds into an escrow account as provided herein, such party shall be 

responsible for paying the owner of the retained funds an additional three 

hundred dollar ($300) penalty per day for each and every day that such 

retained funds are not deposited into such escrow account.

Id. § 66-34-104(c). The prime contractor is required to pay all retainages due any 

subcontractors “within ten (10) days after receipt of the retainages from the owner.” Id. 

§ 66-34-103(b). The parties do not dispute that the Owner failed to deposit SSI’s

retainage into an escrow account as required by the PPA. The parties also do not dispute 

that when HCG acquired SSI’s retainage from the Owner on May 27, 2015, HCG failed 

to deposit SSI’s retainage into such an escrow account.

Before responding to SSI’s complaint, HCG tendered a check to SSI on October 

27, 2017, in the amount of $18,270.58, which represented the full amount of SSI’s 

retainage. SSI refused to accept the check. Then, on December 12, 2017, HCG tendered 

two checks to SSI: $18,270.58 for the retainage and $32,450 for the additional 

authorized work by SSI. SSI accepted both of these checks on December 12, 2017.

HCG answered the complaint, and in an amended answer it raised the affirmative 

defense that SSI’s claim under the PPA was barred by the applicable statute of 

limitations. Both parties filed motions for summary judgment. HCG argued that the only 

substantive issues left to resolve were SSI’s claims under the PPA, and that these claims

were barred by the one-year statute of limitations applicable to statutory penalties. SSI 

contended that its PPA claims were governed by the six-year statute of limitations 

applicable to contracts because the gravamen of its complaint was based on the parties’ 

contract.

The trial court held a hearing on the parties’ cross motions and filed its decision on 

January 4, 2019. The court granted HCG’s motion for summary judgment, but it 

awarded SSI $2,294.21 in interest pursuant to the PPA as well as attorney’s fees incurred 
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starting from the date when SSI’s attorneys began preparing its complaint through 

December 12, 2017, when both of SSI’s breach of contract claims were resolved. The 

court concluded that the statute of limitations for SSI’s PPA claim for $300-per-day

penalties was governed by the one-year statute of limitations set forth in Tenn. Code Ann. 

§ 28-3-104(a)(1). That statute provides, in pertinent part, as follows:

(a)(1) Except as provided in subdivision (a)(2), the following actions shall 

be commenced within one (1) year after the cause of action accrued:

. . .

 (C) Actions for statutory penalties.

Tenn. Code Ann. § 28-3-104.1Subsection (3) of the statute states that “subsection (a) 

shall be strictly construed.” Id. § 28-3-104(a)(3).

The trial court based its decision on the “plain, unambiguous wording of Tenn. 

Code Ann. § 66-34-104(c),” which uses the word “penalty” to describe the relief 

available to subcontractors whose retainage is not deposited into an interest-bearing 

escrow account in accordance with the PPA. The trial court wrote, “Use of the word 

‘penalty’ in the statute, the Court concludes, fits within the explicit provision of the oneyear statute of limitations of section 28-3-104(a)(1)(C) for actions for statutory 

penalties.” The trial court then determined that SSI’s claim for PPA penalties “accrued at 

the latest on February 19, 2016,” when SSI submitted a pay application to HCG for its 

entire retainage amount. Because this date was one year, seven months, and six days 

before SSI filed its complaint, the court dismissed SSI’s claim for penalties. The court 

explained how it arrived at the February 19, 2016 date:

February 19, 2016, is determined by the Court to be the “latest” 

accrual date because paragraph 5 of Kelly Blake’s affidavit, Plaintiff’s 

President and owner, filed August 10, 2018, in support of Plaintiff’s motion 

for summary judgment, admits facts establishing an earlier accrual date, 

quoting the affidavit as follows, “During the fourth quarter of 2014, Snake 

Steel began trying to collect its retainage . . . .” There are also even earlier 

possible accrual dates to start the running of the section 28-3-104(a)(4) 

limitation period derived from the wording of the Prompt Pay Act. Section 

66-34-104(c) specifies that the penalty is assessed for “each and every day 

that such retained funds are not deposited.” A possible accrual of the 

penalty, then, is when each successive pay application was paid by the

Defendant and retainage was withheld but not placed in escrow. This began 

in October of 2013, as established by the parties’ stipulations when 

 

1Subdivision (a)(2) states that a cause of action may have a different statute of limitations if criminal 

charges are brought against the perpetrator of the wrongful act. Tenn. Code Ann. § 28-3-104(a)(2).
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retainage was initially withheld, and then with each successive pay

application. It is undisputed that on September 30, 2014, the Plaintiff 

completed its work on the subcontract with Defendant. Yet, it was not until 

September 25, 2017, that this lawsuit was filed. Based upon these 

undisputed dates and events, under any of these accrual dates, the filing of 

the Complaint was in excess of the applicable one-year statute of 

limitations.

SSI appeals the trial court’s award of summary judgment to HCG. It contends the 

trial court erred in the following ways: (1) determining the statute of limitations for its 

retainage claim, (2) determining that the retainage claim was one for statutory penalties, 

(3) determining when the cause of action for the retainage claim accrued, and (4) failing 

to consider HCG’s liability under Tenn. Code Ann. § 66-34-104(c) for the 365-day 

period prior to HCG’s tender of its retainage on December 12, 2017.

II. ANALYSIS

A. Standard of Review

Summary judgment is appropriate when “the pleadings, depositions, answers to 

interrogatories, and admissions on file, together with the affidavits, if any, show that 

there is no genuine issue as to any material fact and that the moving party is entitled to a 

judgment as a matter of law.” TENN. R. CIV. P. 56.04. Appellate courts review a trial 

court’s ruling on a summary judgment motion de novo, affording it no presumption of 

correctness. Rye v. Women’s Care Ctr. of Memphis, MPLLC, 477 S.W.3d 235, 250 

(Tenn. 2015).

This case involves determining the appropriate statute of limitations to apply to a 

claim for remedies provided by the PPA as well as the interpretation of the PPA. 

Determining the proper statute of limitations is a question of law that we review de novo, 

affording no presumption of correctness to the trial court’s determination. Benz-Elliott v. 

Barrett Enters., LP, 456 S.W.3d 140, 147 (Tenn. 2015). Whether a claim is barred by the

applicable statute of limitations is also a question of law that we review de novo. Brown 

v. Erachem Comilog, Inc., 231 S.W.3d 918, 921 (Tenn. 2007); see also Taylor v. Metro. 

Gov’t of Nashville & Davidson Cnty., No. M2007-01774-COA-R3-CV, 2008 WL 

5330502, at *5 (Tenn. Ct. App. Dec. 19, 2008) (“[T]he issue of when a claim accrued, for 

purposes of determining whether the statute of limitations has run, can be either a 

question of fact for the jury or a question of law for the court.”). Finally, statutory 

construction involves issues of law, and we review the trial court’s interpretation de 

novo, with no presumption of correctness. Coffee Cnty. Bd. of Educ. v. City of 

Tullahoma, 574 S.W.3d 832, 839 (Tenn. 2019). 
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B. Statute of Limitations

SSI’s first and second issues are inter-related, and we will address them 

simultaneously. As SSI points out, the PPA does not contain a specific statute of 

limitations. SSI relies on two cases to support its argument that the trial court erred in 

applying the one-year statute of limitations found in Tenn. Code Ann. § 28-3-

104(a)(1)(C). The first case is Akers v. Sessions Paving Co., No. M2012-02602-COAR3-CV, 2013 WL 4107622 (Tenn. Ct. App. Aug. 13, 2013). The plaintiff in that case 

was a subcontractor who was attempting to collect payment from a general contractor and 

insurer for work the subcontractor claimed he performed pursuant to a contract. Akers, 

2013 WL 41076922, at *1. Two claims were at issue: breach of contract and violation of 

the PPA. Id. The section of the PPA that the subcontractor relied on was Tenn. Code 

Ann. § 66-34-301, which states that a subcontractor’s performance for the improvement 

of real property in accordance with the provisions of a contract entitles the subcontractor 

to payment from the contractor. Id. at *2; see Tenn. Code Ann. § 66-34-301. The 

defendants asserted that the statute of limitations barred the subcontractor’s claims, and 

the issue was which statute of limitations applied to the claims. Akers, 2013 WL 

4107622, at *2. Noting that the PPA did not specify a limitations period for the 

subcontractor’s claims, this Court stated that “we must determine the applicable statute of 

limitations ‘according to the gravamen of the complaint.’” Id. (quoting Vance v. 

Schulder, 547 S.W.2d 927, 931 (Tenn. 1977)). We considered the basis for which the 

subcontractor sought damages and wrote that “it is readily apparent from the record that 

the basis for Plaintiff’s claim under the Prompt Pay Act is that Defendants failed to pay 

for work performed by Akers on the commercial construction project.” Id. at *3. 

Because the parties’ contract was the basis of the subcontractor’s claims, we held that the 

six-year statute of limitations for breach of contract claims applied to the subcontractor’s 

claims under the PPA. Id.

SSI contends that the Akers court determined that, as a general matter, claims 

under the PPA were subject to a six-year statute of limitations. We disagree. Although 

claims for payment filed pursuant to Tenn. Code Ann. § 66-34-301 that are based on a 

construction contract may be subject to the six-year statute of limitations, as in Akers, this 

does not mean that claims brought pursuant to the PPA that are not based on Tenn. Code 

Ann. § 66-34-301 or on a contract are also subject to the six-year statute of limitations 

applicable to contract claims. SSI’s only remaining claim under the PPA is not based on 

the parties’ contract; it is based on HCG’s failure to establish an escrow account for SSI’s

retainage as required by Tenn. Code Ann. § 66-34-104(a). Nothing in the parties’ 

contract required HCG to set up an escrow account for SSI’s retainage. Furthermore, 

Akers did not address the issue of retainage or the PPA’s requirements set forth in Tenn. 

Code Ann. § 66-34-104 when retainage is withheld. 

The other case SSI relies on is Benz-Elliott v. Barrett Enterprises, LP, 456 S.W.3d 

140 (Tenn. 2015). Benz-Elliott clarified the analysis a court is to use to determine the 
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appropriate statute of limitations when a complaint asserts more than one cause of action. 

Benz-Elliott, 456 S.W.3d at 141. The plaintiff in Benz-Elliott asserted causes of action 

for breach of contract, intentional misrepresentation, and negligent misrepresentation. Id.

at 144. The Benz-Elliott Court recognized that, in prior cases, courts often determined 

the applicable statute of limitations by ascertaining “the ‘gravamen of the complaint.’” 

Id. at 147 (quoting Whaley v. Perkins, 197 S.W.3d 665, 670 (Tenn. 2006). The courts in 

these earlier cases “seemed to suggest that the complaint should be distilled to a single 

‘gravaman’ based on the type of damages requested.” Id. at 148. The Benz-Elliott Court 

noted that these prior decisions did not account for the fact that the Tennessee Rules of

Civil Procedure permit plaintiffs to assert alternative causes of action and request 

alternative types of relief in a single complaint, regardless of the inconsistency of the 

claims or relief sought. Id. The Court then acknowledged that a plaintiff’s complaint 

alleging alternative claims could be subject to differing statutes of limitations, with the 

result that requiring a court to identify a single gravamen from such a complaint would 

not be workable. Id. at 148-49. Thus, the Court held that “in choosing the applicable 

statute of limitations, courts must ascertain the gravamen of each claim, not the gravamen 

of the complaint in its entirety.” Id. at 149. This involves a two-step process: first, a

court must consider the legal basis of the plaintiff’s claim(s), and second, a court must 

consider the type(s) of injuries for which the plaintiff seeks damages. Id. at 151.

SSI contends the trial court erred by failing to apply the two-step analysis set forth 

in Benz-Elliott to determine the appropriate statute of limitations applicable to its PPA 

claim for penalties. The trial court filed a Supplemental Memorandum shortly after filing 

its Memorandum and Order in response to SSI’s request for a more in-depth explanation 

of its decision dismissing SSI’s PPA claim. In its Supplemental Memorandum, the trial 

court explained that the two-step analysis the Supreme Court described in Benz-Elliott

was “inapplicable and not dispositive because a gravamen of the claim analysis is not the 

issue.” The trial court continued:

It is undisputed that the statutory penalty in issue arises out of the facts of a 

contract claim and a contract is the basis for the case. Where the Court 

departs from the analysis of Plaintiff’s Counsel is that the penalty in issue is 

a specialized remedy provided for by statute, and there is a special, 

statutory limitation, [Tenn. Code Ann. §] 28-3-104(a)(1)(C) for statutory 

penalties. The gravamen of the analysis is not triggered because there is a 

statute which explicitly provides the limitations period.

We agree with the trial court’s analysis. Even though SSI’s contract with HCG was the 

basis for its retainage claim and for its unapproved work order claim, the contract was not 

the basis for its claim for $300-per-day damages. The section of the PPA upon which 

SSI relies even describes the relief it provides as a “penalty.” See Tenn. Code Ann. § 66-

34-104(c). The PPA, and only the PPA, is the basis for this claim. As a result, the oneyear statute of limitations period applicable to “statutory penalties” governs this claim. 
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See Dawson v. Advance Mortg. Corp., 556 S.W.2d 761, 762 (Tenn. 1977) (holding claim 

for statutory penalty based on Retail Installment Sales Act subject to one-year statute of 

limitations applicable to statutory penalties); Beard v. Vanderbilt Mortg. & Fin., Inc., No. 

3:07-0934, 2008 WL 2323235, at *4 (M.D. Tenn. June 2, 2008) (following Tennessee 

precedent and holding that remedy provided by Tennessee’s Uniform Commercial Code 

constituted statutory penalty subject to one-year statute of limitations found in Tenn. 

Code Ann. § 28-3-104); see also Wynne v. Stonebridge Life Ins. Co., 694 F. Supp.2d 871, 

879 (W.D. Tenn. 2010) (holding bad faith claim constituted statutory remedy subject to 

Tennessee’s one-year statute of limitations applicable to statutory penalties).

C. When the Cause of Action Accrued

The trial court found that SSI’s PPA cause of action accrued on February 19, 

2016, at the latest, because that is when SSI submitted a pay application to HCG for its 

retainage. SSI argues that the discovery rule should apply because SSI did not know or 

have reason to know when it submitted its pay application that its retainage had not been 

deposited into an interest-bearing escrow account in accordance with the PPA. The PPA 

requires “the party with the responsibility for depositing the retained amount in a 

separate, interest-bearing, escrow account with a third party” to notify the prime 

contractor of the account’s details. Tenn. Code Ann. § 66-34-104(d). The parties 

stipulated to a number of facts including that (1) the Owner, and not HCG, was in 

possession of SSI’s retainage until May 27, 2015, when the Owner transferred the 

retainage to HCG, and (2) after HCG received SSI’s retainage from the Owner, HCG 

failed to deposit the retainage into a separate interest-bearing account with a third party.

The PPA does not provide a subcontractor with any right to be notified of the particulars 

of the escrow account when retainage is withheld from it. As SSI points out, the parties 

did not stipulate when SSI discovered, or should have discovered, that HCG had not 

deposited SSI’s retainage into an interest-bearing escrow account.

The Tennessee Supreme Court has addressed the discovery rule on numerous 

occasions and has described it as an “equitable exception that tolls the running of the 

statute of limitations until the plaintiff knows, or in the exercise of reasonable care and 

diligence, should know that an injury has been sustained.” Pero’s Steak and Spaghetti 

House v. Lee, 90 S.W.3d 614, 621 (Tenn. 2002) (citing Quality Auto Parts Co., Inc. v.

Bluff City Buick Co., Inc., 876 S.W.2d 818, 820 (Tenn. 1994)). A plaintiff “is deemed to 

have discovered the right of action when the plaintiff becomes aware of facts sufficient to 

put a reasonable person on notice that he or she has suffered an injury as a result of the 

defendant’s wrongful conduct.” Id. (citing Shadrick v. Coker, 963 S.W.2d 726, 733 

(Tenn. 1998), and Roe v. Jefferson, 875 S.W.2d 653, 657 (Tenn. 1994)). The purpose of 

the discovery rule is to prevent the inequity that would result from a strict application of 

the statute of limitations ‘“at a time when the injury is unknown and unknowable.”’ Id.

(quoting Teeters v. Currey, 518 S.W.2d 512, 515 (Tenn. 1974)). “It is based on ‘reason, 

logic and fundamental fairness.’” Smith v. Hauck, 469 S.W.3d 564, 569-70 (Tenn. Ct. 
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App. 2015) (quoting McCroskey v. Bryant Air Conditioning Co., 524 S.W.2d 487, 489 

(Tenn. 1975)).

When determining whether to apply the discovery rule to a particular type of case, 

our Supreme Court has explained that it “considers the specific statute of limitations at 

issue and then ‘balances the policies furthered by application of the discovery rule against 

the legitimate policies upon which’ the statute of limitations is based.” Individual 

Healthcare Specialists, Inc. v. BlueCross BlueShield of Tenn., Inc., 566 S.W.3d 671, 709 

(Tenn. 2019) (quoting Pero’s Steak and Spaghetti House, 90 S.W.3d at 620). In the case 

at bar, the statute of limitations at issue provides that actions for statutory penalties “shall 

be commenced within one (1) year after the cause of action accrued.” Tenn. Code Ann. 

§ 28-3-104(a)(1)(C). The statute does not specify when a cause of action for statutory 

penalties accrues, and we are unaware of any case in which a court has determined when 

a cause of action for the penalties described in Tenn. Code Ann. § 66-34-104(c) accrues 

for purposes of starting the statute of limitations period running. 

In considering “the policies furthered by application of the discovery rule against 

the legitimate policies upon which the statute of limitations is based,” Individual 

Healthcare Specialists, Inc., 566 S.W.3d at 709 (quotation marks and internal citation

omitted), the Individual Healthcare Specialists Court first set forth the rationale for 

imposing a statute of limitations on a plaintiff’s claims: 

Statutes of limitations “reflect a societal choice that actions must be 

brought within a certain time period.” Redwing [v.Catholic Bishop for the 

Diocese of Memphis], 363 S.W.3d [436,] 456 [Tenn. 2012] (quotation 

marks omitted). For that reason, “courts construe exceptions to statutes of 

limitations carefully to assure that they are not extended beyond their plain 

meaning.” Id.; see Quality Auto Parts, 876 S.W.2d at 820 (similar). “All 

statutes of limitations are intended to ensure fairness and justice.” Pero’s, 

90 S.W.3d at 621.

Id. The Individual Healthcare Specialists Court then summarized the reasons for 

allowing the discovery rule to toll the running of a statute of limitations period:

“In 1974, this Court recognized and adopted the discovery rule in response 

to the ‘harsh and oppressive’ results of the traditional accrual rule in 

circumstances in which the injured party was unaware of the injury.” 

Redwing, 363 S.W.3d at 458 (citing Teeters v. Currey, 518 S.W.2d 512, 

516 (Tenn. 1974)). . . . The discovery rule is an “equitable exception” to the 

statute of limitations. Pero’s, 90 S.W.3d at 621. “The rule responds to the 

unfairness of ‘requiring that he [a plaintiff] sue to vindicate a non-existent 

wrong, at a time when injury is unknown and unknowable.’” Quality Auto 

Parts, 876 S.W.2d at 820 (quoting Teeters, 518 S.W.2d at 515).
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Id. at 709-10. 

The discovery rule has been applied to different types of tort actions including 

medical malpractice, legal malpractice, dental malpractice, and products liability. Id. at 

710. It has also been applied to breach of contract actions when the alleged breach is 

“inherently undiscoverable.” Goot v. Metro. Gov’t of Nashville & Davidson Cnty., No. 

M2003-02013-COA-R3-CV, 2005 WL 3031638, at *11 (Tenn. Ct. App. Nov. 9, 2005); 

see Individual Healthcare Specialists, Inc., 566 S.W.3d at 712 (Supreme Court refrained 

from adopting or rejecting “inherently undiscoverable” standard set forth in Goot because 

alleged breach at issue was not inherently undiscoverable).

This court has applied the discovery rule to toll the one-year statute of limitations 

of a statutory action filed pursuant to the Tennessee Governmental Tort Liability Act 

(“GTLA”). Sutton v. Barnes, 78 S.W.3d 908, 916-17 (Tenn. Ct. App. 2002). The 

plaintiffs in that case sought compensation for damage to their home as a result of 

blasting activity on their neighbors’ property. Id. at 910. The plaintiffs initially sued the 

company that conducted the blasting activity and the company they believed supplied the 

blasting material. Id. at 911. In response to their interrogatories, the plaintiffs learned 

that the county’s highway commission provided the explosives that caused the damage, 

and the plaintiffs amended their complaint to add both the county and the county highway 

commission as additional defendants. Id. The county defendants moved to dismiss the 

complaint on the basis that the plaintiffs’ claim against them was barred by the one-year 

statute of limitations set forth in the GTLA because they were not added as defendants 

until more than a year after the cause of action arose.

2

 Id. at 911-12. The plaintiffs 

argued that the discovery rule tolled the statute of limitations and that their claim did not 

arise until the date they discovered that the county supplied the explosives to the 

construction company. Id. at 912. According to the plaintiffs, they did not know and had 

no way of knowing that the county supplied the explosives to the construction company 

until the plaintiffs received the construction company’s responses to their interrogatories, 

which was more than a year after the damage occurred. Id.

The trial court in Sutton granted the county’s motion to dismiss and the plaintiffs 

appealed. Id. On appeal, this court recognized that the discovery rule “was designed ‘to 

alleviate the intolerable result of barring a cause of action by holding that it “accrued” 

before the discovery of the injury or wrong.’” Id. at 912-13 (quoting Foster v. Harris,

633 S.W.2d 304, 305 (Tenn. 1982)). After discussing Tennessee cases in which the court 

had refused to apply the discovery rule to GTLA cases, id. at 913-14, as well as similar 

cases from other states in which courts had applied the discovery rule, id. at 915-16, the 

Court of Appeals in Sutton concluded that “the discovery rule should be applied to cases 

 

2Actions filed pursuant to the GTLA “must be commenced within twelve (12) months after the cause of 

action arises.” Tenn. Code Ann. § 29-20-305(b).
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involving the GTLA.” Id. at 916. Thus, the Sutton court held, “a cause of action ‘arises’ 

under the GTLA when the plaintiff discovers, or in the exercise of reasonable care should 

have discovered, that he or she sustained an injury as a result of the defendant’s wrongful 

conduct.” Id. The Sutton court clarified that its holding does not extend the period 

within which a plaintiff must file its complaint once its claim “arises”; rather, “the 

discovery rule merely operates to determine when the 12 months starts to run.” Id. at 

917. The court reached this conclusion despite the strict construction courts traditionally 

apply to the GTLA. Id. at 913. 

We addressed the PPA in Beacon4, LLC v. I & L Investments, LLC, 514 S.W.3d 

153 (Tenn. Ct. App. 2016), and we described the underlying purpose of the statute as 

follows:

The General Assembly enacted the PPA in 1991 “to provide for timely 

payments to contractors, subcontractors, materialmen, furnishers, 

architects, and engineers and to provide for interest on late payments.” 

1991 Pub. Acts Ch. 45 (H.B. 875). We determine the PPA in general to 

have remedial aims in that it operates to effectuate the means by which 

those it was designed to protect may recover their already existing property 

and contractual rights in funds they have earned. Legitimate business 

enterprises and consumers as a whole are then protected from the 

consequences of contractors, subcontractors, materialmen, furnishers, 

architects, and engineers receiving less than they have bargained for and 

earned.

Beacon4, LLC, 514 S.W.3d at 212 (footnote omitted). The record does not address when

SSI knew, or should have known, that its retainage was not deposited in an interestbearing escrow account as required by the PPA. As discussed above, the PPA does not 

require a subcontractor to be informed of the creation or particulars of the interestbearing escrow account into which the subcontractor’s retainage is supposed to be 

deposited. See Tenn. Code Ann. § 66-34-104. Stated another way, a subcontractor that 

has retainage withheld does not have the statutory right to information concerning the 

escrow account that the prime contractor has.

For reasons the Supreme Court and this court have stated for applying the 

discovery rule to toll the running of the statute of limitations in other situations, we 

conclude that the discovery rule should apply to PPA claims for the $300-per-day penalty 

allowed by Tenn. Code Ann. § 66-34-104(c) to prevent the inequity that would result 

from a strict application of the one-year statute of limitations “at a time when injury is 

unknown and unknowable.” Teeters, 518 S.W.2d at 515. As in Sutton, however, “we 

hasten to add that we do not pass judgment on the issue of whether the rule operates to 

toll the statute of limitations in the instant case” because there is a genuine issue of 

material fact as to when SSI learned or should have learned that its retainage was not in 
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an interest-bearing escrow account as required by the PPA.

3

 Sutton, 78 S.W.3d at 917. 

This issue must be resolved by the trier of fact upon remand. See Smith, 469 S.W.3d at

572 (“The question of whether a plaintiff exercised reasonable care and diligence to 

discover his claims generally is a factual question for the finder of fact.”).

D. Application of the PPA to the Year Before SSI Filed its Complaint

SSI’s final argument is that the trial court erred in failing to rule that it is entitled 

to $300-per-day penalties for the 365 days that preceded its acceptance of the retainage 

HCG tendered on December 12, 2017. SSI’s argument, in essence, is that even if its 

cause of action for statutory penalties under the PPA “accrued” more than one year 

before it filed its complaint, see Tenn. Code Ann. § 28-3-104(a)(1)(C), HCG is, 

nevertheless, liable for paying the $300-per-day penalties for each of the 365 days 

leading up to HCG’s tender of its retainage on December 12, 2017. SSI bases its 

argument on the plain language of the statute, Tenn. Code Ann. § 66-34-104(c), which 

states that if the party withholding the retained funds fails to deposit the funds into an 

interest-bearing escrow account as described in subsection (a), “such party shall be 

responsible for paying the owner of the retained funds an additional three hundred dollar 

($300) penalty per day for each and every day that such retained funds are not deposited 

into such escrow account.” (Emphasis added.) SSI’s interpretation of the statute means 

that each day that HCG failed to deposit SSI’s retainage into an escrow account, HCG 

violated the statute and incurred a new, separate $300 penalty. Thus, while SSI may not 

be able to recover some of the individual daily penalties due to the operation of the oneyear statute of limitations, the daily penalties for the year prior to September 25, 2017, 

when SSI filed its complaint, should still be recoverable.

HCG contends that SSI has waived this argument because it did not raise it before 

the trial court. See Blankenship v. Anesthesiology Consultants Exch., P.C., 446 S.W.3d 

757, 760 (Tenn. Ct. App. 2014) (“The law in Tennessee is well settled that issues not 

raised in the trial court may not be raised on appeal.”). We disagree. SSI’s position in 

the trial court was that it was entitled to the $300-per-day penalty for each day that HCG 

failed to deposit its retainage into an interest-bearing escrow account in compliance with 

the PPA. Here, SSI argues that if the trial court was correct that its claim for penalties is 

subject to the one-year statute of limitations, and if SSI is not able to benefit from the 

discovery rule to toll the running of the statute, the trial court erred by dismissing its 

claim in its entirety because SSI is still entitled to the $300-per-day penalties for each of 

the 365 days leading up to HCG’s tender of its retainage. SSI is not raising a novel 

 

3SSI also argues that the continuing violation doctrine applies to toll the running of the statute of 

limitations. This doctrine has only been applied by Tennessee courts in employment cases involving 

some type of discrimination, see Booker v. The Boeing Co., 188 S.W.3d 639, 643-44 (Tenn. 2006); 

Jackson v. City of Cleveland, No. E2015-01279-COA-R3-CV, 2016 WL 4443535, at *5 (Tenn. Ct. App. 

Aug. 22, 2016), and SSI offers no argument or citation to any authority for its application to cases 

involving statutory penalties.
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argument; it is merely taking into account the trial court’s ruling and restating the 

argument it made below.4

In interpreting the PPA, we are guided by standards our Supreme Court has set 

forth for statutory construction:

‘“The cardinal rule of statutory construction is to effectuate legislative 

intent, with all rules of construction being aides [sic] to that end.’ Browder

[v. Morris], 975 S.W.2d [308,] 311 [(Tenn. 1998)]; see Beard [v. Branson], 

528 S.W.3d [487,] 496 [(Tenn. 2017)]. We examine ‘the language of the 

statute, its subject matter, the object and reach of the statute, the wrong or 

evil which it seeks to remedy or prevent, and the purpose sought to be

accomplished in its enactment.’ State v. Collins, 166 S.W.3d 721, 726 

(Tenn. 2005) (citation omitted) (internal quotation marks omitted). ‘“We 

must seek a reasonable construction in light of the purposes, objectives, and 

spirit of the statute based on good sound reasoning.’” Beard, 528 S.W.3d at 

496 (quoting Scott v. Ashland Healthcare Ctr., Inc., 49 S.W.3d 281, 286 

(Tenn. 2001)).

Spires v. Simpson, 539 S.W.3d 134, 143 (Tenn. 2017); see also Beacon4, 514 S.W.3d at 

169. The statutory language ‘“is of primary importance, and the words must be given 

their natural and ordinary meaning in the context in which they appear and in light of the 

statute’s general purpose.”’ Coffee Cnty. Bd. of Educ., 574 S.W.3d at 839 (quoting Mills 

v. Fulmarque, Inc., 360 S.W.3d 362, 368 (Tenn. 2012)).

 

As discussed above, the purpose of the PPA is remedial and is meant to ensure that 

those who work on construction projects receive timely payments, interest on payments 

that are made late, and “to effectuate the means by which those it was designed to protect 

may recover their already existing property and contractual rights in funds they have 

earned.” Beacon4, LLC, 514 S.W.3d at 212. In our effort to “seek a reasonable 

construction in light of the purposes, objectives, and spirit of the statute based on good 

sound reasoning,” Spires, 539 S.W.3d at 143, and taking into account the express 

language of Tenn. Code Ann. § 66-34-104(c), we agree with SSI’s argument. If SSI is 

able to prove that HCG was obligated to deposit SSI’s retainage into an interest-bearing 

escrow account consistent with Tenn. Code Ann. § 66-34-104(a), and if SSI is unable to 

benefit from the discovery rule in future proceedings, SSI is still entitled to statutory 

penalties for each of the 365 days leading up to SSI’s filing of its complaint on 

September 25, 2017, and beyond,5based on HCG’s failure to comply with the PPA.

 

4

In its Supplemental Memorandum, the trial court quoted from SSI’s motion filed on January 11, 2019, in 

which SSI sought additional legal grounds for the court’s ruling dismissing its complaint. In its motion, 

SSI argued: “Under the plain language of the Statutory PPA Penalty, the liability arises each and every 

day of non-compliance.”

5The 365 days should be counted back from the date SSI filed its complaint, not the day when HCG 
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III. CONCLUSION

The judgment of the trial court is vacated, and this matter is remanded for further

proceedings consistent with this opinion. Costs of appeal shall be assessed against the 

appellee, Holladay Construction Group, LLC, for which execution may issue if 

necessary.

________________________________

 ANDY D. BENNETT, JUDGE

 

tendered its retainage. See Tenn. Code Ann. § 28-3-104(a)(1)(C). SSI may also be entitled to penalties 

for each day following the filing of its complaint, up to the day when HCG tendered SSI’s retainage to 

SSI. The parties agree that HCG initially tendered SSI’s retainage on October 27, 2017, and that SSI did 

not accept the payment until HCG also tendered a check for the change order work on December 12, 

2017. We have not been asked to consider whether SSI was correct in refusing to accept the initial tender 

on October 27.