Opinion ID: 1946081
Heading Depth: 2
Heading Rank: 4

Heading: Applicability of the Prompt Payment Statute

Text: [¶ 23] Jenkins sought additional penalties against Walsh pursuant to the prompt payment statute, 10 M.R.S.A. §§ 1111-1120 (1997). The statute provides for penalties against owners or contractors who do not make payments to subcontractors in a timely fashion. See L.D. 1424, Statement of Fact (116th Legis.1993). The available remedies include prejudgment interest at an enhanced rate, a 1% monthly penalty on amounts wrongfully withheld, and attorney fees. 10 M.R.S.A. §§ 1114(4), 1118(2), 1118(4). [¶ 24] Because the remedies provided by the prompt payment provisions are intended to augment damages that are traditionally available for contract or quantum meruit claims, it is not sufficient for the party seeking penalties to prove that work was completed and that an outstanding balance exists. Rather, in seeking penalties, the subcontractor must prove that (1) the services were performed in accordance with the agreement or understanding of the parties; (2) the owner has made the progress or final payment; (3) the subcontractor has invoiced the work; and (4) the contractor failed to make payment within seven days after receipt of the invoice, or after receipt of the progress or final payment from the owner, whichever is later. Id. § 1114(3). [11] Penalties may not be imposed, however, on any amount withheld that bears a reasonable relation to the value of any claim held in good faith. Id. § 1118(3).
[¶ 25] The court found that Walsh did not act in good faith and that Jenkins succeeded in meeting its burden on the first two elements. Specifically, the court found that Jenkins had performed the work and that UNE had made a progress payment of $170,000. The court also concluded that Walsh had violated the spirit of the statute when it refused to make any further payments after the dispute arose. [¶ 26] Given the difficulty in analyzing the evidence regarding Jenkins's invoicing, however, the court did not determine exactly what amounts had been invoiced at specific times, and therefore did not determine what was due when. Rather, it found that [w]hile disputes existed concerning how much Jenkins was owed, the evidence at trial showed that a significant portion of Jenkins' claim was valid. (Emphasis added.) During the follow up hearing held to assist the court in determining the amount due under the prompt payment statute, the court noted its difficulty in determining how to attach this invoice to that payment, and framed the question to counsel as follows: how do I, when I don't attach a delinquent payment to any particular invoice, how do I know when to start counting and when to start multiplying. [12] [¶ 27] Ultimately, although the court concluded that Jenkins was owed $200,300 in ordinary damages, it did not determine how much of that amount had been withheld in violation of the prompt payment statute. [13] Because the enhanced interest and monthly penalty remedies must be calculated with reference to the specific amounts owed and the dates by which they should have been paid, the court did not establish a baseline for calculating those remedies. [14] See id. §§ 1114(4), 1118(2). [¶ 28] Notwithstanding the absence of the necessary factual findings, however, the court went on to fashion an interest remedy not contemplated by the statute, in order to assure that some penalty was imposed as a result of Walsh's violation of the spirit of the statute. The court awarded Jenkins the prejudgment interest penalty on the full $200,300, even though it had not determined when that amount had been invoiced. Recognizing the missing information, however, the court reduced the statutorily established penalty to the ordinary prejudgment rate but ordered that it would run, not from the date of service of the complaint, but from October 1, 1996, approximately the time of the parties' impasse. [15] It also awarded the 1% monthly penalty on the full $200,300, effective October 1, 1996. See id. § 1118(2). [¶ 29] Although the court's effort to create an equitable approach to the evidentiary quagmire is understandable, it is not authorized by statute. Without a finding of the amounts due and the dates from which the penalties should run, the court could not award enhanced interest or a monthly penalty pursuant to sections 1114(4) and 1118(2). Therefore, we must vacate the court's imposition of prompt payment penalties and remand for further findings by the court to determine whether Jenkins met its burden of proof. If the court finds that Jenkins proved the amounts due and the dates from which the penalties should run, the court must award penalties in accordance with sections 1114(4) and 1118(2). If the court finds that Jenkins failed to meet its burden of proof, the court may not award any penalties under the prompt payment statute. Specifically, the portions of the judgment awarding prejudgment interest pursuant to section 1114(4) and awarding the 1% penalty pursuant to 10 M.R.S.A. § 1118(2) are vacated.
[¶ 30] The court also awarded Jenkins $125,000 in attorney fees. The only authority for the award of attorney fees in this matter is found in the prompt payment statute. See id. § 1118(4); [16] cf. Baker v. Manter, 2001 ME 26, ¶ 13, 765 A.2d 583, 585 (A court's authority to award attorney fees may be determined by statute, by the American Rule at common law [which] generally prohibits taxing the losing party in litigation with a successful opponent's attorney fees, or by certain recognized common law authorizations of attorney fees.) (internal quotation marks omitted); Linscott v. Foy, 1998 ME 206, ¶ 17, 716 A.2d 1017, 1021 (finding that courts should exercise the inherent authority to award attorney fees as a sanction only in the most extraordinary circumstances). [¶ 31] The court is required to award attorney fees to the substantially prevailing party in any proceeding to recover any payment within the scope of this chapter. 10 M.R.S.A. § 1118(4) (emphasis added). The purpose of the chapter is to provide deadlines for the prompt payment of amounts invoiced in construction contract situations and to provide motivation, in the form of penalties for noncompliance, for an owner, contractor, or subcontractor to make timely payments. [17] The enactment of the chapter did not create a cause of action in contract or quantum meruit, both of which were well established in the law prior to the enactment of the prompt payment provisions. Rather, it provided disincentives to withholding amounts due to contractors and subcontractors. Thus, the payments authorized within the scope of the chapter are those penalties available pursuant to sections 1114, 1116, and 1118. If a party prevails on its contract or quantum meruit claims, but fails to meet its burden of establishing the additional necessary prerequisites to prove a violation of the prompt payment statute, the remedies in that chapter are not available. [¶ 32] Although Jenkins has prevailed on its claims for breach of contract and quantum meruit, the court did not determine whether it presented sufficient evidence to establish all of the elements necessary to prove a violation of the prompt payment statute. We cannot determine whether Jenkins is entitled to recover attorney fees because it is only entitled pursuant to section 1118(4) if the court finds, on remand, that it proved its entitlement to penalties pursuant to the prompt payment statute. If the court finds that Jenkins failed to establish a violation of the statute, Jenkins has not prevailed within the scope of this chapter, and accordingly, the court may not award attorney fees. Id. § 1118(4). Thus, we also vacate and remand the award of attorney fees for further consideration by the court. In its discretion, upon remand, the court may invite further argument from counsel. [¶ 33] Walsh's additional arguments do not merit discussion. The entry is: Judgment of prejudgment interest, 1% penalty, and attorney fees pursuant to 10 M.R.S.A. §§ 1114(4), 1118(2), 1118(4) vacated and remanded to the Superior Court for further proceedings consistent with this opinion. In all other respects, the judgment is affirmed.