Opinion ID: 4468158
Heading Depth: 2
Heading Rank: 2

Heading: Prompt Payment Remedies

Text: [¶24] GBT next argues that the trial court erred by awarding F&W any remedies pursuant to Maine’s prompt payment statutes, 10 M.R.S. §§ 1111-1120. GBT also asserts more narrowly that the court erred by including the unpaid retainage invoice in the amount subject to prompt payment remedies and that, pursuant to section 1118(3), the court should have excluded from the calculation of those remedies at least the amount that the court found GBT had withheld in good faith. On an appeal addressing a judgment on a statutory prompt payment claim, we review issues of law de novo and the trial court’s factual findings for clear error. Bernier v. Merrill Air Eng’rs, 2001 ME 17, ¶ 7, 770 A.2d 97; see Cellar Dwellers, Inc. v. D’Alessio, 2010 ME 32, ¶ 17, 993 A.2d 1 (reviewing factual findings bearing on the issue of prompt payment remedies for clear error). 14 [¶25] It was undisputed that GBT withheld payment on several invoices for progress payments and retainage beyond the twenty-day limit prescribed by the prompt payment statutes. In total, those unpaid amounts approached $1.5 million. Through the combination of the summary judgment and determinations reached after the trial, the court concluded that F&W was entitled to be paid for all of those invoiced amounts and that GBT did not have a good faith basis to withhold payments based on any contention that F&W’s work was incomplete or defective. Although, for that reason, the court committed no error in determining that F&W was entitled generally to remedies created by the prompt payment statutes, including on the retainage payment withheld, we conclude that the court did err in a different aspect of its analysis. The error arises because the court failed to consider the mitigating effect of its finding that GBT had, in good faith, withheld $498,000 as liquidated damages that it claimed were contractually owed by F&W. [¶26] The prompt payment statutes are a collection of rules governing payment between or among parties to construction contracts in a way that “augment[s] damages that are traditionally available for contract or quantum meruit claims.” Jenkins, Inc. v. Walsh Bros., Inc., 2001 ME 98, ¶ 24, 776 A.2d 15 1229. The statutory remedies can comprise interest, penalties, and attorney fees. See 10 M.R.S. §§ 1113, 1118. [¶27] Section 1113 governs payments by “owner[s]” to “contractor[s].”11 Here, GBT was the owner of the properties, and F&W was a contractor. See 10 M.R.S. § 1113(3), (6). Absent some other agreement between the parties, section 1113(3) requires an owner to pay an invoice within twenty days after either the billing period ends or the invoice is delivered, whichever is later. If a payment is not made before the applicable deadline, “the owner shall pay the contractor interest on any unpaid balance due beginning on the 21st day,” 10 M.R.S. § 1113(4), and penalties are to be awarded in “an amount equal to 1% per month of all sums for which payment has wrongfully been withheld,” 10 M.R.S. § 1118(2). In addition, the “substantially prevailing party” is entitled to an award of attorney fees and expenses. 10 M.R.S. § 1118(4); see Jenkins, 2001 ME 98, ¶ 31, 776 A.2d 1229 (explaining that the attorney fees remedy is available only to a party who succeeds in demonstrating its entitlement to the other prompt payment remedies). [¶28] In some circumstances, however, an owner-obligor is statutorily entitled to withhold payments without incurring liability pursuant to the 11Title 10 M.R.S. § 1114 (2018) governs payments by a “contractor” to a “subcontractor” or by a subcontractor to a “material supplier.” See 10 M.R.S. § 1111 (2018) (defining those terms). 16 prompt payment statutes. “A payment is not deemed to be wrongfully withheld if it bears a reasonable relation to the value of any claim held in good faith by the owner, contractor or subcontractor against which an invoicing contractor, subcontractor or material supplier is seeking to recover payment.” 10 M.R.S. § 1118(3) (emphasis added); see Cellar Dwellers, 2010 ME 32, ¶ 18, 993 A.2d 1 (“[T]he availability of prompt payment remedies depends upon whether payment has been wrongfully withheld.” (emphasis added) (quotation marks omitted)); Jenkins, 2001 ME 98, ¶ 24, 776 A.2d 1229. The statute also provides that an owner may withhold payment “in whole or in part under a construction contract in an amount equalling the value of any good faith claims against an invoicing contractor, subcontractor or material supplier.” 10 M.R.S. § 1118(1). [¶29] We are unpersuaded by GBT’s arguments that the trial court should not have imposed any prompt payment statute remedies, or that the court should have excluded the unpaid retainage invoice from the amount subject to prompt payment remedies. Even if we were persuaded by GBT’s argument that F&W was required to have performed in accordance with the contract in order to be entitled to prompt payment remedies pursuant to section 1113, the court found that F&W did so perform—a finding that was not 17 clearly erroneous.12 Additionally, in its summary judgment order, the trial court determined as matter of law that F&W was entitled to damages based on the full amount of all of the unpaid invoices, including the retainage. GBT has not challenged that conclusion, thereby vitiating its contention that F&W failed to prove that it completed the steps necessary to be entitled to the retainage withheld and that the court therefore erred by considering that withholding to be “wrongful.” We also decline to disturb the trial court’s determination that GBT’s claims alleging defective or incomplete work were not held in good faith. [¶30] This leaves GBT’s assertion that the court erred by imposing prompt payment remedies on the entire amount that GBT withheld when the court found that some of that amount was withheld based on GBT’s good-faith belief that it was entitled to recover liquidated damages from F&W. More specifically, the court found that, even though GBT was ultimately unsuccessful on the merits, GBT withheld $498,000 as liquidated damages in good faith.13 12 Section 1114(3) requires a contractor to pay a subcontractor, or a subcontractor to pay a material supplier, within a specific time “when a subcontractor or material supplier has performed in accordance with the provisions of a contract.” Section 1113 does not contain similar language. Given the court’s finding that F&W did perform pursuant to the contract, we need not address the question of whether, despite that difference in the statutes, the same requirement should be imposed in disputes governed by section 1113. 13 Those determinations were not incompatible because GBT could have believed in good faith that its claims for liquidated damages were legitimate even though, on the merits, it ultimately did not prevail on those claims. 18 Despite that finding, the court ultimately concluded that F&W was entitled to prompt payment remedies calculated on the basis of all payments that GBT withheld—including the amount withheld in good faith as liquidated damages—because the total “amount withheld far exceed[ed] the [value] of [GBT’s] potential liquidated damages [claims].” [¶31] This conclusion is affected by an erroneous application of sections 1118(1) and 1118(3). Those statutory provisions do not provide for the court to simply weigh the value of a claim held in good faith against the total amount withheld and then, where the two are not in some measure of balance, impose prompt pay remedies based on the total amount withheld. Further, there need not be a direct connection between the contractor’s charges for goods and services set out in the invoices and the reason why the obligor withheld payment. See 10 M.R.S. § 1118(1). Here, for example, the amount that GBT withheld was not based on a good faith dispute about the charges in the invoices themselves, but rather was grounded in an extrinsic claim against F&W arising from the projects at issue. [¶32] Instead, pursuant to the statutes, “[p]enalties may not be imposed . . . on any amount withheld that bears a reasonable relation to the value of any claim held in good faith.” Jenkins, 2001 ME 98, ¶ 24, 776 A.2d 1229 (emphases 19 added) (quotation marks omitted); see 10 M.R.S. § 1118(3); Cellar Dwellers, 2010 ME 32, ¶ 20, 993 A.2d 1. Consequently, the trial court should have, in some way, accounted for the value of GBT’s liquidated damages claims held in good faith when considering the amount that is subject to prompt payment statute remedies available to F&W. [¶33] For these reasons, we vacate the portion of the judgment denying GBT any statutory accommodation based on the amount it withheld in good faith in the court’s determination of damages to which F&W is entitled pursuant to the prompt payment statutes, and we remand for the court to reconsider and recalculate that portion of the award.