Kristopher Berr, Associate
Clipper Pipe & Service,
Inc. v. The Ohio Cas. Ins. Co., 2015 Pa. LEXIS 1275 (PA June 15, 2015)
The Supreme Court of
Pennsylvania held that the Contractor and Subcontractor Payment Act (“CASPA”),
73 P.S. §§501-516, “does not apply to a construction project where the owner is
a governmental entity.” This decision
once and for all resolved the issue of whether CASPA applies to payment
disputes between prime contractors and subcontractors on public works
projects, either instead of or in addition to the prompt payment
provisions of the Commonwealth Procurement Code, 62 Pa.C.S. §§ 3931-3939 (commonly
referred to as “the Prompt Payment Act”).
The decision is in line with
what most practitioners already understood: that the Pennsylvania General
Assembly intended to establish two separate statutory payment schemes governing
public and private projects, respectively. As argued by the appellants in
Clipper, it would seem untenable that both CASPA and the Prompt Payment
Act would apply to payment disputes on public construction projects, given that
there are substantial differences in the required notice, the rate of interest
on delayed payments and the burden of proof associated with penalty and
attorneys’ fee awards under those statutes. Despite this seeming
incongruence, subcontractors on public projects who hoped to access the more
advantageous provisions of CASPA have, to this point, seized on its somewhat
imprecise definition of “owner” to argue that CASPA could be read to apply to
payment disputes between prime and subcontractors on public projects.
After Clipper, there is no longer any question that CASPA does not apply
to such disputes, which are governed exclusively by the Prompt Payment Act.
The case arose from a project
for certain improvements to the Navy/Marine Corps Reserve Training Center in
Pennsylvania’s Lehigh Valley. In furtherance of the project, the United States
Department of the Navy contracted with Contracting Systems, Inc. (“CSI”) as
general contractor. In turn, CSI subcontracted with Clipper Pipe &
Service, Inc. (“Clipper”) to perform certain heating, ventilation and air
conditioning work . Eventually, Clipper filed suit against CSI and its
surety in the United States District Court for the Eastern District of
Pennsylvania, alleging that CSI had failed to pay Clipper sums that were due
under the parties’ subcontract. Clipper further asserted a claim against
CSI under CASPA.
CSI moved for summary
judgment on Clipper’s CASPA claim, arguing that CASPA did not apply in the
context of a public works project. The District Court denied the motion
and, ultimately, Clipper prevailed on its CASPA claim after the subsequent jury
trial. CSI then appealed to the Court of Appeals for the Third
Circuit. The Third Circuit applied to the Supreme Court of Pennsylvania
for certification of a question of law: “does [CASPA] apply to a project where
the owner is a governmental entity, such as the federal government in this
case?” The Supreme Court granted certification.
At the outset of its
analysis, the Supreme Court noted that CASPA establishes rights and duties
among “owners”, “contractors”, and “subcontractors” as it relates to
“construction contracts.” To the Court, the definition of “owner” is
crucial to determining CASPA’s scope because the term “owner” is used throughout
the statute. For example, as the Court pointed out, CASPA defines
“contractor” as a “person authorized or engaged by an owner” to make certain
improvements to property. 73 P.S. § 502. Thus, unless there is an “owner”
within the meaning of CASPA, there can be no “contractor.”
Accordingly, as it relates to
a public works project, the central question was whether or not the government
could be deemed an “owner.” The Supreme Court held that it could not.
CASPA defines “owner” to mean
a “person who has an interest in the real property that is improved and who
ordered the improvement to be made.” 73 P.S. § 502. In turn,
“person” refers to a “corporation, partnership, business trust, other
association, estate, trust foundation or a natural individual.” Id.
The Court determined, under the doctrine of ejusdem generis, the government could not possibly be an “other
association” within the meaning of CASPA because the term “other association”
must take its meaning from the terms that precede it. In this case,
“other association” could not be read to encompass the government because
the government is “dissimilar to a ‘corporation,’ ‘partnership,’ ‘business
trust,’ ‘estate,’ ‘trust foundation,’ and ‘natural individual,’ among which the
term ‘association’ appears.”
The Court further observed that
“statutes in derogation of sovereignty should be construed strictly in favor of
the sovereign.” This approach is derived from the common law principle of
sovereign immunity and is further “grounded on the assumption that non-specific
statutes are most often directed to the affairs of the citizenry.”
Consequently, in the absence of express textual authority, the Court declined
to construe “association” or “owner” to refer to the government ..
After concluding that the
government is not an “owner” as that term is used in CASPA, the Supreme Court
turned to the question of whether CASPA would nonetheless apply to a dispute
between a contractor and subcontractor on a public project if the dispute did not
directly involve the government. Holding in the negative, the Court
recognized the existence of the dual statutory schemes established by CASPA and
the Prompt Payment Act, and noted that the timing and penalty provisions for
late payment under the Prompt Payment Act differed from those under
CASPA. The Court concluded that “the Legislature simply did not
design CASPA to apply independently to subcontracts in scenarios in which the
foundational contract resides outside its boundaries” (i.e., where the contract
between the owner and general contractor was governed by the Prompt Payment
Act). Thus, the Court held that, even though CASPA’s policy of protecting
contractors and subcontractors would be promoted if it were applied to the case
before it, “such application is too disharmonious with the statutory mechanics
to support the extension.”
Article originally posted June 25, 2015 on Constructlaw, an update and discussion of recent trends in construction law and construction, maintained and edited by Pepper Hamilton's Construction Law Practice Group.
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