By Sanya Memon, Summer Associate

In a significant decision on April 17, 2024, the U.S. Court of Appeals for the Third Circuit upheld significant penalties and attorney fees awarded to C.J. Hughes Construction Company, Inc. under the Pennsylvania Contractor and Subcontractor Payment Act (CASPA). This ruling, emerging from a contractual dispute with EQM Gathering OPCO, LLC over the MAKO pipeline project, provides critical insights into the court’s interpretation and enforcement of CASPA provisions. The following provides a brief analysis of this important court decision.

Background

The dispute began in 2015 when EQM sought bids for the construction of the MAKO pipeline, a crucial infrastructure project divided into several segments. C.J. Hughes was awarded contracts for segments A and D. Upon completion, EQM paid C.J. Hughes the base contract amount but refused to cover additional costs incurred beyond initial projections. These extra costs included unforeseen additional fittings and welding necessary to complete the project. Claiming these additional tasks were within the contract’s scope, C.J. Hughes demanded further compensation, which EQM denied. This led to a lawsuit wherein C.J. Hughes claimed breach of contract and sought CASPA-imposed penalties and attorney fees.

Trial and Jury Verdict

The District Court trial culminated in a jury verdict largely favouring C.J. Hughes. The jury concluded that the additional work performed by C.J. Hughes was indeed “required work” under the original contract and not merely "extra work." Consequently, EQM was found to have breached the contract by not paying for this work. The jury awarded C.J. Hughes more than $5.8 million in compensation​​.

CASPA Penalties and Attorney Fees

The District Court also awarded C.J. Hughes penalties and attorney fees under CASPA, designed to ensure prompt payment for construction work and penalize those who withhold payment without reasonable cause. EQM challenged this award on appeal, arguing that CASPA should not apply due to the lack of a formal invoice for the additional compensation sought by C.J. Hughes. However, the Appellate Court ruled that CASPA applies to all construction contracts in Pennsylvania, regardless of the invoicing process. The court highlighted that CASPA’s protective measures apply to all payments due under a contract, not just those formally invoiced. This broad interpretation seeks to fulfill CASPA's intent to provide a robust remedy for contractors against payment delays.

EQM further argued that the parties had contractually agreed to waive CASPA’s penalty provision. The Appellate Court analyzed the waiver of the penalty provision under CASPA under Pennsylvania state law. The Appellate Court emphasized the need to read sections 505(d) and 512(a) of CASPA, together, guided by the principle that statutes should be read as a whole to affect their purposes. The Appellate Court also considered case law from the Pennsylvania Superior Court to guide its decision. It refers to John B. Conomos, Inc. v. Sun Co. (R&M), 831 A.2d 696 (Pa. Super. 2003), where the Superior Court held that CASPA does not permit waiver of penalty and attorney fees provision, noting that the language in the statute permits waiver of interest, not penalties or attorney fees. In E. Aleen Reeves, Inc. v. Old York, LLC,293 A.3d 284 (Pa. Super. 2023), the Superior Court revisited the issue and reaffirmed CASPA’s penalty provision could not be waived contractually, as the statute’s language made penalties mandatory and lacked any language permitting waiver. The Appellate Court further mentions that CASPA was intended to protect contractors and subcontractors and to encourage fair dealing in construction contracts, supporting a broad application of the statute’s provisions. Upholding the District Court’s decisions, the Appellate Court agreed that CASPA’s provisions were correctly applied and that the jury's findings were well-supported by the evidence.

Lastly, EQM argued that a good faith requirement must be read into CASPA’s attorney provision and that the District Court erred as a matter of law, when it failed to do so. The appellate court, drawing from Waller Corp. v. Warren Plaza, Inc.,95 A.3d 313 (Pa. Super 2014),  pointed out that the requirement for a claimant to demonstrate the defendant’s withholding of payment without a good faith reason, as a prerequisite for attorney fee recovery would be an “erroneous legal conclusion.” The Appellate Court agreed with the findings in Waller Corp and stated that the plain text of the attorney fees provision provides no good-faith exception and that the District Court had not erred in granting the attorney fees.

Dissenting Opinion

Judge Ambro partially dissented, arguing that the penalties under CASPA should not have been awarded due to a contractual waiver. He contended that Pennsylvania law would uphold such a waiver, citing principles against interpreting statutes in a way that creates surplusage. Despite this dissent, the majority opinion prevailed.

Conclusion

The affirmation of significant penalties and attorney fees under CASPA in this case highlights the statute's robust protections for contractors. The Third Circuit’s detailed reasoning underscores the importance of prompt and fair payment practices in the construction industry, ensuring that contractors can rely on statutory safeguards to secure timely compensation for their work.