Terms of Arbitration Agreements May Not Preclude Award of Penalties and Attorneys’ Fees Under PA’s Contractor and Subcontractor Payment Act
In late 2017, E. Allen Reeves, Inc. (Reeves), a general contractor for a construction project, sued the project owner, Old York LLC (Old York), to recover unpaid invoices, penalties, and attorneys’ fees pursuant to the Contractor and Subcontractor Payment Act (CASPA).
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The case was stayed pending arbitration. After a hearing, the arbitrator awarded Reeves attorneys’ fees and penalties under CASPA.
Following arbitration, Old York sought to vacate the arbitration award, in part, on the basis that the arbitrator exceeded his authority in awarding Reeves attorneys’ fees and penalties under CASPA. Likening CASPA’s civil penalty to punitive damages, Old York argued that the arbitrator exceeded his authority as the parties’ arbitration agreement precluded the arbitrator from awarding punitive damages. Furthermore, the parties’ arbitration agreement purported to disallow the award of attorneys’ fees. The trial court denied Old York’s motion to vacate.
In affirming the trial court, the Superior Court found that CASPA’s civil penalty was differentiated from punitive damages and, thus, the parties did not waive CASPA’s penalty provisions. In comparing CASPA’s penalty provision with punitive damages, the Reeves court noted that CASPA penalties were technical in nature, applying when a party has failed to comply with the applicable payment terms. In contrast, an award of punitive damages is based upon outrageous conduct, bad motive or a reckless indifference to the interests of others. Punitive damages are penal in nature and should only be awarded in cases where the party’s actions are so outrageous as to demonstrate “willful, wanton, or reckless conduct.” Related to CASPA, penalties “shall” be imposed against a party who has failed to comply with CASPA’s payment terms, meaning contracting parties may not waive CASPA’s penalties. In what may be dicta, the Reeves court further noted that CASPA penalties may not be contractually waived.
The Superior Court also held that the arbitrator did not exceed his authority in awarding attorneys’ fees to Reeves as the “substantially prevailing party” under CASPA. Old York argued that Reeves was required to separately petition the court for an award of attorneys’ fees under CASPA. The Superior Court disagreed and held that, notwithstanding the language found in the arbitration agreement, the arbitration was a “proceeding” under CASPA and that CASPA’s attorneys’ fees provision was not waivable—even when the waiver argument is dressed up as a challenge to the arbitrator’s authority.
Practically, owners, contractors and subcontractors cannot easily rely upon provisions in arbitration agreements to insulate themselves from CASPA’s civil penalty and attorneys’ fees provisions. While elements of Reeves may be dicta in nature, the case clarifies the scope of CASPA in relation to private arbitration. Given the significant role arbitration plays in construction disputes, practitioners must account for Reeves.
Co-authors Gaetano Piccirilli, Partner and Stephanie Wolbransky, Associate are members of the Litigation Department at Klehr Harrison.