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Jenkins v. Walsh Bros., part 2

D.  Applicability of the Prompt Payment Statute

	[¶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).
	1.  Enhanced Interest, Retainage and Monthly Assessment Penalties

	[¶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.

	2.  Attorney Fees

	[¶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

Attorneys for plaintiff: David P. Ray, Esq., (orally) Mary Delano, Esq. Bernstein Shur Sawyer & Nelson P O Box 9729 Portland, ME 04104-5029 Attorneys for defendant: Robert W. Harrington, Esq., (orally) Robert J. Harrington, Esq. One Washington Mall Boston, MA 02108
FOOTNOTES******************************** {*} Although not available at oral argument, Justice Clifford participated in this opinion. See M.R. App. P. 12(a) (stating that a "qualified justice may participate in a decision even though not present at oral argument"). {1} . The actual proposed bid was for the sum of $478,948, but the court rounded it to $479,000. {2} . If the change order was internal, Walsh was responsible for payment. If the change order was external, UNE was responsible for payment. {3} . The provisions of the Construction Contracts Statute in issue here will be referred to as the prompt payment statute. See L.D. 1424 (116th Legis. 1993) ("An Act to Ensure Prompt and Equitable Payment for Construction Services"). {4} . UNE and The Aetna Casualty & Surety Company were also named defendants but are no longer parties to this action. The court granted summary judgment in favor of UNE on Jenkins's lien claim, resolving count I of the complaint. Count V, regarding a bond issued by Aetna, was dismissed by agreement of the parties. Those counts are not before us. {5} . The court determined that of the $479,000 original bid price, the labor component "was at least equal to the costs of material." At trial, Jenkins's president testified, and Jenkins's proposed findings of fact and conclusions of law indicates, that the costs for materials was approximately $203,000. Thus, the court determined that the labor costs in the original bid price were approximately $203,000. {6} . The penalty of one percent per month was awarded through the entry of the judgment and was calculated as follows: 46 months (October 1996 - July 2000) at 1% x $200,300 = $92,138. {7} . The total amount awarded to Jenkins was: Damages: $200,300 Attorney fees: $125,000 Prejudgment interest: $ 42,808 Penalties: $ 92,138 Costs: $ 5,068.30 In addition, the court stated: "Jenkins shall be entitled to additional post-judgment interest and penalties of 12 percent under 14 M.R.S.A. § 1602-A and 10 M.R.S.A. § 1118(2) respectively after the entry of judgment." {8} . The court did not clarify the terms of the "lump-sum contract" between the parties beyond those necessary to determine the amount due under the contract. {9} . The language used by the court in awarding damages makes it appear that the court found the existence of a contract covering a substantial part of Jenkins's work but awarded all damages pursuant to a theory of quantum meruit. We find no error given that the court awarded Jenkins the amount due under the contract nonetheless. {10} . Walsh also claims that the court used a total cost approach and erred in doing so. To the contrary, however, the court did not use the approach that has been disfavored by other courts. See, e.g., Servidone Constr. Corp. v. United States, 931 F.2d 860, 861 (Fed. Cir. 1991) ("A trial court must use the total cost method with caution and as a last resort."); Amp-Rite Elec. Co., Inc. v. Wheaton Sanitary Dist., 580 N.E.2d 622, 640 (Ill. App. Ct. 1991) (finding the total cost approach "is not a preferred means of calculation"). Rather, it based its quantum meruit award on the value of the additional labor with a modest addition for overhead. {11} . § 1114. Contractor's and subcontractor's payment obligations Payment to a subcontractor for work is subject to the following conditions. . . . . 3. Invoices. Notwithstanding any contrary agreement, when a subcontractor or material supplier has performed in accordance with the provisions of a contract, a contractor shall pay to the subcontractor or material supplier, and each subcontractor shall in turn pay to its subcontractors or material suppliers, the full or proportional amount received for each subcontractor's work and materials based on work completed or service provided under the subcontract, 7 days after receipt of each progress or final payment or 7 days after receipt of the subcontractor's or material supplier's invoice, whichever is later. 4. Delayed payments. Notwithstanding any contrary agreement, if any progress or final payment to a subcontractor or material supplier is delayed beyond the due date established in subsection 2 or 3, the contractor or subcontractor shall pay its subcontractor or material supplier interest on any unpaid balance due beginning on the next day, at an interest rate equal to that specified in Title 14, section 1602-A, subsection 2. 10 M.R.S.A. § 1114 (1997). {12} . The difficulties in establishing what was due at a specific time are highlighted by comparing Jenkins's notice of lien in the amount of $415,609.42, as of October 29, 1996, with Jenkins's complaint, which asserted that Walsh owed it $730,518.46, and with Jenkins's argument at trial that it was owed $503,770.40. {13} . The same lack of factual findings exists with regard to Jenkins's claim for penalties on retainage. In order to recover penalties for the contractor's failure to pay over retainage, the court must find that Jenkins proved that the retainage was in fact received by Walsh, that it was received on a date reasonably certain, and that Walsh failed to pay the amount due Jenkins from that retainage within seven days of its receipt of the funds from the owner. 10 M.R.S.A. § 1116 (1997). No such findings were made. {14} . The delayed payment interest enhancement is calculated by applying that interest rate to "any unpaid balance due beginning on the next day [after it is due pursuant to subsection 3]." 10 M.R.S.A. § 1114(4) (emphasis added). The monthly penalty is assessed when it is determined that a contractor "has failed to comply with the payment terms of this chapter" and is calculated by awarding "an amount equal to 1% per month of all sums for which payment has wrongfully been withheld." 10 M.R.S.A. § 1118(2) (1997). {15} . Prejudgment interest ordinarily begins to run on the date that the complaint is served on the defendant. 14 M.R.S.A. § 1602 (Supp. 2000) ("Prejudgment interest shall accrue from the time of notice of claim setting forth under oath the cause of action, served personally or by registered or certified mail upon the defendant until the date on which an order of judgment is entered."). In this case, the complaint was served on November 18, 1996. {16} . § 1118. Disputes; penalties; attorney's fees . . . . 4. Attorney's fees. Notwithstanding any contrary agreement, the substantially prevailing party in any proceeding to recover any payment within the scope of this chapter must be awarded reasonable attorney's fees in an amount to be determined by the court or arbitrator, together with expenses. 10 M.R.S.A. § 1118(4) (1997). {17} . The Statement of Fact accompanying the bill enacting the Construction Contracts chapter referred to the need to assure "that payment obligations are met in a timely manner by all parties to a construction contract." L.D. 1424, Statement of Fact (116th Legis. 1993).

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