A. Scott Enterprises v. City of Allentown, Aplt.

142 A.3d 779, 636 Pa. 249, 2016 Pa. LEXIS 1503
Supreme Court of Pennsylvania·Decided July 19, 2016·No. 55 MAP 2015, 56 MAP 2015·Published·Cited by 32 cases

Opinions

OPINION

Justice DOUGHERTY.

In this discretionary appeal, we consider whether an award of a statutory penalty and attorney fees under the prompt payment provisions of the Commonwealth’s Procurement Code, see 62 Pa.C.S. § 3935, is mandatory upon a finding of bad faith, irrespective of the statute’s permissive phrasing. We hold such an award is not mandatory, and therefore reverse the order of the Commonwealth Court and remand the case to the trial court for proceedings consistent with this Opinion.

Appellant City of Allentown (City) contracted with appellee A. Scott Enterprises, Inc. (ASE), to construct a new public road.1 After arsenic-contaminated soil was discovered at the worksite, the City suspended work on the project. Following testing, it was determined construction could resume if precautions were taken. Accordingly, the City instructed ASE to obtain revised permits and proceed with the project. Howev[252]*252er, the existing contract did not include terms regarding the potential for contaminated soil, despite the fact the City was aware there might be contamination prior to entering into the contract, and ASE declined to proceed, explaining it would incur substantial additional costs due to the contaminated soil. The parties made several attempts to reach an agreement in which ASE would continue the construction, but to no avail. Consequently, ASE sued the City to recover its losses on the project, alleged breach of contract, and sought compensation under theories of quantum meruit and unjust enrichment, as well as interest and a statutory penalty and fee award for violations of the prompt pay provisions of the Procurement Code.

After a trial, a jury found the City breached its contract with ASE and also withheld payments in bad faith. Trial Court Opinion at 28 & n. 5.2 Both parties filed post-trial motions. The City requested the trial court to enter judgment in its favor or grant a new trial with respect to ASE’s breach of contract claims, as well as enter judgment in its favor or grant a new trial with respect to ASE’s Procurement Code claim. The City argued there was insufficient evidence of bad faith to pose that issue to the jury, while ASE’s motion sought a statutory penalty and attorney fees for bad faith pursuant to Section 3985 of the Procurement Code. Section 3935 provides, in relevant part:

(a) Penalty. — If arbitration or a claim with the Board of Claims or a court of competent jurisdiction is commenced to recover payment due under this subchapter and it is determined that the government agency ... has failed to comply with the payment terms of this subchapter, ... the arbitra[253]*253tor, the Board of Claims or the court may award, in addition to all other damages due, a penalty equal to 1% per month of the amount that was withheld in bad faith. An amount shall be deemed to have been withheld in bad faith to the extent that the withholding was arbitrary or vexatious ...[.]
(b) Attorney fees. — Notwithstanding any agreement to the contrary, the prevailing party in any proceeding to recover any payment under this subchapter may be awarded a reasonable attorney fee in an amount to be determined by the Board of Claims, court, or arbitrator, together with expenses, if it is determined that the government agency ... acted in bad faith. An amount shall be deemed to have been withheld in bad faith to the extent that the withholding was arbitrary or vexatious.

62 Pa.C.S. § 3935 (emphases added).3 The court did not rule on the post-trial motions within 120 days and, on praecipe filed by ASE on November 22, 2013, judgment was entered on the jury’s verdict of $927,299.00. See Pa.R.C.P. 227.4(l)(b) (pro-thonotary shall, upon praecipe of party, enter judgment upon jury verdict if post-trial motions are filed and court does not dispose of all motions within 120 days of first motion; judgment entered is final).4 Both parties appealed to the Commonwealth Court.

In its Pa.R.A.P.1925(a) opinion, as relevant to this appeal, the trial court stated although there was sufficient evidence of bad faith to submit that question to the jury, the court nevertheless retained discretion to deny an award. The court explained its decision on both points as follows:

[T]he City admitted that it would not release or terminate the Contract with ASE until ASE came up with the right [254]*254price. The City refused force accounts.

Trial Court Opinion, 2/28/14, at 32-33.6

In the Commonwealth Court, each party raised multiple issues. As relevant here, the City claimed the trial court erred in submitting the Procurement Code bad faith issue to the jury because ASE failed to prove the claim. ASE disputed that assertion and, in its cross-appeal, claimed the trial court erred in failing to award a statutory penalty and attorney fees premised upon the jury finding of bad faith. Specifi-[255]*255eally, in ASE’s view, such an award under Section 3935 is mandatory where a jury finds a government agency acted in bad faith. ASE argued the trial court improperly set the jury’s finding of bad faith aside and substituted its own judgment; while acknowledging the amount of a Section 3935 award is discretionary, ASE asserted the trial court could not deny outright a penalty and attorney fees where bad faith was established.

The City responded by noting ASE’s complaint about the denial of a Section 3935 award arose in an unusual procedural posture because the taking of judgment precluded the trial court from deciding the claim prior to appeal. The City then disputed ASE’s view of the statute, stressing the discretionary nature of the statutory language. The City asserted ASE’s issue, properly framed, was whether the trial court abused its discretion in failing to award a penalty and fees.

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A. Scott Enterprises v. City of Allentown, Aplt., 142 A.3d 779, 636 Pa. 249, 2016 Pa. LEXIS 1503 (Pa. 2016).

142 A.3d 779 (A. Scott Enterprises v. City of Allentown, Aplt.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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