SUING A GENERAL CONTRACTOR IN PENNSYLVANIA MAY BE EASIER THAN YOU THINK

Without question, Pennsylvania is one of the most debtor-friendly states.

The biggest challenge that creditors face when collecting a debt in a court of law is minimizing legal fees in order to maximize recovery.  Many times debts are forgiven because the creditors realize that they will spend more time and money trying collect than is actually owed.

However, a recent development in Pennsylvania law offers a large benefit construction contractors.  An experienced attorney can collect a bad debt without it costing your business a dime!

WHAT DO CONTRACTORS NEED TO KNOW ABOUT ATTORNEY FEES?

As a general rule the parties typically bear their own costs of litigation, including attorney's fees.  Pennsylvania is no different--a party cannot recover counsel fees from the defendant unless there is express statutory authorization, a clear agreement of the parties, or some other established exception.” Trizechahn Gateway LLC v. Titus, et al., 601 Pa. 637, 976 A.2d 474, 482 (Pa.2009).

For any business contractor, the first solution is obvious: put a provision in the contract that requires the breaching party to pay costs of collections and reasonable attorney fees. There are very few exceptions that allow a creditor to collect attorney fees from a debtor, so be sure to put it in the contract every time.

Even then a contractor is only partially protected, because the law only allows debtors to collect the legal fees they paid up and until they win the case and get a judgment.

In a perfect world, all debtors would immediately pay once there is a judgment against them.  In reality, the hard work has only just begun after you get a judgment.  A judgment creditor must engage in the "execution process", which is the use of legal process to seize and/or sell a judgment debtor's assets, in order to satisfy the judgment amount. 

This is usually costly, and in nearly every case the judgment creditor cannot recover post-judgment attorney fees. A judgment creditor can act out of spite by hiding assets and delay the execution process to drive down your bottom line.

But, there may be a silver lining for Pennsylvania construction contractors.

PENNSYLVANIA LAW HAS AN EXCEPTION THAT BENEFITS CONSTRUCTION CONTRACTORS

It is well known that lawsuits between general and subcontractors are often heated and bitter entanglements. Often, a general contractor will withhold or delay payment, and try to drive up the cost of a lawsuit out of spite for a subcontractor.  They do this before and after a lawsuit.

These types of problems became so prevalent that the Pennsylvania legislature took notice and enacted the Contractor and Subcontract Payment Act (hereinafter “CASPA”).  The purpose of the CASPA is “to encourage fair dealing among parties to a construction contract” and to protect the parties involved.  Ruthrauff, Inc. v. Ravin, Inc., 914 A.2d 880, 890 (Pa. Super. 2006).

The CASPA entitles a subcontractor to payment if the subcontractor has performed in accordance with the contract. 73 Pa.C.S.A. § 507(a). Payment to a subcontractor should be made fourteen days after receipt of the subcontractor's invoice. 73 Pa.C.S.A. § 507(c).

WHAT HAPPENS WHEN A GENERAL CONTRACTOR REFUSES TO PAY?

First, the subcontractor needs to sue for breach of contract and also raise the CASPA. It is essential that the subcontractor did substantially perform its contract in order to take advantage of the Act.

The Penalty Fee. If the court finds that the general contractor unreasonably or “wrongfully withheld” payment, the court will award all money that is due under the contract, consequential damages, and “a penalty equal to 1 % per month of the amount that was wrongfully withheld.” § 512(a).

Attorney Fees. Next, a subcontractor may recover its attorney fees if the court finds that it is the “substantially prevailing party.” § 512(b). To qualify as a substantially prevailing party, the subcontractor must win the case, and also prove that the contractor withheld payment without a good reason. Zimmerman v. Harrisburg Fudd I, L.P., 984 A.2d 497, 504-05 (Pa.Super.2009).  This decision is left to the trial court’s discretion.

Here is the best news yet, the Superior Court has held that under the CASPA a contractor can recover post-judgment interest and penalties, as well as attorney's fees and expenses incurred to collect the money owed. Zimmerman, 984 A.2d 497, 504-05 (Pa.Super.2009).   As discussed above, recovery of attorney fees and costs of collection after a judgment has been reached is all but unheard of.

So, unlike most judgment creditors, under the CASPA a contractor does not have to take a hit to their bottom line by paying thousands in attorneys fees when trying to collect a judgment from a slow moving or fraudulent judgment debtor.

This is among the most favorable laws to creditors in Pennsylvania. It gives subcontractors a large advantage. It is crucial to have an experienced attorney on your side who knows how to capitalize on the CASPA and other laws.