Superior Court Limits PA Prompt Payment Law

Owners and contractors on Pennsylvania construction projects are familiar with the Contractor and Subcontractor Payment Act (“CASPA”). CASPA requires owners to pay contractors in accordance with the terms of their contract, and for contractors to pay subcontractors in accordance with the terms of the subcontract. If payments are not timely made without a good faith reason, CASPA allows an unpaid contractor or subcontractor to recover (in addition to the amount owed) interest at the rate of 1% per month, penalties at the rate of 1% per month, and attorney’s fees incurred to collect payment.

In Scungio Borst v 410 Shurs Lane Developers, the Pennsylvania Superior Court decided a case of first impression: whether an individual shareholder of a real estate developer acting as its agent could be personally responsible for CASPA damages. In this case, a general contractor which was owed $1.9 million sued a real estate developer and its 50% shareholder for breach of contract. It secured a judgment against the developer for the balance owed plus CASPA damages, but the trial court determined that the owner of the construction company was not liable for CASPA damages. On appeal, the Superior Court agreed, concluding that CASPA damages could be recovered only from the “Owner” which entered into the underlying construction contract, even though in this case the past owner had acted at all times through its 50% shareholder. The court concluded that if the legislature had intended for individual shareholder agents of owners to be subject to CASPA damages, the language of the statute would have so stated.

As a practical matter, it is likely that in this case the contractor chose to pursue the individual shareholder because the corporate owner likely lacked the resources to satisfy the judgment. Nevertheless, under the Scungio decision, individual owners who maintain a personal identity separate from the corporate entity which owns the real estate will be insulated from liability from CASPA damages.

Andrew B. Cohn

Kaplin Stewart