Client Alert: Court Orders Owner to Pay its Contractor Over $4.6 Million for Violations of the Massachusetts Prompt Pay Act
In a case of first impression in Massachusetts, Suffolk Superior Court Judge Michael D. Ricciuti has ordered a real estate developer to pay its general contractor $4,600,109.24 within 45 days as a consequence of the developer’s failure to comply with the Massachusetts Prompt Payment Act, G.L. c. 149, § 29E (the “Act”) (for more information, see The Massachusetts Prompt-Pay Act: Sweeping Changes for Construction Providers and Users Alike, a seminar presented by Peter McGlynn on September 28, 2010).
The case, Tocci Building Corp. v. IRIV Partners, LLC, et al., Suffolk Superior Court C.A. No. 19-00405), involved a contract between a developer, Boston Industrial Development, LLC (“BHID”), and its general contractor, Tocci Building Corporation (“Tocci”), to construct a building and perform improvements at 654 Summer Street, Boston, MA. Judge Ricciuti determined that the contract between BHID and Tocci was “within the scope of the Act” as the private construction project had a contract with an original value of $3 million or more. Under the Act, project owners have specific time limits to approve or reject a general contractor’s application for payment (15 days after receipt) and the time within which payment of the application falls due (45 days). Contractors and sub-contractors at all tiers have similar obligations, although with different objection and payment time periods. If the owner objects to the contractor’s payment application, the Act mandates that the objection must be in writing and must include an explanation of the factual and contractual bases for the rejection and must be certified as having been made in “good faith.” Under the Act, the owner’s objection must be served within the original 15-day deadline for rejection of a payment application but in no event later than the 45-day payment time period; otherwise, the application is “deemed approved.”
Judge Ricciuti also determined that BHID’s objections to Tocci’s applications for payment were untimely, they did not include factual and contractual bases for the objections, and they did not contain the “good faith” certification required by the Act. Accordingly, he held that Tocci’s applications for payment “must be treated as approved,” and therefore, BHID’s objections to Tocci’s applications for payments were deemed waived due to BHID’s failure to adhere to the Act’s provisions.
There are several important takeaways from Judge Ricciuti’s decision:
1. The Act’s provisions cannot be waived or modified even if the owner and contractor agree to waive or modify them.
2. Judge Ricciuti determined that emails and a letter that BHID’s project manager and its attorney sent to Tocci purporting to express BHID’s objections did not comply with the Act.
3. Judge Ricciuti did not discuss the merits of BHID’s objections to Tocci’s applications for payment because he found them to be technically non-compliant with the Act. Thus, this case provides no guidance on what constitutes an adequate “explanation” of the “factual and contractual” bases for an objection under the Act.
4. According to Judge Ricciuti’s decision, the case presents undisputed facts which demonstrated that BHID’s objections to Tocci’s application for payment were non-compliant with the Act’s three objection requirements: BHID’s objections were untimely; BHID’s failed to explain factual and contractual bases for its objections; BHID failed to include a “good faith” certification. Given these undisputed facts, it wasn’t difficult for Judge Rucciuti to find that BHID’s objections were non-compliant with the Act.
Judge Rucciuti’s decision is only binding on the parties in the case. However, other Massachusetts courts will likely follow Judge Rucciuti’s rationale and will also look closely at the form of the objection for technical compliance with the Act, as well as the substance of the factual and contractual bases to support the objection. Objections need to be accurate and should include all relevant facts and the specific contract references to support the objections. The objecting party will also need to demonstrate that its objection was made in good faith and not made simply for the purpose of obtaining additional time to pay the application for payment. This latter point is critical: false or bad faith objections can expose the objecting party to damages for fraud, and multiple damages and attorney’s fees under Ch. 93A for unfair and deceptive acts or practices, in addition to having the subject application for payment “deemed approved” under the Act.