Aarene Contracting, LLC v. Krispy Kreme Doughnut ( 2016 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
October 19, 2016 Session
AARENE CONTRACTING, LLC v. KRISPY KREME DOUGHNUT
CORPORATION
Appeal from the Chancery Court for Hamilton County
No. 15-0436 Pamela A Fleenor, Chancellor
___________________________________
No. E2016-01155-COA-R3-CV-FILED-DECEMBER 20, 2016
___________________________________
A contractor sued an owner for violations of the Prompt Pay Act, Tenn. Code Ann.
§§ 66-34-101 et seq., and notified the owner of its violations by Federal Express and e-
mail. The owner moved for summary judgment on the ground that the contractor failed
to strictly comply with the notice provision requiring notice be sent by registered or
certified mail, return receipt requested. The trial court found strict compliance was
required and dismissed the contractor‟s claims under the Act. The contractor appealed,
and we reverse the trial court‟s judgment, holding substantial compliance is sufficient
under the facts of this case.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Reversed and Remanded
ANDY D. BENNETT, J., delivered the opinion of the court, in which D. MICHAEL SWINEY,
C.J., and JOHN W. MCCLARTY, J., joined.
David K. Taylor and Bridget Brodbeck Parkes, Nashville, Tennessee, for the appellant,
Aarene Contracting, LLC.
Christopher D. Owens, Johnson City, Tennessee, for the appellee, Krispy Kreme
Doughnut Corporation.
OPINION
I. FACTUAL AND PROCEDURAL BACKGROUND
This is a construction case in which Aarene Contracting, LLC (“ACL”)
agreed to renovate a store for Krispy Kreme Doughnut Corporation (“KKD”) in
Chattanooga, and KKD agreed to pay ACL $524,027 for the work. The contract
was executed in November 2013 and provided for progress payments. Paragraph
3.4 of the contract provided that KKD would pay ACL 90% of the amount owing
for the work “completed and accepted by [KKD],” and the remaining 10% was to
be withheld as “retainage.” ACL submitted two applications for payment, less
retainage, in February and March 2018, which KKD approved and paid. The total
retainage withheld by KKD was $49,283.16.
On or about September 30, 2014, counsel for ACL sent a letter by way of
Federal Express and e-mail to counsel for KKD regarding disagreements that had
arisen between the parties up to that point, including claims ACL had against KKD
under the Tennessee Prompt Pay Act of 1991, Tenn. Code Ann. §§ 66-34-101 et
seq. (“Prompt Pay Act” or “the Act”). ACL‟s letter informed KKD of the
following, inter alia:
As you are aware, the Tennessee Prompt Pay Act of 1991 applies to all
private contracts for construction performed in Tennessee. Additionally, the
law applies to contracts where the base contract price exceeds $500,000,
and it prohibited Krispy Kreme from withholding more than 5% in
retainage. Tenn. Code Ann. § 66-34-103(a). Krispy Kreme was also
required to create a separate escrow account with a third party for retained
amounts. Tenn. Code Ann. § 66-34-104(a). At no time during the
performance of this contract did Krispy Kreme comply with Tennessee law.
The General Contract was in the original principal amount of $524,027.00,
and Krispy Kreme has unlawfully withheld amounts in excess of 5%.
Additionally, it does not appear that Krispy Kreme utilized a third party
escrow account as necessary. Further, under Tennessee law, Krispy Kreme
was required to pay the retained amounts within ninety (90) days after
substantial completion of the work. In our case, the work was substantially
completed in May 2014 as Krispy Kreme has had full use of the
improvements since that time. Therefore, the retainage is long past due.
The statute also provides that there is a $400.00 penalty per day for each
and every day that the retained funds are not deposited into a third-party
escrow account. As the first payment [was] received by my client for
which funds were retained on March 31, 2014, . . . this penalty accrues
from March 31, 2014. Through the date of this letter Krispy Kreme
currently owes the sum of $73,200.00 in additional penalties, plus interest.
As you know, Krispy Kreme has had use of the premises since the work
was completed in May 2014. It has now been over one hundred twenty
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(120) days since the work was substantially completed. Unless the sum of
$262,024.63 is paid immediately and no later than ten (10) days of the date
hereof, then Aarene shall proceed with all of its legal and equitable
remedies, and will also seek to recover interest on all sums due, and its
attorney‟s fees and all court costs and litigation expenses.
KKD responded to ACL by letter dated October 8, 2014, and addressed each of
the issues ACL raised in its letter. With respect to ACL‟s claim under the Prompt Pay
Act, KKD disagreed with ACL‟s interpretation and application of the statute. Then, by
letter dated October 13, 2014, ACL replied to KKD‟s response. With regard to its
complaint under the Prompt Pay Act, ACL wrote: “Keep in mind that the retainage
penalty is accumulating every single day of the Owner‟s violation of Tennessee law.”
II. TRIAL COURT PROCEEDINGS
On August 4, 2015, ACL filed a sworn complaint against KKD in Hamilton
County Chancery Court. In addition to breach of contract and mechanic‟s lien claims,
ACL asserted claims under the Prompt Pay Act: it claimed KKD had violated the
retainage laws by (1) withholding 10% as retainage rather than the 5% permitted under
Tennessee law and (2) failing to create or fund an interest-bearing escrow account to hold
the retainage as required by the Act. KKD answered the complaint, and in response to
the retainage claims, KKD asserted that ACL had failed to comply with the statutory
notice requirements because ACL did not notify KKD of its Prompt Pay Act claims by
registered or certified mail, return receipt requested.
KKD filed a motion for summary judgment in August 2015 in which it argued
ACL‟s claims under the Act were barred and should be dismissed because ACL failed to
comply with the notice requirements of the statute. ACL responded to KKD‟s motion
and filed its own motion for summary judgment in October 2015. The trial court heard
oral argument and issued an order in January 2016 granting KKD‟s motion and denying
ACL‟s motion. The trial court wrote:
The Court finds that the Plaintiff has not given notice of its intent to
seek relief under the Prompt Pay Act by registered or certified mail return
receipt requested, but instead gave notice to the Defendant by Federal
Express and by e-mail.
....
As to the legal analysis, Plaintiff filed this action, inter alia, for a
violation of the Prompt Pay Act. Defendant argues that Plaintiff failed to
comply with the notice provisions of the statute, and as such, is precluded
from seeking remedies under the Act.
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The Court finds that Tennessee Code Annotated § 66-34-602(a)(1)
provides that a contractor who has not received payment from an owner or
a subcontractor, materialman, or furnisher who has not received payment
from a contractor or other subcontractor, materialman, or furnisher in
accordance with this chapter, shall notify the party failing to make payment
of the provisions of this chapter and of the notifying party‟s intent to seek
relief provided for within this chapter.
Then, in subsection 2: The notification shall be made by registered
or certified mail return receipt requested. It is undisputed that Plaintiff
failed to send the notification by registered or certified mail return receipt
requested. Instead, Plaintiff notified Defendant by Federal Express and e-
mail.
....
. . . This Court is not going to legislate from the bench by expanding this
notice statute. This is a statutory remedy in derogation of common law.
The Court finds that to seek the remedies under this statute, which are
additional remedies to any contract remedies, the party must follow the
notice provisions.
ACL filed a motion seeking permission to file an interlocutory appeal pursuant to
Tenn. R. Civ. P. 9, which the trial court granted. Ultimately, however, ACL filed a notice
of voluntary nonsuit of its breach of contract and mechanic‟s lien claims pursuant to
Tenn. R. Civ. P. 41.01(3). Then, following the trial court‟s order dismissing those claims
without prejudice, ACL filed a notice of appeal. On appeal, ACL argues the trial court
erred by granting KKD‟s motion for summary judgment and for denying its competing
motion for summary judgment.
III. ANALYSIS
A party filing a motion for summary judgment should prevail “if the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of law.” TENN. R. CIV. P. 56.04. If the
moving party does not bear the burden of proof at trial, it is entitled to summary
judgment if it “(1) [s]ubmits affirmative evidence that negates an essential element of the
nonmoving party‟s claim; or (2) [d]emonstrates to the court that the nonmoving party‟s
evidence is insufficient to establish an essential element of the nonmoving party‟s claim.”
Tenn. Code Ann. § 20-16-101. We review the trial court‟s judgment granting KKD‟s
motion for summary judgment de novo, according it no presumption of correctness. See
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Rye v. Women’s Care Ctr. of Memphis, MPLLC, 477 S.W.3d 235, 250 (Tenn. 2015);
Martin v. Norfolk S. Ry. Co., 271 S.W.3d 76, 84 (Tenn. 2008).
This case turns on the interpretation and application of the notice provision of the
Prompt Pay Act, Tenn. Code Ann. §§ 66-34-101 et seq. The construction of a statute is
an issue of law, which is reviewed de novo, with no presumption of correctness applied
to the trial court‟s rulings. Hayes v. Gibson Cnty., 288 S.W.3d 334, 337 (Tenn. 2009);
Carter v. Bell, 279 S.W.3d 560, 564 (Tenn. 2009); State v. Edmondson, 231 S.W.3d 925,
927 (Tenn. 2007). „“The most basic principle of statutory construction is to ascertain and
give effect to the legislative intent without unduly restricting or expanding a statute‟s
coverage beyond its intended scope.‟” State v. Howard, __ S.W.3d __, 2016 WL
5933430, at *5 (Tenn. Oct. 12, 2016) (quoting Owens v. State, 908 S.W.2d 923, 926
(Tenn. 1995)). Courts interpret statutes to avoid reaching absurd results. The Tennessean
v. Metro. Gov’t of Nashville & Davidson Cnty., 485 S.W.3d 857, 872 (Tenn. 2016).
The notice provision is found in Part 6 of the Act, which is titled “Remedies for
Delinquent Payment or Nonpayment.” Tenn. Code Ann. §§ 66-34-601‒602. The section
containing the notice provision is called “Remedies for Delinquent Payment or
Nonpayment” and provides as follows:
(a)(1) A contractor who has not received payment from an owner, or a
subcontractor, materialman or furnisher who has not received payment
from a contractor or other subcontractor, materialman or furnisher, in
accordance with this chapter, shall notify the party failing to make payment
of the provisions of this chapter and of the notifying party‟s intent to seek
relief provided for within this chapter.
(2) The notification shall be made by registered or certified mail,
return receipt requested.
(3) If the notified party does not, within ten (10) calendar days after receipt
of such notice, make payment or provide to the notifying party a response
giving adequate legal reasons for failure of the notified party to make
payment, the notifying party may, in addition to all other remedies
available at law or in equity, sue for equitable relief, including injunctive
relief, for continuing violations of this chapter, in the chancery court of the
county in which the real property is located.
(4) The failure to make the only payment due under the contract may be
considered to be a continuing violation under this chapter.
(b) Reasonable attorney‟s fees may be awarded against the nonprevailing
party; provided, that such nonprevailing party has acted in bad faith.
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(c) A bond in double the amount claimed or ordered to be paid shall be
filed with good sureties to be approved by the clerk prior to the issuance of
any injunctive relief.
Tenn. Code Ann. § 66-34-602 (emphasis added).
The parties agree that there are no genuine issues of material fact with respect to
the issue of notice. There is no dispute that ACL notified KKD of the Act‟s provisions
and of its intent to seek relief under the statute, and that its notification was sent by letter,
via Federal Express and e-mail. KKD responded to ACL‟s notice letter within ten days,
and when the parties were unable to reach a satisfactory resolution of ACL‟s claims,
ACL filed its complaint several months later.
ACL makes two arguments on appeal. First, ACL argues the trial court erred by
applying the notice provision to its retainage claims because ACL‟s claims under the Act
are not based on a “payment” KKD owes it, as that term is used in Tenn. Code Ann. § 66-
34-602(a)(1). Instead, ACL argues, its claims are based on KKD‟s failure to comply with
the retainage laws that are set forth in Part 1 of the Act, titled “General Provisions,” that
set forth the percentage that can legally be retained and mandate the establishment of an
escrow account to hold the retainage.1 Part 1 also provides the parameters for the escrow
account that must be established to hold the retainage.2 ACL points out that the notice
1
Part I of the Prompt Pay Act includes the following relevant provisions:
(a) All construction contracts on any project in this state, both public and private, may
provide for the withholding of retainage; provided, however, that the retainage amount
may not exceed five percent (5%) of the amount of the contract.
....
(e)(1) It is an offense for a person, firm or corporation to fail to comply with subsection
(a) or (b) or § 66-34-104(a).
(2)(A) A violation of this subsection (e) is a Class A misdemeanor, subject to a fine only
of three thousand dollars ($3,000).
(B) Each day a person, firm or corporation fails to comply with subsection (a) or (b) or
§ 66-34-104(a) is a separate violation of this subsection (e).
(C) Until the violation of this subsection (e) is remediated by compliance, the
punishment for each violation shall be consecutive to all other such violations.
(3) In addition to the fine imposed pursuant to subdivisions (e)(2)(A) and (B), the court
shall order restitution be made to the owner of the retained funds. In determining the
appropriate amount of restitution, the formula stated in § 40-35-304 shall be used.
Tenn. Code Ann. § 66-34-103.
2
Tennessee Code Annotated section 66-34-104 provides, in pertinent part:
(a) Whenever, in any contract for the improvement of real property, a certain amount or
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provision appears in Part 6 of the Act, which is titled “Remedies for Delinquent Payment
or Nonpayment,” and contends that it is not seeking payment of the amount KKD
retained pursuant to the Act. Rather, ACL explains, it is seeking payment from KKD
through its breach of contract claim. Second, ACL contends that if the trial court was
correct in applying the notice requirement to its retainage claims, ACL substantially
complied with the notice provision and the trial court erred in dismissing its claims under
the Act.
We will address ACL‟s second argument first. ACL asserts that strict compliance
should not be required in this case because KKD does not deny receiving its notice
letters; KKD responded to the first letter and denied any retainage law violations; and
KKD is unable to show it was prejudiced by the method ACL selected to serve it with
notice of ACL‟s claims under the Prompt Pay Act. ACL relies on two Tennessee
Supreme Court cases in support of its position, Arden v. Kozawa, 466 S.W.3d 758 (Tenn.
2015), and Thurmond v. Mid-Cumberland Infectious Disease Consultants, PLC, 433
S.W.3d 512 (Tenn. 2014). Both of these cases arose in the medical malpractice context.
In Arden, the issue was whether a medical malpractice claim was subject to dismissal
because the plaintiff notified the defendants of his claim via Federal Express rather than
by certified mail, return receipt requested, as the statute required. Arden, 466 S.W.3d at
760. As was the case here, the defendants in Arden did not contend they failed to receive
notice or that they were prejudiced by the plaintiff‟s method of service, but they moved
for summary judgment on the basis that the plaintiff failed to comply strictly with the
percentage of the contract price is retained, that retained amount shall be deposited in a
separate, interest-bearing, escrow account with a third party which must be established
upon the withholding of any retainage.
(b) As of the time of the withholding of the retained funds, the funds shall become the
sole and separate property of the prime contractor or remote contractor to whom they are
owed, subject to the rights of the person withholding the retainage in the event the prime
contractor or remote contractor otherwise entitled to the funds defaults on or does not
complete its contract.
(c) In the event that the party withholding the retained funds fails to deposit the funds into
an escrow account as provided herein, such party shall be responsible for paying the
owner of the retained funds an additional three hundred dollar ($300) penalty per day for
each and every day that such retained funds are not deposited into such escrow account.
(d) The party with the responsibility for depositing the retained amount in a separate,
interest-bearing, escrow account with a third party shall have the affirmative duty to
provide written notice that it has complied with the requirements of this section to any
prime contractor upon withholding the amount of retained funds from each and every
application for payment, including:
(1) Identification of the name of the financial institution with whom the escrow account
has been established;
(2) Account number; and
(3) Amount of retained funds that are deposited in the escrow account with the third
party.
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notice requirement as set forth in the statute. Id. The trial court in Arden granted the
defendants summary judgment because it found the statute required strict compliance
with the service requirements, and the Court of Appeals affirmed the trial court‟s
judgment. Id. at 760-61. The Supreme Court disagreed that strict compliance was
required, however, and reversed the Court of Appeals decision. Id. at 761.
The statute at issue in Arden provided that service “shall be demonstrated by filing
a certificate of mailing from the United States postal service” together with an affidavit of
the person mailing the notice “establishing that the specified notice was timely mailed by
certified mail, return receipt requested.” Tenn. Code Ann. § 29-26-121(a)(4); see Arden,
466 S.W.3d at 762-63. Despite the language used in the statute, the Supreme Court held
that “the manner and proof of service requirements of [the statute] are not mandatory, but
directory, and can be achieved through substantial compliance.” Arden, 466 S.W.3d at
764. The Court explained:
So long as a health care defendant is not prejudiced by a plaintiff‟s
deviations from the statutorily prescribed method of service—“certified
mail, return receipt requested”—or the proof of service requirement—
“filing a certificate of mailing from the United States [P]ostal [S]ervice”—
substantial compliance with these statutory requirements will suffice. See
Thurmond [v. Mid-Cumberland Infectious Disease Consultants, PLC], 433
S.W.3d [512,] 518 [(Tenn. 2014)]; Stevens [ex. rel. Stevens v. Hickman
Comm. Health Care Servs., Inc.], 418 S.W.3d [547,] 555 [(Tenn. 2013)];
see also Henry v. Goins, 104 S.W.3d 475, 481 (Tenn. 2003) (recognizing
the state public policy of deciding cases on their merits as opposed to
dismissing on procedural technicalities).
Arden, 466 S.W.3d at 764. The Arden Court continued:
Further, we hold that delivery of pre-suit notice by private commercial
carrier, such as FedEx, and filing of proof with the complaint constitutes
substantial compliance with sections 29-26-121(a)(3)(B) and (a)(4) of the
pre-suit notice statute. As long as a defendant is not prejudiced, it does not
matter whether a commercial carrier or the U.S. Postal Service delivers the
notice. The overarching purpose of the pre-suit notice statute is to ensure
that health care defendants receive timely notice of a forthcoming lawsuit.
While the method of delivery could constitute deficient service of pre-suit
notice if a health care defendant claims lack of notice or prejudice, that is
not the case before us.
Id.In Thurmond, the Supreme Court determined that substantial compliance satisfied
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the statutory requirement that an affidavit by the person who sends pre-suit notice by
certified mail be attached to the complaint in medical malpractice cases. Thurmond, 433
S.W.3d. at 513. In that case, the plaintiff failed to attach the affidavit to the complaint
but filed it with the court five days later. Id. at 521. After reviewing other medical
malpractice cases in which defendants argued strict compliance with notice provisions or
particular forms was required, the Court wrote that “unless strict compliance with a
notice content requirement „is essential to avoid prejudicing an opposing litigant,‟
substantial compliance with a content requirement will suffice.” Id. at 520 (quoting
Stevens, 418 S.W.3d at 555). Because the defendants did not allege they suffered any
prejudice from the plaintiff‟s failure to file the affidavit with the complaint, the Court
held that substantial compliance with the statutory affidavit requirement was sufficient.
Id. at 521.
In the workers‟ compensation context, the Supreme Court has held that strict
compliance was not required for a subcontractor to recover workers‟ compensation
benefits under a general contractor‟s insurance policy when neither the general contractor
nor the subcontractor provided notice to the Department of Labor of the subcontractor‟s
election to be so covered, as required by the statute at issue. Presley v. Bennett, 860
S.W.2d 857, 860 (Tenn. 1993). Concluding that the notice requirement was directory
rather than mandatory, the Court wrote:
In general, when determining whether a procedural requirement of a statute
is directory or mandatory, the object is to ascertain the legislative intent by
consideration of the entire statute, including its nature and purpose, and the
consequences that would result from a construction one way or the other.
Directory provisions require only substantial compliance. Statutory
provisions relating to the mode or time of doing an act to which the statute
applies are ordinarily held to be directory rather than mandatory.
Id. (citations omitted); see also Thurmond, 433 S.W.3d at 520 (citing Presley with
approval).
KKD relies on Vulcan Materials Company v. Gamble Construction Company,
Inc., 56 S.W.3d 571 (Tenn. Ct. App. 2001), to support its position that the notice
provision in the Prompt Pay Act requires strict compliance. The action in Vulcan
Materials was to enforce a materialman‟s lien. Vulcan Materials Co., 56 S.W.3d at 572.
The statute at issue required notice of nonpayment for work, services, or materials to be
provided to the owner and contractor and provided that the notice “shall be served by
registered or certified mail, return receipt requested.” Id. at 573 (quoting Tenn. Code
Ann. § 66-11-145(a)). The plaintiff in Vulcan Materials was a manufacturer and seller of
materials and delivered its notice of nonpayment to the owner by hand rather than by
registered or certified mail, return receipt requested. Id. at 572. The defendant moved
for summary judgment and sought dismissal of the complaint due to improper service of
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the notice, which the trial court granted. Id. Relying on a Supreme Court case from
1931, the Court of Appeals affirmed, noting that a materialman‟s lien is a creature of
statute and stating that „“when the lawmaking body prescribes the terms upon which it
may be asserted, it is beyond the power of [courts] to waive its provisions or substitute
others.”‟ Id. at 573-74 (quoting McDonnell v. Amo, 34 S.W.2d 212, 213 (Tenn. 1931)).
The Court of Appeals further wrote that “[a]s an intermediate appellate court, it is not our
prerogative to set policy or substitute our judgment for that of the legislative branch.” Id.at 575 (citing Cavender v. Hewitt, 239 S.W. 767, 768 (Tenn. 1922)).
The Supreme Court‟s decision in Arden reflects a more practical way of
examining such issues. While it is tempting to merely write that the statute says what it
says and to blame the legislature for the result, the Supreme Court has implicitly
recognized that the courts would be abandoning their constitutional role of interpreting
statutes using reason and practicality with the intent of the legislature in mind. “An old
and familiar rule in the exposition of statutes is that the reason and intention of the law,
when obvious, will prevail over the literal sense of the words.” Sands v. Brock Candy
Co., 101 S.W.2d 1113, 1117 (Tenn. 1937); see also Heirs of Ellis v. Estate of Ellis, 71
S.W.3d 705, 712 (Tenn. 2002) (“the polestar of statutory interpretation has always been
the intent of the legislature. As such, where the „carrying out of the legislative intention,
which is the prime and sole object of all rules of construction, can only be accomplished
by departure from the literal interpretation of the language employed,‟ then the legislative
intent should be applied over „the literal import of the words.‟”) (quoting Tenn. Title Co.
v. First Fed. Sav. & Loan Ass’n, 203 S.W.2d 697, 700 (Tenn. 1947)); Polk Cnty. v. State
Bd. of Equalization, 484 S.W.2d 49, 58-59 (Tenn. Ct. App. 1972) (“a reviewing court
will look to the legislative purpose of a statute and follow that purpose even though a
literal reading of the language would suggest a different conclusion.”).
We note that the court in Vulcan Materials did not address whether the defendant
suffered any prejudice as a result of the method the plaintiff chose to serve its notice. To
the extent the Court of Appeals‟ ruling in Vulcan Materials is inconsistent with the
Supreme Court‟s rulings in Arden and Thurmond, we find the Supreme Court‟s rulings
announce the principles that control the outcome of this case. The intent of Tenn. Code
Ann. § 66-34-602(a)(2) is to ensure that the party failing to make payment is notified of
the Prompt Pay Act and of the notifying party‟s intent to seek relief provided for by the
Act. A method of notification that accomplishes this intent without prejudice to the party
being notified is sufficient. The language of the statute as to the method is merely
directory.
We also note KKD‟s argument that the Prompt Pay Act is a penal statute because
it provides for the assessment of penalties if its terms are violated and that penal statutes
are to be strictly construed. See Tenn. Code Ann. § 66-34-104(c) (providing that if party
withholding retained funds fails to deposit funds into escrow account, party shall pay
owner of funds $300 penalty per day until funds are so deposited). However, in Beacon4,
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LLC v. I & L Investments, LLC, No. E2015-01298-COA-R3-CV, 2016 WL 4545736(Tenn. Ct. App. Aug. 30, 2016), the Court of Appeals determined that the Prompt Pay
Act has “remedial aims.” Beacon4, 2016 WL 4545736, at *46. The court noted that
remedial statutes include those that provide „“means or method[s] whereby causes of
action may be effectuated, wrongs redressed and relief obtained.‟” Id. (quoting Nutt v.
Champion Int’l Corp., 980 S.W.2d 365, 368 (Tenn. 1998)). The court wrote:
We determine the [Prompt Pay Act] in general to have remedial aims in
that it operates to effectuate the means by which those it was designed to
protect may recover their already existing property and contractual rights in
funds they have earned. Legitimate business enterprises and consumers as a
whole are then protected from the consequences of contractors,
subcontractors, materialmen, furnishers, architects, and engineers receiving
less than they have bargained for and earned.
Id. (footnote omitted).
The Prompt Pay Act was enacted „“to provide for timely payments to contractors,
subcontractors, materialmen, furnishers, architects, and engineers and to provide for
interest on late payments.”‟ Id. (quoting 1991 TENN. PUB. ACTS CH. 45 (H.B. 875)). As
the contractor for the KKD project, ACL is an intended beneficiary of the Act. For the
reasons the Supreme Court set forth in Arden, Thurmond, and Presley, we hold that the
mode of pre-suit notice set forth in Tenn. Code Ann. § 66-34-602(a)(2) is directory rather
than mandatory and requires only substantial compliance. Because ACL provided KKD
with the information it was required to provide under the statute before it filed suit, and
because KKD was not prejudiced by the method ACL used to provide notice, we
conclude ACL substantially complied with the statute and that the trial court erred in
granting KKD‟s motion for summary judgment and dismissing ACL‟s claims under the
Act. In light of our holding that ACL has substantially complied with the Act‟s notice
requirement, we need not address ACL‟s alternative argument that the notice provision
does not apply to its retainage claims under the Prompt Pay Act.
In its motion for summary judgment, ACL sought a ruling that KKD violated the
retainage laws; a monetary judgment in the amount of $180,000; a statutory award of
$300 for each day that KKD failed to deposit the retainage into an interest bearing escrow
account; and its reasonable attorney‟s fees. On appeal, ACL requests that we grant it the
relief it sought in its motion for summary judgment. The trial court did not address
ACL‟s requests for relief once it determined that ACL had not complied with the notice
requirements of the Prompt Pay Act, and it is not appropriate for this Court to address
these issues before the trial court has an opportunity to do so. Therefore, we remand this
case to the trial court with instructions that the trial court address ACL‟s motion for
summary judgment to determine the relief, if any, that ACL should be awarded.
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IV. CONCLUSION
For the reasons stated above, we reverse the trial court‟s award of summary
judgment to KKD and remand the case for further proceedings. Costs of this appeal shall
be taxed to the appellee, Krispy Kreme Doughnut Corporation.
_________________________
ANDY D. BENNETT, JUDGE
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