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

[J-11A-2016 and J-11B-2016] [MO: Dougherty, J.]
IN THE SUPREME COURT OF PENNSYLVANIA
MIDDLE DISTRICT
A. SCOTT ENTERPRISES, INC., : No. 55 MAP 2015
:
Appellee : Appeal from the Order of the
: Commonwealth Court at Nos. 2163 &
: 2289 CD 2013 dated October 21, 2014,
v. : reconsideration denied December 5,
: 2014, affirming in part and reversing in
: part the Order of the Lehigh County
CITY OF ALLENTOWN, : Court of Common Pleas, Civil Division,
: at No. 2011-C-2818 dated November
Appellant : 22, 2013, and remanding.
:
: ARGUED: November 18, 2015
RESUBMITTED: January 20, 2016
A. SCOTT ENTERPRISES, INC., : No. 56 MAP 2015
:
Appellee : Appeal from the Order of the
: Commonwealth Court at No. 379 CD
: 2014 dated October 21, 2014,
v. : reconsideration denied December 5,
: 2014, affirming in part and reversing in
: part the Order of the Lehigh County
CITY OF ALLENTOWN, : Court of Common Pleas, Civil Division,
: at No. 2011-C-2818 opinion filed
Appellant : February 28, 2014, and remanding.
:
: ARGUED: November 18, 2015
: RESUBMITTED: January 20, 2016
DISSENTING OPINION
JUSTICE DONOHUE DECIDED: July 19, 2016
I must respectfully dissent. I disagree with the esteemed Majority’s statutory
analysis, as section 3935 of the Procurement Code does not vest a trial court with the
discretion to deny an award of interest penalties and attorneys’ fees even where it is
proven that the government agency acted in bad faith. More fundamentally, I am of the
view that this case presents an issue arising only because the trial court erred in
submitting the question of bad faith to the jury. Whether the City of Allentown (the
“City”) acted in bad faith was a finding that should have been made by the trial court, not
the jury. Under section 3935, the trial court, in the exercise of its discretion based upon
its review of the evidentiary record, must determine whether the City acted in bad faith
and, if reaching such a finding, award interest penalties and attorneys’ fees.
Chapter 39 of the Procurement Code governs contracts for public works. It
applies to “contracts entered into by a government agency through competitive sealed
bidding or competitive sealed proposals[,]” and its purpose is “to establish a uniform and
mandatory system governing public contracts[.]” 62 Pa.C.S.A. § 3901. The section at
issue in this appeal provides as follows:
(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, contractor or
subcontractor has failed to comply with the payment terms of
this subchapter, the arbitrator, 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. An amount shall not be deemed
to have been withheld in bad faith to the extent it was
withheld pursuant to section 3934 (relating to withholding of
payment for good faith claims).
(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,
contractor or subcontractor 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.
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62 Pa.C.S.A. § 3935.
The Majority acknowledges that the issue presented is one of statutory
interpretation, and that our objective in this regard is to ascertain the intent of the
General Assembly. Majority Op. at 12-13. To this end, the Majority also acknowledges
that our task is “not so simple” as a superficial review of the specific words used, as this
Court has, on some occasions, interpreted permissive language as imposing a
mandatory directive. Id. at 13-16. As we explained in Hotel Casey Co. v. Ross, 23 A.2d
737 (Pa. 1942):
While such words as ‘authorized’ and ‘empowered’ are
usually words of permission merely and generally have that
sense when used in contracts and private affairs, when they
are used in statutes they are frequently mandatory and
imperative. Consequently, where a statute directs the doing
of a thing for the sake of justice the word ‘may’ means the
same thing as the word ‘shall’. The principle is thus stated in
Supervisors, Rock Island Co. v. United States, 71 U.S. 435,
446, 18 L.Ed. 419: ‘The conclusion to be deduced from the
authorities is, that where power is given to public officers in
the language of the act before us, or in equivalent
language—whenever the public interest or individual rights
call for its exercise—the language used, though permissive
in form, is in fact peremptory. What they are empowered to
do for a third person the law requires shall be done. The
power is given, not for their benefit, but for his. It is placed
with the depositary to meet the demands of right, and to
prevent a failure of justice. It is given as a remedy to those
entitled to invoke its aid, and who would otherwise be
remediless. In all such cases it is held that the intent of the
legislature, which is the test, was not to devolve a mere
discretion, but to impose ‘a positive and absolute duty.’
Id. at 740.
As this passage in Hotel Casey indicates, ascertaining legislative intent requires
an examination of the primary purpose of the statute at issue. 1 Pa.C.S.A. § 1921(c)(4);
In re Carroll, 896 A.2d 566, 573 (Pa. 2006); Vitac Corp. v. Worker's Compensation
Appeal Board (Rozanc), 854 A.2d 481, 485 (Pa. 2004). Indeed, in a subsequent case
[J-11A-2016 and J-11B-2016] [MO: Dougherty, J.] - 3
interpreting and applying the principles in Hotel Casey, this Court held that where the
basic purpose of the statute requires it, “the word ‘may’ must be construed as ‘shall’, as
mandatory rather than permissive.” In re Philadelphia Parking Auth., 189 A.2d 746, 749
(Pa. 1963) (emphasis added).
Unfortunately, the Majority does not attempt to ascertain the legislature’s purpose
for section 3935, and instead relies exclusively on the General Assembly’s use of the
word “may” rather than “shall.” The purpose of section 3935 is easily identified upon
review of the surrounding provisions in the Procurement Code. For example, section
3932(a) provides that “[t]he government agency shall pay the contractor or design
professional strictly in accordance with the contract.” 62 Pa.C.S.A. § 3932(a). If the
contract does not contain a term governing the time for payment, section 3932(b)
provides that the contractor or design professional are entitled to progress payments,
which the government agency must make within forty-five calendar days of the
application for payment is received (less any retainage). 62 Pa.C.S.A. § 3932(b).
Section 3934 requires government agencies to timely pay contractors for all work that
has been satisfactorily completed, and permits the withholding of payments due under
the contract only for deficiency items upon notice of the good faith basis for doing so
within fifteen days of receipt of the application for payment.1 62 Pa.C.S.A. § 3934.
These provisions of the Procurement Code plainly demonstrate that the
legislature’s intent and purpose in enacting section 3935 is to supply an enforcement
mechanism to ensure compliance with the strict payment requirements imposed in the
1
Note that pursuant to section 3935(a), where notice is provided pursuant to section
3934, such amounts are deemed not to have been withheld in bad faith. 62 Pa.C.S.A. §
3935(a).
[J-11A-2016 and J-11B-2016] [MO: Dougherty, J.] - 4
preceding provisions.2 In the absence of the specter of having to pay attorneys’ fees
and interest penalties, the multiple requirements under the Procurement Code
demanding that government agencies pay on time and in accordance with contractual
obligations would have no “teeth,” and could fairly be ignored if useful to achieve other
purposes. See, e.g., Pietrini Corp. v. Agate Const. Co., 901 A.2d 1050, 1054 (Pa.
Super. 2006) (contractor’s withholding of payments from subcontractor “constituted
coercion, not negotiation,” requiring the imposition of attorneys’ fees and interest
penalties under section 3935).
As both the Superior Court and the Commonwealth Court have correctly
recognized, the purpose of the Procurement Code is to “level the playing field” between
government agencies and contractors. Id.; A. Scott Enterprises, Inc. v. City of
Allentown, 102 A.3d 1060, 1070 (Pa. Commw. 2014). At the same time, by setting a
high evidentiary bar for such remedies (bad faith), the statute also strikes an appropriate
2
On the other hand, given the potential severity of awards under section 3935, the
General Assembly also established a high evidentiary burden (proof of bad faith) for
their imposition. Under section 3935, a finding of bad faith requires proof that the
withholding of payment was either done arbitrarily or vexatiously. 62 Pa.C.S.A. § 3935.
This Court has held that arbitrary conduct must be shown to be “based on random or
convenient selection or choice rather than on reason or nature[,]” and vexatious conduct
has “the sole purpose of causing annoyance.” Thunberg v. Strause, 682 A.2d 295, 299
(Pa. 1996).
For this reason, I reject the Majority’s assertion that the language of section 512(a) of
the Contractor and Subcontractor Payment Act (“CASPA”) provides an apt parallel to
section 3935 of the Procurement Code. The relevant portion of section 512(a) provides
that where a party has failed to comply with CASPA’s payment terms, an arbitrator or
court shall award an interest penalty on the amount that was “wrongfully withheld.” 73
P.S. § 512(a). Section 512(a) further provides that an amount will not be considered to
have been wrongly withheld if it “bears a reasonable relation to the value of any claim
held in good faith by the owner, contractor or subcontractor N.” Id. This is a lower
evidentiary obligation than is proof of bad faith under section 3935. In addition, under
CASPA, attorneys’ fees are awarded to the substantially prevailing party as of right,
without the need for any showing of misconduct. 73 P.S. § 512(b).
[J-11A-2016 and J-11B-2016] [MO: Dougherty, J.] - 5
balance between discouraging arbitrary or vexatious behavior by government agencies
and not penalizing them for mere mistakes or good faith disputes. Accordingly, giving
the trial court (or an arbitrator or the Board of Claims, as the case may be) the discretion
to refuse to impose attorneys’ fees and interest penalties under section 3935, even
when payments have been withheld in bad faith, clearly impedes, rather than advances,
the purpose of the General Assembly, as it results in a statutory scheme of strict
payment requirements but no effective enforcement mechanism for noncompliance.
In this regard, we must be mindful of the general command that we presume that
the legislature did not intend a result that is unreasonable or absurd. 1 Pa.C.S.A. §
1922(1); Koken v. Reliance Ins. Co., 893 A.2d 70, 81 (Pa. 2006); Street Road Bar &
Grille, Inc. v. Pennsylvania Liquor Control Bd., 876 A.2d 346, 353 (Pa. 2005). The text
of section 3935 authorizes awards of interest penalties and attorneys’ fees if the
government agency withholds payments in bad faith, and to that end, describes in detail
what bad faith is (withholding arbitrarily or vexatiously) and what it is not (withholding
pursuant to the good faith provisions of section 3934). The text mentions no other
factor to be considered in connection with such awards. Yet this Court today interprets
this text to permit a trial court (or an arbitrator or the Board of Claims) to deny an award
of interest penalties and attorneys’ fees under section 3935 even if it has been proven
that the government agency withheld payments in bad faith, apparently based upon
consideration of any other factor or factors it considers relevant, including matters
entirely dehors the evidentiary record. Under this statutory interpretation, section 3935
instructs that the tribunal must first decide whether the government agency acted in bad
faith, but then permits this finding to be ignored entirely based upon any other factors
deemed to be more significant under the circumstances presented -- none of which are
[J-11A-2016 and J-11B-2016] [MO: Dougherty, J.] - 6
either mentioned in the statutory text or identified in the Majority’s opinion.3 The
determination of whether the government agency acted in bad faith becomes, as the
Commonwealth Court correctly recognized, “a meaningless exercise with no
consequence for the government agency.” A. Scott Enterprises, Inc., 102 A.3d at 1070.
In my view, this result is unreasonable and bordering on the absurd.
I find this Court’s decision in In re Farnese, 17 A.3d 357, 370 (Pa. 2011), to be
instructive in interpreting the legislative intent regarding the mandatory nature of the
remedies in section 3935. In that case, we held that where a statute authorizes a trial
court to award costs to a prevailing party “as it deems just,” such awards are not
automatic and the trial court may exercise discretion in assessing whether an award is
warranted. Id. In Farnese, the absence of an evidentiary standard that must be met for
a statutory award led to our conclusion that the award was discretionary. Id. In
contrast, section 3935 establishes a threshold evidentiary requirement for statutory
awards, namely a showing of bad faith. As such, the logic of Farnese compels a
conclusion that section 3935 awards are mandatory upon satisfactory proof of bad faith.
3
The Majority does observe that awards under the Procurement Code “implicate the
public treasury,” but does not explain why this should be a relevant factor for
consideration under section 3935. Majority Op. at 18. While it is of course true that the
Procurement Code, of necessity, implicates the public treasury, no provision in the
Procurement Code authorizes, or even implies, a government agency may ever ignore
its payment obligations to private parties merely because such payments are made from
the public treasury. To the contrary, as indicated hereinabove, the Procurement Code
plainly states, in no uncertain terms, that “[t]he government agency shall pay the
contractor or design professional strictly in accordance with the contract.” 62 Pa.C.S.A.
§ 3932(a). Where a government agency fails to do so, and that failure is proven to have
been in bad faith, section 3935 must result in the imposition of attorneys’ fees and
interest penalties. The fact that public funds are at issue is taken into account by the
higher evidentiary standard of proof of bad faith to support the award of interest
penalties and attorneys’ fees.
[J-11A-2016 and J-11B-2016] [MO: Dougherty, J.] - 7
Finally, in my view, the issue of statutory construction currently before the Court
arises only because of a clear error by the trial court, namely, its submission to the jury
the question of whether the City acted in bad faith. Section 3935 delineates the entities
tasked with determining whether a plaintiff has established bad faith, and those entities
are an arbitrator, the Board of Claims, or “the court.” See 62 Pa.C.S.A. § 3935. No
language in section 3935 states, or even suggests, that juries can or should play any
role in this process. This Court has ruled that when used in statutes, the word “court” is
synonymous with “judge” and cannot be broadly construed to include “jury.” Mishoe v.
Erie Ins. Co., 824 A.2d 1153, 1157-58 (Pa. 2003); see also Wertz v. Chapman
Township, 741 A.2d 1272, 1274 (Pa. 1999) (“[T]he General Assembly’s use of the term
‘court’ in the statute is significant. N This is strong evidence N that the tribunal, rather
than a jury, N is to make findings and provide relief.”).
Moreover, the awards under section 3935 are available only by statute, not at
common law, and thus no right to a jury trial exists to secure their recovery. See
Mishoe, 824 A.2d at 1160 (stating that the right to trial by jury extends only to the
causes of actions that existed at common law the time of the Pennsylvania
Constitution’s adoption). Analogous parallels in this regard to section 3935 are sections
2503(7) and 2503(9) of the Judicial Code, which empower courts to award attorneys’
fees if a party’s conduct during the pendency of a case is vexatious, obdurate or
dilatory, 42 Pa.C.S.A. § 2503(7), or if a party’s conduct in commencing an action is
“arbitrary, vexatious, or in bad faith,” 42 Pa.C.S.A. § 2503(9). In Township of South
Strabane v. Piechnick, 686 A.2d 1297 (Pa. 1996), this Court determined that the
decision to award attorneys’ fees under section 2503(7) requires a finding by the trial
court of vexatious, obdurate or dilatory conduct. Id. at 1301. Similarly, in Slappo v.
Development Associates, Inc., 791 A.2d 409 (Pa. Super. 2002), the Superior Court
[J-11A-2016 and J-11B-2016] [MO: Dougherty, J.] - 8
concluded that the trial court erred in submitting the issue of an award of attorneys’ fees
under section 2503(9) to the jury for its consideration. Id. at 416.
Absent the clear error by the trial court in this case, over the City’s repeated
objections,4 of submitting the issue of bad faith to the jury, the current dilemma over
whether the trial court had the discretion to refuse to impose interest penalties and
attorneys’ fees never arises. Indeed, I do not read the trial court’s opinion to relate that
it decided not to award statutory remedies even though the City had acted in bad faith.
Instead, the trial court declined to impose interest penalties and attorneys’ fees because
it disagreed with the jury’s finding of bad faith, as it did not consider the conflicting
evidence to establish that the City had in fact acted arbitrarily or vexatiously. Trial Court
Opinion, 2/28/2014, at 33. Section 3935 plainly confers discretion on the trial court, but
the discretion conferred is to decide, based upon its review of the evidentiary record,
whether the government agency acted in bad faith in withholding payments due and
owing. If and when the trial court determines that the government agency acted in bad
faith, it must then award interest penalties and attorneys’ fees as specified in section
3935, as the statute identifies no other factors to be considered before doing so.
For these reasons, I respectfully dissent.
4
See, e.g., N.T., 1/22/2013, 879, 883, 1302-13; City’s Reply Brief at 2-3.
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