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

[J-11A-2016 and J-11B-2016]
IN THE SUPREME COURT OF PENNSYLVANIA
MIDDLE DISTRICT
SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, JJ.
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
OPINION
JUSTICE DOUGHERTY DECIDED: July 19, 2016
In this discretionary appeal, we consider whether an award of a statutory penalty
and attorney fees under the prompt payment provisions of the Commonwealth’s
Procurement Code, see 62 Pa.C.S. §3935, is mandatory upon a finding of bad faith,
irrespective of the statute’s permissive phrasing. We hold such an award is not
mandatory, and therefore reverse the order of the Commonwealth Court and remand
the case to the trial court for proceedings consistent with this Opinion.
Appellant City of Allentown (City) contracted with appellee A. Scott Enterprises,
Inc. (ASE), to construct a new public road.1 After arsenic-contaminated soil was
discovered at the worksite, the City suspended work on the project. Following testing, it
was determined construction could resume if precautions were taken. Accordingly, the
City instructed ASE to obtain revised permits and proceed with the project. However,
the existing contract did not include terms regarding the potential for contaminated soil,
despite the fact the City was aware there might be contamination prior to entering into
the contract, and ASE declined to proceed, explaining it would incur substantial
additional costs due to the contaminated soil. The parties made several attempts to
reach an agreement in which ASE would continue the construction, but to no avail.
Consequently, ASE sued the City to recover its losses on the project, alleged breach of
contract, and sought compensation under theories of quantum meruit and unjust
1
The Commonwealth’s Procurement Code, and more specifically, its provisions relating
to prompt payment for public works contracts entered into by a government agency,
apply to the project. See, e.g., 62 Pa.C.S. §§3931-3939 (prompt payment schedules).
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enrichment, as well as interest and a statutory penalty and fee award for violations of
the prompt pay provisions of the Procurement Code.
After a trial, a jury found the City breached its contract with ASE and also
withheld payments in bad faith. Trial Court Opinion at 28 & n.5.2 Both parties filed post-
trial motions. The City requested the trial court to enter judgment in its favor or grant a
new trial with respect to ASE’s breach of contract claims, as well as enter judgment in
its favor or grant a new trial with respect to ASE’s Procurement Code claim. The City
argued there was insufficient evidence of bad faith to pose that issue to the jury, while
ASE’s motion sought a statutory penalty and attorney fees for bad faith pursuant to
Section 3935 of the Procurement Code. Section 3935 provides, in relevant part:
(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 . . . 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. . . [.]
(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 . . . acted in bad
2
The jury verdict slip included Question 4: “Do you find by a preponderance of the
evidence that the City of Allentown withheld payments due A. Scott Enterprises in bad
faith?” N.T. 1/22/13-1/31/13 at 1413. The court instructed the jury on bad faith as
follows: “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 that it was withheld pursuant to withholding of
payment for deficiency items according to the contract.” Id. at 1418. The court did not
further define “arbitrary or vexatious.”
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faith. An amount shall be deemed to have been withheld in bad faith to
the extent that the withholding was arbitrary or vexatious.
62 Pa.C.S. §3935 (emphases added).3 The court did not rule on the post-trial motions
within 120 days and, on praecipe filed by ASE on November 22, 2013, judgment was
entered on the jury’s verdict of $927,299.00. See Pa.R.C.P. 227.4(1)(b) (prothonotary
shall, upon praecipe of party, enter judgment upon jury verdict if post-trial motions are
filed and court does not dispose of all motions within 120 days of first motion; judgment
entered is final).4 Both parties appealed to the Commonwealth Court.
In its Pa.R.A.P. 1925(a) opinion, as relevant to this appeal, the trial court stated
although there was sufficient evidence of bad faith to submit that question to the jury,
the court nevertheless retained discretion to deny an award. The court explained its
decision on both points as follows:
[T]he City admitted that it would not release or terminate the Contract with
ASE until ASE came up with the right price. The City refused force
accounts.[5] The City did not direct ASE to demobilize or to resume work
unconditionally on forced account. There was never a writing authorizing
the additional work and compensation as required by the City’s Contract.
Furthermore, the City knew or should have known that the recommended
soil testing was not performed. The City’s Engineer, . . .and Lehigh
County Conservationist recommended the soil testing due to the likelihood
3
Although the statute provides for “expenses” as well as a penalty and attorney fees,
the parties argue largely only in terms of penalty and attorney fees. The imprecision is
of no moment to our decision, and we will follow the parties’ preferred expression.
4
The City’s post-trial motion was filed on February 6, 2013, and ASE’s was filed two
days later. The court heard argument on July 12, 2013. The parties do not raise any
challenge deriving from the manner of entry of judgment on the verdict.
5
“Force account work is work that goes beyond that set forth in the contract and is
generally paid on a time and material basis.” A. Scott Enterprises, Inc. v. City of
Allentown, 102 A.3d 1060, 1063 n.1 (Pa. Cmwlth. 2014), citing Green Construction Co.
v. Dep’t of Transp., 643 A.2d 1129, 1131 n.1 (Pa. Cmwlth. 1994).
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of contaminated soil. Moreover, PennDOT agreed to do the test.
Nevertheless, no one tested or verified testing prior to contracting with
ASE. Furthermore, the City failed to include terms or conditions providing
for contaminants in their contract. Additionally, the City never disclosed to
ASE that soil testing was recommended, but never completed. [The
suspension of work on the Contract] could have been avoided if the City
had followed through with PennDOT, and accepted the recommendations
of [the Engineer and Conservationist]. There was sufficient evidence to
send the question of bad faith to the jury. At the same time, it is within the
discretion of this [c]ourt to award penalty, attorneys’ fees and interest.
Given the conflicting testimony as to damages presented by ASE, the
request for such award is denied.
Trial Court Opinion, 2/28/14, at 32-33.6
In the Commonwealth Court, each party raised multiple issues. As relevant here,
the City claimed the trial court erred in submitting the Procurement Code bad faith issue
to the jury because ASE failed to prove the claim. ASE disputed that assertion and, in
its cross-appeal, claimed the trial court erred in failing to award a statutory penalty and
attorney fees premised upon the jury finding of bad faith. Specifically, in ASE’s view,
such an award under Section 3935 is mandatory where a jury finds a government
agency acted in bad faith. ASE argued the trial court improperly set the jury’s finding of
bad faith aside and substituted its own judgment; while acknowledging the amount of a
Section 3935 award is discretionary, ASE asserted the trial court could not deny outright
a penalty and attorney fees where bad faith was established.
The City responded by noting ASE’s complaint about the denial of a Section
3935 award arose in an unusual procedural posture because the taking of judgment
precluded the trial court from deciding the claim prior to appeal. The City then disputed
6
The court filed two opinions, in response to duplicate appeals filed by ASE. The
second opinion, filed on May 29, 2014, incorporated the February 28, 2014 opinion in its
entirety. A. Scott Enterprises, 102 A.3d at 1064 n.3; ASE’s Brief at 8.
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ASE’s view of the statute, stressing the discretionary nature of the statutory language.
The City asserted ASE’s issue, properly framed, was whether the trial court abused its
discretion in failing to award a penalty and fees. In the City’s view, ASE’s contrary
reading ignored the right to a Section 3935 award is created and controlled by the
statute, and the statute does not vest a jury with the ultimate power to issue an award.
The City also argued the trial court did not abuse its discretion in denying an award
because the amount sought by ASE was, by ASE’s own admission, incorrect; the City
claimed it was within the court’s discretion to conclude the non-payment of those
amounts was neither arbitrary nor vexatious.
In a published decision, the Commonwealth Court agreed with ASE’s reading of
the statute, notably opining:
The purpose of the Procurement Code is to “level the playing field”
between government agencies and contractors. It advances this goal by
requiring a government agency that has acted in bad faith to pay the
contractor’s legal costs, as well as an interest penalty. Otherwise, the
finding of bad faith is a meaningless exercise with no consequence for the
government agency found to have acted in bad faith.
A. Scott Enterprises, Inc. v. City of Allentown, 102 A.3d 1060, 1070 (Pa. Cmwlth. 2014)
(internal citation omitted). Relying in part on Missouri case law, the court concluded
Section 3935 “requires the imposition of attorney’s fees and the statutory penalty upon a
jury’s finding of bad faith,” reversed the trial court’s “refusal to consider” an award, and
remanded to the trial court for a hearing to determine, within its discretion, the amount
of the penalty and attorney fees to be awarded. Id., citing City of Independence v. Kerr
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Construction Paving Co., 957 S.W.2d 315 (Mo. Ct. App. 1997).7 The City’s application
for reargument en banc was denied.
Upon petition by the City, this Court granted allowance of appeal to address
whether “a jury finding of bad faith require[s] the trial court to impose a statutory penalty
and award attorney fees under” Section 3935, while denying review of other issues
raised in the City’s petition for allowance of appeal. A. Scott Enterprises, Inc. v. City of
Allentown, 117 A.3d 1277, 1277-78 (Pa. 2015) (per curiam).
The City argues that, when construed according to its common and approved
usage, the word “may” as used in Section 3935 is properly interpreted as permissive,
not mandatory. The City acknowledges there are instances when courts have
deliberately interpreted permissive language like “may” to mean “shall,” but it claims
such limited circumstances are not present here. The City also notes the text of the
Contractor and Subcontractor Payment Act (CASPA), 73 P.S. §§501-516, a prompt
payment statute applicable to non-governmental parties, provides for a penalty and
attorney fees similar to the Procurement Code, but explicitly states penalties and
attorney fees “shall” be awarded where payment is “wrongfully withheld,” the amount of
which is then determined by the court or arbitrator. 73 P.S. §512(a)-(b).8 The City
7
The Commonwealth Court also confirmed ASE is entitled to some statutory interest on
the verdict amount, and directed the trial court on remand to mold the verdict to include
certain items of pre- and post-judgment interest. A. Scott Enterprises, 102 A.3d at
1072-73. The issue of judgment-related interest is not before us in this appeal.
8
Section 512 provides:
(a) Penalty for failure to comply with act.--If arbitration or litigation is
commenced to recover payment due under this act and it is determined
that an owner, contractor or subcontractor has failed to comply with the
payment terms of this act, the arbitrator or court shall award, in addition to
(continuedN)
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contends CASPA’s use of “shall,” as opposed to “may,” is significant as it demonstrates
the General Assembly was cognizant of the distinction between mandatory and
discretionary bad faith penalty awards; had the Legislature intended to make the
Procurement Code awards mandatory as well, it would not have used permissive
language. Moreover, the City argues the Commonwealth Court improperly rested its
decision on a Missouri case involving a distinguishable statute, and the perceived broad
legislative intent underlying the Procurement Code as a whole, rather than applying the
rules of statutory construction and acknowledging the narrow circumstances in which
Pennsylvania courts have interpreted “may” to mean “shall.”
The City further notes Section 3935 makes no mention of a jury, and the
Legislature therefore could not have intended the trial court to be bound to award a
penalty and attorney fees whenever a jury makes a finding of bad faith; such an
interpretation would contravene the statute’s express provision that the arbitrator, the
Board of Claims, or the court makes the award. See 62 Pa.C.S. §3935(a)-(b). Finally,
the City claims, if the Commonwealth Court’s decision is not reversed, the result is an
(Ncontinued)
all other damages due, a penalty equal to 1% per month of the amount
that was wrongfully withheld. An amount shall not be deemed to have
been wrongfully withheld to the extent it bears a reasonable relation to the
value of any claim held in good faith by the owner, contractor or
subcontractor against whom the contractor or subcontractor is seeking to
recover payment.
(b) Award of attorney fee and expenses.--Notwithstanding any agreement
to the contrary, the substantially prevailing party in any proceeding to
recover any payment under this act shall be awarded a reasonable
attorney fee in an amount to be determined by the court or arbitrator,
together with expenses.
73 P.S. §512 (emphases added).
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award essentially directed by jurors who were not comprehensively instructed on the
meaning of “arbitrary or vexatious,” or told their finding of bad faith would result in a 1%
penalty and counsel fees paid from public funds. The jury was not instructed in this
regard, argues the City, because the trial court believed, properly so, it had discretion to
decide the ultimate question of whether a statutory award was warranted.
In response, ASE first argues the City did not contend, either at trial or in its post-
trial motions, that the trial court retained discretion to decline to award a penalty and
attorney fees; rather, ASE maintains the City’s sole challenge was to the quantum of
proof submitted by ASE to establish bad faith. Consequently, ASE alleges, the City
failed to preserve the issue of whether the jury’s finding of bad faith mandates an award
under Section 3935, and its appeal should be dismissed.
On the merits, ASE tracks the Commonwealth Court’s reasoning below,
asserting the legislative purpose underlying the Procurement Code — i.e., providing
contractors with a remedy against governmental entities that withhold payment in bad
faith — cannot be achieved without a mandatory award of a penalty and attorney fees
where bad faith is found. “‘Otherwise, the finding of bad faith is a meaningless exercise
with no consequence for the government agency found to have acted in bad faith.’”
ASE’s Brief at 19, quoting A. Scott Enterprises, 102 A.3d at 1070. ASE further notes
there is no language in Section 3935 suggesting once a contractor has proven bad faith
additional factors must be established before the arbitrary or vexatious conduct is
deemed sufficiently egregious to warrant a penalty and attorney fees award. Thus, ASE
contends it is unclear what burden a contractor would bear, if “may” is read as
permissive. In ASE’s view, such an interpretation would subject the availability of the
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statutory remedies to the “individual whim of each trial court judge.” Id. Again agreeing
with the Commonwealth Court, ASE posits the trial court judge, while having discretion
regarding the amount of awards, has no discretion to refuse them altogether.
Moreover, ASE submits Pennsylvania courts, as well as courts of other states,
have interpreted “may” as mandatory when a statute directs the doing of a thing for the
sake of justice or when necessary to effectuate a statute’s underlying purposes. See,
e.g., Hotel Casey Co. v. Ross, 23 A.2d 737, 740-41 (Pa. 1942) (where Commonwealth
was not rightfully entitled to taxes paid, statute authorizing refund or credit to taxpayer
should be interpreted as mandatory). ASE also posits Pennsylvania’s intermediate
appellate courts have held a finding of bad faith under Section 3935 mandates an award
of a penalty and attorney fees. See, e.g., A.G. Cullen Constr. Inc. v. State Sys. of
Higher Educ., 898 A.2d 1145, 1164-66 (Pa. Cmwlth. 2006); Pietrini Corp. v. Agate
Construction Co., 901 A.2d 1050, 1053 (Pa. Super. 2006).
ASE acknowledges that, while both CASPA and the Procurement Code were
designed to authorize awards of penalties and attorney fees under specified conditions,
the key difference between the two statutes is the Procurement Code requires a
threshold finding of the government agency’s bad faith. Accordingly, there is an
additional burden of proof under the Procurement Code, requiring a heightened showing
of wrongful conduct before an award can be made where public funds are at issue.
Thus, ASE contends, the Legislature’s intent was to “bring about parity with the
remedies in CASPA once bad faith is found[,]” ASE’s Brief at 28, and thus, the award
should be automatic upon that finding.
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In the alternative, ASE develops an argument that, to the extent the trial court
maintained discretion to decline an award despite a finding of bad faith, it abused its
discretion here. ASE argues that, at a minimum, a jury finding of bad faith should create
a strong presumption of entitlement to a penalty and attorney fees, and the government
should bear the burden to prove why no award should issue. In this case, ASE notes,
the trial court’s single-sentence explanation for its denial of the award did not specify
any standard used or factors considered, and the “passing reference to conflicting
testimony” regarding damages is an insufficient basis to decline to issue any award.
ASE argues such evidentiary conflicts are relevant only to the proper calculation of the
award. Citing a multi-factor test employed in other areas involving awards of attorney
fees, ASE argues consideration of such “traditional factors” weighs heavily in its favor.
See ASE’s Brief at 31, citing, e.g., Ursic v. Bethlehem Mines, 719 F.2d 670, 673 (3d Cir.
1983) (where award of attorney fees under ERISA[9] is discretionary, courts have
considered: 1) offending party’s culpability or bad faith; 2) ability of offending party to
satisfy fee award; 3) deterrent effect of award; 4) benefit conferred by award; 5) relative
merits of parties’ position). ASE concludes by requesting that, if this Court determines
the award of a penalty and attorney fees is discretionary, we should remand to the trial
court with instructions respecting the factors to be employed in deciding the issue.
The City responds to ASE’s alternative argument by first asserting the question
whether the trial court abused its discretion is not within the scope of the issue accepted
for decision. On the merits, the City posits the decision was not an abuse of discretion
given the “gross inconsistencies” in the invoices ASE submitted for payment and ASE’s
9
Employment Retirement Income Security Act of 1974, 29 U.S.C. Ch. 18, §1001 et seq.
[J-11A-2016 and J-11B-2016] - 11
failure to supply the City with “accurate” claims of amounts due for payment. In the
City’s view, the trial court cannot have abused its discretion where ASE was unable to
specify “what amounts for what work N were not properly paid.”
We begin by addressing ASE’s waiver argument. Given the timing of the trial
court’s determination — after ASE praeciped for judgment (as was its right, given the
delay) and the cross-appeals were filed — the City was in no position to “preserve” its
issue when the matter was still before the trial court. Moreover, since the trial court
ultimately awarded ASE no statutory penalty or attorney fees despite the jury’s finding of
bad faith, the City was not aggrieved by the trial court’s decision. Indeed, the City’s
present claim did not mature until the Commonwealth Court issued its opinion reversing
the trial court and holding an award was mandatory. See, e.g., Lebanon Valley Farmers
Bank v. Commonwealth, 83 A.3d 107, 113 (Pa. 2013) (successful litigant need not file
protective cross-appeal on pain of waiver); Basile v. H&R Block, Inc., 973 A.2d 417, 422
(Pa. 2009) (appellee should not be required to file protective cross-appeal if judgment
granted relief appellee sought). Furthermore, the City objected to the submission of the
bad faith claim to the jury. N.T. 1/22/13-1/31/13, 879, 883, 1302-13. As the
Commonwealth Court noted in rejecting ASE’s waiver argument, by “object[ing] to the
submission of the issue of bad faith to the jury and challeng[ing] the viability of [ASE’s]
breach of contract damages at trial[,]” the City properly preserved this and other
questions relating to bad faith for review. A. Scott Enterprises, 102 A.3d at 1066(citations omitted). As we find the issue was not waived, we next turn to the merits.
The issue is one of statutory construction, which is a pure question of law;
therefore, our standard of review is de novo and our scope of review is plenary.
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Lynnebrook & Woodbrook Assocs. v. Borough of Millersville, 963 A.2d 1261, 1268 n.2
(Pa. 2008). Our objective “is to ascertain and effectuate the intention of the General
Assembly.” 1 Pa.C.S. §1921(a). Often, “the best indicator of legislative intent is the
plain language of the statute.” See Freedom Med. Supply v. State Farm Fire and Cas.
Co., 131 A.3d 977, 983 (Pa. 2016), citing Commonwealth, Office of Governor v.
Donahue, 98 A.3d 1223, 1237 (Pa. 2014). Therefore, we give particular weight to the
express language of the statute.
In reading a statute, we construe the words in accordance with the rules of
grammar and their common and approved usage or, when proper, according to their
“peculiar and appropriate” or statutorily provided meanings. 1 Pa.C.S. §1903(a); see
also Treaster v. Union Twp., 242 A.2d 252, 255 (Pa. 1968) (“Words used in a statute
are not lightly to be given a meaning other than their normal one.”); Commonwealth v.
Rieck Inv. Corp., 213 A.2d 277, 282 (Pa. 1965) (Legislature must be presumed to mean
what it has plainly expressed). “When the words . . . are [unambiguous], the letter of
[the statute] is not to be disregarded under the pretext of pursuing its spirit.” 1 Pa.C.S.
§1921(b). Generally, it is only where the words are not explicit, creating ambiguity
within the statute, that this Court will resort to other considerations to discern the
Legislature’s intent. 1 Pa.C.S. §1921(c).
Preliminarily, we note that while this case presents in a facially clean fashion —
is the statutory language of permissive or mandatory effect? — in fact it is not so simple.
For example, the statute speaks of awards rendered by an arbitrator, Board of Claims,
or court — not awards by a jury; and, as the City notes, arbitrators, Boards of Claims,
and courts are more aware than juries of the precise monetary effect of a Section 3935
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award premised upon bad faith. Such awareness no doubt can play into the
determination of bad faith itself in the non-jury scenario. In addition, the trial court did
not issue its determination of the penalty and attorney fees question until after judgment
was entered — the ensuing appellate dispute has thus proceeded without benefit of
argument before, or developed reasoning from, the trial court. Instead, we have a
single-sentence explanation in the trial court’s opinion. Finally, we are aware the City’s
primary Procurement Code complaint throughout the litigation focused upon the more
elemental question of whether a case of bad faith was established: the proper
consequence of a sustained finding of Procurement Code bad faith came into focus only
after the related foundational issues were resolved.
With these complexities in mind, we turn to the statutory text. Our reading aligns
with that posed by the City. The statute’s plain language is unambiguous and
permissive in nature: “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,” and “the
prevailing party in any proceeding to recover any payment under this subchapter may
be awarded a reasonable attorney fee[.]” 62 Pa.C.S. §3935 (emphases added).
“Although ‘may’ can mean the same as ‘shall’ where a statute directs the doing of a
thing for the sake of justice, it ordinarily is employed in the permissive sense.”
Commonwealth v. Garland, 142 A.2d 14, 17 n.5 (Pa. 1958) (internal citations omitted);
Commonwealth v. A. M. Byers Co., 31 A.2d 530, 532 (Pa. 1943) (“The word ‘may’
clearly implies discretionary power. The language is permissive, rather than
mandatory.”). See also Bowser v. Blom, 807 A.2d 830, 835 (Pa. 2002) (where court
“may” award costs and fees in child support proceeding, prevailing party is not
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automatically entitled to award); Treaster, supra (statute stating township “may revise its
budget” during fiscal year should not be construed to mean township was required to do
so); Pa.R.A.P. 2744 (appellate court “may award as further costs damages as may be
just” if appeal is frivolous). Cf. In re Farnese, 17 A.3d 357, 370-71 (Pa. 2011) (Election
Code provision stating court “shall” award costs “as it shall deem just” does not entitle
prevailing party to automatic award; language “contemplates a more nuanced,
calibrated decision, perhaps difficult, but not at all a strange matter for courts of
justice”).
Additionally, although this Court has occasionally interpreted the word “may” in a
statute as mandatory, we have done so “usually where the ends of justice or
constitutional requirements so dictate.” Treaster, 242 A.2d at 255. In Hotel Casey, for
example, the Court held, notwithstanding permissive language regarding the award of a
refund of taxes paid in error, “if an application is made for a refund under §503 of the
Fiscal Code within the period of limitations fixed thereby and it appears there was a tax
paid to the Commonwealth to which the Commonwealth was not equitably or rightfully
entitled, the provision for a refund or credit is mandatory.” 23 A.2d at 741.10 The Court
acknowledged it would be “both illogical and unreasonable to assume that, when the
10
The statute provided, “The Board of Finance and Revenue shall have the power, and
its duty shall be, (a) To hear and determine any petition for the refund of taxes, license
fees, penalties, fines, bonus, or other moneys paid to the Commonwealth and to which
the Commonwealth is not rightfully or equitably entitled, and, upon the allowance of any
such petition, to refund such taxes, license fees, penalties, fines, bonus, or other
moneys, out of any appropriation or appropriations made for the purpose, or to credit
the account of the person, association, corporation, body politic, or public officer entitled
to the refund.” 23 A.2d at 739 (quoting 72 P.S. §503). The statute also provided the
Board’s decision “shall be final,” and the lower court took this language to mean there
could be no appeal; this Court reversed that holding and allowed mandamus relief. Id.
at 743.
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legislature attempted to correct a rigor of the law that caused an injustice and in so
acting made it the duty of one of its fiscal agents to determine whether a tax had been
collected to which the state was not rightfully or equitably entitled and made specific
provision for a refund or credit in the event of such a finding, it intended only such
illusory relief as would leave the granting of the refund to the unlimited discretion of the
agency.” Id. at 740. The Court continued that, “[w]hile 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.’” Id. Notably, in concluding the government agency must refund the taxes, the
Hotel Casey Court sought to give the statute, “if possible, an interpretation which will
prevent any conflict with the Constitution.” Id.; see also In re Philadelphia Parking
Authority, 189 A.2d 746, 749 (Pa. 1963) (“may,” as used in statute providing for bond to
secure compensation for condemned real estate pursuant to constitutional mandate,
“must be construed as ‘shall,’ as mandatory rather than permissive”). Unless there are
similarly compelling reasons for interpreting “may” as “shall” here, the plain, permissive
language in Section 3935 leaves the decision to issue an award to the sound discretion
of the tribunal.
We are not persuaded “the ends of justice or constitutional requirements . . .
dictate” we interpret the permissive language in Section 3935 as mandatory. See
Treaster, 242 A.2d at 255. ASE has proffered no constitutional argument counseling a
construction of the language as mandatory, and we are not convinced by the position of
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ASE and the Commonwealth Court that such a reading is necessary in order to “level
the playing field” between government agencies and contractors engaged in public
construction projects. In this statute creating and framing the cause of action and the
remedy, the playing field has been established by the General Assembly, and it
employed language vesting discretion in the tribunal when payment is withheld in bad
faith.
Our determination that the statute intends to confer discretionary authority is
buttressed by the fact the General Assembly has used the term “shall” in a similar
statute like CASPA. CASPA is effectively the prompt payment statute for private
parties, while the Procurement Code provides prompt payment rules for government
projects. See generally Clipper Pipe & Service Inc. v. Ohio Cas. Ins. Co., 115 A.3d
1278, 1283-84 (Pa. 2015) (CASPA does not apply in context of public works projects,
where owner of construction project is government agency). With regard to penalties,
Section 512(a) of CASPA states, if “an owner or subcontractor has failed to comply with
the payment terms of this act, the arbitrator or court shall award, in addition to all other
damages due, a penalty equal to [1%] of the amount that was wrongfully withheld.” 73
P.S. §512(a) (emphasis added). The General Assembly’s use of the word “shall” in
provisions in CASPA which are otherwise functionally equivalent to the terms of the
Procurement Code suggests a deliberate intention that awards of penalties and attorney
fees under the Procurement Code are within the discretion of the tribunal. Notably, a
different payment provision within the Procurement Code itself employs mandatory
language respecting a penalty for late payments, further corroborating the General
Assembly meant Section 3935 to be permissive. See 62 Pa.C.S. §3932(c) (if progress
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payments are not timely made, government agency shall pay to contractor or design
professional, in addition to amount due, interest on amount due).
Turning to whether the “ends of justice” dictate a non-literal reading of the text,
we remain unconvinced by the notion Section 3935 must be construed as mandatory.
Although we would not overstate the argument, there is some force in the City’s point
the jury’s finding of bad faith here was rendered without appreciation of the potential
ramifications of its finding; the trial court, of course, knows what the statute authorizes.
There is also some force in the argument it is rational to vest discretion in the
Procurement Code scenario, as contrasted with CASPA, since Procurement Code
awards implicate the public treasury. Resolution of the question before us does not
require inquiry into the wisdom or fairness of such a distinction and scheme; it is enough
the scheme is not such as to make it apparent the permissive term must be construed
as mandatory in order to avoid a manifestly unjust result. Cf. generally Freedom
Medical Supply, 131 A.3d at 984, citing 1 Pa.C.S. §§1922(1), (4), and (5) (“[W]e
presume to be erroneous any interpretation that leads to an absurd or unreasonable
result, or which renders the statute ineffective or uncertain, or which favors private
interests over the public interest[.]”).
Furthermore, it is not apparent an abuse of discretion standard in such matters is
inappropriate or unworkable. See, e.g., Lucchino v. Commonwealth, 809 A.2d 264,
269-70 (Pa. 2002) (statute stating Environmental Hearing Board “may, in its discretion”
order payment of costs and attorney fees “clearly vests broad discretion” in that body;
where record supports tribunal's finding conduct of party was dilatory, obdurate,
vexatious, or in bad faith, award of fees will not be disturbed in absence of abuse of
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discretion). Accord Farnese, 17 A.3d at 370-71 (standard directing that court “shall”
award costs “as it shall deem just” “contemplates a more nuanced, calibrated decision,
perhaps difficult, but not at all a strange matter for courts of justice”).
Prior to the Commonwealth Court’s decision in this case, both intermediate
appellate courts acknowledged a Section 3935 award is discretionary but, we
recognize, the panels nonetheless remanded for entry of an award where the trial court
or Board of Claims declined to issue one in the first instance. For example, in Dep’t of
Gen. Servs. v. Pittsburgh Bldg. Co., 920 A.2d 973 (Pa. Cmwlth.), appeal denied, 939
A.2d 890 (Pa. 2007) (“DGS”), and A.G. Cullen, supra, the Board of Claims found the
failure to comply with prompt pay requirements did not rise to the level of arbitrary and
vexatious conduct, and no statutory penalty or fees were awarded. On appeal in both
cases, however, the Commonwealth Court ruled, essentially as a matter of law, the
government agency’s conduct did constitute bad faith under Section 3935, and then
remanded for an award. DGS, 920 A.2d at 991 (remand for “proper determination of
penalty interest and attorney fees”); A.G. Cullen, 898 A.2d at 1166 (remand for award of
attorney fees on claim arising out of vexatious conduct). The Commonwealth Court’s
directive in each case followed its preliminary statement such an award is discretionary
with the trial court. DGS, 920 A.2d at 990 (“The Board’s denial of a party’s request
under Section 3935 is within its sound discretion, and we will only reverse upon a clear
abuse of discretion.”); A.G. Cullen, 898 A.2d at 1164 (“Tribunals possess great latitude
and discretion in awarding attorney’s fees when authorized by a statute.”).
Similarly, in Pietrini, the Superior Court remanded for entry of a Section 3935
award in a case where it overturned the trial court’s holding an award was not
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warranted, after finding the defendant’s conduct was vexatious. The panel noted, “even
in the presence of an undisputed factual record such as this, the award of penalties and
attorney's fees under the [P]rocurement [C]ode is an issue that under common
circumstances requires reference to existing norms of conduct. As such, the decision
remains committed to the sound discretion of the trial court, which we will reverse only
[for] a palpable abuse of discretion.” 901 A.2d at 1053. The Pietrini panel then found
the trial court abused its discretion by concluding the defendant’s conduct was not
vexatious but, rather than remand for a determination whether a penalty and attorney
fees were warranted, the panel remanded for “an assessment of penalties” and attorney
fees, thus apparently, interpreting the statute as mandating an award when bad faith is
found. Id. at 1055.
It appears the specific question now before this Court was not squarely
presented in DGS, A.G. Cullen, and Pietrini. In each of those cases, after explaining its
disagreement with the lower tribunal’s finding on the bad faith question, the panel
remanded for entry of an award, rather than remanding for the tribunal to exercise its
discretion in light of the bad faith conduct. To the extent those decisions can be read as
being in tension with our holding, they necessarily are disapproved.
We stress our holding that Section 3935 does not mandate an award in every
case where bad faith has been established does not mean a tribunal can arbitrarily
decline to issue an award; its determination is subject to review for abuse of discretion,
and the soundness of the decision no doubt will depend upon the persuasiveness of the
explication of the reasons for denial. Furthermore, given the extreme conduct
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necessary to support a finding of bad faith, the instances where a finding of bad faith is
deemed not to require a Section 3935 award at all presumably will be rare.11
Contrary to the City’s suggestion, our holding that the Commonwealth Court
erred in determining an award of a penalty and attorney fees is mandatory under
Section 3935 does not end the matter. ASE, which prevailed in the Commonwealth
Court, has forwarded an alternative argument that, under the abuse of discretion
standard advocated by the City, the matter at a minimum should be remanded to the
trial court. We agree.12
The trial court’s explanation in its Rule 1925(a) opinion that an award of a penalty
and attorney fees was unwarranted because ASE’s testimony respecting damages was
“conflicting,” without more, is insufficient to support its outright denial of an award
following the jury’s finding of bad faith. The fact of the matter is that the jury returned a
finding of bad faith based on that same “conflicting” evidence of damages and the bad
faith finding has been sustained. ASE having anticipatorily posed a contingent
11
We need not posit a hypothetical situation where an outright denial of an award would
be a sustainable exercise of discretion.
12
We are unpersuaded by the City’s argument that any question of the propriety of the
trial court’s exercise of discretion is not subsumed within our grant of review. Indeed,
under what the City itself has realized are unusual procedural circumstances here, we
believe ASE is in a similar issue-preservation posture respecting its alternative
argument as the City was respecting the Commonwealth Court holding an award is
mandatory. The competing issues — is an award mandatory or not and, if not
mandatory, was there an abuse of discretion or not — should have developed with
greater specificity in the trial court, but did not for the reasons we have described in text.
Our mandate allows both parties the opportunity to develop their positions before the
trial court, including the interposition of objection premised upon waiver, at the trial level.
“The edifice of justice stands, its symmetry, to many, greater than before.” Palko v.
State of Connecticut, 302 U.S. 319, 328 (1937) (Cardozo, J.), overruled by Benton v.
Maryland, 395 U.S. 784 (1969).
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argument respecting whether the court abused its discretion, the parties have engaged
in a fact-intensive dispute about the accuracy of the court’s bald assessment, as well as
the appropriate consequence if in fact there was conflicting evidence on damages.
Given the unusual procedural posture of the case, these arguments have not been
assessed in the courts below, much less have they been assessed with the sharp focus
necessary to properly frame an issue for this Court. The proper course, in these
circumstances, is for the arguments to be made in the first instance to the trial judge
upon remand.
Finally, ASE notes, accurately enough, the trial court did not identify any
standard used or specific factors considered in refusing the request for an award of a
statutory penalty and attorney fees. Consequently, ASE asks that we provide a
standard to govern the remand. This too, however, is an issue best posed to the trial
court in the first instance.
Accordingly, we hold Section 3935 of the Procurement Code allows — but does
not require — the court to order an award of a statutory penalty and attorney fees when
payments have been withheld in bad faith. The court’s determinations in this regard are
subject to review for an abuse of discretion. Therefore, we reverse the Commonwealth
Court and remand to the trial court for proceedings consistent with this Opinion. In
addition, the trial court on remand is directed to determine the amount of pre- and post-
judgment interest to be awarded in accordance with the Commonwealth Court’s
unaffected additional rulings.
Reversed and remanded. Jurisdiction relinquished.
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Chief Justice Saylor and Justices Baer, Todd and Wecht join the Opinion.
Justice Wecht files a Concurring Opinion.
Justice Donohue files a Dissenting Opinion.
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