Snake Steel, Inc. v. Holladay Construction Group, LLC

06/30/2021
IN THE SUPREME COURT OF TENNESSEE
September 30, 2020 Session1
SNAKE STEEL, INC. v. HOLLADAY CONSTRUCTION GROUP, LLC
Appeal by Permission from the Court of Appeals
Chancery Court for Davidson County
No. 17-1037-III Ellen Hobbs Lyle, Chancellor
___________________________________
No. M2019-00322-SC-R11-CV
___________________________________
This appeal requires us to interpret provisions in the Prompt Pay Act, Tennessee Code
Annotated sections 66-34-101 to -704, regarding retainage withheld on construction
projects. The Prompt Pay Act requires the party withholding retainage—a percentage of
total payment withheld as incentive for satisfactory completion of work—to deposit the
funds into a separate, interest-bearing escrow account. Failure to do so results in a penalty
of $300 per day. In this case, both parties agree the subcontractor’s retainage was not placed
into an interest-bearing escrow account, and the retainage was not timely remitted to the
subcontractor. Three years after completing its work on the contract, the subcontractor
sued the contractor for unpaid retainage plus amounts due under the Prompt Pay Act. The
contractor soon tendered the retainage; consequently, only the statutory penalty is at issue
in this appeal. Tennessee Code Annotated section 66-34-104(c) states that, for persons
required to deposit retainage into a separate interest-bearing escrow account, the penalty is
assessed “per day for each and every day” retainage is not so deposited. Consonant with
the statute’s language, its objective, the wrong the Prompt Pay Act seeks to prevent, and
the purpose it seeks to accomplish, we hold that the $300 per day penalty is assessed each
day retainage is not deposited in a statutorily-compliant escrow account. Consequently,
while the subcontractor’s claim for the statutory penalty is subject to the one-year statute
of limitations, if the subcontractor can establish that the contractor was required to deposit
the retainage into an escrow account, the subcontractor is not precluded from recovering
the penalty assessed each day during the period commencing 365 days before the complaint
was filed. Accordingly, we reverse in part the trial court’s grant of summary judgment to
the contractor and remand to the trial court for further proceedings.
1
We heard oral argument through videoconference under this Court’s emergency orders restricting
court proceedings because of the COVID-19 pandemic.
Tenn. R. App. P. 11 Appeal by Permission;
Judgment of the Court of Appeals Affirmed in Part and Reversed in Part;
Remanded to the Davidson County Chancery Court
HOLLY KIRBY, J., delivered the opinion of the court, in which JEFFREY S. BIVINS, C.J., and
CORNELIA A. CLARK, SHARON G. LEE, and ROGER A. PAGE, JJ., joined. CORNELIA A.
CLARK, J., filed a concurring opinion in which JEFFREY S. BIVINS, C.J., and SHARON G.
LEE, J., joined.
Gregory L. Cashion and Petar A. Angelov, Nashville, Tennessee, for the appellant,
Holladay Construction Group, LLC.
Dan E. Huffstutter, Nashville, Tennessee, for the appellee, Snake Steel, Inc.
OPINION
FACTUAL AND PROCEDURAL BACKGROUND
This case began as a simple contract dispute. Defendant-Appellant Holladay
Construction Group, LLC (“Holladay”) is a Tennessee-licensed general contractor. The
owner of a construction site in Nashville, 2200 Charlotte Avenue, LLC (“Owner”), hired
Holladay to provide general contracting services for a construction project.
In turn, Holladay hired Plaintiff-Appellee Snake Steel, Inc. (“Snake Steel”), a
Tennessee corporation, as a subcontractor “to provide structural and miscellaneous steel”
work as part of the larger construction project.
On approximately October 8, 2013, Holladay and Snake Steel memorialized their
agreement in a written contract (the “Sub-Contract”). Initially, the Sub-Contract provided
for Holladay to pay Snake Steel $336,722.00 for its work. An approved modification
increased Snake Steel’s compensation to $365,411.52. In the Sub-Contract, Snake Steel
agreed its payment from Holladay would be contingent on Holladay receiving payment for
the construction project from Owner.
-2-
The Sub-Contract also allowed Holladay to withhold a five-percent retainage from
Snake Steel’s compensation until Snake Steel substantially completed its work. The
retainage withheld amounted to $18,270.58.2
By September 30, 2014, Snake Steel had completed its work.3 On October 24, 2014,
Holladay paid Snake Steel all amounts requested except the retainage and $32,480.004 in
additional work done pursuant to a change order.
In May 2015, Holladay asked Owner to release its retainage, which included the
retainage amount owed to Snake Steel. Owner released it to Holladay on May 27, 2015.
In February 2016, Snake Steel submitted a pay application to Holladay for its
retainage. Holladay did not pay the retainage. In September 2017, Snake Steel sent
Holladay a certified notice that it had not yet received its retainage.5
In September 2017, some three years after completion of its work under the Sub-
Contract, Snake Steel filed suit against Holladay in the Davidson County Chancery Court.
The lawsuit asserted that Snake Steel performed all of its obligations under the Sub-
Contract, but Holladay failed to pay either the retainage or compensation for agreed change
order work. The complaint sought damages for these two breaches of the Sub-Contract.
Pertinent to this appeal, the complaint also alleged Holladay was liable for failing
to comply with the Prompt Pay Act, Tennessee Code Annotated sections 66-34-101 to -
704.6 In brief, the Prompt Pay Act requires retainage for the improvement of real property
to be deposited into a separate interest-bearing escrow account. Tenn. Code Ann. § 66-34-
2
In its complaint, Snake Steel says the retainage amount was $18,720.58. However, the underlying
documents in this case, including the relevant certificate of payment, state the amount as $18,270.58. The
parties acknowledged this fact in their Joint Stipulations of April 2018.
3
In the record, two pay applications for the period ending September 30, 2014, one for Snake Steel
and for Holladay, reflect completion of Snake Steel’s work.
4
While the parties provided differing amounts in their Joint Stipulations, $32,480.00 is the amount
of the November 10, 2017 settlement check tendered to Snake Steel. Regardless, the parties do not dispute
the amount.
5
Holladay received the notice two days later.
6
Unless otherwise noted, we refer to the version of the Prompt Pay Act in effect at the time of the
events in this lawsuit.
-3-
104(a) (2015).7 If the party responsible for establishing the escrow account fails to do so,
the Act requires that party to pay the owner of the retainage a penalty of $300 per day. Id.§ 66-34-104(c). There is no evidence that Snake Steel’s retainage was ever placed in an
interest-bearing escrow account, while it was in either Owner’s or Holladay’s possession.
In addition to other damages, Snake Steel’s complaint sought all amounts due under the
Prompt Pay Act.
In October 2017, Holladay tendered a check to Snake Steel for the retainage,
$18,270.58. Initially, Snake Steel refused to accept the payment. Holladay then filed its
answer, responding that Snake Steel was not entitled to payment for the additional work,
noting that Snake Steel had refused tender of the retainage, and denying liability under the
Prompt Pay Act.
In December 2017, Holladay tendered Snake Steel payment for both the retainage
and the change order work. Snake Steel accepted this payment.
In April and June 2018, the parties filed a series of joint stipulations acknowledging
Snake Steel had accepted Holladay’s payment of the retainage and change order amounts.
They agreed this payment mooted any issues regarding Holladay’s alleged breach of the
Sub-Contract. The joint stipulations clarified that the primary issue remaining in dispute
was whether Holladay was liable to Snake Steel for its failure to comply with the Prompt
Pay Act.8
The parties filed cross-motions for summary judgment.9 The trial court granted
summary judgment in favor of Holladay. It agreed with Holladay that Snake Steel’s claim
7
Some exceptions may apply. See, e.g., Tenn. Code Ann. § 66-34-103(d).
8
The parties also continued to dispute Holladay’s liability for Snake Steel’s attorney fees and costs.
9
In its motion for summary judgment, Snake Steel took the position that Holladay was required to
deposit retainage into an escrow account between October 2013 and May 27, 2015, while Owner was
withholding retained funds, including subcontractor retainage. In response, Holladay asserted that
Tennessee Code Annotated section 66-34-103(d) limited its potential responsibility for depositing
subcontractor retainage into an escrow account to the time period after Owner released its retained funds to
Holladay. Section 103(d) states:
In the event that an owner or prime contractor withholds retainage that is for the
use and benefit of the prime contractor or its subcontractors pursuant to § 66-34-
104(a) and (b), neither the prime contractor nor any of its subcontractors shall be
-4-
under the Prompt Pay Act was barred under the one-year statute of limitations in Tennessee
Code Annotated section 28-3-104(a)(1)(C).10 Snake Steel appealed the trial court’s ruling.
The Court of Appeals affirmed the trial court’s application of the one-year statute
of limitations. Snake Steel, Inc. v. Holladay Constr. Grp., LLC, No. M2019-00322-COA-
R3-CV, 2020 WL 365304, at *6 (Tenn. Ct. App. Jan. 22, 2020), perm. app. granted, (Tenn.
June 4, 2020). It disagreed, however, with the trial court’s ultimate conclusion. The
intermediate appellate court applied the discovery rule to Snake Steel’s claims under the
Prompt Pay Act. Id. at *8. It did not decide definitively that the rule operated to toll the
statute of limitations, because the trial court had not determined when Snake Steel knew or
should have known the retainage had not been deposited into an escrow account, as
required by the discovery rule. The Court of Appeals directed the trial court to determine
the issue on remand. Id. Finally, the Court of Appeals held that, even if Snake Steel’s
claim under the Prompt Pay Act accrued more than one year before the complaint was
filed, Holladay could be held liable for the $300 per day statutory penalty for the 365 days
prior to the filing of the complaint. Id. at *9. Thus, the intermediate appellate court vacated
the trial court’s entry of summary judgment and remanded the case. Id. at *10.
Holladay then sought permission to appeal to this Court, which we granted.
STANDARD OF REVIEW
This appeal requires us to review a grant of summary judgment. Such rulings are
reviewed by this Court de novo, affording the trial court no presumption of correctness.
Rye v. Women’s Care Ctr. of Memphis, MPLLC, 477 S.W.3d 235, 250 (Tenn. 2015) (citing
Bain v. Wells, 936 S.W.2d 618, 622 (Tenn. 1997)).
required to deposit additional retained funds into an escrow account in accordance
with 66-34-104(a) and (b).
Tenn. Code Ann. § 66-34-103(d). The trial court did not resolve this issue or any issue regarding the
applicability of section 103(d), and the parties raise no issue regarding this section on appeal. We expressly
decline to address in this opinion any issue regarding section 103(d) and assume for purposes of this appeal
that Holladay was required to place Snake Steel’s retainage into escrow.
10
The trial court, however, granted summary judgment in favor of Snake Steel as to interest under
the Prompt Pay Act and attorney fees and costs incurred up to the date Holladay tendered payment for the
retainage and change order. This ruling is not raised as an issue in this appeal.
-5-
ANALYSIS
We begin with a brief overview of the Prompt Pay Act, then review the Court of Appeals’
holding as to the discovery rule, and finally review the intermediate appellate court’s
holding that Snake Steel is not precluded from recovering the statutory penalty for each of
the 365 days preceding the filing of its complaint.
Prompt Pay Act
The Prompt Pay Act was enacted in 1991.11 See Tenn. Code Ann. § 66-34-101(2015) (stating the Act “may be cited as the ‘Prompt Pay Act of 1991.’”). As our Court of
Appeals has observed, the Act was intended “to provide for timely payments to contractors,
subcontractors, materialmen, furnishers, architects, and engineers and to provide for
interest on late payments.” Beacon4, LLC v. I & L Invs., LLC, 514 S.W.3d 153, 212 (Tenn.
Ct. App. 2016) (quoting Prompt Pay Act of 1991, ch. 45 (H.B. 875), overruled in part on
other grounds by In re Mattie L., 618 S.W.3d 335 (Tenn. 2021). It is a remedial statute,
designed to help protected individuals and entities timely recover the full amount of funds
they have already earned. Id.To encourage satisfactory completion of construction work, the Act permits
construction contracts to provide for the withholding of retainage up to five percent of the
amount of the contract. Tenn. Code Ann. § 66-34-103(a) (2015).12 The Act includes
deadlines for owners who withhold retainage to pay it to prime contractors after completion
or substantial completion of the construction work. Id. § 66-34-103(b). After that is done,
the Act provides deadlines for prime contractors to pay subcontractors and in turn for
subcontractors to pay “subsubcontractors” and material suppliers. Id. The Act makes
violation of these provisions a misdemeanor, subject to a fine of $3000. Id. § 66-34-
103(e)(1)–(2). Each day of failure to comply is a separate violation, with punishment for
each violation “consecutive to all other such violations.” Id. § 66-34-103(e)(2)(C).
11
We outline the Prompt Pay Act as it stood at the time of the events in this case. The Act was
amended in 2020. See Act of June 22, 2020, ch. 749, §§ 17–34, 2020 Tenn. Pub. Acts 716 (codified in
various sections of Tennessee Code Annotated Title 66, Chapter 34).
12
The term “retainage” is not defined in the Prompt Pay Act. See Tenn. Code Ann. § 66-11-101(2015) (definitions incorporated into the Prompt Pay Act by Tennessee Code Annotated section 66-34-
102). In general, it means the “percentage of what a landowner pays a contractor, withheld until the
construction has been satisfactorily completed and all mechanic’s liens are released or have expired.”
Retainage, Black’s Law Dictionary (11th ed. 2019). In this case, Owner withheld a larger retainage from
Holladay, the general contractor, which included the retainage due Snake Steel under the Sub-Contract.
-6-
Important to this appeal, when retainage is withheld in a contract for improvement
of real property, the Prompt Pay Act requires the person withholding the retainage to
deposit it “in a separate, interest-bearing, escrow account with a third party which must be
established upon the withholding of any retainage.” Tenn. Code Ann. § 66-34-104(a).13
The retained funds become the property of the contractor to whom the retainage is owed,
subject to default or failure to complete the work. Id. § 66-34-104(b). Compliance with
the escrow account provision is “mandatory, and may not be waived by contract.” Id. §
66-34-104(j).
In 2010, the General Assembly amended section 66-34-104 to provide that if the
party withholding the retained funds fails to deposit them into such an escrow account, that
party becomes responsible for paying the owner of the retainage $300 per day for each day
the retained funds are not deposited into an escrow account. Act of Apr. 19, 2010, ch. 875,
§ 1, 2010 Tenn. Pub. Acts 1. In 2012, the legislature amended this provision to specify
that the $300 per day is a “penalty.” Act of Mar. 12, 2012, ch. 609, § 4, 2012 Tenn. Pub.
Acts 1, 1. Accordingly, at the time of the events in this case, that provision read:
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.
Tenn. Code Ann. § 66-34-104(c).
In sum, the Prompt Pay Act allows the withholding of retainage but compels prompt
payment upon completion by substantial criminal fines. It removes the motivation for
payment delays by requiring retainage to be deposited in an escrow account, enforceable
by a substantial penalty.
In this case, the retainage itself is not at issue; Holladay paid the retainage to Snake
Steel while the case was pending before the trial court. It is undisputed that Holladay never
deposited Snake Steel’s retainage into an escrow account after Owner remitted the overall
13
Section 66-34-103(d) provides a caveat to the requirement established in section 104(a) and
identifies certain situations in which “additional retained funds” are not required to be placed in escrow.
See Tenn. Code Ann. § 66-34-103(d).
-7-
retainage on the contract to Holladay. The question on appeal centers on the $300 per day
penalty as outlined in section 66-34-104(c).14
Discovery Rule
In this appeal, the parties do not dispute the holding of both the trial court and the
Court of Appeals that the one-year statute of limitations in Tennessee Code Annotated §
28-3-104(a)(1)(C) applies to Snake Steel’s penalty claim.15 They disagree vigorously,
however, about the effect of the one-year statute of limitations on the claim.
In assessing the effect of the statute of limitations, the Court of Appeals applied the
discovery rule to Snake Steel’s claims under the Prompt Pay Act for the $300 per day
penalty. The intermediate appellate court reasoned that application of the rule was
appropriate “to prevent the inequity that would result from a strict application of the one-
year statute of limitations ‘at a time when injury is unknown and unknowable.’” Snake
Steel, Inc., 2020 WL 365304, at *8 (quoting Teeters v. Currey, 518 S.W.2d 512, 515 (Tenn.
1974)). Respectfully, we disagree with the Court of Appeals’ holding that the discovery
rule is applicable in this case.
“[T]he discovery rule is an equitable exception that tolls the running of the statute
of limitations until the plaintiff knows, or in the exercise of reasonable care and diligence,
should know that an injury has been sustained.” Pero’s Steak & Spaghetti House v. Lee,
90 S.W.3d 614, 621 (Tenn. 2002) (citing Quality Auto Parts Co. v. Bluff City Buick Co.,
876 S.W.2d 818, 820 (Tenn. 1994)). We initially adopted the rule for medical malpractice
cases. See Teeters, 518 S.W.2d at 515–16. Since then, we have applied it to a variety of
tort actions, such as products liability, legal malpractice, and dental malpractice, but have
declined to do so in cases involving claims for defamation or conversion of negotiable
14
As noted in footnote 9 above, we assume for purposes of this appeal that Holladay was required
to place Snake Steel’s retainage into escrow.
15
In pertinent part, the statute of limitations provision states:
[T]he following actions shall be commenced within one (1) year after the cause of action
accrued:
....
(C) Actions for statutory penalties.
Tenn. Code Ann. § 28-3-104(a)(1)(C) (emphasis added). The language of this statute of limitations is to
“be strictly construed.” Id. § 28-3-104(a)(3).
-8-
instruments. See Individual Healthcare Specialists, Inc. v. BlueCross BlueShield of Tenn.,
Inc., 566 S.W.3d 671, 710 (Tenn. 2019) (collecting authority).
In Individual Healthcare, the Court discussed whether the discovery rule should be applied
to breach-of-contract claims, noting the Court of Appeals has held the discovery rule may
be applied if the breach alleged by the plaintiff is “inherently undiscoverable.” Id. (quoting
Goot v. Metro. Gov’t of Nashville & Davidson Cnty., No. M2003-02013-COA-R3-CV,
2005 WL 3031638, at *11 (Tenn. Ct. App. Nov. 9, 2005)). Ultimately, the Court declined
to either reject or adopt the holding in Goot because the contract breach in Individual
Healthcare did not qualify as “inherently undiscoverable” under any standard. Id. at 712.
In this case, Snake Steel urges us to affirm the Court of Appeals’ application of the
discovery rule to its claim for statutory penalties under the Prompt Pay Act. It argues that
information about whether its retainage was properly deposited into a separate interest-
bearing escrow account was “inherently undiscoverable,” similar to Goot. Snake Steel
cites no cases in which the discovery rule has been applied to a claim for penalties, as
opposed to compensation for injury or harm.16 Cf. Gabeli v. SEC, 568 U.S. 442, 451–52
(2013) (citations omitted) (“The discovery rule helps to ensure that the injured receive
recompense. But this case involves penalties, which go beyond compensation, are intended
to punish, and label defendants wrongdoers. Chief Justice Marshall used particularly
forceful language in emphasizing the importance of time limits on penalty actions, stating
that it ‘would be utterly repugnant to the genius of our laws’ if actions for penalties could
‘be brought at any distance of time.’” (quoting Adams v. Woods, 6 U.S. (2 Cranch) 336,
342 (1805))).
Regardless, it cannot be said that Holladay’s failure to deposit Snake Steel’s
retainage funds in an appropriate escrow account was “inherently undiscoverable.” The
obligation to deposit such funds in an escrow account was set forth in a state statute; it was
public knowledge and obviously available to both parties in this case. Nothing in the record
indicates that Snake Steel even asked Holladay if the funds were in an escrow account until
this lawsuit was filed.17 As in Individual Healthcare, “even if we were to adopt the Goot
‘inherently undiscoverable’ discovery rule . . . , these facts do not meet that standard.” 566
16
The cases cited by Snake Steel involve injury or harm, not claims for a statutory penalty. See
Terry v. Niblack, 979 S.W.2d 583 (Tenn. 1998) (negligence); Hunter v. Brown, 955 S.W.2d 49 (Tenn. 1997)
(sexual abuse); Potts v. Celotex Corp., 796 S.W.2d 678 (Tenn. 1990) (products liability); Foster v. Harris,
633 S.W.2d 304 (Tenn. 1982) (medical malpractice).
17
Neither party was aware of the statutory requirement to place retainage funds in a separate
interest-bearing escrow account until Snake Steel prepared to file its lawsuit against Holladay.
-9-
S.W.3d at 715. Accordingly, we respectfully decline to apply the discovery rule to Snake
Steel’s claim for statutory penalties.
After holding the discovery rule was applicable to Snake Steel’s penalty claim, the Court
of Appeals found there was a genuine issue of material fact as to when Snake Steel “learned
or should have learned that its retainage was not in an interest-bearing escrow account” as
required by the Prompt Pay Act, so it remanded the case to the trial court for a
determination of this issue. Snake Steel, Inc., 2020 WL 365304, at *8. Because we decline
to apply the discovery rule to Snake Steel’s claim, this is no longer a material fact, and
remand for a determination of this issue is no longer necessary.
Application of Statute of Limitations
The trial court found Snake Steel’s claim for statutory penalties arose no later than
February 19, 2016, the day Snake Steel submitted a pay application for the entire amount
of retainage. Snake Steel filed its complaint on September 25, 2017, well over a year later.
The trial court concluded Snake Steel’s claim for penalties under the Prompt Pay Act was
entirely barred by the one-year statute of limitations, so it granted summary judgment in
favor of Holladay.
On appeal to the Court of Appeals, Snake Steel contended Tennessee Code
Annotated section 66-34-104(c) should be interpreted to mean that each day Holladay
failed to deposit Snake Steel’s retainage into an escrow account, Holladay incurred a new,
separate $300 penalty. Under this interpretation, even if Snake Steel were unable to recover
some of the penalties because of the one-year statute of limitations, it should still be
permitted to recover daily penalties for the year prior to the date on which Snake Steel filed
its complaint. Id. at *9. The Court of Appeals agreed. If Holladay failed to deposit Snake
Steel’s retainage into an escrow account as required under section 66-34-104(a) and Snake
Steel were unable to rely on the discovery rule, the Court of Appeals held, Snake Steel was
“still entitled to statutory penalties for each of the 365 days leading up to [Snake Steel’s]
filing of its complaint on September 25, 2017, and beyond.” Id.On appeal to this Court, Holladay argues the Court of Appeals’ interpretation of
section 66-34-104(c) is contrary to the purpose of statutes of limitations and would render
this one virtually meaningless. This interpretation, it asserts, would expose construction
companies to indefinite liability for claims under the Act. Holladay likens this case to cases
involving the continuous tort doctrine, citing Kenton v. United Technology, Shelby Law
No. 71, 1990 WL 32121 (Tenn. Ct. App. Mar. 26, 1990). In that case, the Court of Appeals
explained the doctrine was applicable where there was “a continuous act, or omission in
- 10 -
violation of law, from which a continuous additional in[jury] is inflicted with a cumulative
result.” Id. at *3 (quoting Frazor v. Osborne, 414 S.W.2d 118, 122 (Tenn. Ct. App. 1966),
abrogation on other grounds recognized by Stanbury v. Bacardi, 953 S.W.2d 671 (Tenn.
1997)). Under the continuous tort doctrine, Holladay maintains, the cause of action accrues
when the professional relationship or the course of treatment is terminated, and a plaintiff
“is not entitled to a new limitations period to begin with the appearance of each new injury
or complication.” Id. Similarly, Holladay argues this Court should reject the Court of
Appeals’ holding that Snake Steel would essentially remain entitled to at least 365 days of
statutory penalties, regardless of how long it waited to assert its claim.
We have carefully considered Holladay’s arguments and must respectfully disagree.
First, this case does not involve an injury in a tort case. The continuous tort doctrine is
inapposite, by analogy or otherwise, to the assessment of a statutory penalty. Our analysis
must hinge on interpretation of the statute that creates the penalty.
The first rule of statutory construction is to effectuate legislative intent. Beard v.
Branson, 528 S.W.3d 487, 496 (Tenn. 2017). We look at “the language of the statute, its
subject matter, the object and reach of the statute, the wrong or evil which it seeks to
remedy or prevent, and the purpose sought to be accomplished in its enactment.” Spires v.
Simpson, 539 S.W.3d 134, 143 (Tenn. 2017) (quoting State v. Collins, 166 S.W.3d 721,
726 (Tenn. 2005)). We seek a reasonable interpretation “in light of the purposes,
objectives, and spirit of the statute based on good sound reasoning.” Beard, 528 S.W.3d
at 496 (quoting Scott v. Ashland Healthcare Ctr., Inc., 49 S.W.3d 281, 286 (Tenn. 2001)).
The statute’s text “is of primary importance, and the words must be given their natural and
ordinary meaning in the context in which they appear and in light of the statute’s general
purpose.” Coffee Cnty. Bd. of Educ. v. City of Tullahoma, 574 S.W.3d 832, 839 (Tenn.
2019) (quoting Mills v. Fulmarque, Inc., 360 S.W.3d 362, 368 (Tenn. 2012)).
As outlined above, the Prompt Pay Act goes to great lengths to ensure that
construction contractors are timely paid. After setting forth strict deadlines for payments
to contractors and subcontractors, the Act makes violation of the deadline provisions a
misdemeanor, subject to a fine of $3000, with each day constituting a separate violation.
Tenn. Code Ann. § 66-34-103(e)(2). As further protection for contractors, absent an
exception, the Act obliges persons who withhold retainage to deposit it into a separate
interest-bearing escrow account. Id. § 66-34-104(a). This ensures the money is set aside
and contractors receive interest even if their receipt of the retainage is delayed. To put
teeth into the escrow requirement, for persons required to deposit the retainage into such
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an escrow account, failure to do so results in a penalty of $300 per day.18 The Act adds
emphatically that the $300 per day penalty is “for each and every day that such retained
funds are not deposited into such escrow account.” Id. § 66-34-104(c) (emphasis added).
Looking first to the text of the statute, Tennessee Code Annotated section 66-34-
104(c) clearly assesses the penalty “per day,” for “each and every day” the retainage is not
deposited into an escrow account. We consider next the statute’s subject matter, its
objective, the wrong it seeks to prevent, the purpose it seeks to accomplish, Spires, 539
S.W.3d at 143, and the statutory framework, Coffee County Board of Education, 574
S.W.3d at 846. Here, the Act’s purpose, its objective, is to prevent the very wrong done in
this case—for years after Snake Steel completed its work, Holladay received the benefit
and use of retainage that rightfully belonged to Snake Steel. The statutory framework
indicates the legislature’s resolve to make it not worthwhile for contractors such as
Holladay to abuse the lawful mechanism of withholding retainage to ensure completion of
work. Interpreting section 66-34-104(c) to assess the statutory penalty anew each day
reflects the natural and ordinary meaning of the statutory language and aligns with the
context and purpose of the Prompt Pay Act as a whole. See Coffee Cnty. Bd. of Educ., 574
S.W.3d at 839.
Holladay notes that, in this case, neither party knew the law required retainage to be
placed in an escrow account. It characterizes the $300 per day penalty as “draconian.”
Holladay argues the holding of the Court of Appeals on this issue, allowing Snake Steel to
recover at least $109,500 in penalties no matter how long it waits to file suit, would
represent a “huge windfall” to Snake Steel since the entire retainage was only $18,270.58.
Perhaps. Those policy decisions, however, are within the purview of the legislature.
Our job is to apply the statutes as they are written.
We agree with the Court of Appeals that, provided Snake Steel can establish that
Holladay was required to deposit the subcontractor retainage funds into an escrow account,
the statute of limitations does not preclude Snake Steel from recovering the $300 per day
penalty commencing 365 days before the filing of the complaint and for each day following
18
The 2020 amendments to the Prompt Pay Act changed that section to specify that the $300 per
day is damages, not a penalty. See Act of June 22, 2020 § 17. That amendment is not applicable to this
case.
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the filing of the complaint, up to the day Holladay tendered the retainage to Snake Steel.19
Snake Steel, Inc., 2020 WL 365304, at *9.
CONCLUSION
In conclusion, we reverse the Court of Appeals’ application of the discovery rule to
toll the one-year statute of limitations as to Snake Steel’s penalty claim. We reverse as
well the Court of Appeals’ direction to the trial court to determine on remand the issue of
when Snake Steel knew or should have known its retainage had not been deposited into an
escrow account. We affirm the Court of Appeals’ holding that, provided Snake Steel can
establish that Holladay was required to deposit the subcontractor retainage funds into an
escrow account, the statute of limitations does not preclude Snake Steel from recovering
the $300 per day penalty, commencing 365 days before Snake Steel filed its complaint in
this cause, up to the day Holladay tendered the retainage to Snake Steel. We affirm the
trial court’s grant of summary judgment in favor of Holladay as to Snake Steel’s claim for
the statutory penalty prior to September 25, 2016, i.e., 365 days before the complaint was
filed. We reverse the trial court’s grant of summary judgment in favor of Holladay as to
Snake Steel’s claim for the statutory penalty commencing 365 days before the filing of the
complaint.
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Holladay initially tendered the retainage to Snake Steel in October 2017, and Snake Steel refused
to accept it. Holladay again tendered it in December 2017, and this time Snake Steel accepted it. As with
the Court of Appeals, we have not been asked to determine which tender date is operative, so we leave that
question for the trial court on remand. Snake Steel, Inc., 2020 WL 365304, at *9 n.5.
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The cause is remanded to the trial court for further proceedings consistent with this
Opinion. Costs on appeal are assessed one-half to Plaintiff-Appellee Snake Steel, Inc., and
one-half to Defendant-Appellant Holladay Construction Group, LLC, and its surety, for
which execution may issue if necessary.
___________________________________
HOLLY KIRBY, JUSTICE
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