Prompt pay laws exist to protect construction industry participants from slow or nonexistent payments. If payment is delayed beyond a specific amount of time (that varies by state) a contractor may be able to make a claim for payment pursuant to prompt payment laws of the state in which the project was located, and may be entitled to demand, and ultimately recover interest or penalties, costs, and attorneys’ fees.
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Being able to put this added pressure on the non-paying party, and raise the potential of being hit with additional costs in the form of interest and attorney’s fees, can help parties get paid more quickly. As recent cases have made clear, the penalties and interest related to failure to comply with prompt pay regulations can be large.
A recent case in Alabama examined what constitutes reasonable attorneys’ fees under the prompt pay act – and it appears these can add up, as well.
Recovery Under Alabama Prompt Pay Act
The Alabama Prompt Pay Act set forth the amounts that can be recovered in a civil action for payments withheld in contravention to the requirements of the act. These amounts include the amount due plus interest, and if payments were found to have not been made in complacence with the act, “reasonable attorneys’ fees, court costs and reasonable expenses”.
The statute setting forth the permissible recovery is Ala. Code §§ 8-29-6, which states:
A contractor, subcontractor, or sub-subcontractor may file a civil action solely against the party contractually obligated for the payment of the amount claimed to recover the amount due plus the interest accrued in accordance with this chapter. If the court finds in the civil action that the owner, contractor, or subcontractor has not made payment in compliance with this chapter, the court shall award the interest specified in this chapter in addition to the amount due. In any such civil action, the party in whose favor a judgement is rendered shall be entitled to recover payment of reasonable attorneys’ fees, court costs and reasonable expenses from the other party. [emphasis added]
The statute clearly sets forth that any award of attorneys’ fees must be reasonable, and that is the point examined recently by an Alabama court of appeals.
Background of the Case
The case, Diamond Concrete & Slabs, LLC v Andalusia-Opp Airport Authority arises from an unpaid invoice in a project to construct an airplane hangar. The Airport Authority hired Southern Structures Corp. (“Southern”) to construct a hangar, and Southern, in turn, subcontracted with Diamond Concrete and Slabs, LLC (“Diamond”) for concrete work for construction of the floor.
Diamond alleged that Southern owed $14,055, and that payment of that amount hadn’t been made in accordance with the requirements of the prompt pay act. The trial court agreed and, in addition to awarding Diamond the amount of the outstanding invoice, awarded $5,622 in attorneys’ fees, and around $11,000 in costs. The court made the attorney fee amount determination by percentage – determining that 40% of the initial claim amount was “reasonable” pursuant to the statute.
Diamond, however, disagreed with the assessment that attorney fees in that amount were a reasonable award. The contract Diamond had with its attorneys was not based on a percentage of the award or claim, but required payment to the attorneys on an hours-billed basis. This amount was much greater than the $5,622 awarded, in fact, it amounted to $247,275. Diamond appealed the reasonableness of the attorney fee award to the court of appeals.
Court of Appeal Decision – Reasonable Attorneys Fees Under Alabama Prompt Pay Act
The court of appeals agreed with Diamond that the attorney fee award was “inconsistent with, and unsupported by the evidence in the record”, and as such, reversed the judgment and remanded the case to the trial court to reconsider the attorney-fee award.
Substantial evidence was provided regarding the attorney fees billed, but was not considered by the trial court. While what constitutes a reasonable attorneys fee award is generally left to the discretion of the trial court, the court of appeals was unable to determine what rationale was used to reach the conclusion that the amount requested was unreasonable given the complexities of the case, or that a change of the award to a 40% contingent fee basis was reasonable in light of the factors that should have been considered.
The court of appeals made explicit that it was not holding that an percentage contingent fee determination could not be a reasonable way to calculate attorneys fees, nor did it hold that the hourly rate set by Diamond’s counsel or the amount of hours expended were reasonable. However, it did specifically note that the award of the trial court bore no discernible relationship to the time expended on the case, and that the trial court must re-evaluate the attorney fee award based on a consideration of the factors set forth in Peebles.
It is not just interest or penalties that can add up quickly on claims made pursuant to a prompt pay statute. While it’s a well-known fact that litigation is an expensive undertaking, seeing this type of request for attorneys fees on an unpaid invoice of $14,000 should be eye-opening to parties who may be a bit delinquent in paying what is owed. Paying the $14,000 when it’s due is easier to swallow than paying the $14,000 late, and being forced to pay $250,000 in attorney fees.