Unfinished residential structure with New Jersey Legal Alert graphic

Nearly every state in the US has some form of prompt payment laws enacted to ensure timely payment on construction projects. The purpose of such laws is to ensure the timely payment of contractors and subs by imposing interest fees on late payments. In addition to interest penalties, most states also include the ability to recover court costs and attorney fees if the claimant is successful in court.

New Jersey’s prompt pay provisions include such a provision — but what is considered reasonable? Does it mean reasonably proportional to the claim? Not according to a recent New Jersey Superior Court decision.

New Jersey’s Prompt Payment Act penalties

New Jersey’s Prompt Payment Act governs the timing of payments on both public and private projects. For parties, other than the general contractor, payments must be made within 10 days after the hiring party receives payment. Payments wrongfully withheld past this payment deadline will accrue interest at a rate equal to the prime rate, plus 1%. However, in order to collect such interest penalties, a lawsuit is required to enforce a claim under the Act.

Litigation can be expensive, which can discourage many contractors to make such a claim. But under NJ Stat. §2A:30A-2(f):

“… In any civil action brought to collect payments pursuant to this section, the action shall be conducted inside of this State and the prevailing party shall be awarded reasonable costs and attorney fees.”

These costs can add up quickly! As it did in a recent case from the NJ Superior Court that supported the recovery of attorney fees and costs that were upwards of three times the amount of the claim.

Dive deeper: How to Make a Claim Under Prompt Payment Laws

Reasonable attorney fees and costs under NJ Prompt Pay claims

The case in question is JHC Industrial Services, LLC v. Centurion Companies, Inc.

Project Snapshot

Trial court reduces attorney fees requested based on ‘proportionality’ to the claim award

The facts leading up to this dispute are fairly simple, and unfortunately common.

Centurion had subcontracted some demolition under their contract with Sanzari to JCH. After JHC completed their work, Sanzari had paid Centurion for the demolition work but failed to pay JHC. In response, JHC filed an action under the Prompt Payment Act for the $30,500 they claimed to be owed.

At trial, the court ruled in favor of JHC and awarded them the $30,500 they had claimed. After which, JHC submitted an application for the award of reasonable costs and attorney fees incurred; requesting $104,670.51.*

The trial court denied the amount requested. Stating that the attorney fees and costs recoverable should be proportional to the damages recovered. Thus, the total amount awarded as costs and fees was reduced to just $15,375.73 in total. JHC appealed the award.

*Important note: this amount may seem excessive, but the proceedings were delayed and dragged out by the defendant over a two-year span!

Superior court reverses the reduction of attorney fees

The Superior Court disagreed with the trial court’s decision to award reduced attorney fees and costs. They began their analysis by looking to the purpose of the act, which is “to ensure that subcontractors are fully and promptly paid for their work, and a mandatory award of reasonable costs and attorney fees is necessary to vindicate the Act’s salutary purposes.”

The rationale for incorporating such fee-shifting measures into the statute is to help ensure that individuals with legitimate claims have access to the court system and competent representation. And New Jersey courts in the past have expressly declined to impose a proportionality requirement between damages recovered and counsel-fee awards under state fee-shifting statutes.

The entire thrust of the statute is to ensure that contractors and subcontractors receive full payment for their work promptly on completion, it is patently clear the Legislature intended the attorney’s fee provision as one of the deterrent aspects of the legislation. As stated:

“Thus, we conclude the court erred in reading a proportionality requirement into the attorney’s fees provision of the statute and in deciding it could not grant the plaintiff’s fee request for $104,670.51 expended to recover the $30,500 Centurion refused to pat plaintiff after it fully performed.”

The case was remanded to trial to assess the proper amount of fees and costs that should be awarded to JHC under the Prompt Payment Act. The court further noted that the trial court should be mindful that the plaintiff’s counsel obtained not merely a “satisfactory result for the client,” but complete success on all plaintiff’s claims after two years of litigation and trial in this matter.”

Owners & contractors should pay promptly — or pay the price

We reached out to Anthony Rainone, an attorney representing JHC in this case, and he had this to say about the outcome:

“Our firm was pleased with the ruling, which reinforced contractors’ and subcontractors’ right to be paid promptly on construction projects,” Rainone said. “New Jersey enacted this law to protect the right to payment. For many contractors, untimely payment can lead to severe financial consequences for the company and the employees. This decision protects the hard-working contractors and subcontractors.”

I couldn’t agree more. Without such a fee-shifting provision, the prompt payment laws would be all bark and no bite. Entitlement to interest penalties is one thing, but actually collecting the interest will almost always require filing a lawsuit. Awarding attorney fees is meant to both punish and deter late payments on construction projects. So let this decision be a warning to any late-paying owners or contractors in New Jersey.

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