The Superior Court of Pennsylvania recently provided an expensive lesson to contractors about contract law, unjust enrichment, and when attorney fees will be awarded. In SDSP, LLC v. ATTIAS, No. 1029 EDA 2022 (Pa. Super. Ct. June 20, 2023), a group of subcontractors won a judgment for 3.2M against a property owner and the general contractor. The subcontractors wanted even more money. All parties appealed.
But in June of 2023, the Superior Court not only overturned the 3.2M judgment in favor of the subcontractors, it ordered the subcontractors to pay the attorney fees of the property owner and general contractor.
So how did things go so horribly wrong for the subcontractors?
Looking Closely at the Claim of Each Subcontractor
A party seeking to enforce a contract — whether he’s a contractor or subcontractor — needs a valid and well drafted contract to show exactly how much money he can expect to receive, for doing work pursuant to the contract.
With me so far?
Plus, in construction law, a subcontractor having a valid contract for improvement to commercial property can also make a claim for violation of PA’s Contractor Subcontractor Payment Act for non-payment for work, which allows for an award for penalties and attorney fees, for untimely payment. However, in the absence of a valid contract, a contractor or subcontractor may not recover their invoiced amount. Rather, their claim is limited to “unjust enrichment.” This is the amount of actual benefit to the property owner from demonstrated improvement to her property.
Forget the Invoice Amounts of 3.2M
In SDSP, LLC, above, a three judge panel on the Superior Court noted that the trial court had dismissed the subcontractors’ breach of contract claim. Thus, their award for 3.2M was for unjust enrichment, not breach of contract. Only, each subcontractor relied on his invoice as evidence. In SDSP, LLC, above, the three judge panel opined:
[I]t is well settled that, for unjust enrichment actions against owners in construction cases, the existence of an enrichment is determined by the value of the benefit to the owner, not by the value of the invoice submitted by the subcontractor. Id. Here, Subcontractors did not produce evidence of whether/how the value of WPHS’s property was increased or enhanced due to the changes.
A contractor must also show that the owner had: “requested the benefit, contracted directly with, or misled the subcontractor.” No such facts existed in SDSP, LLC. There, the Superior Court concluded:
Thus, we reverse the trial court’s order pertaining to the finding of unjust enrichment in favor of Subcontractors and vacate the March 14, 2022, judgment with regard thereto.
But for the Subcontractors, the nightmare was not over.
Demand on the Subcontractors For Attorney Fees
In SDSP, LLC, above, the property owner and general contractor wanted the subcontractors to pay their attorney fees for litigation resulting in a 60+ page superior court opinion. No such right exists in contract law, however. Rather, the party seeking an award for his attorney fees must show either:
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- a clause in the contract expressly allows the recovery for attorney fees; or
- a statute exists creating such a right.
Here, the general contractor and property owner relied on Pennsylvania’s Contractor and Subcontractor Payment Act (“CASPA“), 73 P.S. § 512. The SDPS, LLC court performed a detailed analysis of CASPA. Ultimately, the court concluded:
To qualify as a substantially prevailing party under CASPA, a party need not only recover on its claim, but also prove the opposing party, without good faith reason, failed to comply with the mandate of prompt payment. Id. at 609.
Here, we agree with SDSP/WPHS that it was the substantially prevailing party under CASPA. The trial court found that SDSP/WPHS timely paid Subcontractors for the in-scope work under the trade subcontracts, and thus, denied Subcontractors’ claim for relief under CASPA. . . .
Simply put, SDSP/WPHS is the party in whose favor a judgment has been rendered, and there is no evidence they failed to comply with the mandates of prompt payment to Subcontractors. Thus, we conclude the trial court erred in failing to award SDSP/WPHS attorney’s fees and expenses under Section 512(b) of CASPA, and thus, we remand for the trial court for further proceedings as to the issue.
Ouch. A painful — an expensive — lesson, indeed, for the subcontractors.
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