{"id":901422,"date":"2023-07-19T10:26:43","date_gmt":"2023-07-19T16:26:43","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=901422"},"modified":"2023-07-19T10:26:47","modified_gmt":"2023-07-19T16:26:47","slug":"prompt-payment-act-tennessee","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/prompt-payment-act-tennessee\/","title":{"rendered":"Choose With Care: Tennessee Federal Court\u2019s Prompt Payment Conclusions Turn on Choice of Law Clause"},"content":{"rendered":"\n

Michelle Rosenberg | ConstructLaw<\/a><\/p>\n\n\n\n

Fed. Eng\u2019rs & Constructors Inc. v. Relyant Global LLC<\/em>, No. 3:19-CV-73-KAC-JEM, 2022 U.S. Dist. LEXIS 95617 (E.D. Tenn., May 27, 2022)<\/strong><\/p>\n\n\n\n

This case arises out of the renovation of a U.S. Air Force dormitory in Missouri. The U.S. Army Corps of Engineers hired Relyant Global LLC to act as the prime contractor. Relyant subcontracted with Federal Engineers and Constructors, Inc. (FE&C). Relyant later terminated its subcontract with FE&C. FE&C filed suit against Relyant, and Relyant moved for judgment on the pleadings.<\/p>\n\n\n\n

FE&C\u2019s amended complaint included a claim for violation of the federal Prompt Payment Act<\/a> (PPA). FE&C asserted that Relyant\u2019s failure to pay FE&C entitled it to recover an interest penalty. Relyant argued that the subcontract did not include any provision requiring Relyant to pay interest on late payments, and no private right of action existed under the federal PPA to implicitly incorporate such a provision. In response, FE&C advanced a creative theory of liability \u2014 \u201cFE&C is not bringing a private right of action under the federal Prompt Payment Act, but is instead seeking enforcement of a contractual penalty.\u201d Under FE&C\u2019s theory, it was entitled to recover interest under a subcontract provision that generally incorporated all \u201cterms and conditions \u2026 required by law.\u201d The court rejected FE&C\u2019s creative theory, finding that it was not supported by the cause of action actually pled.<\/p>\n\n\n\n

FE&C\u2019s amended complaint also included claims for violation of the Tennessee PPA. FE&C argued that the Tennessee PPA applied because the subcontract included a choice of law provision, stating: \u201cThis agreement shall be construed and interpreted in accordance with the laws of the State of Tennessee, U.S.A.\u201d Relyant argued that the Missouri PPA applied because the project was located in Missouri. The court applied the choice of law rules of the forum in which it sat \u2014 Tennessee. For claims sounding in contract, Tennessee applies the law of the state where the parties executed the contract. But if the contract contains a choice of law provision, the courts will enforce it \u201cso long \u2026 there is a material connection between the law and the transaction, and the chosen law is not contrary to the fundamental policies\u201d of a state whose law would otherwise govern. The court held that subcontract\u2019s choice of law provision was enforceable because Relyant failed to identify a Missouri policy contrary to the Tennessee PPA.<\/p>\n\n\n\n

With this backdrop, the court looked at FE&C\u2019s specific claims that Relyant violated Sections 103 and 104 of the Tennessee PPA by withholding 10% retainage from each invoice and by not placing that amount in a separate escrow account. The subcontract provided that Relyant \u201cmay retain \u2026 a maximum of ten percent (10%) of the amount of each invoice.\u201d The court found that the express terms of the parties\u2019 agreement controlled because Section 103 only applied to \u201cconstruction contracts on any project in this state<\/em>,\u201d and the project was not in Tennessee. The subcontract was silent as to whether retainage must be placed in an escrow account. However, Section 104 of the Tennessee PPA provides that a \u201cretained amount shall be deposited in a separate, interest-bearing, escrow account \u2026 .\u201d Compliance with Section 104 is \u201cmandatory, and may not be waived by contract.\u201d Because the subcontract incorporated Section 104\u2019s mandatory requirement that any retainage be deposited in an escrow account, and FE&C alleged that Relyant withheld 10% retainage without placing the funds in escrow, the court held that FE&C properly pled a claim for violation of Section 104.<\/p>\n\n\n\n

FE&C also sought to recover attorney\u2019s fees and costs against Relyant for its PPA claim. Under Tennessee law, a party may only recover attorney\u2019s fees if a specific contractual or statutory provision creates a right to recovery. The subcontract contained a provision requiring each party to bear its own fees, which conflicted with the Tennessee PPA\u2019s requirement that fees be awarded against a non-prevailing party acting in bad faith. Under Tennessee law, where a choice of law provision invalidates an express contractual provision, the court generally presumes that the conflicting choice of law provision was a mistake and applies the express contractual provision. However, if the express provision would be invalid under the chosen state law\u00a0and<\/em>\u00a0under the law of the state that would govern in the absence of a choice of law provision, \u201cthe doctrine of mistaken choice of law will not be employed to permit the parties to overcome the policy of both states.\u201d The court found that because neither the relevant pleadings nor the parties\u2019 briefing contained sufficient facts to determine which state\u2019s law would apply in the absence of the choice of law provision, a material issue of fact existed, and allowed FE&C\u2019s claim for attorney\u2019s fees to proceed.<\/p>\n\n\n\n

\n\n\n\n

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Michelle Rosenberg | ConstructLaw Fed. Eng\u2019rs & Constructors Inc. v. Relyant Global LLC, No. 3:19-CV-73-KAC-JEM, 2022 U.S. Dist. LEXIS 95617 (E.D. Tenn., May 27, 2022) This case arises out of the renovation of a U.S. Air Force dormitory in Missouri. The U.S. Army Corps of Engineers hired Relyant Global LLC to act as the prime… Continue reading Choose With Care: Tennessee Federal Court\u2019s Prompt Payment Conclusions Turn on Choice of Law Clause<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9],"tags":[9895,224,520,352],"class_list":["post-901422","post","type-post","status-publish","format-standard","hentry","category-construction-contracts","tag-advise-consult","tag-construction-contract","tag-prompt-pay-act","tag-tennessee","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nChoose With Care: Tennessee Federal Court\u2019s Prompt Payment Conclusions Turn on Choice of Law Clause - 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