Snake Steel, Inc. v. Holladay Constr. Grp., LLC
| Decision Date | 30 June 2021 |
| Docket Number | No. M2019-00322-SC-R11-CV,M2019-00322-SC-R11-CV |
| Citation | 625 S.W.3d 830 |
| Court | Tennessee Supreme Court |
| Parties | SNAKE STEEL, INC. v. HOLLADAY CONSTRUCTION GROUP, LLC |
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.
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.
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.
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.
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. § 66-34-104(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 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.
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) ).
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.
The Prompt Pay Act was enacted in 1991.11 See Tenn. Code Ann. § 66-34-101 (2015) (). 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) (). 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...
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