Ohio’s Prompt Payment Act: An Overlooked Solution for Unpaid Subcontractors and Material Suppliers

By Andrew Randol - September 12, 2018 - Corporate & Business

When subcontractors or material suppliers go unpaid, a mechanics’ lien is often looked at as their sole remedy. Typically, a mechanics’ lien should be filed in order to preserve any lien rights; however, this is not the only statutory remedy available to subcontractors and material suppliers. If a subcontractor or material supplier has requested payment from a general contractor prior to the contractor submitting its own payment request, then they likely have a claim under Ohio’s Prompt Pay Act.

Under the Prompt Pay Act, if a general contractor has received an invoice from a subcontractor or material supplier remains unpaid for 30 days, it may bring a civil suit and the court may award the successful parties its attorney fees from the other party. While the attorney fees are not guaranteed, if the subcontractor and the material supplier has at all times acted in good faith, then the attorney fees will likely be awarded.

An interesting case out of Cleveland illustrates how a combination of a mechanics’ lien as well as a claim under Ohio’s Prompt Pay Act can lead to recovery for unpaid subcontractors or material suppliers.[1] In July 2007, A-Team, LLC (dba Service Master) was hired as a general contractor to repair severe water damage that occurred in the Cleveland Browns Stadium due to faulty plumbing. In turn, Service Master hired Frank Novak & Sons (“Novak”) as a subcontractor to perform some of the work.

In the midst of the repairs, a severe storm on August 2, 2007, caused additional damage to the stadium.[2] Service Master was asked to repair the additional damage caused by the storm, and in-turn, Service Master subcontracted out additional work to Novak.

All parties acknowledged that Novak had performed all the work asked of it, but a dispute over payment arose. Novak claimed it was owed an additional $105,450 to repair damage from the plumbing issue and an additional $31,617.28 to repair damage caused by the storm. Novak filed a mechanics’ lien on the property and was able to negotiate a $105,450 payment directly from the Browns in exchange for removing the lien.  However, Novak was still owed $31,617.28 for the work performed to fix some of the storm damage.

Novak sued Service Master for breach of contract and for 18% interest and attorney fees under the Prompt Pay Act. Initially, the trial court denied Novak’s claims under the Prompt Pay Act, but the 8th District Court of Appeals reversed and found that Service Master violated the Prompt Pay Act. As required by the Act, Novak sent an invoice for payment to Service Master before Service Master requested payment from the Cleveland Browns. As part of its request for payment, Service Master forwarded the invoice from Novak to the Browns.

The Cleveland Browns’ insurer specifically approved payment of $31,617.28 for the work performed by Novak and made payment to Service Master. However, according to the court, Service Master did not pay this money to Novak because Service Master believed that it had already paid Novak in full. Because Novak timely submitted its request for payment to Service Master, the 8th District Court of Appeals found that Service Master violated the Prompt Pay Act and Novak was entitled to 18% interest on the amount due. The appellate court also remanded the case.

By conforming with both the mechanics’ lien statute as well as the requirements under the Prompt Pay Act, Novak was ultimately able to recover the money it was owed. Novak likely had advice and guidance from a construction litigation attorney in order to navigate this complex and high-stakes dispute. It is never too early to retain a Columbus construction attorney when a dispute looms on the horizon. Lawyers experienced in construction disputes can ensure your business does not make any missteps when dealing with multi-party complex legal disputes. Had Novak not retained a construction litigation attorney to assist in its construction dispute, it could have easily missed out on payment from the Cleveland Browns and from Service Master. If your business is faced with a construction dispute, please contact our Columbus business attorney to see how Stevens Randol can help.

 

[1] Frank Novak & Sons, Inc. v. A-Team, L.L.C., 2014-Ohio-922, 6 N.E.3d 1242 (8th Dist.).

[2] The true tragedy of this story is that the Browns managed to go 10-6 in the 2007 season and still missed the playoffs.

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