By: Gregory J. Spaun Published: July 2016

New York's Prompt Payment Act Survives......For Now

New York's Prompt Payment Act was amended in 20091 to deal with the problem of slow payments from owners to construction contractors and subcontractors. Under the Act, as amended, a contractor or owner presented with an invoice for payment for construction services or materials has 12 days to lodge objections to the invoice (or portions thereof). The portions of the invoice which are not objected to within the 12 day time frame are deemed approved and must be paid within 30 days thereafter. In the event that such invoices are not paid within that timeframe, or if the objections to the invoice are disputed, the unpaid contractor has the option to bring an expedited arbitration proceeding, rather than suffer through years of litigation. Reinforcing this right is another section of the Act, which provides that any contractual  provision which denies a party the right to that expedited arbitration proceeding is void. This particular provision raised eyebrows when it was enacted because it deprives a party of his or her Constitutional right to a jury trial.

This question was recently passed on (by being passed over) by an appellate court in the case of Matter of Capital Siding & Construction, LLC v Alltek Energy System, Inc. In Capital Siding, Alltek entered into a construction subcontract with Capital Siding. During the job, Capital Siding withheld certain amounts from Alltek's payment, which Alltek disputed. In order to quickly resolve this dispute, Alltek sought expedited arbitration pursuant to the Act. In response, Capital Siding brought a special proceeding to permanently stay Alltek's arbitration, noting that the subcontract specifically provided for litigation.

The trial court denied Capital Siding's request, holding that the Act provides for arbitration, and that the Act specifically voided the contractual provision which denied Alltek of its statutory right to such arbitration. Capital Siding appealed, also raising the constitutional issue that the Act denied it of its right to a trial by jury—an argument it would not have been able to raise if the contract contained a waiver of a jury trial, as many construction contracts do. The Appellate Division affirmed the trial court's holding. As to the constitutional issue, that the Act denied Capital Siding of its Sixth Amendment right to a trial by jury, the Appellate Division declined to rule on the substance of the issue. Rather, that court dodged the issue by noting that the issue had been improperly raised for the first time on appeal, and that Capital Siding had failed to provide the Attorney General with a required notice of its intent to challenge the constitutionality of the statute "at any stage of this proceeding".

As is implicit in the Appellate Division's note that Capital Siding failed to provide notice of its constitutional challenge "at any stage", the Appellate Division could have permitted Capital Siding to give that notice and permitted the Attorney General to be heard in support of the Act. However, the Appellate Division's decision not to do so means that the Prompt Payment Act survives--for now, until a challenger raises the issue before the trial court and provides the Attorney General with the required notice.

1 The Prompt Payment Act contains limitations as to what projects to which it is applicable.

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