By: Michael P. Sams and Samantha Corcoran
The Tocci Building Corp. v. IRIV Partners, LLC et al. decision involved a construction project on Summer Street in Boston in which the Prompt Pay Act applied. The Prompt Pay Act applies to private construction projects in Massachusetts where the general contract value exceeds $3,000,000. The Act does not apply to public construction projects or residential construction projects of fewer than four units.
In this case, general contractor Tocci sued Boston Harbor Industrial Development and the entity that it appointed to oversee construction, IRIV Partners (collectively referred to the “Owner”). Early in the case, the trial court found that the Owner had to pay Tocci because of its failure to comply with the requirements of the Prompt Pay Act in rejecting Tocci’s related payment requisitions, even though the Owner had numerous counterclaims. The Owner paid Tocci but the case continued to assess whether the Owner could recover from Tocci on its counterclaims for deficient and untimely work.
This set the stage for Tocci’s March 15, 2024 summary judgment motion, which the trial court just ruled on, dismissing the Owner’s contractual counterclaims – also because of the Owner’s prompt pay violations.
Trial Court Decision
In response to Tocci’s motion for summary judgment, the trial court ruled that the Owner’s failure to comply with the Prompt Pay Act was a material breach of the contract, and therefore, the Owner was not entitled to assert contractual counterclaims and defenses.
More specifically, the Owner had alleged eight counterclaims against Tocci including: breach of contract; breach of the implied covenant of good faith and fair dealing; fraud; third-party beneficiary; breach of warranty; negligent misrepresentation; negligence; and unfair and deceptive conduct under M.G.L. c. 93A. Of those, Tocci moved for summary judgment to have the Court dismiss five counts, which included those for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, third-party beneficiary, and breach of warranty claims.
The basis for Tocci’s motion for summary judgment was that an Owner that violates the Prompt Pay Act cannot then assert contract-based counterclaims because the violation of the Prompt Pay Act also constitutes a material breach of contract. Tocci argued that if a project is subject to the Prompt Pay Act, then its requirements apply to the prime contract, as well as subcontracts and sub-subcontracts. As such, Tocci argued that the Owner’s failure to comply with the Prompt Pay Act breaches the contract and the Owner is barred from asserting contract-based counterclaims.
The trial court affirmed Tocci’s argument and ruled that “as the Defendants materially breached the contract, they are precluded as a matter of law from demanding that Tocci comply with the requirements of the same contract.” The Court therefore allowed Tocci’s motion for summary judgment as to the counts for breach of contract, breach of the implied covenant of good faith and fair dealing, third-party beneficiary, and breach of warranty. The Court denied Tocci’s motion for summary judgment as to the count for fraud because it was not contract-based.
Conclusion
The Tocci case provides guidance to all owners, general contractors, and subcontractors involved in Prompt Pay projects. If a payment application is not timely and properly rejected, it must be timely paid or contractual counterclaims may be forfeited. Although this is a trial court decision and it is not binding on other judges until it is affirmed by the Massachusetts Appeals Court, it will be used by contractors to argue that non-compliance with the Prompt Pay Act will result in an order that contractual counterclaims are waived by the non-compliant party.
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