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Excessive Fees Properly Denied Under Prompt Pay Act

In a recent decision, the Eleventh District Court of Appeals (which covers Lake, Geauga and Ashtabula Counties) held that a trial court properly denied an award of attorney’s fee under Ohio’s Prompt Pay Act where the fees were clearly not reasonable in relation to the amount of the Prompt Pay Act claim. 
In Xtreme Elements, LLC v. Foti Contracting, LLC, et al., 2018-Ohio 3323, Xtreme performed concrete work on a school project as a subcontractor to Foti.  In the lawsuit, Xtreme alleged it was owed between $87,000-$91,000 on subcontracts totaling $800,000.  The trial court found that Foti was unjustified in continuing to withhold between $20,000-$26,000 for the disputed broom finish/back door concrete work (Foti continued to hold the funds even after waiting for a winter to see if it would remain “structurally sound”).  Xtreme sought 18% interest and attorney’s fees under Ohio’s Prompt Pay Act, Ohio Rev. Code § 4113.61. 
The trial court refused to award attorney’s fees, finding that the amount requested ($130,000-$150,000) would be inequitable, since there was a dispute as to the amount owed to Xtreme, the amount of the award under the Prompt Pay Act was less than one-third of the amount in controversy, and the attorney’s fees likely would have been incurred even if the wrongfully withheld funds had been paid because of the remaining disputes.  The trial court also noted that litigating the Prompt Pay Act claim likely involved “little, if any” additional work.
The Court of Appeals affirmed the trial court’s decision.  In so doing, the Court of Appeals noted that the standard of review was “abuse of discretion” (and there was no abuse of discretion on these facts).  The Court found it was unreasonable for Xtreme’s lawyer to claim that 60% of the total $250,000 in legal fees was related to the Prompt Pay Act claim (thus the $130,000-$150,000 demand for fees), which the trial court found involved “little, if any” additional work.
For owners, contractors and subcontractors, it is important to remember:
  • The Prompt Pay Act specifically vests a trial court with discretion to deny an award of attorney’s fees where it would be inequitable or excessive;
  • The trial court is entitled to consider “all relevant factors” in deciding whether to award attorney’s fees;
  • Legal fees of five times the amount in controversy are likely to be deemed excessive;
  • Retain legal counsel that is efficient and develops a plan so that the legal fees are not disproportionate to the amount in controversy (or so that fees related to the Prompt Pay Act claims are tracked separately);
  • Making unreasonably “Xtreme” demands for legal fees or other relief is not always the best approach; and
  • Payment or partial payment should be released promptly when the amount is no longer reasonably in dispute

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