Judge Finds Prompt Pay Act Limited to Undisputed Sums
By Brendan Pierson July 30, 2013
A mandatory arbitration provision of New York’s Prompt Payment Act applies only to undisputed invoices, Manhattan Supreme Court Justice O. Peter Sherwood has ruled. The Prompt Payment Act requires that contractors be timely paid for their services. Under most circumstances, that means that invoices must be approved or disapproved within 12 days of receipt, and paid within 30 days of approval.
In 2009, Governor David Paterson signed an amendment to the law requiring parties to submit disputes over prompt payment to arbitration. In the case decided by Sherwood on July 24, Southgate Owners Corp., the owner of a building, contracted with KNS Building Restoration Inc. for repairs. Southgate terminated the contract early, saying KNS had not provided adequate labor and equipment and had used subcontractors without approval. Southgate refused to pay the nearly $79,000 KNS claimed it was still owed.
KNS served Southgate with a demand for arbitration pursuant to the Prompt Payment Act. Southgate filed a petition to stay arbitration in Supreme Court, saying the parties’ contract explicitly agreed not to arbitrate. KNS said the act required arbitration. Sherwood held in Southgate v. KNS, 651927/13, that the arbitration clause only applies to disputes over the prompt payment of amounts that are undisputed. “The law is not intended to trump the terms of agreements of parties to construction contracts,” he wrote, granting Southgate’s petition.
Southgate is represented by Philip Foote of Stiefel Cohen & Foote. KNS is represented by Aaron Zerykier of Farrell Fritz.