Bus. Interiors Floor Covering Bus. Tr. v. Graycor Constr. Co. Inc.

235 N.E.3d 263

BUSINESS INTERIORS FLOOR COVERING BUSINESS TRUST

v.GRAYCOR CONSTRUCTION COMPANY INC. & others.¹

SJC-13507

Supreme Judicial Court of Massachusetts, Suffolk.

Argued February 7, 2024.

Decided June 17, 2024.

Contract, Construction contract, Sub-contract, Performance and breach, Impossibility of performance. Practice, Civil, Affirmative defense, Judgment, Summary judgment. Payment. Time. Judgment.

Civil action commenced in the Superior Court Department on September 15, 2020.

The case was heard by Diane C. Freniere, J., on a motion for summary judgment, and entry of separate and final judgment was ordered by her.

The Supreme Judicial Court on its own initiative transferred the case from the Appeals Court.

Matthew B. Lysiak (Mark B. Lavoie, Salem, also present) for Graycor Construction Company Inc.

Andrew R. Dennington (Ryan O. Forgione, Boston, also present) for the plaintiff.

Joseph A. Barra, Boston, for Associated Subcontractors of Massachusetts, Inc., amicus curiae, submitted a brief.

Joel Lewin, Christopher W. Morog, Robert T. Ferguson, Jr., Garrison Doodlesack, Boston, & Isha Kumar, for Construe- tion Industries of Massachusetts, Inc., amicus curiae, submitted a brief.

Present: Budd, C.J., Gaziano, Kafker, Wendlandt, Georges, & Dewar, JJ.

KAFKER, J.

The prompt pay act, G. L. c. 149, § 29E (prompt pay act or act), which we interpret for the first time in this case, requires that parties to a construction contract approve or reject payment within strict time limits and provides procedures for doing so. If the payor does not approve or reject a payment application within the act’s set time limit, the application is "deemed to be approved." G. L. c. 149, § 29E (c).

Graycor Construction Company Inc. (Graycor), a general contractor for a movie theater project in Boston’s North End section, entered into a subcontract with Business Interiors Floor Covering Business Trust (Business Interiors). Graycor failed to approve or reject three separate applications for periodic payments made by Business Interiors for the flooring work it performed on the project. Business Interiors sued Graycor in the Superior Court for breach of contract and other claims. The Superior Court granted Business Interiors’s motion for summary judgment on its breach of contract claim and entered separate and final judgment. Graycor appealed.

On appeal, Graycor asserts that there is a question of material fact as to whether the original contract is a "contract for construction" within the meaning of the act, because the prompt pay act references liens pursuant to G. L. c. 254, §§ 2 and 4, in its definition of a contract for construction, and no such lien could have been imposed at the time of the lawsuit. Additionally, Graycor argues it has a valid impossibility defense to its failure to pay. Business Interiors argues Graycor waived any such claims and, regardless, Graycor’s arguments are without merit.

We hold that the prompt pay act cross-references liens that "may be established under sections 2 or 4 of chapter 254" for a limited purpose: to define in broad terms the types of contracts subject to the act. G. L. c. 149, § 29E (a). The strict compliance requirements for enforcement of particular liens do not apply, as Graycor contends. Additionally, we hold that under the act, a party does not waive its defenses by failing to approve or reject an invoice within the strict time requirements established by the act. However, a party that neither approves nor rejects a payment application within the requisite time must first make the payment in order to pursue any defenses in a subsequent proceeding related to the invoices, as the invoices have been deemed "approved." The invoice payments must be made prior to, or contemporaneous with, the raising of the defenses, or the defenses cannot be raised. As Graycor sought to exercise its defenses in this litigation without ever paying the invoices, it may not pursue the defenses. Summary judgment was therefore properly allowed on the breach of contract claim.

[1, 2] This case also raises an important procedural question regarding the proper application of separate and final judgment pursuant to the prompt pay act. The fact that a payment has been withheld in violation of the act does not, alone, merit the entry of a separate and final judgment as the Appeals Court held in Tocci Bldg. Corp. v. IRIV Partners, LLC, 101 Mass. App. Ct. 133, 190 N.E.3d 1077 (2022) (Tocci), a decision relied upon by the motion judge in the instant case. Rather, claims, cross claims, and counterclaims must all be carefully examined together to determine whether the various elements of Mass. R. Civ. P. 54 (b), 365 Mass. 820 (1974), are satisfied. Here, no such examination took place, so we vacate and remand the rule 54 (b) certification to the motion judge for reconsideration.²

1. Background. a. Facts. In November 2018, Graycor entered into a general contract with Pacific Theatres Exhibition Corp. (Pacific) for the construction of a multi-screen movie theater known as Arc-Light Boston Garden on property that Pacific leased from Podium Owner, LP, the owner of the property. The original maximum price for constructing the movie theater was $18,962,890. Graycor in turn executed a subcontract with Business Interiors for Business Interiors to complete the flooring for the movie theater. The subcontract had an original total price of $528,426. Change orders increased the final subcontract price to $608,158.

The subcontract includes various provisions addressing periodic payments, including the requirement that

"[t]he Subcontractor [Business Interiors] shall submit its periodic applications for payment of the Subcontract Price (the ‘Periodic Application’) on a form acceptable to Contractor [Graycor] not later than the 15th calendar day of the month ….

"Subject to the other terms of the Subcontract, the Contractor will make payment of a Periodic Application for payment promptly upon the Contractor’s receipt of payment from the Owner [Pacific] for the Work that is the subject of the Periodic Application, but in no event later than the date required by applicable law."

On March 20, 2020, Business Interiors submitted an application for payment no. 19 to Graycor, seeking to be paid $75,745.40. Graycor did not dispute the dollar amount listed, nor did it provide written notice rejecting the application. Nevertheless, Graycor did not pay Business Interiors any portion of the $75,745.40. On April 22, 2020, Business Interiors submitted an application for payment no. 20 to Graycor for $26,421.30. Again, Graycor did not dispute the dollar amounts, nor did it provide written notice rejecting the application, but it did not pay any portion of the $26,421.30 requested. On August 18, 2020, Business Interiors submitted its final application for payment in the amount of $25,022.30. As with the other two applications for payment, Graycor did not dispute the dollar amount, provided no written notice rejecting Business Interiors’s final application for payment, and did not pay any portion of the $25,022.30 itemized in the final application for payment.

Around the same time, Graycor was itself attempting to get paid by Pacific, which was experiencing financial difficulties due to the COVID-19 pandemic. In late March 2020, a Graycor project manager sent an e-mail message to Pacific’s director of finance to determine the status of several overdue unpaid invoices. Pacific’s director of finance responded that "due to COVID-19, all our theaters were forced to close and at this time we do not have any revenue coming in" and "all of our payables are being held until further notice." After that, based on the record before us, it appears that communication between Pacific and Graycor ceased.

b. Procedural history. In September 2020, Business Interiors sued Graycor; Pacific; Podium Developer LLC; and Podium Owner, LP,³ in the Superior Court, seek- ing to recover the unpaid balances. Specifically, Business Interiors sued Graycor for breach of contract, breach of the covenant of good faith and fair dealing, violation of G. L. c. 93A, and quantum meruit. Business Interiors’s claims centered on Graycor’s failure to pay or formally dispute the three applications for payment within the time period defined by the prompt pay act. Graycor, in its answer, brought cross claims against Pacific and Podium for breach of contract, quantum meruit, common-law indemnity, contribution, unjust enrichment, and violation of G. L. c. 93A.

In June 2022, Business Interiors served the parties with a motion for summary judgment on its breach of contract (count I) claim against Graycor. In response, Graycor, for the first time, raised an impossibility defense. At a December 2022 hearing on the motion, Graycor also argued for the first time that the subcontract was not covered by the prompt pay act because it was not eligible for a lien under G. L. c. 254, § 2 or 4, at the time the lawsuit was brought. In February 2023, the motion judge allowed summary judgment in favor of Business Interiors on its breach of contract claim, ruling that Graycor committed a breach of its subcontract with Business Interiors by failing to submit written rejections of the three applications for payment within the time periods required by the prompt pay act. In her decision, the motion judge explained that the subcontract had incorporated the act’s provisions into the subcontract. The motion judge did not address the issue raised for the first time at the hearing that the subcontract was not subject to the act. Relying on Tocci, 101 Mass. App. Ct. 133, 190 N.E.3d 1077, the motion judge entered separate and final judgment, pursuant to Mass. R. Civ. P. 54 (b), as to the money withheld by Graycor in violation of the act. Graycor timely appealed, and we transferred the case from the Appeals Court on our own motion.

[3–5] 2. Discussion. a. Standard of review. We review the Superior Court’s grant of summary judgment...