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Pennsylvania Supreme Court Holds That CASPA Does Not Apply Where The Owner Is A Government Entity

In Clipper Pipe & Serv., Inc. v. Ohio Casualty Insurance Co., the Pennsylvania Supreme Court held that the Contractor and Subcontractor Payment Act, 73 P.S. §§ 501-506 (“CASPA”), does not apply to construction projects where the owner is a government entity.

The United States Department of the Navy had entered into an agreement with Contracting Systems, Inc. II (“CSI”) for the construction of an addition to, and renovations of, a training center in Lehigh Valley. CSI, in turn, subcontracted with Clipper Pipe & Service, Inc. (“Clipper”) to perform heating, ventilation, and air conditioning work. When CSI failed to pay Clipper per the terms of their agreement, Clipper filed suit against CSI and its surety, the Ohio Casualty Insurance Company (“OCIC”) in the United States District Court for the Eastern District of Pennsylvania.

OCIC and CSI moved for summary judgment contending that CASPA does not apply to public works projects because a government entity does not qualify as an “owner” under CASPA. CASPA defines an “owner” as “[a] person who has an interest in real property that is improved and who ordered the improvement to be made.” “Person” is defined as “[a] corporation, partnership, business trust, other association, estate, trust foundation or a natural individual.” According to CSI and OCIC, government bodies cannot be “owners” under CASPA because the word “government” does not appear in the definition – i.e., a government body is not an “association” and therefore not a “person” or “owner.” Further, OCIC and CSI argued that the Prompt Payment Act (“PPA”), not CASPA, addresses public works projects. OCIC and CSI argued that given the substantial differences between CASPA and PPA, it would be untenable if both applied simultaneously.

The district court denied OCIC’s and CSI’s motion for summary judgment, reasoning that a government entity may be an “owner” under CASPA since the statutory definition of “person” does not exclude the federal government, and because the purpose of CASPA is to protect contracting parties. After Clipper won at trial, OCIC and CSI appealed to the Third Circuit. The Third Circuit certified to the Pennsylvania Supreme Court the issue of whether CASPA governed payments to contractors and subcontractors in the context of public works projects.

In a unanimous decision, the Supreme Court agreed with OCIC and CSI, and held that CASPA does not apply to construction projects where the owner is a government entity. The court reasoned that statutes “in derogation of the sovereignty should be construed strictly in favor of the sovereign.” Most statutes are intended to apply to members of the public, not the federal government. Under this principle, the government cannot be an “association” or “person,” or derivatively, an “owner” for purposes of CASPA.

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