DC Federal Court Rules that Prompt Payment Act Does Not Create Private Cause of Action
November 30th, 2011
This September, the U.S. District Court for the District of Columbia considered an issue of first impression in the District of Columbia - whether the federal Prompt Payment Act ("PPA"), codified at 31 U.S.C. §§ 3901-3907, creates a private cause of action for contractors. In United States ex rel. IES Commercial, Inc. v. The Continental Ins. Co., 2011 WL 4526018 (D.D.C. Sep. 30, 2011), an electrical subcontractor hired to perform work on the U.S. Capital Power Plant in Washington, D.C. filed suit against, among others, the general contractor, alleging damages for breach of contract and violations of the PPA. The general contractor moved to dismiss the electrical subcontractor's PPA claim on the grounds that PPA did not create a private cause of action.
The Court began its analysis of the motion to dismiss by noting the history and legislative intent of the PPA. The PPA was originally enacted in 1982 to provide the federal government with incentive to timely pay contractors by assessing interest on overdue bills. In 1988, Congress amended the PPA to include provisions applicable to subcontractors. These provisions require prime contractors to include in their subcontracts 1) a payment clause obligating payment to the subcontractor within 7 days of receipt of payment from the government and 2) an interest penalty clause obligating payment of interest to the subcontractor if payments are not made within 7 days. Nowhere did Congress establish a mechanism for enforcement of the PPA when the prime contractor failed to make timely payments.
The electrical subcontractor argued that the Court should find an implied cause of action in light of the Congressional purpose for enacting the PPA. Without an enforcement mechanism, the subcontractor argued, the PPA would be "essentially toothless." The Court rejected this argument for several reasons. First, although not binding, the Court gave great weight to the fact that other jurisdictions around the country have unanimously held that the PPA does not create a private cause of action. Second, the Court noted that a multitude of statutes provide directives without providing an accompanying remedy. Third, the Court could not, as a default, imply into every Congressional directive a private cause of action because otherwise Congress would refrain from establishing standards for improved conduct out of fear for creating unintended causes of action. For these reasons, the Court dismissed the electrical subcontractor's federal PPA claim.
To read the Court's Opinion, click here.
Categories: Legal Updates