Massachusetts Supreme Judicial Court hears arguments over Prompt Payment Act and arbitration award in Columbia Construction dispute

The Massachusetts Supreme Judicial Court on Tuesday heard oral argument in SJC13819, a dispute arising from a construction arbitration in which an arbitrator ordered payment and then allowed a recoupment counterclaim to proceed. Appellant Columbia Construction urged the court to reinstate the arbitration award, while appellee JC Cannistraro argued the arbitrator exceeded his powers and that enforcement of the Prompt Payment Act requires meaningful consequences for violations.

"We're asking that the court reinstate the award and protect the sanctity of arbitration," counsel for Columbia, Jeffrey Nadeauchi, told the court, framing the central legal question as whether the arbitrator exceeded his authority by permitting Columbia's counterclaim after ordering payment. Nadeauchi urged the court to limit Graycor's implied-waiver rule, saying the arbitration here predated Graycor and that the arbitrator resolved the factual question whether any invoices were "deemed approved" before Columbia paid.

Nathan Cole, representing JC Cannistraro, urged a different reading. He said the Prompt Payment Act was designed to preserve cash flow for downstream subcontractors and to deter upstream parties from withholding funds. "If there is not a meaningful consequence, they will hold on to that money for as long as possible," Cole said, arguing the arbitrator crafted an extra-statutory remedy by allowing counterclaims to proceed after compelled payment.

At several points the bench pressed both sides on a narrow but dispositive question: whether Graycor's necessary-implication analysis and the resulting implied-waiver rule create an express statutory requirement (which, if violated, can support vacatur) or whether deviation from Graycor amounts only to legal error that does not justify overturning an arbitration award. One justice summarized Graycor's practical effect in blunt terms: "deemed approved means you gotta pay it before you assert your defense."

Counsel for Columbia emphasized factual distinctions: the arbitration at issue occurred before Graycor, and the arbitrator first decided whether any invoices were deemed approved and ordered payment before permitting recoupment claims. Columbia argued that if the superior court could retroactively apply Graycor to undo arbitration awards, it would undermine arbitration finality and invite repeated collateral challenges. Counsel estimated that, absent reinstatement, Cannistraro could retain roughly $576,000 that the arbitrator found unproved at hearing, a figure he called an "unfair windfall."

Cole responded that the statutory text and precedent (including Tachi and Graycor as interpreted by this court) require periodic progress payments and give the injured party enforcement tools, such as a 45-day clawback period and injunctions. He described scenarios for preserving defenses through proper, timely rejection and, if necessary, through discovery and amendment, but said that once a party elects to pursue affirmative defenses or counterclaims it must pay to preserve them.

Both sides urged the court to adopt rules that avoid perverse incentives in the construction industry: Columbia cautioned against retroactive expansion of Graycor that would unsettle arbitration awards; Cannistraro argued that without meaningful statutory consequences the Prompt Payment Act's protections are hollow.

The court heard extended questioning on the proper moment for payment (assertion of a defense versus litigating it to adjudication), the distinction between common-law defenses and contract-based counterclaims, and whether deviation from Graycor is legally reviewable as an excess of arbitral authority. No decision was announced from the bench; the case remains pending.

The court's eventual ruling will address whether the superior court erred in vacating the arbitration award and, more broadly, how far Graycor and Tachi govern the preservation of defenses and counterclaims under G.L. c.149, 29E.