¶ 21. DOOLEY, J., dissenting.

Noting that the jury could have awarded more relief to defendant than it did, the trial court apparently felt that it would do rough justice by refusing to award attorney's fees to either party and by reducing plaintiff's interest recovery rate by half. If the attorney's fees issue involved only a matter of discretion in the trial court, I would affirm for the reasons stated by the trial judge and the majority. It is not, however, a matter solely of discretion, and the decision is contrary to the clear law governing this issue. Similarly, the trial court's interest rate ruling is not sustainable on the rationale stated by the trial court or the majority, but if a further record is made, might be sustained on a different basis. Accordingly, I would reverse the attorney's fees denial and remand the interest rate issue. I dissent from the majority's decision to uphold the trial court rulings.

¶ 22. The central foundation of the majority's analysis of this appeal on both issues is that the jury found that defendant withheld the full final installment of her payment for the house in good faith and, despite the fact that the jury awarded plaintiff much more than it awarded defendant, plaintiff's claim for attorney's fees and contractual interest is defeated by this finding. In fact, the jury made no such finding of good faith, and the finding it did make is contrary to the majority's assertion.

¶ 23. Plaintiff brought this action for $15,067, the amount that it asserted was due under the construction contract, plus attorney's fees, interest, and costs. Defendant answered that plaintiff could not recover because it breached the contract in numerous respects, including that it failed to deliver the house at the time specified in the contract and failed to construct the house in accordance with the contractual specifications in numerous respects. Defendant also counterclaimed for amounts that would allow her to complete the house in accordance with the specifications, for amounts to cover items that could not be fixed, and for costs and expenses in defending claims of unpaid subcontractors.

¶ 24. A major dispute at trial was whether defendant was justified in refusing to pay the entire last installment because of the deficiencies she claimed. Relying on defendant's statements, plaintiff asserted that defendant had withheld the full amount not in good faith, but instead out of anger at plaintiff and to deprive it of any profit on the sale of the home. Defendant asserted, to the contrary, that the deficiencies in the house exceeded the amount of the last payment due under the contract and justified her action in refusing to make that payment.

¶ 25. The trial court instructed the jury on the law, drawing heavily on our decision in VanVelsor v. Dzewaltowski, 136 Vt. 103, 105-06, 385 A.2d 1102, 1104 (1978). Dzewaltowski provides one possible outcome of a builder/owner contract dispute: "[I]f the contractor has rendered substantial performance of the contract, failing only in some minor particulars, the owner may set off against the contract price a fair allowance to make good the defects." 136 Vt. at 106, 385 A.2d at 1104. The trial court structured its instructions around this sentence, finding that it went to the heart of the parties' dispute. The question of whether a party has substantially performed under a contract is a question of fact. Vt. Structural Steel Corp. v. Brickman, 126 Vt. 520, 524, 236 A.2d 658, 661 (1967). Thus, the court instructed the jury to look first at whether plaintiff substantially performed and, if it found substantial performance, to look at whether any offset should be made.

¶ 26. The court submitted six interrogatories to the jury. The jury was first asked whether plaintiff substantially performed the contract — defined in the instructions as an approximation of complete performance such that any defects "are not so serious as to deprive the owner of the intended use of the property" — and it answered "yes" to that question. It was then asked the amount plaintiff was owed under the contract — defined in the instructions as "the amount due under the contact minus a fair allowance for defects or omissions in performance" — and the jury answered "$15,067," the exact amount plaintiff claimed was due it under the contract. In response to question three, it found that defendant "breach[ed] the contract by not paying the Plaintiff the amount reasonably due it under the contract." The jury went on to deal with defendant's counterclaim, finding plaintiff breached "by not performing in a workmanlike manner at least in part" and that the sum necessary to remedy any defects and omissions in plaintiff's performance was $4,000.

¶ 27. Contrary to the majority's position, the jury was never asked and never found that defendant acted in good faith in withholding the entire last payment of $15,067 because of her claims of omissions or defective work against plaintiff. Nor did the jury find, as claimed by the majority, that defendant erred only in "miscalculating the amount she was entitled to withhold." To the extent the jury verdict can be said to have addressed the good faith issue, it is inconsistent with such findings and consistent with plaintiff's view that defendant withheld the whole final payment out of spite. The jury concluded that plaintiff substantially performed, that the offsets were relatively minor and did not interfere with defendant's use of the property, and that defendant breached by not paying the amount reasonably due. They found offsets totaling only 26.5% of the unpaid last installment, less than 4% of the contract amount.

¶ 28. Without a jury finding that defendant withheld payment in good faith, and with a finding that plaintiff substantially performed and defendant did not pay the amount reasonably due, there are no grounds for denying attorney's fees to plaintiff. Indeed, I believe that plaintiff is entitled to an award of fees under either of its theories: the contract provision and the prompt payment act, 9 V.S.A. § 4007(c). The contract specifically provided for the recovery of attorney's fees paid to collect "outstanding balances over 30 days due from date of invoice." The jury found that plaintiff had substantially performed, and therefore plaintiff could still enforce the contract's terms.

¶ 29. The identical circumstances arose in Fenner Shea Construction Co. v. Wadkins, 511 P.2d 924 (Colo.Ct.App. 1973), in which a construction contractor brought suit for breach of contract for failure to pay and the owners counterclaimed, arguing that the contractor had breached the contract by performing in an unworkmanlike manner. Id. at 925. The trial court found that the construction company "had substantially performed its obligations under the contract and that to the extent that it had failed to perform fully, its judgment against the [owners] would be reduced in an amount equal to that necessary to cure the complained of defects in workmanship." Id. The owners argued on appeal that the contractor should not receive fees because the defective work was a breach of the contract and therefore the contractor could not enforce the contract. The appeals court rejected this argument, holding that where a party substantially performs, he "cannot be charged with a breach" such that he cannot recover attorney's fees under a contractual provision providing for recovery of such fees. Id.; see also Weidner v. Szostek, 614 N.E.2d 879, 882-83 (Ill.App.Ct. 1993) (concluding that where contractor has substantially performed its contractual obligations, it can collect attorney's fees under contractual provision despite an offset for "the amount necessary to repair or replace the items not completed within the terms of the contract"). Contrary to the majority's statement, Fenner directly addresses plaintiff's contractual claim. In Fenner, the trial court found that the contractor's defects in workmanship breached the contract, but awarded attorney's fees because the contractor had substantially performed and the amounts withheld were far in excess of a reasonable setoff.

¶ 30. Without citation to any authority, the majority concludes that the court could deny plaintiff attorney's fees under the contract for two reasons. The first is that defendant claimed numerous deficiencies in performance, the jury found a few, and the trial court concluded that the jury could have found more. In asserting this reason, the majority, like the trial judge, is warring with the jury determination that plaintiff substantially performed. Indeed, the majority's view is transparent because it details one of the alleged construction defects, a defect that the jury could not have found, consistent with the monetary amount of its verdict for defendant. The jury determines the facts in this case, not this Court or the trial judge, and its factual findings are directly contrary to those on which the majority relies.

¶ 31. The second is that a subcontractor filed a mechanic's lien against defendant, and plaintiff will be required to pay the subcontractor out of its recovery. This reason is at best irrelevant. Indeed, it may be that none of plaintiff's recovery will go to profits or remuneration for the house construction, particularly if it is denied recovery of attorney's fees. Why this economic reality should advantage defendant is not explained in the majority opinion.

¶ 32. The exact same situation arose in De Witt v. Liberty Leasing Co., 499 P.2d 599 (Alaska 1972), where the trial court tried to penalize a contractor for failing to pay a subcontractor by denying recovery of attorney's fees. The Alaska Supreme Court held that the trial court does not have the discretion to refuse an award of fees for this purpose. Id. at 601. The court noted that the owner's refusal to pay the contractor deprived it of the funds to pay subcontractors, bringing about the default that the owner sought to take advantage of by avoiding paying the contractor's attorney's fees. Id. In essence, the majority is penalizing plaintiff because defendant failed to make a payment, a policy built on blaming the victim.

¶ 33. Citing Young v. Northern Terminals, Inc., 132 Vt. 125, 130, 315 A.2d 469, 472 (1974), the majority begins with the statement that we review the trial court's ruling on attorney's fees to determine whether there is an abuse of discretion. Young, however, is a case about the amount of an attorney's fee award, an issue on which the trial court does have discretion. See 132 Vt. at 130, 315 A.2d at 472 ("The trial court enjoys a large measure of discretion in fixing the reasonable value of legal services."). Where the right to attorney's fees is provided in the contract, the contractor is entitled to an award as a matter of law. Murphy v. Stowe Club Highlands, 171 Vt. 144, 163, 761 A.2d 688, 701-02 (2000). Plaintiff is entitled to an award as a matter of law in this case.

¶ 34. I can also find no ground to refuse to apply the prompt payment statute, 9 V.S.A. § 4007(c), which provides that "the substantially prevailing party in any proceeding to recover any payment within the scope of this chapter shall be awarded reasonable attorneys' fees." See generally J. Hays, Prompt Payment Acts: Recent Developments and Trends, 22-SUM Construction Law 29, 30 (explaining that eighteen states have prompt payment statutes similar to Vermont's statute). The purpose of the prompt payment act is to provide protection to contractors and subcontractors. See R.W. Sidley, Inc. v. United States Fid. Guar. Co., 319 F. Supp. 2d 554, 560 (W.D. Pa. 2004) (decided under virtually identical Pennsylvania prompt payment act). There is no dispute that the statute applies to this action if plaintiff comes within its specific terms. We must apply it according to its plain meaning. DJ Painting, Inc. v. Baraw Enters., 172 Vt. 239, 247, 776 A.2d 413, 420 (2001). By its terms, it is mandatory and accords no discretion to the court to deny fees where it applies. See Corley v. Rivertown, Inc., 863 So. 2d 1244, 1246 (Fla.Dist.Ct.App. 2004) (under similar Florida statute, court must award attorney's fees when the statute applies); John B. Conomos, Inc. v. Sun Co., 2003 PA Super. 310, ¶¶ 30-31, 831 A.2d 696 (under virtually identical Pennsylvania statute, court must award attorney's fees when the statute applies).

¶ 35. At the outset, I want to emphasize my main disagreement with the majority decision on the prompt payment act. Although we have differences on the statute's meaning, and the discretion it accords to the trial judge as outlined below, my central point is that whether we label the trial court's action as an abuse of discretion or an erroneous construction of the law, under any possible standard of review, we cannot affirm the trial court's decision that plaintiff is not entitled to attorney's fees under the prompt payment act. I return to this central point after discussing other differences with the majority decision.

¶ 36. The court denied attorney's fees under the statute for the following reasons:

There's no question that the plaintiff prevailed, because in terms of sheer dollars and cents, he came out the winner. But to say that that means that he substantially prevailed, I'm not prepared to do that. And my reason is in part that I'm embarking [sic] the equitable powers of the Court which play in the area of attorney's fees.

Although the majority recognizes that the statute is mandatory, it upholds the trial court decision as within its "exercise of discretion." The majority concludes that there was no substantially prevailing party in this case because the "jury verdict . . . resulted in awards to both parties" and because part of plaintiff's recovery will go to pay off a subcontractor. Ante, ¶ 13.

¶ 37. The statute awards attorney's fees to " the substantially prevailing party," recognizing that more than one party can recover, especially in a construction contract case, but only one party can be found to have prevailed. 9 V.S.A. § 4007(c) (emphasis added). Thus, its language is consistent with the overwhelming law from around the country that in the case of offsetting verdicts, the holder of the net verdict on the main claim has prevailed. See T. Goger, Annotation, Who Is the "Successful Party" or "Prevailing Party" for Purposes of Awarding Costs Where Both Parties Prevail on Affirmative Claims, 66 A.L.R.3d 1115, 1119-20 (1975) (citing cases). In a leading California case, the court found that the plaintiff construction company was the "successful party" where plaintiff won a net judgment even though the defendant homeowner had prevailed on a counterclaim for faulty construction. Moss Constr. Co. v. Wulffsohn, 253 P.2d 483, 484-85 (Cal.Dist.Ct.App. 1953) (now superseded by statute, Cal. Civ. Proc. Code § 1032, defining prevailing party to include "the party with a net monetary recovery"). The court noted that "the party awarded the net judgment is the prevailing litigant and thus the successful party." Id. at 485; accord De Witt, 499 P.2d at 600 (designating contractor as prevailing party even though homeowner allowed an offset and noting that trial court does not have discretion to refuse to award attorney's fees to penalize contractor for not paying subcontractor); Distefano v. Hall, 69 Cal. Rptr. 691, 697 (Ct.App. 1968) (naming contractor the prevailing party and awarding attorney's fees despite offset to owner because contractor received the net recovery); Corley, 863 So. 2d at 1246 (entitling contractor to attorney's fees under similar Florida statute even though as a result of offset to owner net recovery was less than a fifth of the amount of the last unpaid installment due from owner); Szoboszlay v. Glessner, 664 P.2d 1327, 1333-34 (Kan. 1983) (under landlord and tenant statute, tenant was successful in suit for return of a security deposit, and entitled to attorney's fees, even though landlord received smaller offsetting counterclaim judgment for unpaid rent); Schmidt v. Colonial Terrace Assocs., 694 P.2d 1340, 1345 (Mont. 1985) (in construction contract case, contractor was prevailing party and entitled to attorney's fees even though purchasers were awarded an offset equal to more than 50% of the amount awarded to contractor). I see no reason not to follow the decisions from other states; they are clearly consistent with the language of our statute.

¶ 38. The majority appears to have two answers to the above analysis: (1) the net offset cases do not apply because "substantially prevailed" has a different meaning from "prevailed"; and (2) an award is a matter of discretion under the statute.

¶ 39. In making the former argument, the majority has drawn largely from federal law, quoting the Supreme Court in Ruckelshaus v. Sierra Club, 463 U.S. 680, 684 (1983), as noting that federal fee-shifting statutes contain "varying standards" and Union of Needletrades, Industrial Textile Employees v. INS, 336 F.3d 200, 208 (2d Cir. 2003), as saying that the addition of the word "substantially" goes to the amount or degree of recovery necessary to obtain a fee award. In fact, the state of the federal law is best explained in Oil, Chemical Atomic Workers International Union v. Department of Energy, 288 F.3d 452, 455-56 (D.C. Cir. 2002):

We have seen nothing to suggest that Congress sought to draw any fine distinction between "prevailing party" and "substantially prevail." The Internal Revenue Code, for instance, defines "prevailing party" to mean a party who has "substantially prevailed.". . . Consistent with our practice (and the Supreme Court's) of viewing the various fee-shifting statutes as interchangeable, we have in the past treated the "substantially prevail" language in FOIA as the functional equivalent of the "prevailing party" language found in other statutes.

¶ 40. Even if there is a difference between "prevailed" and "substantially prevailed," as argued by the majority, it is not clear that the former standard is easier for the person seeking fees to meet. Just as the burden for plaintiff in establishing substantial performance is lighter than the burden of showing performance generally, the burden of showing that plaintiff substantially prevailed should be lighter than prevailing. See J. Klein, Attorney's Fees and the Clean Water Act After Buckhannon, 9 Hastings W.-Nw. J. Envtl. L. Pol'y 109, 114 (2003). As Oil, Chemical Atomic Workers International Union points out, 26 U.S.C. § 7430(c)(4) — a section of the Internal Revenue Code authorizing award of attorney's fees to a taxpayer in certain circumstances — defines "prevailing party" as a party who "has substantially prevailed with respect to the amount in controversy." 288 F.3d at 455. The clear import of the section is that "substantially prevailing" is the easier standard to meet. See also Manion v. Nagin, Civ. 00-238 ADMRLE, 2004 WL 234402, at *8 (D. Minn. 2004) (interpreting Florida law).

¶ 41. The Internal Revenue Code construction is similarly employed in the Washington cases. Because of a general fee-shifting statute in that state, fully half the reported cases defining "substantially prevailing party" and "prevailing party" come from that state. The Washington rule is summarized in the leading case of Riss v. Angel: "In general, a prevailing party is one who receives an affirmative judgment in his or her favor. If neither wholly prevails, then the determination of who is a prevailing party depends upon who is the substantially prevailing party, and this question depends upon the extent of the relief afforded the parties." 934 P.2d 669, 681 (Wash. 1997) (citation omitted). Under the Washington rule, "substantially prevailing party" represents a less rigorous standard than "prevailing party." Whether the operative language is "prevailing party" or "substantially prevailing party," I would use the net offset rule. It sets a bright line for administering an attorney's fee recovery policy.

¶ 42. The majority's second response brings me back to my primary point about the application of the prompt payment act to this case — unless we are prepared to give unlimited discretion to the trial court, the refusal to award attorney's fees in this case cannot be affirmed under any construction of the prompt payment act provision.

¶ 43. Plaintiff in this case sought the remaining contract price of $15,067. The jury verdict gave it $11,067, 73% of the requested amount. In her answer and counterclaim, defendant sought three aspects of monetary relief: (1) a defendant's verdict on plaintiff's claim so plaintiff would not recover; (2) unspecified damages to put the house into the condition promised by the construction contract; and (3) damages in the amount of $15,000 for the items that could not be repaired. There was no monetary figure attached to the second aspect of the damages, but the complaint itemized sixteen separate deficiencies that needed to be corrected, including resetting the house on the foundation. Although we cannot assign a precise percentage to the extent of defendant's counterclaim recovery in relation to her demand, it is obviously a very small percentage. Under any view of the term, and accounting for the discretion of the trial judge in applying the facts to the law, plaintiff substantially prevailed.

¶ 44. The majority argues that we should follow Union of Needletrades, and hold that a party has substantially prevailed only if that party has prevailed to a considerable or large degree. See 336 F.3d at 208; In re Marriage of Murphy, 763 N.E.2d 933, 938 (Ill.App.Ct. 2002) (defining "substantially prevail" as prevailing to a "significant" degree), rev'd on other grounds, 786 N.E.2d 132 (Ill. 2003). In a case the majority relies upon the contractor recovered only about a third of its claim because of offsets, obviously not meeting the requirement of a significant or considerable degree. Bridges PBT v. Chatta, 2003 PA Super. 122, ¶ 10, 821 A.2d 590. In contrast, the plaintiff here easily met that standard, particularly because defendant's set-off was a small portion of plaintiff's award. See Signal Mut. Indem. Ass'n v. AK-WA Inc., No. 92-36603, 1993 WL 540283, at *3 (9th Cir. Dec. 30, 1993) (applying Washington law and reversing the trial court where plaintiff recovered almost 80% of the damages it sought and defendant recovered none); In re Marriage of Murphy, 763 N.E.2d at 939 (to "substantially prevail" party must "obtain at least 50% of the relief she seeks"). Further, regardless of what degree is required, a party need not recover all of its claimed relief in order to substantially prevail. Silverdale Hotel Assocs. v. Lomas Nettleton Co., 677 P.2d 773, 774 (Wash.Ct.App. 1984).

¶ 45. Although the majority endorsed Union of Needletrades for its holding that the court must look to the degree of recovery, neither the trial court nor the majority actually applied this standard. The trial court apparently believed that once it found that plaintiff did not recover 100% of its damages it had the "equitable powers" to deny attorney's fees. The majority does not address the substance of the trial court decision; instead it discusses the equitable powers of the trial court. Apparently, it believes that general powers of equity can trump both a contractual and statutory right to fees. I agree that equity can in some circumstances create an additional power to award fees, see DJ Painting, Inc., 172 Vt. at 246, 776 A.2d at 419, but we have never held that equity can override a right to attorney's fees granted by statute or by a contractual term.

¶ 46. The result of the majority decision is that the trial court will have unlimited discretion to deny fees if a contractor recovers anything short of 100% of its claims. In essence, the majority has rewritten the entitlement of the statute into a mere authorization. The Legislature could have written the statute to authorize an award of fees, rather than to contain a command. Under such a statute, the trial court would have had exactly the authority it claimed here. See Gold Kist, Inc. v. Williams, 332 S.E.2d 22, 24 (Ga.Ct.App. 1985) (noting that, under Georgia law, trial court has discretion in assessing costs). The exercise of discretion under our statute is inconsistent with its plain meaning.

¶ 47. I have a similar view of the trial court's action with respect to plaintiff's interest claim. Plaintiff claimed interest on the judgment at 24%, the rate stipulated in the contract. The trial court ruled that the contract rate was inapplicable because the case "went to trial" and instead used the statutory rate of 12%, suggesting that the contract rate would be usurious. The majority upholds the decision on a different rationale, namely, that the jury found that defendant's refusal to pay the last installment was done in good faith. The majority also relies on 9 V.S.A. § 4002(d) that provides for interest at the rate set in 12 V.S.A. § 2903(b) "except as otherwise agreed."

¶ 48. Neither the rationale of the trial court nor that of the majority is sustainable. As discussed above, the jury did not find that defendant withheld the $15,067 installment payment in good faith, and its finding that plaintiff substantially complied with its contractual obligations enables plaintiff to enforce the contract. The prompt payment act provision, 9 V.S.A. § 4002(d), does not help defendant because it explicitly applies only if the parties have not "otherwise agreed," and they otherwise agreed in the contract before us. Furthermore, the interest on default provision does not violate the usury statute. The usury statute sets "the rate of interest or the sum allowed for forbearance or use of money [at] twelve percent per annum." 9 V.S.A. § 41a(a). Under Lowell Austin, Inc. v. Truax, 146 Vt. 448, 452-53, 507 A.2d 949, 951 (1985), the default provision does not violate the statute because it does not involve a loan or forbearance. See Southwest Concrete Prods. v. Gosh Constr. Corp., 798 P.2d 1247, 1251-52 (Cal. 1990) (distinguishing late charges from loan or forbearance); R.A. Lord, Williston on Contracts § 20:34 (4th ed. 1999) (explaining that late charges for a loan on default does not make a transaction usurious).

¶ 49. Although the default provision is not usurious, it is a form of liquidated damages that may involve an illegal penalty. See Highgate Assocs. v. Merryfield, 157 Vt. 313, 316, 597 A.2d 1280, 1282 (1991) (outlining test for determining if contract provision is a reasonable liquidated damages clause or illegal penalty). I agree that the rate is suspect in the current low interest rate environment. We held in Highgate, however, that the trial court must examine whether the creditor is seeking an unenforceable penalty under three criteria, and our standard of review of its conclusion is limited. Id. at 315-16, 597 A.2d at 1281-82. The trial court has not conducted the necessary analysis, and our limited standard of review prevents us from doing so in the first instance here. I would remand for the analysis specified in Highgate.

¶ 50. In many cases, courts are required to reach a fair result, based on an approximation of where the equities lie. This is not such a case. Our preexisting contract law mandates that plaintiff be awarded attorney's fees in this case; the Legislature has reinforced this law by stepping in to protect construction contractors in situations where owners fail to pay for work done by allowing the contractor to recover attorney's fees incurred in pursuing a valid claim. The policy question of what is fair has been determined by the Legislature and settled by contract law, and we have no discretion to avoid this clear law. I dissent and am authorized to state that Justice Gibson joins this dissent.