Photo: iStockphoto/Dwight Nadig
The project involved a 30-in.-dia natural gas pipeline, similar to the one at left, in Lycoming County, Pa., along with gas-gathering lines and compressor stations.

Faced with mounting interest payments after losing a $24-million jury verdict in Delaware County, Pa., a pipeline company has settled with contractor Utility Line Services, says the contractor's attorney.

The jury in April had ordered the defendant, PVR Marcellus Gas Gathering Inc., recently acquired by Dallas-based Regency Energy Partners, to pay Utility Line Services about $16.5 million for the amount it was owed. The jury awarded another $7.8 million for wrongful termination of part of PVR's contract with Utility Line Services.

The settlement demonstrates how state laws shape legal strategy in disputes.

Tens of thousands of dollars accumulated each month on the jury award under provisions of the Pennsylvania Contractor and Subcontractor Payment Act. Under the law, contractors and subcontractors are owed an additional 1% per month on payments wrongfully withheld or delayed. If the contractor must litigate to collect funds, another 1% per month is due on the amount owed. In such cases the interest accrues at 24% per year.

In Utility Line Services' claim against PVR Marcellus Gas Gathering, interest under the state payment act and "penalty interest" from the litigation added roughly another $9.4 million to the potential total award.

"It adds up," says Richard W. Foltz Jr., an attorney with Philadelphia-based Pepper Hamilton, which represented Conshohocken, Pa.-based Utility Line Services. "There's no investment anywhere with that rate of return."

Seeking Nearly $40 Million

Combined with trial-related costs and fees, Utility Line Services had asked the judge to award it more than $39.55 million, which would have included all contract balances owed, interest under state law, wrongful termination damages and attorneys' fees. Foltz declined to disclose the final terms of the settlement, citing a confidentiality agreement.

An attorney for PVR Marcellus Gas Gathering, Ed Seglias, could not be reached for comment. His client had filed a $21-million counterclaim against Utility Line Services.

The conflict arose over a 2010 contract under which Utility Line Services agreed to build a 30-in.-dia natural gas pipeline in Lycoming County, Pa., along with gas-gathering lines and compressor stations. The contract specified payments within 30 days of invoicing, with work to be done in three phases. Just before New Year's Day 2012, PVR terminated the third phase of the contract.