• The Second Annual Conference on Illinois Construction Law 2008 will be taking place on July 10th and 11th at the Gleacher Center in Chicago.  More information on the program is available by following the link.  The seminar boasts some prominent speakers from the Legal field as well as the industry and looks to be a worthwhile presentation.  For those unable to make it, the seminar is offered on DVD as well.
• The Tribune's Clout Street Blog is reporting on a cessation in the measures proposed in the Chicago City Council to require licensing for permit expediters after May's Federal allegations of bribes for permits within the city.
• The Chicago IP Litigation Blog is reporting on a new move by the Copyright Office to begin accepting basic copyright registrations electronically.

We’ve been undergoing some changes  recently and within the next few weeks, the Illinois Construction Law Blog will have a new address at http://www.illinoisconstructionlawblog.com courtesy of the fine people over at Lexblog.

Getting back into the swing of things, there are several noteworthy opinions that have come down in the past week:

• TSP-Hope, Inc. v. Home Innovators of Illinois, LLC (4^th Dist. Doc. No. 4-07-1028)  In this case, the plaintiff had contracted with the defendant to build residential units.  The contract contained an arbitration clause and although the defendant answered the complaint and filed a counter-claim and affirmative defenses, the court found that it had not waived its right to arbitrate the contract dispute.  Additionally, the plaintiff had served the defendant with a §34 notice under the Mechanic’s Lien Act (requiring the lien claimant to file a complaint within 30 days or lose the lien rights).  The court found that because the §34 notice required the filing of a foreclosure claim in court, taking the action did not amount to a waiver of rights under arbitration when the defendant would arguably have been forced to lose its rights if it had not filed the foreclosure claim.

• In Winnebago County Citizens for Controlled Growth v. County of Winnebago (2^nd Dist. Doc. No. 2-07-0362) the court found that a not-for-profit association may have standing to challenge the county’s decision to grant a planned community development special use permit.  Although the association was formed, arguably, in response to the development, the fact that some members may have to participate in the litigation did not preclude the association from bringing suit.  The court reversed a trial court’s decision to dismiss two counts of the association’s complaint where it found that a clearer understanding of the potential nature and involvement of certain members of the association could only be developed in litigation.

Also, we would like to take a moment to recognize that 100 years ago today one of the greatest Justices in modern times was born.  On July 2^nd 1908, in Baltimore, Maryland, the once Chief Counsel to the NAACP, 2^nd Circuit Judge, U.S. Solicitor General and Supreme Court Justice Thurgood Marshall came into the world.  In honor of this event, we present this interesting article from Mary L. Dudziak published in the Spring 2008 issue of the Green Bag which is a short testament to the work Marshall did in helping to craft the Kenyan Constitution.  “Reflecting on this episode in later years, Marshall would express great satisfaction: "That, to my mind, is really working toward democracy, when you can give to the white man in Africa what you couldn't give the black man in Mississippi. It's good.”

Here’s something you’re sure to be interested in.  We had previously discussed an order in Vancil v. Tres Amigos (C.D.IL, Doc. No. 06-71254) regarding Tres Amigos attempt at attaining summary judgment to extinguish two mechanic’s liens filed by former subcontractors of Vancil in a bankruptcy proceeding initiated by Vancil.  That entry is here.

Today, the court denied Tres Amigo’s motion for reconsideration.  Of note to everyone working in the industry and dealing with mechanic’s liens, this order, holds that section §60/9 of the mechanic’s lien act, which allows the parties to an Illinois mechanic’s lien foreclosure to contest each other’s rights without the need for multiple pleadings between all of the parties, is a procedural statute and not a substantive right given to the parties.  Because the federal court is not bound by state procedure, but rather, by state substantive law, in order to maintain an action against the other lien claimants, a party must file pleadings against the other parties in order to contest the issues between them.  Given this assessment of the nature of the rights granted under §60/9 the court denied Tres Amigo’s motion for reconsideration and held, again, that it needed to have pleadings on file against the lien claimants it was contesting, or no remedy was available from the federal court.

In this opinion, the plaintiff, Lumbermen’s filed for a declaratory judgment against the defendant, Gloria Sykes, seeking a coverage determination regarding a policy that Sykes had in 2001.

Some time in early 2001, Sykes discovered water entering her house and submitted a claim for water damage under the homeowner’s policy with Lumbermen’s.  Lumbermen’s paid the damages and closed their file, but in November 2001, Sykes reported toxic mold growth in the home and alleged that the mold was the result of the prior occurrence.

Lumbermen’s investigated the later claim and sent several letters to Sykes.  In the meantime, Sykes was forced to leave her home while Lumbermen’s undertook construction and because Lumbermen’s and their contractors left in July, 2002, when it denied the claim, work was not finished and Sykes was never able to move back into her residence.  Lumbermen’s complaint alleged that after the investigation and a proper reservation of rights, a letter denying coverage was sent to Sykes on July 24, 2002.  Sykes countersued and alleged multiple claims, the two at issue in the appeal argued that Lumbermen’s breached its contract with Sykes and that Lumbermen’s was estopped from denying coverage because letters sent to Sykes from Lumbermen’s where several letters – importantly, one on March 14, 2002, admitted that the mold in her house was covered by the policy, but affirmatively stated that if damage to the home was not caused by the ice/water damage from the previous claim, then there would be no coverage.  Sykes moved for summary judgment and attached an affidavit declaring that she was told on February 19, 2002, by representatives of Lumbermen’s that her claim was covered by the policy.  The affidavit was never contradicted by Lumbermen’s.

The trial court awarded summary judgment to Sykes on her coverage/breach of contract claim and granted an injunction forcing Lumbermen’s to turn over some $11,000 that was left on Sykes’ policy to Sykes for the costs she had incurred by being forced out of her home and unable to move back in.

Lumbermen’s appealed and the appellate court held that the trial court properly granted summary judgment for damages from February 19 to March 14.  Specifically, the court looked to the communications between the Lumbermen’s the Sykes and found that assertions made in Sykes’ affidavit regarding representations of February 19 were never contradicted by Lumbermen’s.  Holding that those non-contradicted assertions must be assumed true, there was evidence was put forth showing that any denial or explanation that coverage would be provided for damages that did not result from the prior occurrence until Lumbermen’s March 14 letter.  Therefore, Lumbermen’s was estopped from denying coverage for damages prior to March 14.

The court then found that the March 14, 2002, letter was sufficiently worded so as to arguably inform Sykes that claims may not be covered by her policy, and that any reasonable person could possibly understand the subsequent letter to mean that there might not be coverage for certain mold and water damage.  Because a reasonable person could interpret the letter differently than the plaintiff claimed she interpreted the letter, the appellate court found that an issue of fact existed sufficient enough to preclude the grant of summary judgment for damages incurred by the plaintiff subsequent to the March 14, 2002, letter, but upheld the trial court’s grant of summary judgment for the damages suffered between the February 19, 2002, letter and the March 14^th letter.

In this case, the plaintiff, M&K Chemical Engineering Consultants, Inc., an engineering firm from Illinois bid a project to perform design work to replace a cooling system for a chemical reactor in St. Louis, Missouri.  Before submitting the bid, the plaintiff asked the defendants, Malinckrodt, Inc., and TYCO Healthcare Retail Group, a series of questions about the project.  After getting the answers back, the plaintiff submitted a bid, based, in part, on the answers that the defendants had given, of $99,500.

The defendants accepted the bid and sent plaintiff an email containing a six-pages of the first sides of a double-sided purchase order, a second email containing the second sides of the pages, and mailed a copy of the purchase order to the plaintiff as well.  The purchase orders second side contained a forum selection clause stating that the laws of the State of Missouri would apply to any disputes and the Missouri Courts would have exclusive jurisdiction over any action arising out of the contract.  The purchase order, and subsequent purchase orders for changes the plaintiff wished to make on the project all contained the forum selection clause and a clause indicating that the initiation of performance under the purchase orders constituted acceptance of the terms of the orders.  The plaintiff’s president asserted that he never read the second side of the purchase orders in either the email or the mailed copy.

The requirements of the project did not turn out as the plaintiff expected and the plaintiff sued the defendant in federal court in the Southern District of Illinois alleging that the answers the defendants had provided to the plaintiff’s original questions (prior to the bid) were false and misleading, and requested a rescission of the contract, and restitution from the defendants for the $162,004 that it went over budget on the project.

The defendants requested that the complaint be dismissed pursuant to the forum selection clause contained in the purchase orders, and the plaintiff argued that the clause could not be part of the contract between the parties because the plaintiff was unaware of the clause when it commenced and performed work under the purchase orders and requested a jury trial on the issue of whether the terms of the contract between the parties included the forum selection clause.

The court held that the clause was part of the contract.  Citing several of the cases we have blogged about before, the court held that performance under the purchase order constituted acceptance of its terms regardless of a parties reading or negotiation of those terms.  We have seen this issue come out both ways for plaintiffs and defendants in the past and it is hard to divine from the courts a standard rule for when terms of an non-negotiated and unread contract will be held to apply and when they will not.  Suffice it to say that apart from the uneven bargaining positions of a consumer and a corporation, it is likely that ignorance of the terms of a contract will not preclude enforcing its terms.

The court also found that the plaintiffs claims of fraudulent inducement to the contract (for defendants answers to the pre-bid questions) would not operate to invalidate the forum selection clause.

The court took special care to note that the likely reason there was such a fight over the issue of venue and applicable was the plaintiff’s status as a licensed engineer in Missouri where the project was located.  With only Illinois licensure, Missouri law, the court pointed out, can be more unforgiving toward an engineer than Illinois law.

The Court’s original order can be found here.  The first judgment dismissed this matter with prejudice and the court subsequently modified that decision and dismissed the matter without prejudice.

• The good folks over at Womble Carlyle’s Construction Industry Blog have this interesting post commenting on an article in GreenSource that USGBC will finally be outsourcing the LEED Certification work to independent third-party accredited certifiers and overseen by a non-profit associated with the USGBC. 
• Both the Federal Construction Contracting Blog and the Ahlers & Cressman Construction Law Blog are posting about the GAO’s decision to sustain Boeing’s protest of the contract award to Northrop Grumman for the aerial tanker contract.
• The ABA Forum on Construction has posted the brochure for its fall meeting focusing on the ConsensusDocs.

The Mechanics Lien is a testament to the fact that the same problems have been occurring in construction projects since construction began.  The concept behind the act is rooted in equity – a person puts time and effort into improving something and has a right to remuneration for those improvements.  Usually, the improvements cannot be removed from the thing, so justice requires some remuneration, either by getting to sell the thing for the money owed on the improvement or by having a right in any eventual sale.  Many state’s have lien laws similar to Illinois’ that can cover a multitude of types of work, from car, boat and horseshoe repair to construction work, mining work, and liens for judgments awarded to parties in litigation.  What those state laws have in common for the most part, is the creation of a system for conducting affairs in that trade or business that, when followed, can grant parties rights they would otherwise not have outside of the statute.

In the case of the Illinois Mechanics Lien Act, compliance with the provisions of the act can protect the owners of property from subcontractors’ liens when the owner complies by requesting statements from the general regarding amounts owed to subs and then withholds the amounts owed the subs from payment to the general for their benefit.  Subs and generals can protect themselves by providing the proper documentation required under the act to the owner and will have a claim for unpaid monies that attaches to the land and allows them to foreclose on the lien and the possibility of selling the property to satisfy that judgment.  The important point is that the parties need to follow the letter of the act or problems (the same old problems that were cause for the creation of the act in the first place) will arise and they will not have the protections that they thought they did.

Depending on your viewpoint, a comedy of errors came together and an owner’s problems were exacerbated for not following the act, forcing the Third District to reverse a Will County trial court decision in favor of an owner (University St. Francis) against an electrical subcontractor (Excel Electric, Inc.) in this case.

St. Francis hired a general contractor to renovate a residence hall at the university.  The GC hired Excel as the sub.  Work was performed and up to the final invoice, the GC submitted invoices showing the subs and the amount due to the subs.  The original invoices were all paid.  The final invoice was sent to St. Francis by the GC showing the amount of the final payment as $458,237.56 and stating the $130,948.48 was due to Excel.  St. Francis transferred the full amount to the GC (which included the 130k for Excel) to the GC’s Harris Bank account, but instead of having access to the money, Harris Bank took the funds pursuant to its right of set off for a debt that the GC owed Harris Bank.  Excel and other subs never got their money.

Excel filed its claim for a lien and noticed St. Francis that it was owed $140,547.09 (likely the amount plus interest, but the opinion is silent regarding the discrepancy).  Another sub that had a lien filed a foreclosure action and pursuant to the statute, Excel joined in that action and filed a counter-complaint to foreclose on its lien.  The university and Excel both filed motions for summary judgment.  Excel argued that it had a valid and enforceable lien in the amount of $130,948.48 and St. Francis argued that the lien was not enforceable.  The trial court agreed with St. Francis and based its opinion on an understanding that because Excel did not file its notice of lien until after St. Francis had made final payment to the GC.

The appellate court reversed.  The opinion is worth reading for anyone in the industry who is interseted in either enforcing liens or trying to get out of them.  The court cited the notice provisions required in §5(a) and §24(a) of the Act and noted that the final invoice from the GC put the university on notice that Excel was owed money.  Under the act, St. Francis should have withheld the funds for the benefit of Excel (possibly paying them directly to Excel, or at least waiting to obtain a final lien waiver from Excel before transferring payment).  It is interesting that if the final statement from the GC had been fraudulent, and listed the amount as $60 or that no money was owed Excel and then St. Francis did, in fact either retain the $60 or make payment, Excel’s claim against the university would not stand.

Owners should note that they need to request that final statement of subcontractors and amounts due and owing to be protected under the Act.  Contractors should note that they need to get their notices and billings to the owner in a timely fashion under the act to preserve their rights.