Illinois Construction Lawyer & Attorney : Foran Glennon Palandech & Ponzi Law Firm : Chicago IL

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.

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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.

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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.

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• 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.

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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.

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The Illinois EPA asked the State Attorney General's office to seek an injunction and civil penalties against the defendant for operating a "construction or demolition debris" landfill without a permit.  The defendant, a company operating a landfill in the Village of Ford Heights (a village the court describes as "an economically depressed community south of Chicago"), argued that the debris (a mound 70 feet tall spanning 26 acres) would be "waste" and therefore in violation of the Illinois Environmental Protection Act (415 ILCS 5/21(d)(2)) but for the fact that the landfill was the proposed site of an all-seasons downhill skiing facility which placed it under an exception to the act.

The question was certified:

   "Whether clean construction and demolition debris deposited onto the land for the purpose of providing the infrastructure for a recreational facility to be built at the site and to be used for snow skiing/snow boarding (facts which are undisputed for purposes of the August 4, 2007 partial summary judgment order) constitutes 'waste' under the Illinois Environmental Protection Act and requires a permit in compliance with the Act's waste disposal requirements including but not limited to 415 ILCS 5/3.305, 415 ILCS 5/21 et seq., 415 ILCS 5/21.1 and 35 Ill. Adm. Code 812.101(a)."

The court put aside the question regarding whether the debris deposited by the defendant was, in fact, "clean construction or demolition debris" reserving the issue for trial.  Assuming that the debris was "clean" the court found that there was nothing in the actions of the defendant by leveling the debris once it reached the site, demonstrating that it "separated or processed" the debris.  The court also found that the planned ski hill did not create an exception amounting to "returning [the debris] to the economic mainstream in the form of raw materials or products."  (415 ILCS 5/3.160)  The court reasoned that accepting the claim that the future use created an exception would negate landfill regulation by allowing any landfill operator with a future intention to avoid meaningful regulatory oversight.  The court additionally dismissed the defendants argument that an exception for using the debris as fill material was met - stating that the fill material exception was negated when the debris reached a height (70 feet) well above the adjacent land as the exception stated.

Answering the certified question in the negative, the court remanded the case.  The opinion is here.  For more information on what to do with construction debris, the IL EPA maintains this construction debris website.

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Given the glut of Bankruptcy cases we have been seeing over the past four months where differing lien matters are being resolved over limited funds in bankruptcy actions, it's refreshing to see an interpleader action.  (An action filed by a party that has control or possession of property that should go to some other party, but first it needs the court to determine which party is the correct party.  In the context of this action, which involved a developer in control of funds that would have been paid to a general contractor but for the fact that the contractor was no longer in business.)  The reason this is refreshing is that lately we have been seeing cases where the GC gets behind and starts using all kinds of funds from different projects to pay its bills.  Often, the GC does not reveal its financial state to the parties it contracts with know of its financial state until it is too late.  The GC goes bankrupt, which consumes the remaining monen that was to be paid out to its subs and other creditors... resulting in a GC that can't pay and multiple liens filed against property owners who had no idea that the payments they were certifying weren't getting to the subcontractors and creditors.

In this action, the company that went under had also failed to make its FICA payments to the IRS.  At the time the interpleader action was filed, the developer was still in possession of some money that it intended to use to pay the GC.  This money was put forth in the interpleader action with a request to adjudicate a settlement of the pending mechanic's lien claims in state court.  The developer also added the US as a party because of the lien the US had on the missing FICA tax payments.  The US then filed a motion to remove the case to federal court to which the mechanic's lienors and other creditors objected.  The court denied the motion to remove the case back to state court finding that the interpleader action had properly consolidated all the cases, and that venue was correctly in federal court under the US Code.

The case is also a reminder that one quick way to federal court when you can't get diversity jurisdiction is to join the U.S. Government as a party.

The case is available here.

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This is a case from the first district about the collapse of a building in Chicago.  The Chicago Province of the Society of Jesus (a Jesuit organization) had a building and demolition work adjacent to the building went awry causing the collapse of the Jesuit's structure.

The parties (and there are many) sued each other and some of the defendants decided to settle.  In total, the Jesuits sought close to $3 Million in damages from the defendants on theories of negligence, violation of the Adjacent Landowner's Excavation Protection Act and violation of the Illinois Municipal Code.  Six of the defendants offered a total of $1,185,000 to settle the claims made against them.

In Illinois, parties can seek a "good faith finding of settlement" under the Illinois Joint Tortfeasor Contribution Act allowing a party that settled to be discharged not only in settlement with the plaintiff, but also from all liability to any other party that might be pointing a finger in their direction.

Here, some of the parties that did not settle objected to the attempts by the settling defendants to obtain a good faith finding because that finding would mean that the non-settling defendants could not seek any more contribution from the settling defendants and would be left paying for whatever damages might be assessed down the road.

In addressing the matter, the court provided a decent summary of the relevant case law and standards regarding "good faith" findings of settlement and upheld the trial court's determination that the settlements were made in good faith.  Effectively allowing the settling defendants to have their liability capped and be removed from the case.

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For those who haven't been following SB 2014, the synopsis of the bill reads:

"Amends the Illinois Municipal Code. Provides that any decision by the corporate authorities of any municipality regarding any petition or application for a special use, variance, rezoning, or other amendment to a zoning ordinance (instead of any special use, variance, rezoning, or other amendment to a zoning ordinance adopted by the corporate authorities of the municipality) is subject to de novo judicial review."

• We have written about it here and commented on its status here.

The bill has now passed both houses and has yet to be sent to the Governor for signature or veto.

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Here's an interesting case about a pipeline that de-coupled after a weld failed.  The pipe's owner, had a continuing services agreement with the defendant regarding the installation of the pipe.  The agreement included warranties, representations and guaranties about the quality, workmanship and fitness for a particular purpose for the work done in connection with the pipe.  The pipe de-coupled roughly two months after its installation was completed.

Plaintiff brought a suit against defendant under breach of warranty and negligence claims.  The court, in the opinion, denies the defendant's motion to dismiss both claims notably holding that the complaint contains enough information to state a cause of action for both the "sudden and dangerous event" and "damage to other property" exceptions to the economic loss doctrine.  Finding that the pleadings were sufficient to state the claims, the court noted that discovery was needed to determine if the event would hold up to the standards for the exceptions, but that in pleading, the Plaintiff's papers were sufficient.

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