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

    A surety issues performance bonds to a contractor.  A third-party signs an indemnification agreement with the surety, agreeing to indemnify the surety for the payments made on the bonds.  The contractor breaches its contract for construction services and the surety pays out on the bonds.  The payments were made between 1994 and 1996.  The  surety demands payment, the third-party refuses and in 2004, the surety sues for breach of contract stating that the third-party has breached the indemnity agreement.

    That’s the start of the situation in Travelers Casualty & Surety Company v. James Bowman et al. (Ill. Sup. Ct. 2008, Doc. No. 103759).  The trial court dismissed the action of the surety, Travelers, finding that section 13-214(a) which applies a four-year statute of limitations to certain construction actions applied.  Travelers appealed and the appellate court held that the section 13-206 10 year statute of limitations applied to the action.

    For those interested, section 13-214(a) and 13-206 read in relevant part as follows and are important to anyone contracting in the construction setting as they are the statutes of limitations usually found applicable to actions arising from disputes over construction agreements:

• 13-214(a)

“Actions based upon tort, contract or otherwise against any person for an act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property shall be commenced within 4 years from the time the person bringing an action, or his or her privity, knew or should reasonably have known of such act or omission. Notwithstanding any other provision of law, contract actions against a surety on a payment or performance bond shall be commenced, if at all, within the same time limitation applicable to the bond principal.”

• 13-206

“[A]ctions on bonds, promissory notes, bills of exchange, written leases, written contracts, or other evidences of indebtedness in writing … shall be commenced within 10 years next after the cause of action accrued…”

    Travelers asserted in the Supreme Court that the appellate court was right and that a 10 year statute of limitations was correct since they had brought a claim for breach of contract based on the indemnity agreement with the third-party.  The third-party claimed that either the four-year statute of limitations applied, or that an even shorter two-year statute of limitations for contribution and indemnity expressed under section 13-204 applied.

     The Supreme Court agreed with Travelers.  The court noted that it is the nature of the liability to which a person is subject and not the nature of the relief sought by a party is the test for determining the character of a cause of action.  In other words no matter what an attorney might call an action, it is the underlying nature of the action and the facts of the dispute that will determine what kind of action it is.

    Here, although construction omissions had led to the payment by Travelers on the bonds, the payment on the bonds triggered obligations under the separate indemnity agreements with the third-parties and when the third-party refused to pay under the indemnity agreements, Travelers had a cause of action against them for breach of contract.

    With regard to the second theory of a two-year statute of limitations, the Supreme Court held that the third-party was incorrect in claiming that any of its cases had ever held that a two year statute of limitations would ever apply to actions based on written indemnification agreements.  The court stated that the claims of indemnity and contribution addressed under the section 13-204 addressed “cases involving the allocation of damages in connection with an underlying tort claim for injury to person or property.”  It went on to state that such a claim based on indemnity was only for “implied indemnity” (where the law offers indemnity) not for the express indemnity (where the indemnity claim is based on an agreement providing that one party will indemnify the other). 

“In sum, section 13–204 is applicable to claims for implied indemnity involving allocation of damages in connection with an underlying tort claim for injury to person or property, regardless of whether subsection (a) or (b) is at issue. Section 13–204 is not applicable to claims for express indemnification based on a written contract. Because the claim at issue is based on a breach of express indemnification provisions in a written agreement, it is subject to the10-year limitations period in section 13–206.”  Slip. Op. at 12.

The court then held that the 10 year statute of limitation applied to the indemnity agreement.

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Hello and Welcome!

We hope you enjoy the new site and address.  Now that we're up and running, we'll continue to provide the same great content along with a new look.  All the entries from the previous incarnation are now incorporated into the new blog and you can find them through the search function or through the topics listed at the right.

We'd love to hear what you think of our new design and welcome any comments or suggestions on how we can make this site better for our readers.

Thanks,

Illinois Construction Law Blog

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Malec v. City of Belleville (5^th Dist., Doc. No. 05-07-0456) is a case worth noting.  The City of Belleville adopted a group of ordinances in 2006 that provided for the formation of a tax-increment-financing district (TIF) pursuant to the TIF Act.  The city also adopted an ordinance creating a business district, approved a redevelopment plan, tax increment allocation financing for the Developers, a tax within the created business district and authorized the use of general sales tax revenues to reimburse the Developers for project development costs.  A complaint filed by the plaintiff alleges that these ordinances were to help finance a Wal-Mart, Lowe's, housing development and some other businesses.

Plaintiff, a taxpayer, brought suit challenging the city's enactment of the taxes under the TIF Act.  The district court dismissed the plaintiff's claim, finding that he lacked standing to bring his action as a taxpayer.  The 5^th District reversed and found that if the actions of the city in creating the TIF and business district did affect the general revenue of the city, then a taxpayer would have standing.  The court also held that the taxpayer could challenge the creation of the TIF through claiming that the areas that had been created did not meet the criteria of being "blighted" as the Act required (under the act "blighted" is a term of art that requires a area meet a myriad of factors in order to qualify for the TIF districting).  See 74.4-3(a) of the Act.  The argument was that the areas would have developed as business districts on their own, and as such, the creation of the special districts to generate revenue that would be paid to the developers affected the general revenue of the city because the city would have generated the revenue for itself and would therefore have no need to pay developers to do it.  (No mention of the timing was made, i.e., whether an argument that a development district would create business in a matter of a year as opposed to a naturally occurring district developing over, say, ten years).

While the case is not a blow to the creation of the districts for development, it does lend individuals another form of suit which could be used to slow down any form of development relying on TIF funding and is a case we'll keep an eye on.

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With all the clients and non-clients out there who have names they'd like to protect or logos they would want to preserve, there are two interesting articles about trademarks that are worthwhile.  Posted within one day of each other, the Chicago Tribune and the Wall Street Journal are talking about the topic and offering advice on self-registration in a way that everyone can appreciate.

 

No less than three court cases were reported on yesterday in the Chicago Real Estate Daily, each involves a high-profile project and some major players across the city in law, real estate, and architecture.

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            There's an interesting This American Life episode about the current mortgage crisis entitled "The Giant Pool of Money" (the link lets you listen for free).  It's a primer on the current mortgage crisis and how we got into the mess that's currently being reported on across the internet.  The effects are varied and will continue to expand, today's Wall Street Journal has a page one piece on the mortgage insurance industry and its own response to the crisis.  The TAL is a must-listen and takes you through the history about how the financial industry's craving for investment instruments led to brokers offering mortgages with no money down to individuals without verifying salary histories.

            While the spot is an introduction, it gives context for a recent case that should pique the interest of financers.

            In First Franklin Financial Corporation v. Amerihome Mortgage Company (IL N.D. Doc No. 08 C 1089) we find First Franklin (a financer) suing Amerihome (a company acting as an independent mortgage broker for First Franklin) to recoup the monies from defaulted mortgages.  Amerihome entered into an agreement with First Franklin to act as a mortgage broker.  The agreement contained an indemnification provision and a provision requiring Amerihome to investigate and verify the information about an applicant's creditworthiness by asserting that the information contained in the application and supporting documentation for the loan was true.  Sure enough, some of those applications were for borrowers who later defaulted on their loans.  First Franklin filed an action against Amerihome alleging that Amerihome breached its agreement with First Franklin by submitting loan applications with false information and alleging that Amerihome has a duty to indemnify First Franklin for the losses incurred because of the breach.

This case is unique in that Amerihome is solvent.  For too many lenders, the mortgage brokerages they have dealt with have since gone out of business, or have filed for bankruptcy.  It is also unique in that Amerihome may be able to pay the amount First Franklin alleges it is owed, while smaller mortgage brokers would have a harder time coming up with the cash to satisfy a judgment for the amount of an entire mortgage deficiency.

Amerihome filed a motion to dismiss the action for indemnification claiming that the indemnity provision which the court denied and the case will now go forward.  If you've heard the TAL piece, then it should come as no surprise that a company is going after the individuals that procured the investment for it in the first place, and of course it doesn't hurt that First Franklin apparently insisted on the indemnification provision in the first place.  It will be interesting to see how actions such as this one continue to develop as institutions investigate ways to recoup their losses. 

[UPDATE]:  Bill Henderson, professor at Indiana University School of Law is also asking some questions about this debacle today on the Legal Profession Blog.

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The First District has filed a new opinion relating to control exerted over an independent contractor by a GC in Gregory v. Beazer East, et al., (Doc. No. 1-06-3597).  The court held in an asbestos related action that the facts surrounding the worker's employment in the construction of a facility back in 1970-71 did not give rise to a finding of liability in a construction negligence action.  While the defendant (the facility owner) had the ability to stop work, monitor work, and control access to the site "these were simply general rights it had as the ultimate employer on the construction project."

 

Periodically, we see cases in which an owner will assert a claim against a design professional pursuant to the consumer fraud act.  In an interesting case initiated pursuant to an act with similar provisions, the Second District has held that a corporation in the business of restoring vintage cars can qualify as an "Automotive Repair Facility" under the Automotive Repair Act.  In Montgomery v. Nostalgia Lane, Inc., (Doc. No. 2-07-0661) this finding required reversal of a summary judgment in favor of the repair facility after the plaintiff sued for damages where the facility allegedly low-balled its bid and then ended up over-charging.

 

The tenants of a commission run trailer park were allowed to keep their claims against the commission for an unlawful taking and for inverse condemnation and beat a dismissal motion.  In Mester v. Otter Lake Water Commission, (C.D. IL, Doc. No. 08-3080) the court found that there were facts and allegations sufficient to preclude a determination that the actions of the commission in limiting and restricting tenants rights and their ability to sell their lots or transfer ownership did not amount to an unlawful taking or condemnation.

 

In DOT v. Anderson, et al. (Doc. No. 3-07-0877), the Third District found that despite the private claims of an individual to ownership interest in a parcel, where the recorded documents showed title was vested in another, and that the common law requirement of possession use or control had not been met, the plaintiff was not an owner under the Eminent Domain Act.

 

Shari Shapiro, over at Green Building Law, has an article published at Green Buildings about an action filed by some HVAC providers against the City of Albuquerque to stop regulations passed by the city requiring higher efficiency heating and cooling units from going into effect.

 

BLAWG REVIEW #168 is up over at West Virginia Business Litigation and provides some interesting diversions.  Notably, a few great links discussing legal writing and some entries about topics that came up in blogs last week.  In general, this posting does not center around a theme as most of the review's tend to; it sums up some postings that were interesting to the author.

 

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In Stewart v. Gino's East, et al. (N.D. IL, Doc. No. 07 C 6340), the defendants, restaurants that accept credit cards for payment, were sued under the Fair and Accurate Credit Transactions Act (FACTA) in a class action alleging they violated the FACTA by not removing the expiration dates of credit cards from their customer's receipts.  One of the defendants brought a third-party action against a company that installed the software and hardware used for the credit card transaction for breach of contract.  The third-party complaint attaches the contract.  It is a short agreement entitled "Construction Contract" and appears to be a standard contract used by the defendants for the contractor installing the equipment and allows the architect final approval on the remediation of unsatisfactory work.

The third-party complaint alleges that the description of the services provided in the contract meant that the contractor would assure that the software and hardware were in compliance with all applicable laws, including FACTA.  The contractor brought a motion to dismiss and argued that nothing in the contract obligated it to make sure the system was in compliance with FACTA and pointed to provisions of the contract arguing that they were not ambiguous and precluded a complaint against the contractor. 

The court found that the provisions pointed to by the contractor were silent about the system or hardware complying with FACTA (after all, it reads like a contract for the installation of the machines):

• "You do hereby warrant, that all material and equipment supplied for this job shall be new and free from faults and defects, and standard written equipment warranties shall be included and delivered to owner and also included is an one year warranty (from completion of the contract work) on all workmanship and materials."

The court went on to hold that other provisions could be interpreted to mean that compliance with FACTA was included in the contract:

• [the contractor] is "authorized to furnish all labor and equipment to do the POS set up for the building"

• "[t]he work is intended to be complete and fully useable as a finished product or system."
  
• "that all material and equipment supplied for this job shall be new and free from faults and defects."

Finding that these contractual provisions might be interpreted to require the system, as installed, would be compliant with FACTA.  The court denied the motion to dismiss, pointing out that these ambiguities created a question requiring future litigation.

Now, obviously, the court, and we, don't have all the facts about the nature of the agreement, but if it was just an agreement for the work on the installation of the equipment, then the ambiguities have created an issue and possible liability in a situation where absolutely none was intended.  Again, it might seem like a pain to have lawyers reviewing your agreements and helping negotiate even something as small as this contract must have seemed, but there is a reason such a big deal is made over contractual language.

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We're still in the process of transferring the site to www.illinoisconstructionlawblog.com, as we continue to improve the presentation of our blog.  We'll continue to keep posting updates and cases and should have the new interface and address up and running within the next two weeks.

Some interesting updates and some things we've missed over the past few days:

• 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.

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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."

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