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

It’s unclear if we can go a week without attempting to amend the Illinois Mechanic’s Lien Act to accomplish what the Mechanic’s Lien Act could accomplish if Section 32 were just removed.

Last week we wrote this entry on HB 0236 which sought to keep contractors from filing liens without first providing written notice to the owner.

This week, State Senator Pamela J. Althoff has introduced SB 2073 which would bar a subcontractor from any remedy under the act for work on owner-occupied single-family homes unless the contractor’s written agreement with the home-owner includes this statement:

  "THE LAW REQUIRES THAT THE CONTRACTOR SHALL SUBMIT A SWORN STATEMENT OF PERSONS OR SUBCONTRACTORS FURNISHING LABOR, SERVICES, MATERIAL, FIXTURES, APPARATUS OR MACHINERY, FORMS OR FORM WORK BEFORE ANY PAYMENTS ARE REQUIRED TO BE MADE TO THE CONTRACTOR."

IT IS IMPORTANT THAT YOU READ AND UNDERSTAND THE DUTIESTHAT YOU HAVE AS AN OWNER OF THE PROPERTY TO THE CONTRACTOR  AND TO ANY SUBCONTRACTOR THAT THE CONTRACTOR USES. THESE  DUTIES ARE PRINTED AND INCLUDED IN THIS CONTRACT UNDER THEHEADING NAMED "PROPERTY OWNER'S DUTIES UNDER THE LAW".

The underlined portions are the one’s being added.

The Illinois Construction Industry Committee doesn’t have anything up on its website about this bill yet.

A few comments…

Adding “or subcontractors” to the language of the already required statement accomplishes nothing. Subcontractors are included as “persons” in that statement.

This bill requires that a new section entitled “Property Owner’s Duties Under The Law” be included in all contracts, but adds nothing to the Act about what that portion of the contract should say and doesn’t enumerate the duties that need to be included in the statement. Does this amendment seek to now impose a duty to include in contracts a complying section and list every duty owed by a property owner under the law? - Does that mean the Act or the entirety of the Law?

The Amendment also adds the following penalty provision:

  (iv) The failure of a contractor to include thestatement contained in paragraph (i) on the face of the contract relieves the owner of the property of any legalobligation to pay any subcontractors under this Act.

Normally, the contractor couldn’t give away the rights of the sub, but since the act is a legislative remedy, the legislature is free to divine the methods and remedies it affords those performing construction work. But what has a subcontractor done by performing work and not getting paid that it would even have a chance to rectify at the time the owner and the contractor enter into an agreement? Usually, subs aren’t even involved in the process at the time the contract is entered into. We understand the goal is to protect home-owners, but why punish the subs?

Again, Section 32 of the Act, that strips the Act's remedies for the home-owner’s already made payments from the home-owner for failure to request and exercise its rights under the Act, could be removed and the home-owner would not have to pay the monies it has already paid for the benefit of the subs to the subs again if the contractor has failed to pay those monies out.

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It’s another great day for the AIA. In this case, Federal Insurance brought a claim against Konstant after Federal paid out over $300,000 to its insureds - a couple who had mold damage in their house.

Konstant had a contract with the home owners to design a home in Winnetka, Illinois. The contract (likely the B141-1987 since the work was completed in 1997, and since the B151-1997’s addition of “In no event shall such statutes of limitations commence to run any later than the date when the Architect's services are substantially completed” is not included in the provision contained in the Court’s opinion – but reference to §9.3 of a standard form AIA agreement is) had the following provision:

“Causes of action between the parties to this Agreement pertaining to acts or failures to act shall be deemed to have accrued and the applicable statutes of limitations shall commence to run not later than either the date of Substantial Completion, or the date of issuance of the final Certificate for Payment for acts or failures to act occurring after Substantial Completion.” 

The home owners found water and mold damage in their home in November of 2002, well after the 1997 date of substantial completion. Federal paid under the home owners policy and was subrogated to their rights and in turn, brought an action against Konstant for breach of contract in September of 2005.

Konstant’s attorneys moved to dismiss the action claiming it was time-barred under the Illinois four-year statutory limitations period governing the construction of improvements to real property (735 ILCS 5/13-214(a)) which states:

“(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.”

In the circuit court, the designer’s lawyers argued that the contract provision at issue meant that the four-year statute of limitations period began to run in 1997 thanks to the AIA contract provision. The trial court agreed and dismissed the action. The owners appealed and argued that a different section of the statute of limitations provisions (735 ILCS 5/13-206) – a 10 year limitations period – applied to the instant case. The appellate court agreed with the trial court and made two important findings, one obvious and one not:

1.       The construction statute (13-214(a)) applies when a defendant is being sued for its act or omission of one of the statute’s enumerated construction-related activities. i.e. - the design, planning, supervision, observation or management of construction, or construction of an improvement to real property. (obvious)

2.       the extended 10-year statute of limitations which runs from the “discovery” of an act or omission under 13-214(b) is superseded by a parties contractual provision – like that of §9.3 – and will be viewed as an agreement between the parties to shorten the statute of limitations period so long as the agreed time-period is not in violation of public policy. (not obvious)

The lesson here is to make sure that as an engineer, architect, contractor or anyone in a contract with the owner, that you get that provision in your contract. There’s no reason to be carrying a ten-year risk when you can shorten it to, at least, 4 years… as an owner, you will want to make this provision a negotiating point that can impact the cost of your project given that you are now giving up something substantial when you agree to such a provision.

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With all the talk recently of Ethics in State Government and the recently enacted mandates about State Contracting, we thought we would take the time to inform our readers about the topic.

Illinois law, (Public Act 95-971; 10 ILCS 5/9-35; 30 ILCS 500/20-160 and 30 ILCS 500/50-37) requires that vendors register with the State Board of Elections; requires that a copy of the registration with the Board of Elections be submitted with bids/proposals for State contracts; and requires contract certifications of State Vendors; and restricts political contributions to State Officers and Congressional Representatives by State Vendors and their affiliated entities.

a.            The Brief Timeline of the Act

In an effort to establish new restrictions on campaign contributions and solicitations for contract awards by state contractors and bidders, Governor Rod Blagojevich issued Executive Order Number 3 on August 26, 2008. The intention of the Executive Order was the enhancement of transparency in the State procurement process and to ensure that the award of State contracts is based solely upon price, quality, service and other merit-based factors. “What all State vendors need to know about new ethics requirements” Fact Sheet, Illinois Department of Central Management Services, accessed February 24, 2009.

Following the Governor’s lead, the Illinois Legislature passed its own version of the Executive Order into law on September 25, 2008, as Public Act 095-0917. The Executive Order contains restrictions that appear to be broader than the Act. The effect of passing the Act into law was to take an Order that could otherwise have been rescinded by a successive Governor and turn it into a law that arguably, is less stringent than the order.

The Act and Executive Order took effect January 1, 2009.

b.            The Entities Impacted By the Act

The Act and Order basically apply to any for profit entity or an affiliated entity of a for profit entity in the State of Illinois that has bids or proposals on State Contracts exceeding $50,000; is awarded State Contracts exceeding $50,000; or a combination thereof exceeding $50,000.  

Under the Act, State Contracts are contracts with any State Agency including all boards, commissions, agencies, institutions, authorities, and bodies politic and corporate of the State, created by or in accordance with the Illinois Constitution or State Statute, of the executive branch of State government and includes, colleges, universities, public employee retirement systems, and institutions under the jurisdiction of the governing boards of the University of Illinois, Southern Illinois University, Illinois State University, Eastern Illinois University, Northern Illinois University, Western Illinois University, Chicago State University, Governors State University, Northeastern Illinois University, and the Illinois Board of Higher Education. 30 ILCS 500/50-37.

Pursuant to Executive Order No. 3 the following and their boards of directors/governors are also included:

Capital Development Board

Department on Aging

Department of Agriculture

Department of Central Management Services

Department of Children and Family Services

Department of Commerce and Economic Opportunity

Department of Corrections

Department of Employment Security

Department of Financial and Professional Regulation

Department of Healthcare and Family Services

Department of Human Rights 

Department of Human Services

Department of Juvenile Justice

Department of Labor

Department of Military Affairs

Department of Natural Resources 

Department of Public Health

Department of Revenue

Department of State Police

Department of Transportation

Department of Veterans’ Affairs

Governor’s Office of Management and Budget

Guardianship and Advocacy Commission

Historic Preservation Agency

Illinois Arts Council

Illinois Criminal Justice Information Authority

Illinois Emergency Management Agency

Illinois Finance Authority

Illinois Housing Development Authority

Illinois Investment and Development Authority

Illinois Power Agency

State Fire Marshal

“A State contract is any type of agreement between a State agency and a business entity that is governed by the Illinois Procurement Code, including contracts for the procurement, use or disposal of supplies, services, professional or artistic services. A State contract also includes construction contracts, leases of real property, or capital improvements contracts, including master contracts, contracts for financing through use of installment or lease-purchase arrangements, renegotiated contracts and change orders. State contracts governed by the new ethics requirements do not include cost reimbursement contracts; purchase of care contracts as defined by Section 1-15.68 of the Illinois Procurement Code; grants, including but not limited to grants for job training or transportation; and grants, loans or tax credit agreements for economic development purposes.” Illinois Department of Central Management Services Fact Sheet.

The Act also applies to any affiliated entities of those entities covered by the Act. The Act defines affiliated entities as:

“i) any subsidiary of the bidding or contracting business entity, (ii) any member of the same unitary business group, (iii) any organization recognized by the United States Internal Revenue Service as a tax‑exempt organization described in Section 501(c) of the Internal Revenue Code of 1986 (or any successor provision of federal tax law) established by the bidding or contracting business entity, any affiliated entity of that business entity, or any affiliated person of that business entity, or (iv) any political committee for which the bidding or contracting business entity, or any 501(c) organization described in item (iii) related to that business entity, is the sponsoring entity.” 30 ILCS 500/50-37.

If an entity questions the Act’s applicability the following examples from the State of Illinois Fact Sheet in assessing the matter are helpful:

c.             The Requirements and Restrictions Placed on Those Affected by The Act

Executive Order Number 3 (2008) and Public Act 095-0971 place requirements and restrictions on their affiliated entities and all affiliated persons. 

An Affiliated Person is described under the act as:

“(i) any person with an ownership interest or distributive share of the entiy or an Affiliated Entity in excess of 7.5%, (ii) an executive employee of the entity or an Affiliated Entity, or (iii) the spouse or minor child of anyone covered by (i) or (ii).” 30 ILCS 500/50-37

Any qualifying business entity is required to register with the State Board of Elections pursuant to the Illinois Election Code 10 ILCS 5/9-35. Any qualifying entity must submit certification to the State procurement officer in charge of its qualifying contracts stating that it has registered and it must provide proof of registration when bidding on future contracts pursuant to the Illinois Procurement Code 30 ILCS 500/20-160. Any business entity, affiliated person or affiliated entity is prohibited from making political contributions as described in the Illinois Procurement Code 30 ILCS 500/50-37.    

1.            REGISTRATION

Pursuant to the Act and Executive Order Number 3, all qualifying entities were required to register with the State Board of Elections by January 31, 2009. If an entity has not registered with the State Board of Elections, the directions for registration may be found at:

http://www.elections.il.gov/BusinessRegistration/RegistrationProcess.aspx

And the proper form for registration may be found:

http://www.elections.il.gov/Downloads/BusinessRegistration/PDF/BEREPForm.pdf

The form must be completed and submitted to the State Board of Elections as described in the directions. The form must include the information regarding all “affiliated entities” and all “affiliated persons” for the entity.

After registration, the Board of Elections is required to provide a “certificate of registration” to the entity. The statute mandates that this certificate will be electronic and accessible through the State of Illinois Board of Elections website. However, the Board currently lacks the resources to fulfill this provision, thus, it is currently time-stamping copies of the first page of the registration forms and returning them to the registering entity to serve as the certificates of registration. State Board of Elections, BEREP Procedures website (last accessed February 24, 2009).  Here's a little more on this topic from the Illinois Issues Blog.

2.            CERTIFICATION

The Act imposes some affirmative duties on qualifying entities and their affiliates regarding the certification of its registration including:

I.             Within 10 days of registration, the entity must provide a copy of the certificate to each affiliated entity and affiliated person disclosed in the registration form.

II.                  The entity must notify all political committees to which it contributes, at the time of contribution, that it is registered with the State Board of Elections. Each of the entity’s affiliated entities or affiliated persons must also notify the political committees to which they contribute, at the time of contribution, that they are affiliated with the entity, which is registered.

III.                Every bid or proposal submitted by the entity for a State Contract after January 1, 2009, must be accompanied by a copy of the certificate of registration received after registration has been sent to the Board of Elections.

IV.                Every State Contract the entity receives after January 1, 2009, should contain a statement that the entity has registered as a business entity with the State Board of Elections and acknowledging the entity’s continuing duty to update its registration. The contracts will also include a statement that the contract is voidable for the entity’s failure to update its registration.

V.                  By March 31, 2009, the entity must submit a copy of the certificate of registration all of the applicable chief procurement officer(s) for the entity’s contract(s):

There are 5 Chief Procurement Officers for the State. 

·         For contracts for vertical construction or vertical construction-related services, the Chief Procurement Officer is the Executive Director of the Capital Development Board.

·         For contracts for highway construction or highway construction-related services, the Chief Procurement Officer is the Secretary of the Illinois Department of Transportation.

·         For contracts for procurements made by a public institution of higher education, the Chief Procurement Officer is designated by each public institution of higher education.

·         For contracts for procurements made by the Illinois Power Agency, the Chief Procurement Officer is the Director of the Illinois Power Agency.

·         For all other procurements, the Chief Procurement Officer is the Director of the Department of Central Management Services.

VI.                The entity has a continuing duty to ensure that the registration is accurate, and must report any change in information to the State Board of Elections within the time periods set forth in Public Act 95-0971. Notify the BOE within 10 days of any change if a contract is in place, within 2 days of any change if a bid or proposal is pending.

VII.              The entity has a duty to keep the registration information up to date for 2 years following the completion of any State Contract.

3.            ENTITY’S and AFFILIATE’S POLITICAL CONTRIBUTION RESTRICTIONS

                The Act and Executive Order Number 3 impose some restrictions on the entity, its affiliated entities and affiliated persons contributions to political campaigns. The following restrictions appear to apply to all three groups:

I.                    Contributions cannot be made to any political committees established to promote the candidacy of the officeholder responsible for awarding any of the contracts the entity currently has or bids on. From the time of the term of office of the officeholder to 2 years following the expiration of the contract, whichever period is longer.

II.                  Contributions cannot be made to any candidate for the office responsible for awarding contracts that entity currently has or bids on. For 2 years following the completion of the contracts.

For the purposes of these rules, the Lieutenant Governor, Attorney General, Secretary of State, Comptroller and Treasurer are the responsible officeholders for the contracts awarded by their agencies. For all other contracts awarded by executive branch state agencies, the Governor is considered the responsible officeholder. 

Additionally, if the contract or bid is with one of the above listed executive branch agencies, Executive Order No. 3 prohibits:

III.                The entity and its affiliates cannot solicit a political contribution on behalf of or make a political contribution to any State office or declared candidate for state office or any political party. Note: this apparently includes any member of the general assembly and any other state office. These restrictions are in place for two years after the contract ends or until the bid is awarded.

IV.                The entity will be required to certify that no such contributions have been made.

d.            The Penalties Provided Under the Act and Executive Order

                In addition to the monetary penalties already delineated for the failure to register. Any Contract awarded to an entity that fails to comply with the Act may be rescinded by the awarding agency or the State, without recourse to the contract recipient.

                The Act imposes further monetary penalties of $1001.00 dollars for the failure to notify the entity’s affiliated entities and affiliated persons of registration.

                If an entity violates the requirements of the Act 3 or more times within a 36-month period, then all contracts between the State and that entity shall be voided and the entity shall not bid for any State contract for 3 years from the date of the last violation.

                Any political committee that receives or has received a contribution in violation of the Act shall pay an amount equal to the value of the contribution to the Sate within 30 days of receiving notice of the violation.

                If a political contribution is inadvertently made in violation of the Executive Order, then the entity may request full reimbursement from the receiving entity. Any contributions made within 60 days of a gubernatorial primary or general election are not considered inadvertent.

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Stimuluswatch.org is reporting on the stimulus package and the projects proposed for Illinois. A link to the Illinois projects is here. The database is searchable and includes the localities, descriptions of the projects and the amounts proposed.

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It’s not every day that we get to scoop the Train Law Blog, so today is special. With the economic stimulus package passed and the potential for infrastructure projects moving in Illinois… albeit slowly… we are pleased to report on a little known law that could generate some revenue and increase safety for those building and working in train switching yards.

An Illinois statute (625 ILCS 5/18c-7401.1) in effect since July of 2004 that allows for the Illinois Commerce Commission to enact standards for safe walkways in areas around railway yards (which they’ve done) has been upheld by the 7^th Circuit.

In Norfolk Southern Railway Company v. the Illinois Commerce Commission (Doc. No. 08-116), the railway argued that the state laws and requirements for standards in the construction of walkways between tracks at switching areas was preempted by a federal statute. It’s important to first look at how railway tracks are usually built:

The railway claimed that not only did the federal law cover the standards the Illinois law sought to impose (it didn’t) but also that the changes Illinois required for worker safety would, in fact, worsen the safety of the workers and the trains by allowing drainage that could damage the layers of ballast and sub-ballast under the tracks.

It is important so something like this doesn’t happen:

But the argument went nowhere with the court. Absent some showing of evidence that the walkways, as required by the state, would cause the damage, or that the federal statute somehow did discuss the matters involved the railway’s argument was unfounded given the language of the federal statute.

So, let’s hope that some jobs can be created bringing railyards up to code.

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Introduced by Representative Kathleen A. Ryg, HB 0236, the bill seeks to amend 770 ILCS 60/1 (Section 1 of the Mechanic’s Lien Act in Illinois) to include a provision requiring contractors (read “not subs”) on owner-occupied single family residences to given written notice before filing a lien:

(e) A contractor for improvements of an owner-occupied single-family residence must give the owner written notice before filing a lien against any property of the owner.

The act already contains such a similar provision for subcontractors in Section 21(c):

(c) It shall be the duty of each subcontractor who has furnished… work for an existing owner‑occupied single family residence, in order to preserve his lien, to notify the occupant either personally or by certified mail, return receipt requested, addressed to the occupant or his agent of the residence within 60 days from his first furnishing labor… The notification shall include a warning to the owner that before any payment is made to the contractor, the owner should receive a waiver of lien executed by each subcontractor who has furnished labor, services, material, fixtures, apparatus or machinery, forms or form work.
    The notice shall contain the name and address of the subcontractor or material man, the date he started to work or to deliver materials, the type of work done and to be done or the type of materials delivered and to be delivered, and the name of the contractor requesting the work. The notice shall also contain the following warning:

"NOTICE TO OWNER

    The subcontractor providing this notice has performed work for or delivered material to your home improvement contractor. These services or materials are being used in the improvements to your residence and entitle the subcontractor to file a lien against your residence if the services or materials are not paid for by your home improvement contractor. A lien waiver will be provided to your contractor when the subcontractor is paid, and you are urged to request this waiver from your contractor when paying for your home improvements."
    Such warning shall be in at least 10 point bold face type. For purposes of this Section, notice by certified mail is considered served at the time of its mailing.

As you can see, the description of 21(c) is a bit more informative and contains a lengthy mandate of procedures that are required to be followed as well as prescriptive language for the notice.

The problem with the subcontractor’s failure to perform the task of notifying the home-owner is that the act gives the appearance of protecting the home-owner but fails to follow through.

Section 32 of the act strips the home-owner of its protections if it fails to request the Section 5 statement of entities performing work on the project:

Sec. 32. Payments to contractor by owner.

No payments to the contractor or to his order of any money or other considerations due or to become due to the contractor shall be regarded as rightfully made, as against the sub‑contractor, laborer, or party furnishing labor, services, material, fixtures, apparatus or machinery, forms or form work if made by the owner without exercising and enforcing the rights and powers conferred upon him in Sections 5, 21 and 22 of this Act.

As a home-owner, even if you’ve only made a contract with one entity, you still need to request the list of subcontractors… or you won’t have the protections of the act.  If you get the statement from the contractor and it shows that money is owed to a sub, you need to withhold that money from the payment to the Contractor.  Unless you comply with all the terms, the fact that the sub is required to give notice to a home-owner is meaningless.

Certainly, the bill makes sense.  Home-owners can’t be considered in the same manner as sophisticated developers who may fully understand the rights and obligations that having work performed on their homes entails.  The protections provided by the act for subcontractor liens would be better if they had actual teeth and didn’t dissipate completely with the failure to comply with Section 5 in obtaining the statement regarding subcontractors and their work.  Especially in an age where we are seeing more and more residential contractors fail to pay their subs or declare bankruptcy leaving the subcontractors without money and putting them in a position to place liens on owner-occupied single family homes.

To apply those same principles to contractors makes sense as well, but the failure of this amendment to specify a time limit for giving the notice prior to filing the lien is an oversight by the legislature to make this amendment have a meaning. 

As it reads, notice could be given the day before the lien is filed.  What protection does that afford the home-owner?  What if it was just taped to the door?

A better amendment would be to require that before a contractor can file a lien, it should have to deliver to the home-owner the required Section 5 notice listing all the subs and the monies owed.  This would not only give the home-owner adequate notice, it would, with the proper time limitations, allow the home-owner to obtain financing necessary to pay the amounts owed.

You can follow the bill’s status here.

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It’s not always true that there’s no point to beating a dead horse… The horse might have insurance.

In this recent action (link goes to the complaint) filed by the University of Chicago Medical Center against HLM Design, Inc. (N.D. IL, Case No. 2009 cv 730)  The University is suing HLM for breaching its contract for the design of the UofC’s Comer Children’s Hospital. The allegations are that HLM’s designs “failed to include important elements, failed to incorporate value engineering opportunities that would have saved UCMC money, and were inconsistent with applicable codes and regulations.”

The problem is that HLM filed for Bankruptcy in 2004.  HLM was purchased by Heery International at auction. The University had to go to the bankruptcy court in North Carolina where HLM filed in order to get permission to sue HLM in the hopes that HLM’s insurance carrier would have the money to satisfy the damages (in excess of 2 Million according to the complaint) allegedly caused by HLM’s breach of contract.

Oddly, the way the complaint reads, you can tell that the problems HLM was having in fulfilling their end of the deal were the result of the impending bankruptcy, and yet the University alleges that it didn’t learn of the bankruptcy until “well after the filing.”

We will continue to keep you posted as this case develops. It’s going to be interesting to see the if the University can get from the insurance carrier what it cannot obtain from HLM.

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The litigation involved the foreclosure of a mechanic’s lien by a HVAC and plumbing subcontractor. The general had hired the sub based on a contract for $465,000 to perform work on a property in Chicago commonly known as 3947-55 King Drive and 401-415 E. Oakwood.  As noted in the Google street map below, this location was home to Chicago's Rosscoe's which was the subject of a suit in 2008 (the Chicago IP Litigation Blog's Entry on the subject can be found here) and has since changed its name to Chicago's Home of Chicken and Waffles.

View Larger Map

The sub performed $289,302 in work before the relationship went south and it terminated its relationship with the general. The sub filed liens for the full amount – because the property was on two different parcels, it apparently recorded two separate liens against the properties, each for the full amount, rather than just recording a single document that listed the multiple properties.

Four days after the liens were filed, the sub sued to foreclose its lien and brought two extra counts, one for unjust enrichment and one for quantum meruit (two equitable claims alleging that even if there was no contract with the property owner, the owner benefited from the work the sub did, so the sub should be paid).

After multiple motions, the trial court dismissed all the claims made by the sub. The trial court found that the fact that two liens were recorded for a total that was in excess of the actual amount owed was constructive fraud on the part of the sub requiring dismissal of the foreclosure action. The court also found that the equitable claims were not available because the sub had no contract with the land owner.

The appellate court reversed finding that the duplicative filings did not amount to a showing of constructive fraud where the defendants could not show there was an intent to defraud and even the Illinois Mechanic’s Lien Act stated that the misstatement of the amount required a showing of intent to defraud before the misstatement could be used to defeat the lien. The appellate court upheld the trial court’s determination that the equitable claims were unavailable to a subcontractor that only had a contract with the general.

While no one is going to recommend filing a lien that hasn’t been proofed and double-proofed, it’s nice to see the intent of the law given form here to help people get paid even if a small technical error arises.

The opinion can be found here.

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Here’s an opinion from the Northern District, Blythe Holdings, Inc. v. Flawless Financial Corp., et al. (Doc. No. 06-C-5262, 2009), that should serve as a reminder to keep your registration as a professional design firm current.

The plaintiff’s sued numerous individuals and corporations over a complex real estate transaction in connection with redeveloping multiple vacant lots in the City of Chicago’s 16^th Ward. As part of the transaction, plaintiffs entered into an agreement with a defendant architecture firm. The agreement, which contained an arbitration provision, was signed by a principal of the firm who was a licensed architect. A $25,000 retainer was paid to the principal.

Soon enough, the deal went south and the plaintiff was involved in litigation when it believed that many of the lots involved in the transaction were completely unsuitable for development and that no work had been performed to secure the lots they had been promised.

In addition to suing the developers and the attorneys representing them, the plaintiffs sued the architect on the project to get their money back. The architect defendants moved to dismiss the complaint, or to stay the proceedings pending the arbitration they were entitled to under their contract. The plaintiffs responded that the contract was void and could not be enforced, because at the time they entered into the agreement, the architecture firm was no a registered professional design firm with the state of Illinois. (We’ve written about this before.) Alternatively, the plaintiffs argued that because the contract didn’t use the full name of the architecture firm, the contract should be declared void.

Neither of these arguments is very good. The second is laughable. While it is true that the Illinois Supreme court has yet to specifically address this issue, many courts have already reasoned that because the work is performed by a licensed architect, it is the licensure – which is proof that standards are met through the design professional’s credentialing process -  that keeps the public safe, which is the point of the process. The fact that an entity may register as a professional design firm has nothing to do with public safety; public safety is the policy behind the act that requires registration.  The court upheld the contracts and their arbitration provisions and allowed the action against the design professionals to proceed in arbitration against the desires of the plaintiffs.

Note, however, that there are criminal penalties for the failure to register your design firm. While the arguments may not be persuasive to a court in determining whether or not to uphold a contract… people doing business with you may report you to the Illinois Department of Professional Regulation for the failure to register your firm.

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