Blawg Review #205 is up...
This week’s host is George Wallace over at the Declarations and Exclusions Blog.
When does a design professional owe a legal duty to the employee of a subcontractor on a construction site?
In Dorris v. Baxter & Woodman, the plaintiff, Leon Dorris, filed a lawsuit seeking damages for personal injuries sustained when he fell from a metal-grated walkway (air bridge) that collapsed while he was working on the renovation of a wastewater treatment plant owned by the City of Woodstock. In his lawsuit, Plaintiff named Baxter & Woodman, Inc. (“Baxter & Woodman”), Joseph J. Henderson & Son, Inc. (“Henderson”) and Enviroquip, Inc. (“Enviroquip”) as defendants claiming the negligence of each entity proximately caused his injuries. Baxter & Woodman, an engineering firm, was retained by the City of Woodstock to provide engineering services and serve as the City’s representative on the construction project. Henderson was the general contractor for the project and Enviroquip was the manufacturer of the air bridge[1]. Plaintiff worked for Fischer Mechanical Group (“Fischer”), the plumbing subcontractor on the project.
As part of the construction project, Henderson erected/constructed a metal-grated platform as part of an air bridge that was to provide access to the center of a digester (large concrete tank used to treat wastewater). Two weeks after Henderson had installed the metal- grated platform, Plaintiff was walking on the platform when a portion of the metal grating collapsed causing him to fall into the digester. At the time of the accident, the metal grating was not secured with banding at the edges or with attachment clips at the ends as specified in the manufacturer’s installation instructions. The specification for the metal grating, included in the construction documents, required that the edges of the grating be secured with banding bars and that the metal grating be installed in accordance with the manufacturer’s installation instructions and approved shop drawings. The manufacturer’s instructions, which stated that the grating should be banded at the edges and secured with at least four attachment clips at each end, were contained in a shop drawing approved by Baxter & Woodman and included as a specification in the construction documents.
The duties and responsibilities of Baxter & Woodman were defined in the contract documents. Specifically, Baxter & Woodman contractually agreed to act as the City’s on-site project representative during the construction. Baxter & Woodman agreed to enforce the plans, drawings, and specifications and to “provide full and complete construction supervision services.” The construction supervision services included “daily inspection” to ensure that all work was performed “in conformity with the Contract Documents.” Baxter & Woodman was further required to review and approve shop drawings, manufacturer’s literature and other submittals for compliance with the drawings and specifications. Significantly, this review and approval included the means and methods of construction that were “specifically and expressly called for by the Contract Documents.” Further, Baxter & Woodman had the authority to reject work that did not conform to the contract documents.
Baxter & Woodman’s contract obligated it to provide a resident project representative to observe the work in progress and assist the engineer in determining if the work is “proceeding in accordance with the Contract Documents.” The resident project representative was required to report any work that “does not conform to the Contract Documents.” Per it contract, Baxter & Woodman had the authority to direct or assume control over “any aspect of the means, methods, techniques, sequences or procedures of construction [where] such advice or directions are specifically required by the Contract Documents.”
Prior to trial, Baxter & Woodman was granted summary judgment as the court determined that it did not owe a duty to Plaintiff. This decision was based on the court’s belief that any duty Baxter & Woodman had to inspect the air bridge for compliance with the plans and specifications had not arisen as of the time of Plaintiff’s accident since the construction of the air bridge was not complete when Plaintiff fell. However, the trial court later reversed itself based on the fact that Baxter & Woodman’s contract did not require it to inspect the construction for compliance with the plans and specifications only after the work was complete. There was also deposition testimony indicating that Baxter & Woodman’s resident project representative had the authority to inspect the work whenever he chose. Further, it was Baxter & Woodman’s job to make sure that the work was performed in accordance with the plans and specifications and the construction documents expressly provided that the metal grating for the air bridge be banded and clipped before the platform was assembled over the digester. As such, the trial court reinstated the case against Baxter & Woodman.
At trial, Baxter & Woodman’s resident project representative, Kevin Hinderliter, testified that he inspected ongoing work for defective materials and to enforce the contract specifications throughout the course of the project. Mr. Hinderliter acknowledged that he had at times discovered work that did not meet the specifications, and in those instances, he directly advised the contractor of the variance so the defect could be corrected. Mr. Hinderliter testified that, at time, he specifically insisted that certain work be redone in a manner that complied with the specifications. Additionally, Mr. Hinderliter discussed safety issues at Baxter & Woodman’s progress meetings and dealt with safety concerns. Furthermore, Mr. Hinderliter testified that on the day of Plaintiff’s accident, he knew that the grating did not have the banding along the edges or the attachment clips at the ends as required by the specifications.
At the close of the evidence, the jury found that Baxter & Woodman was 70% liable for Plaintiff’s injuries and returned a verdict of $11 million in favor of Plaintiff. Judgment of $3,675,000 was entered against Baxter & Woodman after the set off from the Henderson/Enviroquip settlement.
Baxter & Woodman appealed claiming, in part, that it owed no duty to Plaintiff.
The First District Appellate Court held that Baxter & Woodman had a duty to exercise its supervisory authority to ensure that the air bridge’s metal grating was secured by banding bars and attachment clips. Dorris v. Baxter & Woodman, No. 1-07-3126, p. 13 (December 2, 2008). In its reasoning, the Court cited various portions of Baxter & Woodman’s contract which obligated it to enforce the specifications, including the means and methods of the work that were expressly provided for by the contract documents, and provided authority to reject work that did not conform to the plans. Id. As such, the Court stated that Baxter & Woodman clearly and specifically agreed to this duty by the terms of its contract. Id. Further, the Court concluded that the contract documents required Baxter & Woodman to inspect the work for compliance with the specifications on an ongoing basis and to reject work that did not comply with the construction document. Id. at 14. Accordingly, the Court cited Putman v. Village of Bensenville, 337 Ill. App. 3d 197, 208, 786 N.E.2d 203 (2nd Dist. 2003) in stating that a claim of negligence may be based upon the failure to perform an act required by contract. In such circumstances where the duty of care arises out of a contract, the scope of such duty is defined by the terms of the contract. Putman, 377 Ill. App. 3d at 208-09; see also Ferentchak v. Village of Frankfort, 105 Ill.2d 474, 482, 475 N.E.2d 822 (1985).
In Illinois, a design professional has a duty to protect a subcontractor’s employee from injury on a construction site where the design professional undertakes significant supervisory responsibilities or agrees to ensure that the work is performed in accordance with the contract documents. Dorris v. Baxter & Woodman, No. 1-07-3126, pp. 12-13 (December 2, 2008); see also Miller v. DeWitt, 37 Ill.2d 273, 284-85, 226 N.E.2d 630 (1967).
This duty will not be charge of a design professional where the contract provides that the design professional (1) has no supervisory responsibility, (2) has no control of or responsibility for the means, methods, techniques, procedures or sequences of construction, (3) has no responsibility for the failure of any contractor to perform the work in accordance with the contract documents, and (4) has no responsibility to devise, implement or enforce any safety precautions or programs for the project. Dorris v. Baxter & Woodman, No. 1-07-3126, pp. 12-13 (December 2, 2008); see also Putman, 337 Ill. App. 3d at 208-09; Ferentchak, 105 Ill.2d at 480-81, 475 N.E.2d 822 (1985).
Some pointers:
- In order to avoid claims and the liabilities as incurred by Baxter & Woodman, it is very important for design professionals to take certain precautions in drafting their contract. A design professional’s contract should explicitly detail the scope of services it is providing. The contract should unambiguously state that the design professional (1) has no supervisory responsibility, (2) has no control of or responsibility for the means, methods, techniques, procedures or sequences of construction, (3) has no responsibility for the failure of any contractor to perform the work in accordance with the contract documents, and (4) has no responsibility to devise, implement or enforce any safety precautions or programs for the project. As part of a design professional’s construction administration services, the designer often reviews the general progress of the work and may certify that work was performed in accordance with the contract documents. However, if this service is to be included in the design professional’s scope of services, the contract should explicitly state that the designer is not required to make an exhaustive or continuous inspections of the work and that the designer is not required to ensure proper construction methods or safety precautions or to see that construction documents are followed. Rather, the design professional may provide opinions or recommendations to the owner, which the owner need not necessarily follow.
- Additionally, it is equally important for design professionals to strictly adhere to their contract and not assume any additional duties by their conduct. The design professional should also avoid maintaining a continuous on-site presence so as to avoid any inference that it is supervising the construction or in control of the premises. Further, the design professional should avoid holding or attending jobsite safety meetings or inspections so as to avoid any inference of control or supervision over safety. If the design professional becomes aware of a variance from the construction documents or any potential safety hazard, the designer should report the issue to the owner and qualify its report as an opinion or suggestion for consideration by the owner. The designer should not directly stop any contractor’s work or issue any directive based on the construction work. Again, reporting opinions for consideration to the owner with a qualifier (i.e. this report is only the opinion of the designer and does not constitute a directive of action or in any way modify the designer’s responsibilities or duties under its contract) is the most prudent course of action.
Following these recommendations does not guarantee that the design professional will not be sued or even found liable; however, these tips are provided to help reduce the risk of exposure associated with design professionals’ services.
[1] Henderson and Enviroquip (along with Plaintiff’s employer) settled with Plaintiff shortly before trial for $7,325,000, leaving Baxter & Woodman as the only remaining defendant.
News & Notes - 3/27/09
A good document retention policy is a must and tailoring it to anyone involved in Illinois’ construction industry is an important part of its creation. With the advent of electronic discovery we all need to be aware of just how much we’re deleting when we erase files. In a fun article over at Law.com, Craig Ball has challenged the Gutmann method (that you need to overwrite your hard drive 35 times to completely erase data). The reality will be fascinating to those of you interested in making sure erased files stay erased.
In a suit filed in Cook County, the developer of the Palmolive Building (seen below) has sued its architecture firm for money that it may be forced to pay in arbitration with Pepper Construction in an arbitration action brought by Pepper against the developer. A copy of the complaint is here.
For those of you wondering why those forum selection clauses are so important, given that Illinois law mandates that construction contracts for project in Illinois be litigated in Illinois under Illinois law… Here’s a complaint filed by FC Stone against former clients who brought a suit in California despite a forum selection clause in their contracts. The suit is for the monies FC Stone had to expend to enforce the forum selection clause in the California court. Paying attention to both the Illinois law and the forum selection clause in contracts can help avoid such a challenge.
The Hartford is suing Grace Electrical Construction for close to $1.8 million that it had to pay out on bonds because Grace allegedly failed to perform. Under the Illinois Public Construction Bond Act (30 ILCS 550) Grace was required to obtain the bonds, but Hartford alleges that it has received more than $2.5 million in claims on the bonds that Grace was responsible for and has paid out the $1.8 million to settle those claims. The complaint can be found here.
Condo Associations' Standing Can Be Challenged By Defendants
Apparently defendants in an action brought against them by a condominium association can now challenge the ability of the board to bring the action even if the entity named in the suit is just the association.
We haven’t seen the pleadings, and the opinion only states that the “complaint was filed by the Association’s board of directors.” However, the named plaintiff in the caption is the association and not the board of directors on behalf of the association and the trial court docket reflects the association as the party as well.
In River Plaza Homeowner’s Association v. Healey et al. (1st Dist. Doc. No. 1-07-1281), .gif)
The suit was brought to stop the proposed construction of a multi-unit condominium by an existing multi-unit condominium building next door to the construction site. As we said, the opinion states that the named plaintiff is the association for the existing condominium, but the board of directors brought the suit. The defendants challenged the standing of the board of directors to bring the suit because the board had not gotten the 2/3’s vote of the association’s members required by the condo’s by-laws for the board to bring suit on behalf of the association. The trial court dismissed the case and all the parties apparently agreed that the suit could be brought if the vote were taken and 2/3 majority voted to sue. The plaintiff appealed the issue. (other issues were also raised by defendants on appeal based on the trial court’s dismissal, but they are not the topic of the opinion nor the topic we are addressing).
The opinion is about the standing of the board to bring the suit, but another word is used once in the opinion to describe the case. On page 12 of the opinion the court says “In the case at bar, the trial court dismissed the complaint due to the board’s legal incapacity to bring this suit on behalf of the Association.” (our emphasis). Again, this leads us to believe there was something in the pleadings that led to this result, but the Association is the only named entity and the board is not implicated by the caption.
In addressing the issue of whether or not defendants had the ability to challenge the standing of the board, the court cited a case about the exclusive authority of the board to bring a suit in a case where unit owners had attempted to intervene and bring their own suit when a condo board was already bringing a suit on behalf of an association. Board of Directors of Kennelly Square Condominium Ass'n v. MOB Ventures, LLC, 359 Ill.App.3d 991, 836 N.E.2d 115 (1 Dist. 2005).
However, in Kennelly, the matter raised by defendants was the impropriety of the unit owners individual suits when Section 9.1(b) of the Illinois Condominium Property Act (765 ILCS 605/1 et seq.) gave the Association the right to bring the action and the ability to enforce the rights of the unit owners exclusive of the unit owners individual suits. The court reasoned that this was proper given the language of 9.1(b) and the public policy result that no defendant should be made to defend piecemeal litigation if suits could be maintained by every unit owner and the Association.
There appears to be no such implication in this suit, rather, the court has allowed defendants who are neither parties to a contract (the condo declaration and its by-laws), third-party beneficiaries of a contract or who have been given a statutory right, to enforce the terms of the agreement.
This doesn’t seem right. If ABC corporation’s rights have been infringed and a suit is brought in which ABC is the named plaintiff against a defendant -- would the defendant in such a case have a right to say that because ABC’s corporate by-laws contain a provision that requires that before a suit be brought in the name of ABC a 2/3 vote of the shareholders must be obtained and the 2/3 vote has not been obtained therefore a suit cannot be filed against the defendant? Aren’t the shareholders of ABC the only parties who have the ability to challenge whether or not the conditions of the by-laws have been met. How could a third-party, without any stake in ABC contest whether or not ABC followed the by-laws.
Again, the use of the term “incapacity” on page 12 is interesting. Black’s law dictionary defines “representative capacity” as “The position of one standing or acting for another, esp. through delegated authority.” The laws give the condo association the status of a not-for-profit entity and it must be registered as such, it has the ability to sue and be sued, but the court here looks to the fact that the board of the association seems to have directed that the association bring suit without attaining a 2/3 vote. It appears that what the court is doing is stating that because the authority was not given, the association has no capacity to bring suit... but standing is the doctrine that they invoke when the board apparently directed that suit be brought and even though the association has standing and it is the named entity, not the board. Perhaps some strange application of the ultra vires doctrine is being applied stating that unlike other corporations, a condo association must show that it complied with its by-laws before asserting the rights that any other corporation would have... but that's not addressed in the opinion.
Apart from the idea that we do not know what was in the pleading that brought the issue of the board bringing the suit on behalf of the association into question, or why, when the association is the named party, a capacity/authority/standing issue can be raised about the board not achieving a 2/3 vote, some real issues arise from this opinion:
- Does it only apply to associations or will defendants be allowed to challenge the standing of a corporation if the corporation has a rule in its charter or operating agreement that contains a clause stating that before an action can be brought on behalf of the corporation, a vote of the shareholders must be taken?
- Does this mean that in pleadings both corporations and associations must state that authority has been granted to bring the suit or that no such clause requiring authority exists or does the burden first fall to the defendants to discover such a provision and attempt to enforce it? – if so, is Illinois at odds with Federal Rule 9(a)(1) which specifically addresses the capacity/authority argument apart from rules regarding standing.
The lack of information in the opinion leads us to the narrow conclusion that from now on in condominium cases it may be best to plead that the condo association’s by-laws for bringing suit have been met or to challenge standing based on such a requirement if you are defending against such an association
5 Cent Architecture?
With the economy in tatters and so many people losing their jobs and looking for work it’s refreshing to hear about people taking charge of their destiny and succeeding. NPR ran a story on Morning Edition this morning about John Morefield (find it here). Morefield is a Seattle Architect who has been the topic of other blogs recently. (The picture at the left is from the Kelsey Keith article at Flavorwire.)
After being laid off from two separate jobs in one year as projects for the firms he worked for went away, Morefield took to offering advice with a booth at a local farmer’s market with a sign that read “Architecture 5¢”. The task wasn’t a gimmick, it was an honest way to try an develop a business and clientele in a market that has turned sour… and its working.
Morefield’s website “architecture5cents.com” is taking off and the booth has generated numerous contacts and business as homeowners walk by and drop a nickel in his can for some free advice about their building and architecture concerns.
The target audience is the individual homeowner, but good advice and a good idea can lead to a host of possibilities. It’s even been adopted to a certain fashion by lawyers in both print and … blogs.
While we’re generally prohibited from offering specific advice to people by ethical rules and codes of conduct, legal blogs and information sources offer a host of targeted answers and commentary on topics that are relevant to everyone… especially in the construction industry.
Even more poignant is the ability to help out in a tough economy. Every nickel from Morefield’s virtual website is donated to the Ballard Food Bank.
With so much talk about a stimulus package and infrastructure dollars headed our way, its easy to lose sight of the traditional word-of-mouth methods for marketing and face-to-face discussions that can help build a business. But there is no substitute for human interaction.
Blawg Review #204
Above the Law is the host of this week’s Blawg Review. In true ATL form, nothing is sacred.
LaBella Winnetka, Inc. v. Village of Winnetka (N.D. Ill, 07 C 6633)
It’s no surprise that we expect the government to treat us fairly. Not to simplify the founders' intents; it was unequal treatment at the hands of another government that sparked the American Revolution. You might think the facts of the instant case are a far cry from the issues leading to the Boston Tea Party, the Civil War and Women’s Suffrage, but the notion of equality… our expectation of it… is pervasive.
In 2007, LaBella Restaurant sued the Village of Winnetka. Oddly, a picture of some form of construction at the site been preserved by Google:
The amended complaint alleged that:
LaBella had a problem with its roof leaking. From 2006 through 2007 the restaurant informed the village that the landlord of the building failed to maintain the roof and the village never required the landlord to bring the roof into compliance with the village ordinances. The restaurant alleged that the landlord hired roofers who then worked without work or building permits from the village and that a fire accidentally happened in 2007. The restaurant was forced to close by the damage.
In the aftermath the restaurant applied for permits to repair the fire damage to the restaurant’s interior and the village refused to issue permits until the landlord replaced the roof. The restaurant claimed in its complaint that while it was closed and the village was denying it permission to make repairs until and unless the roof was fixed, the village met with competing restaurants in the same building and that the village approved permits and designs for those competing restaurants to occupy portions of the building that LaBella leased from the landlord.
LaBella claimed that the denial of its permits and the selective enforcement of other building ordinances in the city (not citing a competing restaurant for having an exhaust fan that was non-compliant and allowing another restaurant to keep its cooking operations going even though a portion of its restaurant had been partitioned off for building renovations) amounted to unequal treatment by the village.
Now, you do have a right to bring suit when you are not being treated by the government as other similarly situated people are being treated… however, the in deciding the motion brought by the defendants to get rid of the case against them, the Court found that LaBella was in a different situation from the other restaurants.
The Court ruled that the fire damage implicated structural concerns for the building. The damage and contemplated repair was not the same as partitioning off a portion of a restaurant to make renovations nor was forcing it to close the same as not forcing a restaurant with a non-compliant exhaust fan to close. The Court dismissed the claim based on the unequal treatment at the hands of the village because LaBella had not sufficiently shown that the other restaurants were similarly situated.
LaBella’s may not be out though. The Federal Court refused to hear the counts of its complaint that weren’t based on alleged constitutional violations… it could still decide to litigate those in state court.
You shouldn’t be afraid to speak up and assert your rights when you think you’re not being treated fairly, but you need to know that sometimes a Court will decide that not all projects are the same.
Thumbprints Are Coming
The Sun-Times has a short piece today on SB 0456 which became Public Act 95-0998. We first reported on this bill back in May of 2008. The Sun-Times’ article reflects that the bill will go into effect on June 1. If you scroll down to Sec. 3-102(h), you’ll see that the failure of the notary to get the fingerprint as part of the record doesn’t mean much outside an allegation of fraud:
(h) The failure of a notary to comply with the procedure set forth in this Section shall not affect the validity of the Residential Real Property transaction in connection to which the Document of Conveyance is executed, in the absence of fraud.
Also, if you’re a property owner with some reason to worry about providing your thumbprint, the act has a provision regarding how and when these records will be 
disclosed:
(i) The Notarial Record or other medium containing the thumbprint or fingerprint required by subsection (c)(6) shall be made available or disclosed only upon receipt of a subpoena duly authorized by a court of competent jurisdiction. Such Notarial Record or other medium shall not be subject to disclosure under the Freedom of Information Act and shall not be made available to any other party, other than a party in succession of interest to the party maintaining the Notarial Record or other medium pursuant to subsection (d) or (e).
The weirdest part about the whole act is that most of the changes will be nullified by the statute’s own language on July 1, 2013 unless the legislature acts by then to amend the law:
(k) Subsections (a) through (i) shall not apply on and after July 1, 2013.
Hanna v. City of Chicago - Is it really a big deal?
The Skyline is posting on the City’s appeal of the First District’s recent decision regarding the City of Chicago’s Landmarks ordinance in Hanna v. City of Chicago (Doc. No. 1-07-3548).
This case will go to the Illinois Supreme Court and Illinois towns are lining up to join in the appeal. Student’s at Northwestern’s Medill School of Journalism have put together an informative article and interview regarding this case.
Quite a lot of commotion has been tossed around regarding the opinion of the appellate court. Some people see it as declaration that the landmarks ordinance is unconstitutional, but the truth is that the appellate court seemingly went out of its way in the opinion to say that they were simply stating that the plaintiffs had put enough information in their complaint to state a claim against the city on the grounds that the ordinance is unconstitutional.
The Court agreed that the terms in the ordinance could be construed as vague and that the provision of the act which allows the landmarks commission’s recommendation to become enacted if the city council does not take final action within 365 days of the recommendation.
We will follow up on this case as it progresses, but it does not appear to be the windfall for the plaintiffs that some of the articles are making it out to be.
Protect Your Copyright - Freedenfeld v. McTigue
It’s a good feeling when we’re able to show you just how important following through on protecting your rights can be… not to mention the smug satisfaction of being able to say we told you so.
Warren Freedenfeld Associates, Inc. v. McTigue D.V.M., which the South Carolina Construction Law Blog has posted on, is a case that should have design professionals thinking twice about doing anything with the ownership of their creations other than granting a limited license to an owner.
The architect was retained by a client and drafted plans for a veterinary clinic. The parties executed and AIA standard form agreement, likely the B151-1997 because the opinion references an Article 6 that deems the architect the author of the plans and drawings and this all took place in 1998.
The relationship went south over disputes about payment and budgeting. The architect sent the vet a letter warning that all the plans they had produced were proprietary and that no one could use them to complete the project and demanded return of the plans. The vet responded that the plans were useless and that they had been “rolled up and discarded.”
Shortly thereafter, the architect took the step securing a copyright over the plans by filing an application with the United States Copyright Office.
In September of 1999 the parties formally terminated their disputes over payment with a written Termination Agreement and the agreement stipulated that Article 6 remained in full force and effect. The agreement also said that neither the vet nor his proposed hospital would use any of the work solely produced by the architect.
The vet hired a different architect to complete the hospital and in June of 2000, the veterinary hospital opened for business.
In 2004, the architect came across an article in Veterinary Economics featuring a drawing of the floor plan of the veterinary hospital at issue… and that the design had won a merit award. The architect went to city hall and got a copy of the building plans and concluded that his copyright had been violated.
In September of 2005, the architect filed suit in federal court against the hospital, the vet and several other parties alleging copyright infringement and other violations.
The defendants moved to dismiss based on the three-year statute of limitations contained in the copyright act. The district court granted the motion to dismiss ruling that any reasonably diligent person would have learned of the copyright infringement when the hospital opened, so the copyright claim’s three-year statute of limitations ran from that date in June of 2000. The architect appealed.
The appellate court analyzed the lower court’s determination about when a reasonable person would have been aware of the infringement and found that the availability of the plans on file and the fact that the hospital was open for a time did not amount to notice that would start the limitations clock:
“Architects have no general, free-standing duty to comb through public records or to visit project sites in order to police their copyrights.”
The court held that the record in front of them did not compel a finding that the architect had not been vigilant or that the architect had been on notice since 2000 and reversed the dismissal of the copyright claim.
The architect now has the ability to prosecute his copyright claim and if he prevails, he may ask for his attorney's fees as well. For the small cost of filing the copyright he gained this added protection… not to mention, since he retained the rights to the plans, he had the ability to request them when something went south on the project… in Illinois, if one adds these remedies to the contractor prompt payment act and the mechanics lien act - a design professional’s ability to obtain payment is drastically strengthened.
Proposed House Bill 4073 - Amending the Improvement to Real Property Statute
Our Illinois General Assembly has a proposed amendment to the Improvement to Real Property statute.
Here is the issue...that statute at sub-paragraph (b) talks about a four year period to
assert claims arising out of improvements to real property. The Illinois Contribution Among Tortfeasors Act addresses a two year period in which a party defendant can assert a right of contribution against a tort-feasor.
Here is the disconnect, in a tort case arising out of an improvement to real property, must the contribution right be asserted in the two year period per the Ill. Contribution Among Joint Tortfeasors Act or is a four year period afforded the right of action as suggested by sub-paragraph (b) of the Ill. Improvement to Real Property statute.
I was under the impression that the Contribution Act controlled the issue and that a defendant had to observe the two year limitation. The legislature wants to make that very clear in the proposed House Bill which at sub-paragraph (f) makes explicit the contribution limitations period controlling.
You can track the Bill here.
Update on House Bill 0236 - Mechanic's Lien
We had previously written about this proposed amendment to the Illinois Mechanic's Lien Act. HB 0236 originally would have required notice to home-owners from original contractors prior to filing a lien.
The new amendment alters the bill substantially, changing its nature from a bill requiring pre-filing notice to a bill that creates a post-filing step for contractors.
The amendment turns the bill into one creating a requirement that a contractor provide the owner written notice by certified mail within 10 days of the recording of the lien.
This is really pointless. A contractor would certainly want the owner to have notice after the lien has been filed because usually those filing liens are trying to get paid without the heavy cost of litigation. The whole point to filing the lien is that you have one more bargaining chip in getting the money you're owed and also have an extra claim if you need to collect in court. So what kind of contractor wouldn't or doesn't let the owner know that a lien is in place?
Additionally, when will "notice" be considered served. Under Section 24 (770 ILCS 60/24) for subcontractors:
"notice by registered or certified mail is considered served at the time of its mailing."
Here, we have not added the caveat for contractors. Why? Do we seek to completely strip a contractor of its rights if it can't get the home-owner to sign for the certified mail? And why was this changed from a pre-filing requirement to a post-filing measure?
Is Time Really of the Essence in Construction Contracting?
Ken Adams over at Adams Drafting has continued his discussion regarding “time is of 
the essence” clauses in contracts. Today’s entry is an excellent discussion of the application of these clauses in the construction contracting where it is understood that delays are going to occur and are, quite possibly, just the natural course of any project.
His point is well suited to Illinois as well. While we see these provisions can have enforcement in real estate and other transactions:
“Third, we find that the trial court properly held that defendants' enforcement of the “timeis of the essence” provision in condition 7 of the contract was proper. Parties to a contract may make “timeis of the essence” a provision of the contract. A court will give effect to this provision when no peculiar circumstances have intervened to prevent or excuse strict compliance. The extent to which a court will enforce a timeis of the essence provision depends upon the intent of the parties as determined by language used in the contract and the circumstances surrounding the agreement.” Maywood Proviso State Bank v. York State Bank and Trust Co., 252 Ill.App.3d 164, 625 N.E.2d 83 (1 Dist.,1993).
Illinois courts tend to recognize and accept the arguments that construction contracts are different beasts in this realm and that some delay in projects is inherently reasonable:
“The Claimant, TWC, has argued that it should receive $91,795 for damages on the site utilities contract, $399,988 on the heating contract, and $218,146 on the ventilation contract. Most, if not all, construction projects will have some delays. Projects with multiple contractors requiring coordinated efforts are more likely to have delays. In this case, the majority of the delays are attributable to the architect-engineer and CDB. Much less delay is attributable to the contractors. For a delay to be tolerated, it must be reasonable under the circumstances. Much of the delay on this project was beyond reasonable. As this Court [has previously found]we do not believe that the damages are computable to the penny as Claimants have tried to show. With the fact that some delay is reasonable and inevitable and the inherent speculative nature of computing losses in construction cases, we must try to find a fair figure for damages after weighing the evidence as is the Court's responsibility.”McCarthy Bros. Co. v. State, 47 Ill.Ct.Cl. 15, (1995).
Given the inherent nature of delay it is no wonder that many contracts now advance certain steps or actions as the marking points for different phases of completion and allow for an Architect or other actor to certify substantial completion. The current method is by far preferable to all parties involved and means we don’t have to bother courts with re-hashing the understanding that the construction process is different from other arenas.
However, Ken’s point about the lack of utility in these provisions is well taken, especially when many manuscript contracts contain the sentence.
Make Sure You Know What You're Doing Before You Bend Over Backwards
We know that client satisfaction has to be a priority on anyone’s list. Just imagine the number of projects you’ve been included on or gotten thanks to one happy customer recommending you to another.
But we need to be careful in how far we’re willing to go to satisfy a client because 
those measures could create liability we didn’t have before and could erase protections we contracted for.
Take the case of Senior Housing, Inc. v. Nakawatase. Nakawatase was the architect on a project to build a multiunit residential building for the elderly. The contract for this project included the AIA standard form language stating:
“8.2 As between the parties to this Agreement: as to all acts or failures to act by either party to this Agreement, any applicable statute of limitation shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than the relevant Date of Substantial Completion of the Work, and as to any acts or failures to act occurring after the relevant Date of Substantial Completion, not later than the date of issuance of the final Certificate for Payment.”
The project was substantially completed on September 1, 1983. In 1984, the building owners found moisture problems leading to water and air leaks every time it rained or the wind blew.
Rather than telling the owner that this was not a design issue and that the owner should contact the contractor directly, Nakawatase conducted an on-site inspection and sent a letter to the owner advising that the contractor had been instructed to re-caulk the windows and that the building would be watched to determine if the re-caulking fixed the problem. In 1985 the owner told Nakawatase that the problem had not been fixed. Nakawatase was asked, and did, prepare bids for the application of a water repellant sealer to the entire building.
We don’t know if that work was ever done, but in 1986, with the problems persisting, the owner hired an independent engineer to inspect the building and find out what was wrong. The engineer concluded that the drawings had a flashing design that didn’t properly allow water drainage. The owner had the problems corrected and sent a demand for payment to Nakawatase in September of 1986. Nakawatase never responded to the demand and in March of 1987, the owner sued Nakawatase.
An important thing to remember at this point is that back then, the applicable statute of limitations was two years.
Nakawatase convinced the trial court that Section 8.2 (which the parties contracted for) was applicable and that since the suit was filed over two years from September 1, 1983, the court should dismiss the matter. Senior Homes appealed.
The appellate court held that Nakawatase could not use the statute of limitations as a defense because it did not deny responsibility for the moisture problems, because it instructed the contractor on the course of action to take in correcting the damages, and acted in apparent acknowledgment of its responsibility by making representations that remedial measures would be taken, observed, and further corrected if necessary.
We know there’s a desire to keep the customer satisfied. We need to balance that desire with its ramifications for post-project remedial work and communications when problems arise. We can end up creating new problems and accepting new liabilities depending on the actions we take when we attempt to investigate or correct a potential defect. You wouldn’t attempt a marathon without warming up, so why would you try to handle a potential conflict without first understanding what your rights and liabilities might be.
News & Notes 3/09/09
News & Notes is a section we have dedicated to interesting items that do not contain enough information to have full entries but are certainly worth noting.
Blair Kamin over at the Chicago Tribune’s Skyline Blog has posted some interesting stories:
Today’s is a piece on Chicago philanthropist Richard Driehaus’ announcement at a Landmarks Illinois event on Saturday night of the creation of grant program to preserve Historic Illinois Courthouses – certainly of interest to anyone in the restoration business.
Skyline also has this piece featuring an article about the new Blue Chip Casino Hotel in Michigan City by Chicago architect Lucien Lagrange.
Additionally, the best video of the Trump spire going into place comes from the Tribune.
The South Carolina Construction Law Blog has an article detailing a New York case interpreting a New York statute similar to Illinois’ own Construction Contract Indemnification for Negligence Act. The Illinois statute has become a must-know for anyone in the industry since the Virginia Surety decision and carries the possibility of drastically altering the limitation of liability that would otherwise be in place for parties under the worker’s compensation statutes.
We’d also like to be the first to welcome the Chicago Construction Law Developments blog to the blogosphere. Illinois is gaining independent information sources for its construction industry at a fast pace.
A New Construction Law Blog
We'd like to welcome the attorneys at Cole Schotz to the Construction Law Blogosphere.
The attorneys of their construction practice group have launched the Real Estate and Construction Law Monitor.
West American Insurance Co. v. Yorkville National Bank - Follow the Agreement.
Once someone files suit or makes a claim against you, just how long do you have to tender it to your insurance company… and how does that tender have to happen?
This issue is addressed in West American Insurance Co. v. Yorkville National Bank (Doc. No. 3-07-0104, 3rd Dist.). While the case involves matters relative to coverage for defamation suit, the principals are ones we should be aware of.
The policy involved in this case had a notice provision that you are likely to see in many policies:
"If a claim is made or ‘suit’ is brought against any insured, you must:
(1) Immediately record the specifics of the claim or ‘suit’ and the date received; and
(2) Notify us as soon as practicable.
You must see to it that we receive written notice of the claim or ‘suit’ as soon as practicable."
Although the defendants in the action had known that a suit had been filed against 
them on September 24, 2001, and although they had allegedly had conversations about the suit with their insurance broker, they waited until January 19, 2004 – over 27 months – to tender written notice of the suit to their insurer. The case had been ongoing for over two years and was set to go to trial in March of 2004.
They were likely a bit surprised when their insurer filed an action against them seeking a court’s declaration that the insurer had no duty to defend or indemnify their insured given the 27 month lack of notice. The insureds argued to the trial court that the conversations should be enough to trigger coverage, and the trial court agreed. The insurer appealed and the appellate court found that the conversations didn’t matter.
Where the contract was specific in requiring written notice, the decision by the trial court that the conversations were enough effectively read the “written notice” requirement out of the agreement… and that’s not correct.
The appellate court reversed and found that failure to provide written notice for 27 months was a breach of the policy and therefore, the insureds were not entitled to coverage.
Coverage they would probably otherwise have had if they just sent the written notice when they were informed about the suit. Don’t forget to follow the letter of the contracts. Insurance is a necessity and it's there to protect you, but you need to make sure you’re upholding your end of the agreement if you expect that protection.
Social Networking for the Industry...
The good people over at Construction Lien Blog, have a posting that let us know about a social networking website called Construction Exchange.
The website is populated with a bevy of information and individuals who participate in a host of informational exchanges from Q&A style discussions, to information about projects and bidding.
Skarin Custom Homes v. Ross - A Lesson in Full Disclosure
When the parties to a real estate contract know that the buyer intends to raze the only structure located thereon and redevelop the property, is the Illinois Residential Real Property Disclosure Act applicable to the transaction?
Yes, according to Skarin Custom Homes, Inc. v. Ross (Doc. No. 02-08-0061, 2nd Dist.).
In Skarin, the parties entered into a residential real estate contract and the sellers checked the box on the disclosure form showing they were aware of flooding or recurring leakage problems in the basement of the property. They explained the leakage as “some seepage in the basement during heavy rains.”
The parties closed on the contract. Sure enough, the buyers soon found out that there was a history of severe flooding in the basement. Arguably, it could have been worse:
The buyers sued for breach of contract and breach of the Disclosure Act. The trial court dismissed the claims based on the buyers admission during the case that their original intent in purchasing the property was to tear down the house, build a new house, and sell the property for profit. This is likely what they had in mind.
The trial court found that the intent of the buyers to raze the property removed the transaction from the Disclosure Act. The buyers appeal and the appellate court disagreed.
The appellate court found that the act applied because the house was being used as a residence at the time of the sale, was fully functional, and none of the nine exceptions listed in the act were met.
These nine exceptions are:
Sec. 15. The provisions of this Act do not apply to the following:
(1) Transfers pursuant to court order, including, but not limited to, transfers ordered by a probate court in administration of an estate, transfers between spouses resulting from a judgment of dissolution of marriage or legal separation, transfers pursuant to an order of possession, transfers by a trustee in bankruptcy, transfers by eminent domain, and transfers resulting from a decree for specific performance.
(2) Transfers from a mortgagor to a mortgagee by deed in lieu of foreclosure or consent judgment, transfer by judicial deed issued pursuant to a foreclosure sale to the successful bidder or the assignee of a certificate of sale, transfer by a collateral assignment of a beneficial interest of a land trust, or a transfer by a mortgagee or a successor in interest to the mortgagee's secured position or a beneficiary under a deed in trust who has acquired the real property by deed in lieu of foreclosure, consent judgment or judicial deed issued pursuant to a foreclosure sale.
(3) Transfers by a fiduciary in the course of the administration of a decedent's estate, guardianship, conservatorship, or trust.
(4) Transfers from one co‑owner to one or more other co‑owners.
(5) Transfers pursuant to testate or intestate succession.
(6) Transfers made to a spouse, or to a person or persons in the lineal line of consanguinity of one or more of the sellers.
(7) Transfers from an entity that has taken title to residential real property from a seller for the purpose of assisting in the relocation of the seller, so long as the entity makes available to all prospective buyers a copy of the disclosure form furnished to the entity by the seller.
(8) Transfers to or from any governmental entity.
(9) Transfers of newly constructed residential real property that has not been occupied. (765 ILCS 77/15)
The court made specific note of the fact that “a buyer’s intent to tear down a residential structure and rebuild on the property is not listed as an exception.”
We wonder why they would bother filling out the form in the first place if they didn’t think the act applied. The better question is why they would down-play the amount of the flooding if they figured the house would be torn down. We realize this is a punt… but the lesson here is “don’t lie” and don’t assume that someone’s representations are true… get it in the contract.
Quincy Mall, Inc. v. Kerasotes Showplace Theatres, LLC (4th Dist., Doc. No. 4-08-0409) - Another Leaky Roof Case
There’s a fun idea that I’ve always attributed to Bob Balaban that I first encountered it in an interview he gave on Fresh Air back in 2002. Unlike some of his other interviews discussing his family’s history in the movie business, he was a little more descriptive about his silver screen pioneering ancestors.
In talking about his grandmother’s decision to want to get into the movie business he said that she left the theatre one day after seeing a movie for the first time and decided it was the business for the family because it was the only time she remembered anyone paying full price for something before they knew what they were going to get.
Don’t worry, this isn’t an article about putting an attorney on retainer.
It’s about a recent case from the fourth district that has enforced a standard for properly allowing commercial tenants to set off rental payments in an amount equal to what they’ve paid in repairs for something the Landlord was liable to replace under the lease.
The case involved a damaged roof at a movie theatre in Quincy, Illinois. The theatre rents space from the mall.
In 2003 the theatre had the roof inspected because it had been leaking. Shortly after the inspection, the theatre sent the mall a letter requesting that the mall replace the roof. The mall did not respond and the theatre had its attorney send another letter that said:
"As it is the [Mall's] responsibility to replace the roof, [Theatre], by this letter, is making demand upon the [Mall] for reimbursement of the replacement cost. [Theatre] is willing to advance the cost of the replacement to be set off against future rents. If [the Mall] prefer[s], [it] may reimburse [Theatre] directly. The replacement will occur as soon as weather permits. Upon completion of and payment for the replacement,[Theatre] will initiate the setoff unless you wish to reimburse [Theatre]in a lump sum or pay the contractor directly."
The mall responded saying that the lease included the following provision which the mall interpreted to mean that the theatre was responsible for replacing the roof:
"Tenant agrees during the term hereof to keep and maintain in good condition and repair, the demised premises and every part thereof, including without limitation the foundations, exterior walls, roof, exterior and interior portions of all doors, windows, plate glass, etc."
The theatre replied that since the correspondence from the mall did not mention the need to replace the roof, nor the estimated cost to fix the roof, the theatre would go ahead with the replacement and that the theatre was not waiving any of its rights to reimbursement or damages relative to the mall’s duty to repair the roof.
The mall didn’t respond to the letter and the theatre had the roof fixed and sent the mall notice that the repairs were contracted for and that they would be setting off the entire cost of the roof repair from the rent obligation. The cost to repair the roof was $79,298 and the work was finished in March.
Between June and December, the theatre set off $79,298 from the rent it owed the mall. In December, the mall sued the theatre to recover the rent. The theatre denied that it owed the mall rent and requested that the court make a determination that the theatre had satisfied its contractual obligations when it replaced the mall’s roof.
The trial court agreed with the theatre and entered a judgment stating that they had satisfied their rent obligations through payment for the roof and were entitled to set off the rent.
The appellate court agreed. It distinguished the clause for “repair” of the roof in the theatre’s contract with the mall from one in which “replacement” would be required. The court also held that the set off was proper.
In holding that set off was proper the court looked to the history of the law governing lease agreements and reasoned, in a similar fashion to the article from John Orth in the latest issue of the Green Bag, that the historic trend in real estate law that has transformed the lessor’s interest in land from a property right to a right under contract. This transformation, the court opined, has not changed the former covenants between the landlord and lessor, which allow for the lessor to set off rent in the amount equal to repairs the lessor made that the landlord should have made.
The court concluded:
“Thus, when a commercial landlord fails to replace a critical component of the leased premises, which is vital to the operation of its commercial tenant's business—in violation of the landlord's duty to do so, as previously discussed—the commercial tenant may set off such replacement cost, provided that (1) the tenant has informed the landlord of the need to replace the necessary component; (2) the landlord failed to replace the necessary component in a timely manner; and (3) the tenant informed the landlord of its intent to set off the reasonable costs of the necessary replacement.”
It’s a valuable lesson in drafting the lease agreement with particularity if there’s something that should be included in the agreement, and for a procedure to make sure set off is proper.
The opinion can be found here.
Kunkel v. P.K. Dependable Construction, LLC (5th Dist., Doc. No. 5-07-0684)
Here’s another for your files on the Illinois Consumer Fraud Act and Deceptive Business Practices Act (815 ILCS 505/1 et seq.) and its application in matters relative to the Construction Industry in Illinois.
The Kunkels hired PK to build a new roof for their home. The contract price plus extras came to $5,623. After the contract was entered into, PK never furnished the Kunkels with the required: “Home repair: Know Your Consumer Rights” pamphlet that the Illinois Attorney General’s Office publishes for contractors to give to home-owners pursuant to the Illinois Home Repair and Remodeling Act (815 ILCS 513/1 et seq.).
To their surprise, the Kunkel’s new roof leaked. They requested that PK fix the problem several times. PK came out and attempted repairs, but the repairs did not alleviate the leaking. The Kunkels documented the leaks and their conversations with PK. They even took pictures of the pots and pans they used to catch the water.
Finally, the Kunkels filed suit in court alleging breach of contract, warranty and breach of the consumer fraud act. The case went to trial and the Kunkels prevailed. The trial court found that PK breached the contract and warranty (the contract contained a provision for a five-year warranty) and awarded $6,725 to the Kunkels based on their estimator’s uncontradicted testimony that $6,725 would be cost of a new roof.
The circuit court also awarded $6,161.50 in attorneys’ fees based on the allegation that the failure to provide the pamphlet amounted to a violation of the consumer fraud act.
PK appealed and the appellate court upheld the award for $6,725. The appellate court struck down the attorneys fees – finding that the consumer fraud act required a “knowing” violation and that the Kunkels never introduced evidence that PK “knew” it was required to turn over a copy of the pamphlet. The court went on to address the issue of damages… stating that even if the failure to turn over the pamphlet did amount to a violation of the consumer fraud act, the violation Kunkels failed to produce any evidence that they were damaged in not receiving the pamphlet.
This reasoning is a far cry from many of the other cases we see where parties are presumed to know the law at the time of contracting. One could even go so far as to say that so long as a contractor hasn’t read the Home Repair and Remodeling Act, they could always use their ignorance and this case as an excuse to avoid liability any time liability is attached to a “knowing” violation of the statute… which is a little ridiculous. The damages issue is correct. The failure to turn over the pamphlet shouldn’t entitle anyone to a windfall. We weren’t talking about a windfall here though, we were talking about the $6,161.50 in attorneys’ fees the Kunkels had to expend on a full trial just to get the money back for their leaky roof.
Additionally, the lessons learned by those involved in litigation over small projects is a powerful one. Payments of $5,623 for the original roof, and $6,151.50 to the attorneys netted the home-owners $6,725… which they still have to collect and then apply to getting a new roof that doesn’t leak, leaving an unpaid balance … of $5,059.50. That’s hardly worth it.
The opinion can be found here.
