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

In 1990, Congress enacted the Americans with Disabilities Act (ADA) to provide a clear and comprehensive national mandate for eliminating discrimination against individuals with disabilities. Upon enactment of the ADA, the United States Supreme Court became constitutionally obligated to interpret and enforce the law in a manner consistent with Congress’s directives. But as a result of several prominent Supreme Court decisions in ADA cases, legislators in Congress have become displeased by the manner in which the law has been interpreted. In response, Congress has passed the ADA Amendments Act of 2008 (ADAAA), effectively expanding the scope of the original law.

Congress found that the Court has “narrowed the broad scope of protection intended to be afforded by the ADA, thus eliminating protection for many individuals whom Congress intended to protect.” Moreover, Congress found that the definitions of two seminal legal terms used by the Equal Employment Opportunity Commission (EEOC) were inconsistent with Congressional intent because they expressed too high a standard for individuals seeking protection under the law. Thus, Congress drafted the ADAAA with the goal of correcting the judicial contraction of the ADA’s scope, as well as the EEOC’s expansion of several of the ADA’s minimum applicability thresholds.

Although the ADA prohibits discrimination on the basis of disability in several different areas, the ADAAA will likely have its greatest impact in the employment context, requiring employers with 15 or more employees covered by the ADA to adjust their policies and procedures to comply with the ADAAA. Some of the new law’s significant provisions are described below.

Effect on Construction and Design Professionals

Congressional intent is clear from the Amendments Act’s findings and purposes. Employers and other entities covered by the ADA can no longer rely on the Sutton trilogy or Toyota. Nearly two decades of federal court decisions interpreting the new rules will affect construction of new facilities and alterations of existing buildings at places of public accommodation, including, but not limited to, retail stores, restaurants, recreation and entertainment facilities, sports facilities, hotels, motels, resorts, healthcare facilities, educational institutions, and service offices. The revised ADA Standards also apply to new construction and alterations of commercial facilities (i.e., facilities whose operations affect interstate commerce) and to state and local government facilities.

Many questions remain unanswered. For example, what does “materially restricts” mean? What are transitory impairments and how should the six-month duration rule apply? When is an impairment episodic or in remission? How will courts apply the major life activities of concentrating, thinking, and communicating? What other major life activities and mitigating measures were not enumerated in the Amendments Act?

Scope of “Disability” Broadened
Determining an individual’s entitlement to protection under the ADA hinges on whether or not that individual suffers from a “disability,” as the term is defined by the ADA. Although other terms and phrases found within the definition of disability have been changed by the ADAAA, the definition of “disability” itself was not. However, what the ADAAA does do is state that “the definition of disability…shall be construed in favor of broad coverage of individuals under [the ADA], to the maximum extent permitted by the terms of [the ADA].” This provision was included in the ADAAA to reinstate the broad scope of protection afforded by the ADA that, in the view of the Congress, the Supreme Court has improperly narrowed.

List of “Major Life Activities” Expanded
To qualify as a disability under the ADA, a physical or mental impairment must substantially limit “one or more major life activities” of an individual. In one Supreme Court decision legislatively overruled by the Congress’s enactment of the ADAAA, the Court had held that the word “major” in this context “need[s] to be interpreted strictly to create a demanding standard for qualifying as disabled.” In the ADAAA, however, Congress has explicitly rejected this standard as contrary to the broad scope of protection that is available under the ADA.

Loosening of “Substantially Limits” Requirement
While under the ADA a physical or mental impairment must “substantially limit” one or more major life activities, the ADAAA includes several provisions that loosen this requirement. First, the ADAAA rejects the Supreme Court’s requirement that the word “substantially” be interpreted strictly to create a demanding standard for individuals seeking to qualify as disabled. Furthermore, the ADAAA rejects the Supreme Court’s rule that the word “substantially” be read to mean “prevents or severely restricts.” In this regard, the ADAAA significantly reduces the degree of impairment required for protection under the ADA.

Second, the ADAAA provides that an impairment that substantially limits one major life activity need not limit other major life activities to be considered a disability. Third, the ADAAA provides that an impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when it is active.
Finally, the ADAAA provides that the determination of whether an impairment substantially limits a major life activity shall be made without regard to the ameliorative effects of mitigating measures such as medication, prosthetics, hearing aids, mobility devices, and oxygen therapy equipment. This provision in the new law expressly overrules a case in which the Supreme Court held that determining whether an impairment substantially limits a major life activity requires reference to the ameliorative effects of mitigating measures. However, there is an important exception to this rule—one that states that the ameliorative effects of ordinary eyeglasses or contact lenses shall be considered in determining whether an impairment substantially limits a major life activity.

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Answer: When your contract obligates you to do so.

We’ve all seen the terms in our contracts, this one is particular to leases:

INSURANCE. (a) Tenant shall, at its sole cost and expense, maintain at all times with responsible insurance carriers acceptable to Landlord licensed to do business in the State of Illinois, insurance covering the premises for the mutual benefit of Landlord and Tenant as follows:

*** (v) Comprehensive General Liability Insurance, with such limits as may be reasonably requested by Landlord from time to time, but not less than a $5,000,000.00excess liability for bodily injury and property damage;

*** (c) All insurance policies shall name Landlord *** [and others] as additional insureds, as their respective interests may appear. Landlord may, by written notice to Tenant, designate other parties as additional insureds. All such insurance shall provide that:

(i) The coverage provided includes the premises;

***(iii) All losses shall be payable notwithstanding any act or negligence of Tenant or Landlord or the occupation or use of the premises for purposes more hazardous than permitted by terms of such policy.

That last part is important. In Illinois, most agreements to indemnify someone for their own negligence are void as a matter of public policy, however, agreeing to obtain insurance to cover someone’s negligence is not void. In fact, it creates an enforceable contract and if you fail to obtain it, even by way of your insurance company providing a policy that excludes it, you’ve breached the lease (or any contract with such a provision for that matter) and can be held liable for the damages that result from failing to obtain the insurance.

In Clarendon America Insurance Co. v. Prime Group Realty, Inc. (1^st Dist., Doc. No. 1-08-0791 & 1985 cons.) that’s exactly what happened. The facts are that Prime Group was the lessor to an entity named Ala Carte Entertainment that ran a restaurant on the property. The lease between the two included the provision above as well as multiple provisions stating that Ala Carte was not indemnifying Prime Group for Prime’s own negligence (something caused by Prime).

A worker was injured fixing HVAC units on the roof of the building. Fixing the HVAC saw Ala Carte’s responsibility, maintaining the rest of the roof was Prime’s. After the worker sued Prime, Prime sued Ala Carte and tendered the defense of the claim to Clarendon, with whom Ala Carte had the policy that was required under the INSURANCE clause. Clarendon filed a declaratory action to have a court find that it had no duty to indemnify Prime and later agreed to defend Prime under a reservation. Prime then sued Ala Carte for breaching its contract because there was a clause in the Clarendon policy to Ala Carte that read:

Policy Change No. 8 Endorsement

If liability for injury or damage is imposed or sought to be imposed on the additional insured because of: (a) Its own acts or omissions, this insurance does not apply.

The circuit court found in favor of Ala Carte and Prime appealed. On appeal, the appellate court found that the anti-indemnity provisions of the contract (those stating that Ala Carte was not to indemnify Prime for Prime’s negligence) did not contradict the insurance provisions because Illinois law has found that you can contract to get insurance for your negligence acts even if you could not be indemnified by a party for them.

Importantly, the court also held that the Endorsement’s negation of coverage for Prime was a breach of the contract provision between Prime and Ala Carte and remanded the case for a hearing on the damages resulting from that breach.

Make sure you read the contract language and either insert or remove this language depending upon your needs… and always read the policy once you get it to make sure it is in compliance with such a provision. A little double-checking in the beginning could have saved everyone this headache later on.

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It’s Friday, so you know what that means, we bring you a collection of the complaints in some of the latest suits filed regarding matters touching on the industry:

• Sure to be of interest to Chicago White Sox fans, Pacific Construction has brought a  breach of contract claim against Maverick Pools. The complaint alleges that Maverick breached the contract by “refusing to unload and install” two pre-manufactured pools and to construct a thermal pool. The damages sought are in excess of $107,496.00.

• The complaints and allegations regarding the current mortgage crisis and the industry are likely just beginning. In this suit, a class action suit for federal securities violations is brought against Corus Bank and several others. The allegations are that Corus failed to tell investors that it was buying condominiums at prices that were inflated in developments financed by Corus and that the purchases caused inflated appraisals which led to inflated values on Corus’ books… So the bank allegedly didn’t actualize the proper losses on the loans it had made for the condominiums.

• In one of the weirder suits we’ve seen over the past year, some owners allege that a building was built on their land without their knowledge. Gavric v. Brosna Construction alleges that the defendants owning a parcel adjacent to the plaintiffs’ constructed “a three story, sub-standard, apartment building” on their property illegally. The complaint alleges trespass, conversion, negligence, seeks termination of a lien placed on their land by the contractor who built the project, a count for slander of title, and seeks remedy under Illinois Forcible Entry and Detainer Act. (735 ILCS 5/9-101 et seq.)

• In a home defect case, Rangel v. Jumic, et al, alleges that defendants failed to disclose material defects that they were aware of prior to the sale of a home to plaintiffs. The defects complained of include problems with the heat distribution system, water infiltrating through the masonry, cracks in portions of the home and problems with the hardwood floors. The suit contains counts for breach of contract, breach of the implied warranty of habitability and fitness for a particular purpose and violations of the Illinois Residential Real Property Disclosure Act. (765 ILCS 77/1 et seq.)

• Finally, a condominium association has brought a suit against the developer of its property at 1255 South State Street as well as the owner of the garage in which residents of the condominium park. The complaint alleges that the developers deal with the owner of the garage and the effect of forcing a fee for parking in the garage that a recorded Declaration had on the plaintiffs was not disclosed to the plaintiffs. Prior to November of 2007, the residents had access to the garage and their parking spaces by use of “a remote clicker” provided by the garage owner and that in November of 2007, the garage owner installed a parking “toll system” that restricted the residents ability to come and go from their parking spaces.  There are several problems with the transponders alleged in the complaint among them, that the new parking system is not a benefit to the users of the property, that the residents were not properly informed of its installation, and that the owner has improperly requested that the residents pay for a portion of the new system. The residents seek a declaratory judgment regarding the new parking system and their rights granted by easement, and allege breach of fiduciary duty, fraud and consumer fraud.

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The first district has upheld an arbitrator’s decision regarding the implication of an indemnity provision and given us a useful reminder that some rote contract language is actually important.

Undoubtedly in your contracts you’ve seen language binding or implicating those subsidiaries, affiliates, successors and assigns – some have argued that the language be removed from agreements or given their own clauses. In Rexnord Industries, LLC v. RHI Holdings, and The Fairchild Corporation (1^st Dist, Doc. No. 1-08-0562) it turned out to make quite a bit of difference.

In Rexnord, two parties agreed to an arbitration of the percentage of a $1.8 million settlement each was responsible for. The settlement was for an environmental claim against Rexnord. Rexnord had previously been owned by RHI, was sold to another company (A), which was acquired by yet another company (B) and was sold before the arbitration to yet another company (C).

The original sale agreement between RHI and company A obliged RHI to indemnify:

“[company A] its affiliates, subsidiaries, successors and assigns from "any and all losses, liabilities, claims, damages, *** costs, etc." relating to RHI's ownership and operation of the property before the spinoff date, "so long as these ‘Losses' arise out of or are in any way related or connected to any Environmental Law; result from any claim by any governmental or private party arising out of or in any way related or connected to any Environmental Law; or result from the generation, use, handling, storage, transport, disposal, release or threatened release of any Materials of Environmental Concern." The indemnity obligation created by the agreement applied "only to the excess of (x) Losses over (y) the sum of amounts collected by Purchaser or Rexnord from third parties." (Slip Op. at 2. emphasis added.)

An arbitrator determined that RHI was responsible for 90% and ordered that it pay Rexnord for that 90% and some other damages. It also determined that company B was an indemnitee under the agreement between RHI and company A. RHI asked a circuit court to vacate the award and the circuit court declined to do so. RHI then appealed.

On appeal, RHI argued that because company B had paid the $1.8 million it was not obliged to pay because company B was a “third party” by virtue of being a subsequent purchaser of company A and by having sold to company C prior to the arbitration. RHI also argued that the arbitrator should not have considered the position of company B as an indemnitee because company B was not a party to the arbitration.

The appellate court disagreed and upheld the award. In doing so, it found that:

• The arbitrator was correct in considering company B as an affiliate or successor.
• The clause for indemnification did not exclude amounts reimbursed by owners or affiliates.
• The arbitrator had the power to consider company B’s status because the issue was raised by Rexnord and RHI in the arbitration.
• Company B was a “successor” under the agreement even though it had subsequently sold Rexnord to company C.

This is a lesson for contracting parties. Even though some language may appear rote or inapplicable, understanding the effect of that language in the context of the deal and knowing the obligations it imposes may help in your transactions and knowing what a court will do can add certainty to the language you are choosing. The inclusion or exclusion of any contractual clause is a determination best made by the parties after considering the eventualities, risks and obligations they wish to plan for.

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It's called piercing the corporate veil and the case of Fontana v. TLD Builders, Inc. (2^nd Dist. Doc. No. 2-05-0045) is a simple lesson in what to watch out for when you’re running a small business. It is also an excellent read for anyone wanting to know about the factors a court will look to in determining whether or not your choice of operating as a corporate entity will limit your liability.

In Fontana, the Fontanas sued TLD Builders after TLD defaulted on a contract to build the Fontanas' a home in Clarendon Hills, Illinois. The Fontanas had signed a contract for TLD to build the home and TLD started and apparently didn’t finish the project. As a result the Fontana’s had to demolish the partially constructed home because the damage caused by the work stoppage made the cost of completion well in excess of the $2.2 million the home would be worth if it was completed.

The Fontanas also sued the architect who settled with them prior to trial.

The Fontanas sought not only to be reimbursed from TLD, but recognizing that TLD was an underfunded corporation that would likely not have the ability to satisfy the $2 million judgment they were seeking, they also filed an action against TLD’s president seeking to hold him personally liable for any damages – even though his wife was the sole owner of the company and he only ran it.

The Fontanas won their case and the court determined that the president was liable and that the corporation, even though it was properly incorporated, was used as nothing more than a shell where the president ran the operation.

The appellate court upheld the decision… The factors the court looked to in determining whether or not liability would be limited to the corporation or passed on to the president are important factors to watch for in your operations to make sure that the corporate designation you’ve paid for is actually going to protect you:

• The fact that the president didn’t own the company but that all the shares were in his wife’s name was not a factor that would protect him – he ran the business and acted as though its assets were his own.
• There was no record of the initial $1000 check purported to be paid by the wife for the 1000 shares ($1 per share) when the corporation was created.
• The corporation had little to no money in its accounts and even made loans after it was sued – an alleged attempt to divert the assets to try and avoid having any money to pay in satisfying a possible judgment.
• The corporate minutes did not reflect resolutions or votes authorizing some of the loans made to various people and entities.
• The corporate minutes did not attach legal descriptions to resolutions to sell properties.
• The director (owner) had no real decision making power and/or did not exercise it.
• Even though by-laws, resolutions, shareholder actions, and tax returns were filed with the state and a separate bank account and financial records were kept, there were many corporate records that were not kept, like the resolutions regarding loans, notes or claims of indebtedness, nor records of repayments.
• The company never actually paid a salary to anyone, and the tax returns did not show payment to corporate officers – funds were transferred from the corporate account into personal checking accounts.
• Monies were transferred after the suit was filed and the corporation was left with little money at the time of judgment - salaries were paid and monies were loaned when a suit was in place (this was read as an apparent attempt to transfer assets before a judgment was rendered).

For both people going after a corporation that has been less than honest, and for those looking to use their corporate status in order to keep from being held personally liable, paying attention to these formalities is important.

The corporation, or LLC exists as a method of helping us all come together to create more wealth and to take chances on creating capital that we might otherwise not take. Not keeping up the requirements imposed by states for operating those entities will result in losing the protections they offer.

On a different note, this opinion also contains a section on awarding attorneys fees pursuant to a contractual provision that read:

"To the extent Builder or Purchaser fails to comply with provisions of this Contract, the other party may retain an attorney to assist it in the enforcement of the provisions of this Contract, and the party at fault (i.e., not in compliance with the provisions of this Contract), shall pay any and all reasonable expense relating to the enforcement of the provisions of this Contract."

While the court did find that reasonable attorney's fees were recoverable under the contract, the opinion does note that it may be better practice to include the term “attorney’s fees” when drafting a provision for a party to bear the costs of another’s attorney.

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Without extrinsic factors altering the situation, generally only the people in possession and control of a property are liable for its negligent maintenance. Most often, the lessee who is in possession is liable for injuries sustained by third-parties and caused by a failure to keep the property in good repair.

This is usual in most cases, since a lease is traditionally a conveyance of property which ends a lessor’s control over the premises (for an interesting article on the evolution from leases as property interests to more contractual arrangements, see Orth, John, “Leases: Like Any Other Contract”, Green Bag, Autumn 2008).

However, in the recent opinion of Fan v. Auster Company, Inc. et al (1^st Dist. Doc. No. 1-07-2604) ambiguity in the language of a lease has created confusion that could be detrimental to an otherwise protected landlord.

You don’t need to consult the Manual of Style for Contract Drafting to know that ambiguity can cause uncertainty in a contract and that sometimes more particularity is required in your agreements – although Ken Adams has written plenty of informative posts about the topic.

The Fan case raises some interesting issues and is worth the read.  Pertinent to our discussion about lease language, the facts of the case are that a worker was killed after he fell into an open elevator shaft. His widow sued and the case was dismissed by the trial court which found that the lessor of the building had no duty to repair the defects in the elevator that caused the fall because it had no obligation under the lease to do so. The widow appealed.

The lease agreement between the lessor and the lessee said that the lessor was “solely responsible” for maintaining the “structural elements” of the premises and that the lessee was responsible for keeping nonstructural elements “in good repair.”

“Paragraph 14 of the primary lease was entitled “Repairs and Maintenance,” and it described the lessee and the lessor’s respective obligations for both “non-structural” elements and “structural elements.” It stated, in full, as follows:

“A. Lesee shall keep all non-structural portions of the Leased Premises and appurtenances thereto in a clean, sightly and healthy condition, and shall maintain all portions of the Leased Premises (except to the extent the Lessor is obligated to maintain the same, as provided in Section 14.B) in good repair, all according to the statutes and ordinances in such cases made and provided, and the directions of public officers thereunto duly authorized, all at its own expense, and shall yield the same back to Lessor upon the termination of this Lease, whether such termination shall occur by expiration of the term, or in any other manner whatsoever, in the same condition of cleanliness, repair and sightliness as at the date of the execution hereof, loss by insured casualty and reasonable wear and tear excepted. Lessee shall make all necessary non-structural repairs and renewals upon Leased Premises and shall replace broken globes, glass and fixtures with material of the same size and quality as that broken.

“B. Lessor shall be solely responsible, at Lessor’s sole cost and expense, to maintain the roof, foundation and structural elements of the building in which the Leased Premises is located. Notwithstanding the foregoing, Lessee covenants, throughout the term of this Lease, to take good care of all portions of the Leased Premises’ interior and exterior, structural and non-structural, including without limitation, all gas, electric and plumbing fixtures, systems or equipment, other equipment and/or fixtures located upon the Leased Premises, motors, machinery, roof, ceiling and parking lot, and shall promptly repair at Lessee’s sole cost and expense, any damages to the Leased Premises or the building in which the Leased Premises is located, which is caused by Lessee or Lessee’s agents, representatives or contractors. The term ’repairs’ shall include replacements or renewals when necessary, and all such repairs made be Lessee shall be equal in quality and class to the original work and/or item being repaired. At the termination of this Lease, Lessee shall surrender the Leased Premises in the same condition as when received, reasonable wear and tear excepted.”

While the parties to the case had not addressed the issue in their briefs, the Court held that there was an actual issue as to whether or not the cause of the accident was or was not “structural,” e.g. that the failure to have a sliding – interlocking – mechanism in front of the shaft was a “structural” defect. The appellate court remanded the case for a determination regarding whether the cause of the accident fit the definition.

You can see in the language that the lessor’s obligation in Paragraph 14(B) starts to enumerate things like the roof, the foundation and then includes “structural elements,” rather than continuing to define the elements, or than having a “definitions” section at the beginning of the agreement that would elaborate on such a term. If the term were defined, the lessor may have avoided liability (or it could have kept the original summary judgment from happening.) In any event, the lesson is to keep an eye on your contract terminology and make sure the terms you’re using have the meaning and specificity you intend, without ambiguity.

Of note to practitioners is a portion of the opinion in which the court upheld the contractual obligations of the handwritten language “The Lessee assumes all payment and performance terms of the lease attached hereto. In the event, there is an inconsistency between this and the attached, the attached shall control”  which had been added as an afterthought to a sublease – and which made all the difference in this matter by enforcing the terms of the original lease against the sublessor.

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Last week we brought you the complaint against Castle Construction. This week, we feature another move by Attorney General Lisa Madigan on behalf of home-owners across the state.

With the spring remodeling season underway and construction beginning for many, Madigan addressed the issue – from her press release:

“Home repair, remodeling and construction complaints consistently rank among the top that my office’s Consumer Fraud Bureau receives each year, especially during the warmer months,” Madigan said. “Consumers need to make sure to ask questions before choosing a contractor so that they can avoid the types of companies we have sued today.”

To that end, the Attorney General’s office brought several suits against:

• Boss Construction, Inc., a New Lenox, Ill., based company that sells and installs gutters, downspouts, roofing, siding, doors and windows, and its President Steven R. Smith,
• Alpine Glass & Window Co., a Wilmette, Ill.-based window and door installation company, and its President Carol L. Bernahl,
• John M. Burow, doing business as John’s Home Repair, a Willow Springs, Ill.-based home repair service,
• Shane Rasmussen and Paul Haley of 123 General Construction, Inc., a Frankfort-based remodeling company,
• American Dream General Construction Company, based in Berwyn, Ill., and its President Carlos Villalvazo.

We have the complaint against American Dream and Villalvazo here.

The acts alleged in the complaint are important for home-owners and can act as a guideline or at least offer some insight about things to look for when contracting for repair and remodeling work:

• Make sure your contractor is licensed as a roofing contractor if they’re doing roofing work for you;
• Don’t let payments in advance of work get too costly, you should see some performance before they start taking your money, and then payments should be made incrementally, but not without a waiver (see below);
• Ask for your consumer rights pamphlet on home repair “Home Repair: Know Your Consumer Rights” made public by the Attorney General’s office;
• Check the construction permits to make sure they’re accurate and valid;
• Get a full accounting and demand a written sworn statement and waiver of lien before you make any payments… do not give over any form of large down-payment;
• Know about your three-day right to cancel;
• Do your research – How was this company recommended? Are they a company? Are there online comments about the company or its work? – Is a license required for their specialty?
• If you’re having trouble getting in touch with your contractor, or your phone calls aren’t being returned, you may think about contacting someone who can help;

Protecting yourself and your rights is the first step in making sure you don’t get taken for a ride.

                The Southtown Star has also published an article on this matter.

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Take a look at that beautiful aerial of Chicago’s City Hall from the Cook County Assessor’s Interactive Mapping Site (the left side with the beautiful garden, that’s it… the right side that’s simply roof… that’s the county’s side). It has a Property Identification Number (PIN), it can be located, but you can’t lien it - it’s public property.

More pertinent to today’s discussion is this:

The Irving Park Brown Line stop… again, a public space, recently renovated and again, you can’t lien it… it’s public.  Anyone getting ready to work on building projects for Chicago's hopeful 2016 Olympic bid will want to familiarize themselves with ways to get paid for public works projects.

Section 23 of the Illinois Mechanics Lien Act governs the application of the act to public projects, or rather, to the public funds behind the public project. The distinction is important because unlike a regular action, Section 23 only allows a person performing work for someone who has a contract with the public entity (or someone in the chain of such contracts – but certainly not those entities contracting directly with the public body) who has performed work on a public project to place a lien on public funds dedicated to that project… and only on those funds that haven’t been disbursed by the time it notifies the public entity in charge of the project that it is claiming a lien.

Time is of the essence in exercising your mechanics lien rights on these public funds. You need to get the notice on file as soon as possible so there will still be a chance that funds are left, and then you’ll be forced to file a court action within 90 days after your notice is received or you will lose the rights. An attorney can walk you through the process, but suffice it to say, timing is important, and so is getting the notice right.

To that end, today’s case involves exactly such a lien for work done on the Brown Line Renovation Project mentioned above. Here is a copy of the complaint. EMCO Metalworks is suing the CTA and McHugh for foreclosure of its mechanics lien on the public funds and for breach of contract. The electronic case docket can be found here.

The complaint will be informative not only for the pleading, but also for the notice provided as Exhibit C.

The lessons about timing and making sure you’re ready cannot be overlooked when you know you will be filing suit within 90 days of the notice if you have not been paid.

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When the inferences reasonably drawn from the circumstances lead to only one probable (as opposed to possible) conclusion.

In Majetich v. P.T. Ferro Construction Company, the defendants were charged with negligently reconstructing a parking lot, which alleged caused Edythe Majetich to fall and sustain injuries that led to her death.  

P.T. Ferro was in the process of resurfacing the parking lot at the Town and CountryPlaza in Joliet, Illinois. The old pavement had been removed, but the parking lot had not yet been repaved. 

Edythe Majetich, who was approximately 89 years old at the time, fell while attempting to step up from the parking lot to the cement sidewalk in front of the plaza stores. She sustained injuries to her head and died 11 days later.

Allegedly, the step up from the parking lot onto the sidewalk was one-to-two feet in height where a handicapped ramp was previously located. There were no eyewitnesses to the fall. However, after the fall, several workers from the adjacent stores came to Ms. Majetich’s aid. The store workers provided testimony based on their observations and conversations with Ms. Majetich after the fall. Ms. Majetich reportedly stated that the step was too big. Further, she stated that she was reaching for a pole to help herself up the step when she fell. Significantly however, Edythe Majetich did not tell anyone what actually caused her to fall.

The decedent’s physicians testified that she suffered from transient ischemic attacks, which involve blurred vision and dizziness. Additionally, the decedent suffered from macular degeneration, which causes progressive vision loss. Furthermore, Ms. Majetich’s ability to walk was impaired by arthritis. Two years prior to her accident, Ms. Majetich was seen by a neurologist for tremors in her head and hands. Ms. Majetich reported a history of falling and difficulties with balance to the neurologist. 

The defendants (contractor and premises owner) moved for summary judgment claiming that the plaintiff could not establish the proximate cause of decedent’s fall. The trial court granted the motions and the plaintiff appealed.

Appreciably, a plaintiff need only present some evidence creating a genuine issue of fact to defeat a motion for summary judgment. Accordingly, the plaintiff argued that the circumstantial evidence was sufficient to raise a question of fact respecting the cause of the decedent’s injuries/death (i.e. creating and maintaining a dangerous condition). As support, the plaintiff cited the statements made by the decedent to the store workers that she fell while attempting to step up onto the sidewalk where a handicapped ramp was previously located. 

The Appellate Court held that the evidence failed to establish causation. Majetich v. P.T. Ferro Construction Co., No. 3-08-0104, p. 16 (April 1, 2009). The court explained that in order to defeat a motion for summary judgment, circumstantial evidence must make the conclusion more probable rather than merely possible. Id. at 10. The court concluded that the decedent’s post-fall statements provide only circumstantial evidence that the defendants’ negligence was a possible cause as opposed to a probable cause of the accident. Id. at 11. In its reasoning, the court noted the considerable evidence concerning the decedent’s prior medical conditions, including tremors, macular degeneration and history of falling. Id. at 15. Furthermore, while circumstantial evidence may be sufficient when an inference may be reasonably drawn from it, a proper inference cannot be based on speculation as to what possibly caused the injury. Id. As explained by the court, the evidence only establishes that Ms. Majetich (1) noticed a high step, (2) reached for a pole, and (3) fell. Id. Such evidence is insufficient to rule out countless other possible reasons people fall. Id. at 15-16. 

The Majetich decision illustrates how important affirmative evidence concerning proximate causation is to a plaintiff. Circumstantial evidence alone cannot establish proximate causation where more than one conclusion can be drawn from the circumstances. 

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The situation is common… You’ve decided to build, there’s a building on the site and you need to tear it down and excavate in order to construct your project. You get a policy for the work, but you’re not performing it – you’ve hired a contractor who’s hired a sub to do the tear-down and excavation. Something goes wrong during the excavation and the building next to your site is damaged, or collapses… sometimes beyond repair.

You are sued, and beyond looking to your contractor and the subs for indemnification and possible coverage under their policies, you figure, “no sweat, I’ve got my own policy,” so you tender the complaint to your own carrier expecting coverage under a policy that you’ve paid for… but your insurance company says “sorry, you’re not covered here… take a look at the exclusions.”

They point you to a standard comprehensive general liability policy (CGL) exclusion that continually has varying application:

EXCLUSION - CONTRACTORS AND SUBCONTRACTORS

The following exclusion is added to Paragraph 2. Exclusions of SECTION I - COVERAGE A - BODILY INJURY AND PROPERTY DAMAGE LIABILITY, COVERAGE B - PERSONAL AND ADVERTISING INJURY LIABILITY and COVERAGE C - MEDICAL PAYMENTS:

This insurance does not apply to "bodily injury", "property damage", "personal and advertising injury" or medical payments arising out of operations performed for you by contractors or subcontractors you hire or your acts or omissions in connection with your general supervision of such operations.

Your carrier feels so right about the determination that they file suit seeking a declaration that there is no coverage under your policy, a court agrees… and just like that, you’re back to hoping that your contract with your GC has an indemnity provision and requires that someone name you as an additional insured.

The recent, Seventh Circuit case of Nautilus Ins. Co. v. 1452-4 N. Milwaukee Ave. LLC, has done a good job in both analyzing this matter and making it understandable for owners who find themselves in this predicament. 

The situation in Nautilus is that described above. The owner/developer was sued under multiple theories including negligence and liability under the Adjacent Landowner Excavation Protection Act (740 ILCS 140/0.01 et seq.) after the work of its GC/subs caused damage to building next door that required the demolition of the neighboring building.  A copy of the original complaint filed by the insurance company with the policies attached is here.

Here’s what was at the spot:

Here’s what it looked like after it was demolished:

View Larger Map

The insurance company moved for a determination that there was no coverage under the policy based on the Contractors and Subcontractors exclusion (along with another exclusion – which was not terribly relevant to the appeal). The district court found that there was coverage and the company appealed - on appeal the court held that the exclusion applied and there was no coverage given that the policy’s exclusion was clear and that all the theories for recovery advanced against the owner were directly caused by the work of the GC/subs… to which the exclusion applied.

The theories of liability directly attributed to the damage cause by the GC/subs made for an easy determination under the policy language, but the owner raised an interesting argument with respect to the statutory claim:  it was the failure of the owner to give the required notice to neighboring owners under the act that gave rise to liability under the statute… so the statutory claim should be covered because liability under it was directly caused by the owner.

The court said that the statutory claim against the owner was also not covered because it sought “recovery for the same loss as all the other claims – the property damage arising out of the faulty excavation performed by [the owner’s] contractors and subcontractor – and coverage for that property damage is excluded by the contractor-subcontractor exclusion.”

In normal situations there would be other opportunities for coverage or indemnification by contract. An owner would likely have included the indemnity provision in its contract with its GC as well as a provision requiring indemnity or that it be named as an additional insured on the GC/subs policies.  

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You can find it over at Law 21. This weeks review is entitled “All The News That Fits.”

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It’s our goal to make sure you have the greatest resources at your fingertips for operating competitively and effectively in the business. We’d be remiss if you didn’t get to see the Current Government Contracting Developments Blog. It really doesn’t get clearer or more concise.

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The Illinois Attorney General’s office announced yesterday that a Cook County grand jury returned an indictment for Castle Construction Co., in Markham, Il. The announcement from the AG’s office is here.

The indictment centers on an alleged scheme to defraud the City of Chicago and the CTA in two publics works contracts by concealing or misrepresenting the actual amounts of the public funds that went to minority owned businesses.

From the AG’s release:

“In January 2006, Castle Construction allegedly obtained a $9.8 million construction contract from the Chicago Transit Authority (CTA) to upgrade bus and train washing facilities at three CTA locations. As a condition of the contract, Castle Construction agreed to employ a minority business as a subcontractor. To fulfill this condition, Castle Construction represented to the CTA that it had entered into a $2.96 million subcontract with a minority business, Mid-City. According to the indictment, the Mid-City contract was actually $550,000. Also according to the indictment, from May 2006 to May 2007, Castle Construction and Blum presented the CTA with sworn statements in which they misrepresented the amount of work that Mid-City had performed on the project. On reliance on those sworn statements and other documentation, the CTA issued checks to Castle Construction, which included payment for work supposedly done by Mid-City.”

“In March 2007, Castle Construction signed a $9 million contract with the City of Chicago Public Building Commission to construct a fire station on North Clark Street and allegedly represented that minority-owned businesses would perform 26 percent of the work on the project. According to the indictment, Castle Construction falsely stated that it had signed a $1.5 million subcontract with GAG Masonry, Inc., a minority-owned firm. In fact, Castle Construction had entered into a contract with a different, non-minority-owned business to do masonry work on the North Clark Street project. According to the indictment, during the fall of 2007, Castle Construction and Blum presented the Public Building Commission with sworn statements in which they misrepresented the amount of work that GAG Masonry had performed on the project. In reliance on those sworn statements and other documentation, the Public Building Commission issued checks to Castle Construction, which included payment for work supposedly done by GAG Masonry.”

Several other news outlets have picked up this story and are reporting on it.

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Mr. Wescott over at the Electronic Discovery Blog has posted about an opinion in a construction delay case from New York involving the parties poor creation of search terms in their attempt to get electronically stored information (in this case – e-mails) from the owners construction manager.

The search terms provided by the owner were too vague and narrow and the search terms provided by the party seeking the company were too broad and would have resulted in the production of almost the entire email database of a company involved in the construction industry… imagine what a search for “change order” would produce in your system if not properly tailored to the suit at hand.

The court admonished the parties and crafted its own terms… an on an interesting note, stated that the problem of turning over e-mails not related to the project in dispute could be avoided if the company producing the emails [Hill] had used a standard “Re:” line for discussing the project.

“Hill's only contribution to the discussion was to agree that DASNY's search terms were probably too narrow but the other parties' terms were overbroad, and that Hill did not want to produce emails that did not relate to the Bronx Courthouse project. This problem would have been avoided, of course, if Hill used a standard "Re" line in its Bronx Courthouse emails to distinguish that project from its other work. It did not do so, however. Moreover, while Hill was in the best position to explain to the parties and the Court what nomenclature its employees used in emails, Hill did not do so -- perhaps because, as a non-party, it wanted to have as little involvement in the case as possible.”

The point is not lost, with a policy or standard in place not only are the irrelevant emails left out of the search, but a party could have the court look to the policy to say that it had produced the relevant documents and possibly avoid a costly electronic discovery dispute.

The fact that everyone communicates with e-mail these days should get you thinking about putting a document retention policy in place and having company policies for the use of all your electronic media. The Illinois State Courts are far behind the Federal Courts in addressing the issue of electronically stored information and how to handle it in discovery. However, it is not unlikely that you could find yourself in Federal Court or that the Illinois State Court’s could implement their own plans and procedures regarding this information.

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…is up over at May It Please The Court. This week’s theme – All Things Scottish.

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Check your bids… Double-check your bids… Triple-check your bids.

In a suit over a $244,600,000 project, the Appellate Court ruled in this case that the failure to include a copy of the MWRDGC’s Affirmative Action Ordinance’s required “Utilization Plan” with the bid is a material failure which allowed the rejection of the applying joint-venture’s low bid and the award of the contract to the next-highest bidder.

That’s right. The opinion again reemphasizes the law that a minor variance between the submitted bid documents and what is required will not require the rejection of the proposed bid but a “material” variance will require rejection.

The elaboration on what is material is best left to the circumstances of each case, but we know from this opinion that leaving out a signed form that would bind the bidder to its listed subcontracts allowed for an unequal bargaining power between bid-submitters that was material. The argument is that without the signed form, a bidder could try to walk away from its contracts with the subs or renegotiate them – an option that those bidders signing and submitting the form with the entire contract would not have.

Interestingly, the court also noted that the failure to submit the form created an issue about whether a contract was even formed given that there would be no acceptance of the offer put forth by the MWRDGC when the offer included the need to submit the form. The court found that the failure to comply with all the terms of the offer was not an acceptance of the offer but rather, technically, a rejection of the offer and submission of the bid without the required form was the proposition of a counter-offer.

The first justification for upholding the award of the contract to the next-lowest bidder (one that did comply with the contract terms and submitted the proper forms) is one we’ve all seen before. The second justification is a bit different. It relates to the law of actual contract formation and brings into the arguments over the rejection of public-bids an entirely new justification, that, while always present in contract law, is not the limited notion of “material v. minor” that we are used to in bid disputes.

In any event – making sure you’ve complied with the full terms of the bid process is always a good idea.

The opinion can be found here.

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It’s a lesson we should all have picked up in kindergarten, but in your business it's even more important now that the Illinois Supreme Court has rendered its decision in Newton Tractor Sales, Inc. v. Kubota Tractor Corporation (Docket No. 106798).

In Newton, the Kubota tractor corporation was sued by the Newton dealership. The dispute centered on Newton’s decision to purchase a Vandalia tractor dealership. Kubota had a deal with the Vandalia dealership where it was the exclusive Kubota dealer in the area and Newton wanted to be sure that if it bought the Vandalia store, it wouldn’t lose the Kubota line.

Newton allegedly met with representatives of Kubota to make sure that after the purchase of the Vandalia store, they would still be the Kubota dealer. In order for the new store to get the Kubota deal, the old store owner had to sign a termination agreement with Kubota to end the sale of the Kubota line and the new store – now owned by Newton – would have to apply for permission to sell. A Kubota representative allegedly told the parties that “They [Newton] would be the dealer” which induced the old owner of the Vandalia store to sign an agreement terminating the Vandalia store’s then existing right to sell Kubota.

You’re reading this, so you can guess that Newton’s application to sell the line at the recently purchased Vandalia store was denied.

Newton went to court to enforce its rights and sued under a theory of promissory estoppel… which is why the opinion is important. When there is no contract or someone relies on your promise to their detriment, this cause of action may be available. In order “to establish a claim, the plaintiff must prove that (1) defendant made an unambiguous promise to plaintiff, (2) plaintiff relied on such promise, (3) plaintiff’s reliance was expected and foreseeable by defendants, and (4) plaintiff relied on the promise to its detriment.”

The trial court ruled that Newton couldn’t maintain this cause of action because it wasn’t recognized as such in Illinois. The appellate court affirmed…. and the Illinois Supreme Court corrected their mistaken impressions. The cause of action does exist in Illinois and people can use it to sue when they’ve relied to their detriment on someone else’s promise. (see the factors we listed above).

The Supreme Court also addressed and rejected an argument made by Kubota that allowing people to sue under this doctrine would wreak havoc on our industry:

“With respect to the first issue, Kubota points in particular to relationships in the field of development and construction. In construction, before a general contractor is awarded a bid, it must approach one or more subcontractors for their respective bids on specific parts of the overall project. Kubota expresses concern that promissory estoppel, as an affirmative action, would “erode the incentives for parties to carefully consider and detail the contractual terms and obligations in their relationships, and it would unfairly and unnecessarily expose one of the parties to unilateral obligations.” Citing a North Carolina case, Kubota argues that promissory estoppel would “force[ ] the subcontractor to be bound if the general contractor uses his bid, even though the general contractor is not obligated to award the job to that subcontractor.”

“We note that the scenario envisioned by Kubota is not the scenario presented in this case. Newton and Kubota did not have a general contractor-subcontractor relationship. However, we also note that our own appellate court has addressed the particular issue of subcontractor bids and has applied the promissory estoppel doctrine. See Pickus Construction & Equipment, 326 Ill. App. 3d at 523-27; Illinois Valley Asphalt, 90 Ill. App. 3d at 770-71; S.M. Wilson & Co. v. Prepakt Concrete Co., 23 Ill. App. 3d 137, 139 (1974) (“The doctrine of promissory estoppel is recognized in Illinois”). Given the appellate court’s experience and familiarity in addressing this scenario, we remain convinced that allowing promissory estoppel as a cause of action will not affect the existing relationship between general contractors and their subcontractors and suppliers. Therefore, we reject Kubota’s first public policy argument.”

The lesson here is no joke. Be careful what you’re promising and when you’re promising it in a transaction.

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We’ve been following this mechanic’s lien case for you and wrote about the appellate court opinion here, and the decision to allow appeal here. Now that oral argument has occurred, we can soon expect the opinion, but before that happens, here’s something you’ll want to watch… the video of the oral argument. (.wmv file new window)  A link to just the Audio is available as well. (new window)

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For the owner/developer on smaller projects financing is usually the key to the entire transaction. Getting the financing in place and making sure money exists for your draws is one of the tasks you have during the construction phase that gets you to your end profit… be it selling what you’ve built, or having a building of your own.

You really do need to make sure that what you’re getting from your lender is what you want. You need to read the documents and double-check the figures or you could end up with, literally, a hole in the ground.

We’ve heard the radio reports and read the news articles about what some loan companies are alleged to have done to those seeking financing over the past few years. The mortgage crisis is partially a result of supplying loans that weren’t justified by the numbers. But for some developers, even with the numbers, getting the terms they bargained for and the loan they wanted appears to have been a problem. It’s why you really do need to be vigilant even in the beginning of the transaction, not just at closing on the loan.

This complaint reads like a parade of horribles and alleges what must have been a nightmare for the plaintiff.

After purchasing a piece of land and constructing a home for sale the financing errors which were allegedly generated through the application and appraisal process, compounded by the closing documents, and exacerbated by the lenders action in processing payments, resulted in an upside down mortgage situation for a developer now stuck with the fruits of what are allegedly the fraud and deceptive practices people have been reporting on since the crisis began.

You need to watch the financing process like a hawk, especially if no one is there to help explain everything to you.

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That’s right, you’ve seen them everywhere, and we’ve been watching HB 1142 for some time. Now that the bill is out of out of committee and has been properly amended, it’s worth being aware of.

The bill seeks to create the “Manufactured Housing Buyer Protection Act.” Introduced by Representative Michael W. Tryon (R – Crystal Lake) the full text of the bill can be found here.

From the Illinois Congressional Website, the bill:

“Provides that, if, after a reasonable number of attempts, the seller of a manufactured housing unit is unable to conform the manufactured housing unit to any of its applicable express warranties, then the manufacturer must either provide the consumer with a new manufactured housing unit of like model line, if available, or otherwise a comparable manufactured housing unit as a replacement, or accept the return of the manufactured housing unit from the consumer and refund to the consumer the full purchase price or lease cost of the new manufactured housing unit, including all collateral charges, less a reasonable allowance for consumer use of the manufactured housing unit, but only when the consumer has first resorted to an informal settlement procedure applicable to such disputes. Provides that persons electing to proceed and settle under the Act are barred from a separate cause of action under the Uniform Commercial Code. Provides guidelines for commencement of such actions. Requires the seller who sells a new manufactured housing unit to a consumer, upon delivery of that manufactured housing unit to the consumer, to provide the consumer with a written statement clearly and conspicuously setting forth in full detail the consumer's rights under specified provisions of the Act. Makes the Act applicable to manufactured housing sold after the effective date of this Act.”

The only amendment to the bill has changed the definition of Manufactured Housing in the Act to coincide with the definition of Manufactured Home from the portion of the Illinois Administrative Code governing Modular Dwellings and Mobile Structures (77 Il. Adm. Code 880.10) which reads:

"Manufactured Home" means a structure that is transportable in one or more sections that, in the traveling mode, is 8 body feet or more in width or 40 body feet or more in length or, when erected on site, is 320 or more square feet; that is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities; and that includes the plumbing, heating, air-conditioning, and electrical systems contained in the structure.  These units previously were known as "mobile homes".  The construction of these units is regulated by the federal Department of Housing and Urban Development.

If you take a look at the amendment, it looks like the bill is excepting those Manufactured Homes that have a permanent foundation.

Of note to those involved in the installation, purchasing, or manufacturer of this form of housing is that an informal mediation/dispute resolution procedure has been added for the parties pursuing their rights under this act. Also, the election to proceed under the act would mean that a party cannot sue under the UCC. Finally, everyone should be aware that an 18 month statute of limitations is created by this act that runs from the date the housing unit is delivered to the consumer.

The process involved in making this type of housing is the subject of an interesting three-part video from Behind the Scenes (link to Part 1) over at Youtube.

The other parts of this video can be found here:

Part 2

Part 3

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