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

This month’s legislation update is no surprise to those who have been following our posts on the mechanic’s lien act amendments and the amendments to the counties code.

House Bill – 236 has now become Public Act 96-0654 – Amends the Illinois Mechanic’s Lien Act (770 ILCS 60/1 et seq.) - GC lien claimants on owner-occupied single-family residences now need to give an owner written notice of the filing of a lien against the property within 10 days of the filing.

Senate Bill – 1511 has now become Public Act 96-721 – Amends the Illinois Counties Code (55 ILCS 5/1 et seq.)- Allows county boards outside incorporated towns are now allowed to require occupancy permits for residential dwellings located outside the incorporated areas. Removes the right to charge fees for the residential permits unless the residential fees are grandfathered in.

Senate Bill – 138 has now become Public Act 96-0704 – Amends the Capital Development Board Act (20 ILCS 3105/10.09-1) – Orders local governments without building codes to adopt the model codes or inform the Capital Development Board of the adopted codes. Sets requirements for building inspectors enforcing code requirement under the act.

For design professionals who operate under a limited liability company structure, a certificate of registration is now required from the Department of Financial and Professional Regulation. Public Act 96-0679  - This appears to be in addition to the professional design firm registration already required.

And on an off-blog note, bowling alleys now have a safe harbor of their own.

Senate Bill – 1335 has now become Public Act 96-0713, the Bowling Center Act.

The Bowling Center Act, establishes the requirements for certain exemptions from personal injury suits for bowling alleys caused by patrons wearing bowling shoes outside the alley if the proper signs are posted at all entrances and exits. Citizens can rest easy knowing that the definitions of both “bowler” and “bowling shoes” are now statutorily codified.

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In a recent Seventh Circuit opinion, Haber v. Biomet, Inc. et al., (Doc. No 08-1670), the federal circuit court found that a state court determination could preclude it from considering an issue regarding the arbitrability of a contract dispute.

In Haber, the plaintiff brought an action in the Southern District of Indiana after it had been sued in Indiana state court by the defendant over a contract dispute. The plaintiff acted as a distributor of defendants prosthetic parts and the two actions were based on allegations that plaintiff performed some work on behalf of the defendants competitor.

The parties also had a disagreement over the proper dispute resolution portion of their contracts controlled their actions. The defendant believed that a litigation clause in a 1995 contract stating that any disputes would be settled through litigation in Indiana held sway and the plaintiff believed that an arbitration clause in a 1999 contract stating that arbitration would take place in Chicago, Illinois.

The federal district court held that it the Southern District of Indiana was an improper venue for an motion to compel arbitration based off an arbitration provision which stated that Chicago, Illinois would be the location of the arbitration. The State court denied a motion to compel arbitration in part, stating that the arbitration provision should apply to disputes arising out of the 1999 contract and that the litigation provision should apply to disputes arising out of the 1995 contract.

The plaintiff chose only to appeal the federal district court’s decision and the 7^th Circuit held that pursuant to Section 4 of the Federal Arbitration Act…

“The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed.” 9 U.S.C. §4

…it was plain that any determination about the arbitration in federal court needed to be filed in the Northern District of Illinois. The 7^th Circuit even noted how odd it was that there was no motion to transfer venue to the Northern District:

“We do find it strange that [Plaintiff] did not at some point file a motion for transfer to the Northern District of Illinois in Chicago”

The appellate court held that it was improper to bring the claim in the Southern District of Indiana.

With regard to the state court claim, the court found that it lacked the authority to review the decision because res judicata barred it from doing so given that the doctrine of issue preclusion applied once the state court made a determination regarding arbitrability. The state court decision should have been appealed.

The lessons regarding familiarizing yourself with the FAA are clear for practitioners. For those contracting for certain dispute resolution rights and entering into multiple agreements, it is painfully apparent how important consistency in those provisions can be.

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“An ounce of prevention is worth a pound of cure.” Benjamin Franklin’s idiom is well suited to many aspects of life and the construction industry is no exception. In yet another case involving elements of design and construction that are in conflict with the Fair Housing Act, the United States District Court for the Southern District of Illinois has issued an informative opinion in the resolution of a particular instance of a violation.

Construction professionals should familiarize themselves with the provisions of the Federal regulations, statutes and reports cited in the opinion in understanding the duties and obligations they are beholden to under the FHA.

In U.S. v. Shanrie Co, Inc., et al., (S.D. IL, Doc No. 07-491-DRH), The United States brought an action against the developers, designers, and owners of two apartment complexes in southern Illinois near St. Louis alleging that the buildings, as constructed, violated key portions of the Fair Housing Act.

Interestingly, these parties were already the subject of an order entered in 2007 in another action involving many similar issues which were left unresolved.

Violated the Fair Housing Act’s (42 U.S.C. §§3601-19) provisions regarding “adaptive design.” As an aside, HUD has had regulations in place discussing the FHA’s design and construction requirements 24 C.F.R. §100.200, and guidelines of the minimum standards for compliance with the design and construction requirements, 56 Fed.Reg. 9473-9515.

This case contains a detailed analysis of the congressional intent behind the enactment of the FHAA noting the House of Representatives Report stating that the purpose of the act was not just to address intentional discrimination but to also address those acts that have the effect of causing discrimination. The discussion is interesting in that it lays the foundation for the Court’s decision to follow the FHA and hold that the Act contemplates “discrimination” to include a “failure to design and construct multifamily dwellings… in compliance with the accessibility features specified in the statute.” 

Yes, the court found all defendants, liable including the owners who took possession after the building was constructed and the design professionals that did not own the building at any time. One of the design professionals was the engineer that certified the plans. The Court also found that a remediation plan was necessary and that retrofitting the apartments would be an appropriate remedy.

Familiarize yourself with the requirements for FHA compliant structures – not only because it will keep you from litigating and correcting non-compliance issues, but because a society espousing equal access actually looks to our industry to provide the concrete reality of equal access and we should provide it.

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The round-up this week:

In Dunnet Bay Construction Co. v. Angus Contractors, Inc., et al., the compliant alleges that the defendants, an engineering firm and a steel erecting contractor are responsible for the damage to the plaintiff’s bridge project for the IDOT. The allegations are made in the alternative against the defendants where claims for some of the same damages were filed with IDOT. According to the plaintiff, its property was damaged during the construction of ramps connecting I-80/294 to I-94 and I-394 in Lansing, Illinois, when a section of the bridge at that site collapsed while it was being erected. The GC sues the engineer that designed the project for negligence (they must believe that the sudden and calamitous nature of the collapse or damage to “other property” creates an exception to the economic loss doctrine) claiming, among other things, that it failed to issue modified specifications for the erection of the bridge since the bridge was a complex curved structure and the IDOT Standard Specifications were not appropriate for the erection. The GC also alleges that the steel subcontractor breached its contract by refusing to indemnify and defend the GC for the actions and damages that resulted from the collapse.

In Thienes v. Planned Property Management, Inc., the complaint seeks a class action against a property management and leasing company on behalf of apartment renters. The damages sought against the apartment leasing company are for the alleged failure of the company to provide those renting apartments with a “lawful” summary of the Chicago Residential Landlord Tenant Ordinance including porch safety language and mandatory interest rate disclosures for the interest the tenants would earn on their security deposits, and for failing to disclose the building code violations that had occurred at the rented properties within the 12 prior to the execution of the leases.

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Our friend Gary L. Cole over at Law/Ark previously published the first part of his series involving the emerging issues in Green Design Liability which we blogged about here.

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Yesterday we examined the astute discussion of the duty to mitigate found in Judge Cole’s recent opinion in R.R. Donnelley & Sons Co. v. Vanguard Transportation Systems, Inc.

Today we discuss that portion of the opinion directed at R.R. Donnelley’s request for attorneys’ fees based on the indemnity provision of the contract.

The contract’s indemnity provision read:

[Vanguard] shall indemnify and hold [Donnelley] harmless from any from any liability, loss, cost, damage or expense, including attorneys' fees, which may accrue against [Donnelley] by reason of any liability claims, cargo claims and workers compensation claims by an entity that arise out of or are due to acts or failures to act of [Vanguard].

R.R. Donnelley sought to use this provision to recoup the attorneys’ fees it expended in prosecuting the action against Vanguard. In essence, although the court would only award nominal damages to R.R. Donnelley, it hoped to have Vanguard pay the cost of achieving that award.

The court rejected the argument that the provision could be read to imply that attorneys’ fees would be awarded to R.R. Donnelley in a dispute with Vanguard over the enforcement of the indemnity provision. Instead the court found that the “by an entity” phrase could not be read to include Vanguard. The court found that the provision applied to disputes between R.R. Donnelley and others, but not between R.R. Donnelley and Vanguard for the enforcement of the indemnity agreement.

This interpretation is important because it serves to remind everyone contracting for indemnification to include the phrase “including the enforcement of this agreement” in their indemnity clauses.

The court pointed out that the varying interpretations of indemnity provisions could be read to mean that a self-referencing portion in a clause was necessary to include disputes over the indemnity agreements themselves, even though the court referenced the Illinois Supreme Court’s own admission that little guidance can come from attempting to analyze or reconcile the numerous cases interpreting indemnity clauses.

The interpretations cited by the court were:

Cincinnati Ins. Co. v. Leighton, 403 F.3d 879, 881 (7th Cir.2005)(indemnification required “from and against any liability, loss, cost, attorneys' fees, and expenses whatsoever, including the enforcement of this agreement”);

Central Die Casting and Mfg. Co., Inc. v. Tokheim Corp., 1998 WL 160900, *8 (N.D.Ill.1998)(fees incurred in enforcing indemnity provision not caused by “the specific claim indemnified against. Instead, they are costs incurred to sue for breach of contract, or the failure to indemnify.”);

Fidelity Mut. Life Ins. Co. v. Harris Trust & Savings Bank, 1997 WL 308846, *2 (N.D.Ill.1997)(fees incurred in pursuing indemnification allowed where language “expressly permits ... recover[y][of] attorneys' fees and expenses ‘incurred in connection with the enforcement of th[e] Agreement’ ”);

Board of Trustees of University of Illinois v. U.S. Fidelity and Guar. Co., 1991 WL 274462, *3 (N.D.Ill.1991)(contract specifically included “all attorney's fees and costs incurred in bringing an action to enforce the provisions of this indemnity....”);

Eckley v. Lone Star Forge Co., 1991 WL 222076, *2 (N.D.Ill.1991)(noting “the distinction between attorney's fees in defending a third party suit and attorney's fees in enforcing a right to indemnity and thus offer no guidance to the court.”).

Jackson v. In-tertech Resources, Inc., 1990 WL 16969, *1 (N.D.Ill.1990). (The seller agreed to “indemnify and hold harmless Buyer from and against any and all actions, suits, proceedings, demands, judgments, losses, costs, damages, and expenses (including with-out limitation, attorney fees and disbursements) resulting from or arising out of: ... (d) any breach of any of the representations or warranties, covenants or agreements of Seller set forth in this Agreement.” The plain language of the clause contemplated a suit by one party to the contract against the other in the event of any breach of the agreement and provided for reimbursement of attorney's fees should that occur.)

The indemnity agreement in this case did not.

Again, while we are consistently warned that interpretations may be inconsistent, the self-reference in an agreement appears necessary for recouping the costs of enforcing the agreement itself.

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As Judge Posner has put it:

“If you invite someone to dinner, and hours after he was due he still hasn't arrived, you had better infer that he isn't coming, and start eating. You can't let yourself and your other guests starve merely because there is a slight chance that he will show up days later.”

The recent case of R.R. Donnelley & Sons Co. v. Vanguard Transportation Systems, Inc. (N.D.IL Doc. No 06 C 5837) has ended in an interesting decision based entirely on the failure of one party to affirmatively act to “mitigate” its damages even though the other party breached their agreement and could also just as easily have mitigated the damages.

The opinion has an excellent description of the duty to mitigate:

“The so-called duty to mitigate damages, which is often referred to as a general contractual duty is a principle of ancient vintage.  Referring to mitigation of damages-or as it is called in tort law “avoidable consequences “in terms of a “duty” is somewhat misleading, because a plaintiff incurs no liability for failing to act.  Rather, the amount of loss that could reasonably have been avoided by stopping performance or making substitute arrangements is simply subtracted from the amount that would otherwise have been recoverable as damages.  Phrased differently, the duty to mitigate damages “forbids the victim of a breach of contract, which might well be involuntary, to allow his damages to balloon (when he could easily prevent that from happening), as he might be tempted to do in order to force a lucrative settlement.”

“The victim of the breach must “ ‘exercise reasonable diligence and ordinary care in attempting to minimize the damages after injury has been inflicted.’ “ And while he must act with “reasonable dispatch,” the injured party is not required to take steps that involve “undue risk or burden.”  But there are instances where the victim of the breach might be lulled by the breaching party into inaction because of assurances that all will be well. “[T]o put this differently, the [breaching party] may not insist on mitigation when by its words or deeds it has led the [non-breaching party] to believe that it has assumed what would otherwise be the buyer's burden of mitigation.” While that is going on, the duty to mitigate is suspended.” [Internal citations omitted]

The case involved the shipment of time-sensitive brochures by Vanguard to an R.R. Donnelley facility in Atlanta. The brochures were for a Macy’s after-Christmas sale and needed to be delivered by December 21 in order to be mailed out and received timely by consumers for the December 27^th Sale. 

R.R. Donnelley contracted with Vanguard to deliver the brochures to its facility by no later than 2:00 p.m. on December 16^th. This time was important because the contract between the parties contained a “time is of the essence” clause. Vanguard got to the facility after 2:00 p.m. on the 16^th and delivery was not made. Rather than wait to be able to unload the delivery on the 16^th, the driver for the Vanguard truck took the trailer with the materials to a facility and left them there. The parties contacted each other regarding scheduling a new delivery over the next few days each time a delivery was expected or possible, something occurred to kept that delivery from happening, and ultimately, no delivery was ever made. The brochures did not get mailed in time for the Macy’s sale.

R.R. Donnelley paid the company that printed the brochures $81,650 for damages it suffered because the brochures did not get mailed for Macy’s and then sued Vanguard for the $81,650 in damages for breach of the agreement to deliver the brochures by the 16^th.

The parties completed discovery and had a trial. Of the many findings made by the Court after it heard the evidence one regarded R.R. Donnelley’s failure to take action and mitigate its damages.

In many cases, the steps for mitigation are varied and may not amount to a full recovery of the damages suffered by a party because of the breach, but for R.R. Donnelley in this case the Court decided:

“all that would have been entailed was the minimal cost of renting a truck from a local cartage company and driving the half hour to the Vanguard lot to pick up the load and delivering it to the Atlanta facility.   Mr. Menne, of Vanguard, estimated that the cost would have been about $250. Even if that estimate is low, the cost would have been less than the $750 it cost to haul the load the several hundred miles from Kentucky to Georgia.”

The court found that of the roughly $81,000 in damages claimed by R.R. Donnelly, $80,000 could not be assessed against Vanguard because of R.R. Donnelly’s failure to mitigate. The court held that because the money at issue was only nominal, and R.R. Donnelley didn’t request nominal damages, judgment should be made in favor of Vanguard due to the failure of the plaintiff to mitigate.

This same duty to mitigate applies to construction. It is best to understand that you cannot sit around and wait for something to happen thinking you have a remedy at law when some action on your part could completely alleviate your damages.

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It’s Friday and time for the round-up of industry related claims. This edition has a bad church roof, some poor damage repair work and a fire.

In Dadian v. Midwest Clothing and Restoration, Inc., the complaint alleges that the plaintiff alleges that she retained the defendant to repair damage to her home caused by a burst pipe. The contractor allegedly dried the home through the “use of dehumidification, air movement, and negative air equipment.”  Apparently the remediation may not have been enough for plaintiff. She retained Environmental Diagnostics, Inc., to inspect the damages restoration efforts and the second consultant allegedly established that the original water damage mitigation and restoration efforts were substantially incomplete. The counts against the defendant sound in negligence, breach of contract, breach of guarantee (based off a letter that is attached to the complaint) and consumer fraud.

In Brotherhood Mutual Insurance Co. v. Christo d/b/a Accurate Roofing, the complaint alleges that defendant was hired to perform work on the roof of Sign of the Dove Church in April of 2008 and that after the work, in September of 2008, the Church was severely damaged when its roof collapsed after a heavy rain. The collapse was caused by improper drainage. The plaintiff’s allege that despite representations made by the contractor that the roof was clear of debris and guaranteed for 7 years, the roof collapsed and had properly drained prior to the defendants’ work. The complaint alleges negligence and breach of contract.

Greif, Inc. v. Advanced Waste Services, Inc. et al., is an action involving a fire allegedly caused by a poor cleaning job. The complaint alleges that Greif, a manufacturer of large 55-gallon drums, hired defendants to clean paint residue from the inside of a pollution control unit that is connected to a furnace. The allegations are that the job created loose paint particles and debris which ignited after the cleaning when the furnace was turned back on. The fire damaged the facility and interrupted the steel drum production causing damages in excess of $1,651,780. The causes of action are for breach of contract and negligence.

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Take a look at this chart:

The different colored sections represent the jurisdictions of the different appellate court districts in the state. The answer to the question is “yes” if you’re in the green, “no” if you’re in the tan, and “undecided” if you’re red, blue or orange. It’s a split between the districts that just occurred.

In the case of K. Miller Construction Company, Inc. v. McGinnis (1^st Dist. Doc. No. 1-08-2514) the first district appellate court (the green one) has recently decided that a claim for quantum meruit (unjust enrichment) can be made against a home owner by a contractor even if the contractor failed to comply with the Illinois Home Repair and Remodeling Act (815 ILCS 513) which requires that contracts for more than $1000 on home improvements be put in writing or they are deemed “unlawful” by the statute.

As a side note, the 4^th District (the tan one above) has ruled that such a claim cannot stand if the requirements of the act are not met in Smith v. Bogard (2007)

In McGinnis, Miller was a contractor that worked on the renovation of McGinnis’ house. After some work was performed, but before it was all completed, the McGinnis refused to continue paying Miller’s invoices which by then were more than $123,000 and demanded that he finish the job before any more payments occurred. Miller took out a $150,000 line of credit to complete the project and when he was done, the McGinnises approved of his work. The opinion notes that the project’s construction price increased to more than $500,000 by the time of completion.

The McGinnises, however, refused to pay more than $177,580.33, and Miller filed suit to recover payment. The opinion notes that Mr. McGinnis is no ordinary consumer, but that as a lawyer, he is a “sophisticated consumer”. The district court dismissed claims made by miller for a mechanics lien and breach of a time and materials oral contract because the terms of the Act provide that such contracts are unlawful if not in writing for home repair. The appellate court agreed. What the appellate court did not agree with was the district court’s interpretation that a claim for unjust enrichment was not available to a contractor who had actually performed the work where that work was accepted.

Noting that the 4^th District reached a different conclusion, the 1^st District found that where the work was accepted, the availability of an unjust enrichment claim was not quashed by the use of the term “unlawful” in the Home Repair and Remodeling Act.

Where no party disputed that a trial on the unjust enrichment claim would render “justice” to both parties, the appellate court found that because the Act did not expressly repeal the quantum meruit claim the “unlawful” nature of contracts that are not in writing did not preclude the cause of action and such a claim would likely not “reward deceptive practices” or violate public policy.

The court also noted that a real estate attorney like Mr. McGinnis might well utilize his expertise in the field to exploit the 4^th District’s interpretation by keeping any contract for home renovation oral in order to deprive a contractor of the reasonable value of his services.

Interestingly, a concurrence by Justice Gordon notes, as several others have contended, that the Home Repair and Remodeling Act was not intended to provide either a cause of action or an affirmative defense to any private party, but rather, the sole remedy under the act is through action by the Attorney General’s Office.

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In Burke v. 401 N. Wabash Venture, LLC (N.D. Ill, Doc No. 08 C 5330) a prospective purchaser of a condominium at the new Trump Tower brought an action against the LLC selling the units when they kept his earnest money deposit after he failed to close on the unit.

Reading the opinion, its apparent that the alleged reason for failing to close on the unit, with a purchase price of over $2 Million, was that an additional floor of parking was added after the initial earnest money deposit was tendered. The plaintiff’s argument was that the addition of parking made the price he had paid for his parking spot unfair given that the additional parking reduced the value of the spots. He also alleged that the additional floor of parking increased the maintenance fees for the association.

The plaintiff brought a class action lawsuit against the LLC alleging that a liquidated damages provision in the sale agreement violated the Illinois Consumer Fraud and Deceptive Trade Practices Act (815 ILCS 505) because it gave the LLC the choice between liquidated damages or actual damages.

The provision at issue read:

“In the event of a default or breach of this Purchase Agreement by Purchaser, Seller shall notify Purchaser of such breach or default and of the opportunity, which shall be given the Purchaser, to remedy such breach or default within twenty (20) days after the date such notice was received. If Purchaser fails to remedy such breach or default within twenty (20) days after receipt of Seller's notice, then, subject to the limitations set forth below, Seller may terminate this Purchase Agreement and, as its sole and exclusive remedy upon termination, retain as liquidated damages from Purchaser an amount equal to the sum of (i) the amount set forth in Paragraph 1(b) hereof required to be paid as an Earnest Money deposit and (ii) all amounts paid or to be paid by Purchaser to Seller for any other services or work performed or to be performed by Seller. In collecting such liquidated damages, subject to the limitations set forth below, Seller shall be entitled to retain all monies paid by Purchaser to Seller hereunder; to keep, retain, or take any security or other instrument either evidencing Purchaser's obligation to pay any sums hereunder Or given by Purchaser to Seller to secure payment of such sums; and· to pursue any other appropriate lawful process. In accordance with Section 1703(d) of the Interstate Land Sales Full Disclosure Act, if Seller is otherwise entitled to the liquidated damages described above, Seller shall return to Purchaser amounts paid to Seller (excluding interest paid under the Purchase Agreement) in excess of: (x) 15% of the Purchase Price (excluding any interest owed under the Purchase Agreement) or (y) the amount of Seller's actual damages, whichever is greater.”

The court’s opinion is instructive to anyone faced with contractual situations including multiple remedies that include liquidated and actual damages. Here, because the provision at issue included language that the Interstate Land Sales Full Disclosure Act authorizes and even encourages developers to include in the contracts, the express exceptions of the Consumer Fraud Act allowed the provision. Because the provision was allowed, the Court dismissed that count in the complaint with prejudice.

In recent years a large portion of suits brought on behalf of plaintiffs against developers and even others involved in the construction process have begun to include counts for Consumer Fraud. It is best to make sure your contracts comport with the act in order to eliminate the possibility that a class action could be brought by individuals for a simple error in contracting.

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In case you were wondering where the updates have been...

We recently moved offices to 222 N. LaSalle:

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New content is on its way....

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