News & Notes -- April 28, 2010

Posted on April 28, 2010 by Garrett Kern

 

As we noted here, as of April 22, 2010, federal law requires contractors performing renovation, repair and painting projects that disturb lead-based paint in homes, child care facilities, and schools built before 1978 to be certified and must follow specific work practices to prevent lead contamination. The requirements apply to renovation, repair or painting activities.

We have been monitoring Illinois SB 2540, introduced by Senator Wilhelmi, which will address at least part of the confusion regarding the remedy associated with the Home Repair Act.  SB 2540 passed the Illinois Senate on April 15, 2010, and appears to be headed to the Illinois General Assembly. The proposed amendment will entirely replace Section 30 of the Act to clarify and more accurately identify the remedies available to private parties under the Act.  The Home Repair Act has the laudable goal of making sure that a contractor utilizes a written contract and provides a Consumer Rights Brochure to home owners who engage them to undertake home remodeling work valued in excess of $1,000. As a consumer protection oriented statute, the intended remedy for a violation of the Act was to be found under the Consumer Fraud and Deceptive Business Practices Act. However, the Act does not sufficiently spell out this remedy, and the Illinois Appellate Courts have been inconsistent in applying it.  The goal of the bill is to clarify the confusion that now exists among the courts. We will continue to keep you advised.

We are also happy to report that the Illinois Construction Law Blog is now available to iPhone and iPad users through the AEC Info iPhone App. This is a free iPhone/iPad app available in the iTunes store in the Law category.  You may access the website through your iPhone/iPad web browser, make posts, send them through email, or even share them on Twitter. The app offers the latest industry headlines and insight from across the web.

 

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First District Rules on Block 37 Receivership

Posted on April 19, 2010 by Garrett Kern

 

In a March 31, 2010 decision, the First District Appellate Court of Illinois ruled in favor of Bank of America and other lenders against the Block 37 mall developer.  Bank of America led a group of lenders that moved to foreclose on Block 37 in late October, claiming the developer was in default on a $205-million construction loan. The Cook County Circuit Court appointed real estate services firm CB Richard Ellis as receiver on November 24. CBRE officially took control of the mall on February 1, after delays over insurance issues were resolved. The developer appealed the trial court’s ruling, citing the Illinois mortgage foreclose statute and arguing that Bank of America had not proven that there was a “reasonable probability” that it would prevail in the underlying foreclosure action and that it had shown “good cause” for not appointing a receiver.

In affirming the trial court’s order in appointing a receiver, the court noted the construction loan made to the developer is out of balance and, therefore, was in default pursuant to the terms of the loan agreement. The court found that the developer presented no evidence showing a commitment from a lender or investor to provide funding that would cure the imbalance. In addition, the arguments that the developer was in a better position to complete the project or that Bank of American had not shown or alleged fraud, mismanagement or waste were all deemed impermissible arguments that attempt to shift the burden of proof back on to the lender, when the burden of proof was on the developer to show why a receiver should not be appointed.

The First District’s ruling has made the road much easier for Bank of America to proceed with its foreclosure proceeding.

We will continue to keep you advised as to the progress of the Block 37 project, both during construction and in the court system.

 

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Second District Reverses Ruling on Injunctive Equitable Attachments

Posted on April 7, 2010 by Garrett Kern

 

The Second District Appellate Court of Illinois recently discussed the application of injunctive equitable attachments with respect to two consolidated cases brought by the same plaintiff, Hensley Construction, LLC against defendants Pulte Home Corporation and Del Webb Communities of Illinois, Inc. In each case, Hensley entered into contracts by which the defendant would provide and install underground utilities in residential home communities. The plaintiff’s complaints alleged that each defendant owed the plaintiff money for the work performed and filed a motion to compel deposit of retention funds into an escrow account. In each case, the trial court granted the plaintiff’s motion and ordered each defendant to deposit funds into an escrow account. Each defendant appealed claiming that the trial court’s rulings amounted to prejudgment equitable attachment and the plaintiff had failed to establish the requisite elements for those injunctions. 

The Second District, in overturning the trial court’s order in each case, reiterated that Illinois courts have consistently forbade such injunctions and, further, the only exception is when the claimant has an interest in the specific funds (known as the “specific funds exception”). In these cases, plaintiff Hensley did not show that the specific funds exception applied because the funds that were ordered deposited were not specific to the underlying dispute. The court also noted that the plaintiff failed to earn the remaining 3% of the retainage because it failed to establish that municipalities gave their approval of the projects (a condition precedent to recovering the remaining retainage) and failed to show the irreparable harm requirement of injunctive relief.

The most compelling aspect of the testimony in these cases was that of the defendants’ affidavits. Defendants in both cases stated that funds for the project were not held in segregated accounts or earmarked for the specific project. Therefore, plaintiff could not state that the specific funds that were to be placed in escrow were directly related to the project at issue. 

This seems to be a very convenient way for a defendant-debtor to avoid equitable attachment. However, it is also noted that these types of equitable attachment are frowned upon in the law because the equitable attachment is a restraint of the defendant’s control over property in its possession to satisfy a claim not yet reduced to judgment.

 

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