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

 

Economic losses concern defeated or diminished expectation interests arising out of inadequate or failed contractual performance, which involve neither personal injury nor physical damage to other property. The Economic Loss Doctrine provides that purely economic losses, originating out of and concerning contractual performance, are addressable, if at all, under contract principles. Conversely, economic losses are not recoverable in tort, given that none of its safety-protection interests are implicated by such disputes.

The Indiana Supreme Court recently affirmed this tenet in a landmark ruling, which upheld the trial and appellate courts preclusion of tort recovery against design professionals by a project owner for damages associated with alleged design and construction defects. 

On June 29, 2010 the Indiana Supreme Court issued its opinion in Indianapolis-Marion County Public Library v. Charlier Clark & Linard, P.C., 2010 WL 2594314 (Ind.). This dispute arose from the renovation and expansion of a library and parking garage.  The Library directly entered into contracts with the architect and general contractor for the project. The project architect, in turn, subcontracted for services with various design professional consultants.  

The Library asserted negligence claims against some subcontractors and the architect’s structural engineer, seeking recovery for construction and design defects in its renovated and expanded facilities. The trial court dismissed the negligence actions based on the Economic Loss Doctrine, with the state’s court of appeals affirming. Indiana’s endorsement of the Economic Loss Doctrine in Indianapolis-Marion County Public Library eliminated any doubt as to its application to design professionals given the authoritative nature of the Court’s opinion.

In justifying the application of the Economic Loss Doctrine to this design/construction dispute, the Court reasoned that the Library established the expectations of the parties by entering into various contracts.  If recovery in tort were permitted, the Library could effectively circumvent the bargained-for exclusions and risk allocation outlined in the governing contracts. The Court, citing Chief Judge Cardozo’s seminal opinion in Ultramares Corp. v. Touche, noted that allowing tort recovery for economic losses would effectively eliminate the line between tort and contract and expose a party “‘to a liability in an indeterminate amount for an indeterminate time to an indeterminate class.’"

In Indianapolis-Marion County Public Library, the owner advanced five arguments against the application of the Economic Loss Doctrine, including: 1) “other property” was damaged; 2) the damages were physical or created imminent risk of physical harm; 3) the defendants are professionals; 4) the defendants negligently misrepresented facts; and 5) the defendants provided solely services and not tangible products. 

So what constitutes other property in the context of the Economic Loss Doctrine? In Indiana, the issue is addressed by examining what product or service was secured by the plaintiff. The rationale behind this approach is that a supplier of an allegedly defective product or service is only in a position to bargain for the appropriate risk allocation with the purchaser relative to performance expectations. However, a supplier of a component product or service cannot generally negotiate with the end user or consumer. If damage to the finished product constituted other property, suppliers would be subject to uncertain liability, which is an underlying policy justification for the application of the Economic Loss Doctrine. To provide further context, in Indianapolis-Marion County Public Library, the Court found that the Library purchased a complete, renovated library and parking garage. The alleged defective “products” were the designs, construction materials and construction services, all of which collectively comprised the final product. Accordingly, the Indiana Supreme Court held that any physical damage in the completed facility would not and could not constitute “other property”.

Having decided that the plaintiff’s damages were not to other property, there was no reason for the Indiana Court to address the argument that the Library’s damages were physical damages to property. Nevertheless, the Court addressed the owner’s contention that the alleged defects created an imminent risk of physical harm, thereby excepting this case from the economic loss rule. Here, the Court simply relied on the precedent it established in Progressive Ins. Co. v. General Motors, Corp., which precluded a strict tort products liability action where the absence of personal injury was concededly fortuitous. Consequently, the Court held that the Economic Loss Doctrine applied the owner’s negligence claim despite the alleged presence of imminent risk of physical danger.

Regardless of the nature of injury, the Library maintained that the Economic Loss Doctrine should not apply to professionals, negligent misrepresentation claims and/or defective services.

The owner contended that the Economic Loss Doctrine should not be applied to design professionals as a matter of law. The Library compared design professionals to other service professionals (e.g. attorneys) where tort liability exists based on duties that arise outside of contractual obligations. For support in extending such a paradigm to design professionals, the plaintiff relied on Peters v. Forster where the Indiana Supreme Court found that design professionals owe a duty of care to third parties where injury is foreseeable. 

The Court rejected this analysis in relying on decisional law of other jurisdictions which addressed the application of the Economic Loss Doctrine to design professionals. The foreign decisions were divided into cases where privity of contract was present and cases where it was not.

Where plaintiffs were in privity of contract with the defendant-design professional, the Indiana Supreme Court cited Arizona and Nevada opinions in finding no justifiable distinction for applying the Economic Loss Doctrine to contractors while allowing tort claims against design professionals. There was simply no differing policy concern underlying contractors and design professionals relative to the application of the economic loss rule since each were being charged with alleged qualitative dissatisfaction in the performance of contractual duties.

In circumstances where plaintiffs are not in contractual privity with the defendant-design professionals, the Court ruled that the absence of a contractual right of action would not therefore create a negligence liability against such parties. Alternatively stated, the Library did not acquire an impermissible right of action against those entities who were not in privity of contract with the owner. 

The Indiana Supreme Court clearly recognized that permitting tort recovery for qualitative injuries would undermine and frustrate the bargained-for allocation of risk throughout the network of agreements without any overriding “unfairness” to justify upsetting the negotiated balance. A project owner allegedly sustaining economic losses is permitted its rights of action against those entities in privity of contract (or against those who extend warranties in their favor). Those entities may, in turn, pursue their derivative contractual rights against their privity parties through the network of contracts until liability resides with the ultimately culpable and responsible party. As such, the Indiana Supreme Court held that the Economic Loss Doctrine precludes negligence actions by owners against design professionals wherever and whenever the underlying claims consist of nothing more than defeated or diminished contractual expectations.

The Library’s position respecting the negligent misrepresentation exception to the Economic Loss Doctrine was summarily rejected by the Court. Of interest, no distinction was drawn between those engagements where the design professional’s services results in a tangible improvement to property as opposed to those where “pure information” was provided (e.g. an architect’s building audit for a prospective purchaser). Here, the Court held that the negligent misrepresentation exception was inapplicable since the Library and defendants were connected through a series of contracts.

The arguments limiting the application of the Economic Loss Doctrine to qualitative dissatisfaction in tangible product disputes, as opposed to services, was also summarily rejected. Again referencing the policy considerations underlying the Economic Loss Doctrine, the Indiana Supreme Court failed to recognize a meaningful distinction in the application of the principle in product and service settings.

The Indianapolis-Marion County Public Library decision not only provides a long-needed and definitive Indiana statement on the application of the Economic Loss Doctrine to design professionals, it raises and explores the universal policy considerations associated with the rule’s implementation where contractual interests are at issue. Quite simply, a party seeking recovery for defeated or invalidated expectation interests should not be permitted the extension of tort law for dispute resolution which can only serve to eviscerate the contracting parties’ intentions and agreed to risk/reward allocations.

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News & Notes is a section we have dedicated to interesting items that do not contain enough information to have full entries but are certainly worth noting.

Blair Kamin over at the Chicago Tribune’s Cityscapes has posted the following article reporting that Chicago architects Adrian Smith and Gordon Gill have been selected by a Saudi Arabian investment firm to design a kilometer-high skyscraper on the fringes of the Saudi city of Jeddah, which would make it the world’s tallest building.

There has been a lot of discussion regarding the state of the Illinois Home Repair Act and the decisions handed down by the appellate courts. 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. 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. SB 2540 was passed by the Senate on March 9, 2010 and arrived in the House on March 10, 2010. It was referred to the House Consumer Protection Committed on March 22, 2010 after its First Reading and a review by the Rules Committee. We will continue to keep you advised on the progress of SB 2540.

 

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From time to time we will report on new cases that have been filed that are related to the construction industry. 

Walsh Construction has filed suit against the City of Chicago requesting that the court declare that bids submitted by two other contractors for the Congress Parkway Interchange Improvements project are non-responsive and that its own bid is responsive.  In addition, Walsh is seeking an order enjoining the City from accepting either of the two bids.

Walsh, along with Paschen/Cabo and James McHugh, submitted a bid for the Congress Parkway Interchange Improvements project.  It is Walsh's contention that the City of Chicago violated its own Municipal Purchasing Act by even considering the other bids because they were non-responsive to the Bid Deposit specification.  Paschen/Cabo is alleged to have filed to include a bid deposit of any kind and McHugh is alleged to have provided the bid deposit in the form of a company check rather than the required certified check, cashier's check or money order.  Walsh alleges that it complied with the specification and, therefore, submitted the sole responsible and responsive bid.  It should also be noted that the Paschen/Cabo and McHugh bids were lower than Walsh's bid for the project.

We will continue to monitor this litigation and report on any important details.   

Just last week, a personal injury complaint was filed in the Circuit Court of Cook County against unknown architects, engineers, and designers of Golf Road in Des Plaines, Illinois.  The complaint, filed on behalf of Plaintiff Magdalena Walus, alleges that she was injured in a motor vehicle accident caused by an icy roadway on Golf Road near the Des Plaines River.  Specifically, the complaint alleges that Golf Road, where it meets the Des Plaines River, regularly floods with river water and freezes, causing dangerous conditions.  Furthermore, the complaint alleges that defendants had knowledge that such flooding took place at the time of designing, engineering, planning and constructing Golf Road and willfully disregarded said knowledge.

The complaint includes the City of Des Plaines, Cook County, and the State of Illinois as respondents in discovery and seeks discovery from those entities regarding similar motor vehicle accidents in the past in the same area.

The case presents interesting issues regarding the standard of care applicable to design professionals.

 

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The Second District held as much in its recently released opinion in Thompson v. Gordon.  There, Plaintiff’s husband and daughter were fatally injured when the driver of a vehicle moving in the opposite direction lost control and vaulted over the concrete median separating traffic.  Plaintiff sued the engineer that designed the bridge deck and traffic area where the median was located, alleging the engineer was negligent in failing to design a median barrier that would have prevented the vehicle from crossing the median and causing the accident.  The trial court granted the engineer’s motion for summary judgment, relying on the services contract and holding that it did not require an assessment of the sufficiency of the median barrier and did not require the engineer to modify or redesign the median barrier.

On appeal, the Second District looked first to the plain language of the contract.  The court held that the contract required the engineer to submit design plans for a bridge deck “replacement.”  Viewing the contract as a whole, the court read “replacement” to mean that the engineer’s role was limited to submitting designs to recreate the bridge deck exactly as it had existed, rather than submitting designs for an improved or altered deck.  However, the contract also contained a provision stating that “[t]he standard of care for [defendants’] services will be the degree of skill and diligence normally employed by professional engineers or consultants performing the same or similar services.”  The court therefore concluded that the engineer labored under both of the above-mentioned duties.

Having determined the engineer’s duty, the issue then became whether the plaintiff provided any evidence that the engineer breached its duty.  In the court’s eyes, the plaintiff had proffered such evidence in the form of an expert report indicating that an engineer acting within the standard of care while creating plans to replace the bridge deck would have considered and designed an improved median barrier.  The court noted, “although the interpretation of defendants’ contract is indeed a question of law, our interpretation of that contract leads us to conclude that the contract imposed a professional duty of care on defendants’ work, and the extent of that duty (and whether it was breached) creates a factual question subject to expert testimony.”  Plaintiff’s expert report was, in the Second District’s opinion, sufficient to create questions of fact regarding defendants’ breach of duty and the judgment of the trial court was reversed.

 

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 Maybe…maybe not. Typically, a party will invoke an indemnity provision to seek protection from claims made by some third party. 

However, consider a situation where an owner files suit against its architect alleging certain errors and omissions. In the Complaint, the owner cites the indemnity provision contained in the Owner-Architect Agreement and alleges that it is entitled to damages associated with the retention of experts to investigate the claimed defects and attorneys’ fees and expenses to prosecute the lawsuit against the architect. 

 

Is the owner’s indemnity claim viable? Not surprisingly, the answer depends on the particular language of the indemnity provision. In Illinois, courts interpret indemnification agreements like any other contract clause – a court must give effect to the intention of the parties as determined from the language of the agreement as a whole. See Zadak v. Cannon, 59 Ill.2d 118, 319 N.E.2d 469 (1974) and McRaith v. BDO Seidman, LLP, 391 Ill. App. 3d 565, 577-78, 909 N.E.2d 310 (1^st Dist. 2009).

 

Recently, we successfully defeated an indemnity claim similar to the hypothetical above. Essentially, the owner was seeking indemnification from its own claim against the architect. In the case against our client, the Owner-Architect Agreement contained the following indemnification provision:

 

Notwithstanding any other terms and conditions stated herein, including any obligations regarding insurance coverage, Architect agrees to defend, indemnify, keep, save and hold harmless fully the Owner, its agents, officials and employees, against all claims, suits or judgments, costs or expenses, including attorneys’ reasonable fees, that may be based on or the result of any error, omission, negligence, or any willful or intentionally tortious conduct of Architect or of any person employed or engaged by Architect to perform Services under this Agreement. 

 

The Architect shall promptly provide to the Owner copies of such notices as it may receive of any claims, actions or suits as may be given or filed in connection with Architect’s performance or the performance of any person or entity employed or engaged by Architect to perform Services under this Agreement.

 

In response to the Owner’s Complaint, we filed a motion to dismiss arguing that the Owner’s indemnity claim does not exist in the absence of a claim or judgment against the Owner. To support this argument, we cited Open Kitchens, Inc. v. Gullo International Development Corp., 126 Ill. App. 3d 62, 466 N.E.2d 1313 (1^st Dist. 1984). In Open Kitchens, the indemnity clause in the contract between the plaintiff and Gullo provided:

 

To the extent permitted by law, [Gullo] shall indemnify and hold harmless the [plaintiff] and their [sic] agents and employees from and against all claims, damages, losses, expenses, liabilities, and demands, including attorneys' fees, of whatsoever kind or nature, arising out of, resulting from or connected with the performance of the Work by the Contractor or any Subcontractor for and in behalf of the [plaintiff] or Architects. The Contractor shall defend at its own expense, any actions based thereon and shall pay all attorneys' fees, costs and other expenses arising therefrom.

 

Open Kitchens, Inc. v. Gullo International Development Corp., 126 Ill. App. 3d 62, 63-64, 466 N.E.2d 1313 (1^st Dist. 1984). 

 

The First District Court held that Gullo’s obligations under the indemnity provision did not arise until a third party asserted an action against Open Kitchens. Open Kitchens, Inc. v. Gullo International Development Corp., 126 Ill. App. 3d 62, 65, 466 N.E.2d 1313 (1^st Dist. 1984). The Court explained that in reading the indemnity provision as a whole, including the last portion of the subject provision requiring Gullo to defend actions arising out of its performance of the contract, the agreement indicated that the indemnity was only intended to apply to matters involving losses incurred by third parties. Id. 

 

As in Open Kitchens, where the indemnity provision contained language referencing actions by third parties, the indemnity provision contained in our client’s Owner-Architect Agreement refers to claims filed by others (i.e. “The Architect shall promptly provide to the Owner copies of such notices as it may receive of any claims, actions or suits as may be given or filed in connection with Architect’s performance”). Accordingly, we argued that the First District’s analysis in Open Kitchens applied and the language of our client’s indemnification clause indicates that the indemnity was only intended to apply in the context of losses incurred by third parties. 

 

The court agreed with our analysis and dismissed the Owner’s indemnity claim with prejudice. In her order, the judge relied on the language contained in the second paragraph of the indemnity provision stating that “this language immediately follows the indemnity language, making it clear the intent of the parties was to limit the indemnification to instances where third party claims are raised.” 

The lesson here is that not all indemnification provisions are created equal. The specific language must be reviewed so that risks are allocated as intended.

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On November 11, 2009 Judge Virginia Kendall of the Northern District entered memorandum opinion and orders in the matter styled, ExxonMobil Oil Corp. v. Amex Construction Co., Case No.07 C 4278 applying a Daubert challenge from third party defendants to opinions held by Amex's retained expert Dr. Nicholas Biery of SEA, Ltd.  One of the defendants, Ambitech Engineering, was charged with negligence in the design of the plastic piping, which was serving as a temporary by-pass for the return cooling water line of ExxonMobil's Joliet refinery.  The plastic pipe uncoupled at a welded intersection during plant operation.  The resulting shutdown resulted in a very large business interruption claim and a smaller physical loss/damage component.  As to Ambitech, the underlying defendant, contractor Amex (who installed the plastic pipe and performed welding of the sections) alleged that Ambitech was negligent in the design of the specified piping.  Specifically, the issue surrounded whether a thicker wall section ought to have been specified in conformance with ASME standard B 31.3  and whether the failure to specify a thicker wall section led to the de-coupling event. .   

 The attack on Dr. Biery and his opinions was not foundational, but rather focused on the lack of methodology/substantiation in expressing opinions which were challenged as being unsupported and subject to the Daubert prohibition on the expression of conjecture passing as expert opinion.   Dr.  Biery was of the opinion that Ambitech did not exercise the requisite degree of care/skill in detailing the HDPE pipe since the specified by-pass had a wall thickness "thinner" than what was required under ASME B31.3 requirements.  Ambitech contended that the wall thickness was of no legal consequence since there was never any credible evidence upon which  Dr. Biery could say that the pipe ever experienced heat/pressure conditions in situ exceeding the installed pipe's material capacities.  Hence, you had a situation where a party's alleged breach of duty was not causative of the loss since the breach could not be proven as constituting a proximate cause of the loss.  Judge Kendall ruled that Dr. Biery is not allowed to testify that the allegedly incorrectly specified plastic pipe failed in service because of plant operating conditions.  Dr. Biery will only be allowed to  opine that there was a deviation from B31.3 requirements but won't be able to testify that it was causative of the loss.

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We’ve been lax lately in getting our readers interesting district court opinions on topics that are facing the industry. Today we’re pleased to rectify a small portion of that delinquency with this written opinion from Judge Goldberg regarding an engineer’s motion to dismiss a negligent misrepresentation claim.

The facts of the case from the opinion detail the parties’ involvement in the City of Chicago’s Façade and Circulation Enhancement Project (“FACE Project”). After it was apparently sued by the City for breach of contract in connection with the construction of the FACE Project, a general contractor on the project brought a suit against an engineer hired by the City. The general argued that the engineer was hired by the “City to provide testing and review of welds and steel related to the FACE Project.” The general contended that this created a duty on the part of the engineer to advise the general, among others, of any defects that it found. Although its not apparent from the order, you can guess that the general was trying to pass through some form of damage liability, likely based on defects or errors in the welds, to the engineer.

Why is this important? In short, it is important because the economic loss doctrine usually allows architects and engineers in the state of Illinois to avoid suits based in negligence where part or all of what they were contracted to do involved creating plans and specifications and providing information that was ancillary to the construction of a building – a final project. The doctrine forces those seeking recovery against a design professional to bring an action based on the breach of the contract, the breach of the commercial expectation in the end product, the building. One of the exceptions to this rule is carved from an enterprise where the design professional is hired, not to render some end product, but to provide information with no tangible result.

Perhaps the most-cited Illinois appellate authority for not allowing a suit against a design professional in negligence when their job has involved both the creation of plans and specifications and the provision of testing and information is a 1^st District case from 1999, Tolan and Son, Inc. v. KLLM Architects, Inc, et al (Doc. No. 1-98-2581). Tolan recognized the distinction between the different activities of the design professional and chose not to split hairs when both inspections and plan design performed by a design professional took place during construction of the project. Tolan ultimately held that the dual tasks of both design and inspection could not be bifurcated where the design professional created an end product:

“Based on the foregoing, we find that KLLM and Walter's work cannot be bifurcated. They were not retained to provide an analytical end product. They were retained to design and construct the townhomes. The information supplied by them during the course of construction was incidental to the tangible object--the townhomes. Therefore, the circuit court properly granted their motions to dismiss.”

What is interesting about the Tolan decision is that it extended the economic loss rule to a situation involving the design professional both prepared plans and rendered an opinion outside the scope of the plans, but within the scope, temporally, of the construction project as a whole.

This temporal factor finds its way into the analysis in the instant opinion. The opinion does not state that the engineer in this case prepared plans and specifications – “[the engineer’s] work on the FACE Project was to provide testing and review of the work performed by [the welder], to ensure compliance of the work with the Contract Documents and the approved shop drawings.” The analysis finds that because this work was taking place during the construction process, it was ancillary to the construction and design of the project and therefore the economic loss doctrine barred a negligent misrepresentation suit against the engineer pursuant to Tolan.

This raises some unique issues.

What if the construction had concluded and the test was being performed after substantial completion? One year? Three years?

Does the portion of the Tolan opinion relative to the defendant “Reiss” imply that a design professional who supplies an opinion but not plans and specifications will not be exempt from negligent misrepresentation claims when the information is not supplied during construction?

Does this opinion create a distinction between an opinion for the guidance of others in their business transactions and “inspection information and review” for the purpose of insuring compliance of the end product to the Contract Documents? 

It is likely that we will be seeing answers to some of these new questions now that we’ve broached the topic.

 

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Post hoc ergo propter hoc may be a logical fallacy, but the alternative, the maxim that an event could not be caused by an occurrence happening afterward, sort of an ante hoc ergo non propter hoc finds some harbor in the law. This is the case in the recent opinion of Rock v. State Farm Fire and Casualty Co. (Doc. No. 3-08-0915).

In Rock, there was an underlying case where home purchasers brought a complaint against the sellers of their home for fraudulent, knowing, reckless and/or negligent misrepresentation, based on some false representations they allege were in the property disclosure statements regarding the foundation, mold and water infiltration. The purchasers claimed that the false representations caused them damage through the loss of value to their home, loss of their “bargain” in the purchase, and the cost of remediation.

The sellers won the underlying case and then had a dispute with their insurance company about whether or not the insurance company should pay for the defense of the suit against the sellers pursuant to the terms of an insurance policy. The policy’s terms stated that:

State Farm would provide a defense “[i]f a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, cause by an occurrence.”

An “occurrence” was defined as “an accident, including exposure to conditions” that results in bodily injury or property damage.

“Property damage” was defined as “physical damages to or destruction of tangible property, including loss of use of this property.” 

The trial court heard the parties arguments on the matter and found that State Farm owed a duty to defend the Rock’s in the suit brought by the buyers. State Farm appealed the decision and the appellate court reversed the decision of the trial court. The appellate court held that the damages alleged by the buyers were economic and not caused by the misrepresentations. The court also noted that there was no allegation of “physical damage” to the home occurring after the misrepresentations and therefore the misrepresentations related to past or existing damage and could not have caused the past or existing damage.

The Third District agreed with the Second District’s in Stoneridge Development v. Essex (which we wrote about here) that claiming the cost of repair and diminished value as damages is actually claiming economic loss and not property damage. This is because the damages that are referred to in the suit happened prior to the misrepresentation, they cannot be caused by the misrepresentations. As the court held, these “lawsuit[s] pertain… to the nondisclosure of the damage, not the damage itself.” Slip op. at 8. The court also held that the phrase “loss of use of this property” included in the “Property damage” definition modified and referred to “physical damages” and “destruction” and held that the loss of use must be accompanied by the physical damage or destruction.

In a dissent by Justice Lytton, those opposing this view will find some comfort in an acknowledgment of a line of Illinois cases stating that “unknowing” or “reckless” misrepresentations are adequate to establish an “occurrence” under such a policy.

The interesting point to take away from the opinion is for those in the business of supplying information who may be subject to a claim of negligent misrepresentation. There’s a real need to check the policy language governing the coverage you’ve purchased to make sure that your potential liability is covered in the manner it’s believed to be covered.

 

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When I decided to create this website the main goal was education. Through an understanding of trends, developments and principles in the legal aspects affecting the industry we’d all be a little bit better off.   It's also a great way to get informational updates to clients who might otherwise not want to receive a monthly newsletter or "litigation updates" every time something new happens in the law, but prefer to review the information on their own schedule.

In addition to the influx of calls from businesses contracting or looking to contract in the midwest and out-of-state attorneys looking for information, I never realized what a repository of information it would become or how that repository would end up being utilized by readers. 

The topics and posts are currently accessed close to 160 times a day by people looking for information on any number of issues.  That number has only grown since 2007 when we started and continues to grow monthly. I realize that number of hits pales in comparison to a site like Above the Law, or the Wall Street Journal, but we’re not a big site and there’s very little gossip for us to traffic in – “Did you hear what the AIA said about the AGC on Letterman last night?”   But just like those sites, we’re privileged with emails from readers containing questions, comments and even some outright disagreements from time to time.

Another unique aspect of this blog has been the interest and open communication it has fostered. Anyone looking for information or wanting to suggest a posting only has to pick up the phone to make contact. Quite frankly, whether the person on the other end was in Alaska, Berlin or Naperville, every phone call has been interesting and informative… at least from my end.

But apart from the calls and the emails, possibly the most fun outcome has been the request for presentations and speaking. We’ve been asked to give talks, present on topics and even moderate discussions of different issues for clients, strangers, associations, companies, small shops, large shops and even webinars for unidentified listeners. It is a great chance to learn and to have a Q&A and no one has yet balked at the price of “free”. Thanks to readers input and requests, the list of available presentations and posts keeps growing.

In gearing up for our 2010 presentation schedule and in looking toward future postings I’d like to hear your thoughts on presentations and issues you would like to see or hear about. In addition to the topics below for which we already have presentations and information, what’s out there that you might want us to come and present at your business on?   What new and interesting issues are you coming across? Are there any particular problems you’ve faced in the past year or that you see on the horizon that you might want to hear more about?

The categories below are just a sampling, but are a good place to start. If you have anything new you’d like to hear about, or if you’d like to have us present on any issues we’ve already presented on in the past, please just let us know.

• Claim Prosecution & Defense
• Construction Litigation
• Contract Documents – Drafting, Negotiation
• Contract Administration, Performance & Enforcement
• Damages & Time Extensions
• Design
• Dispute Avoidance & Resolution
• Financial Consideration
• Environmental and Green Issues
• Federal Construction and Contracting
• Insurance & Surety
• International Construction
• Liens
• State & Local Government
• Procurement
• Project Delivery & BIM
• Public Policy & Legislation
• Workforce Management

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Yesterday we discussed the court’s analysis of contractual language for arbitration provisions in short form contracts in the case of Timmerman v. The Grain Exchange.  A discussion of the factual matter surrounding the case can be found in the previous entry. Today we discuss the decision in Timmerman, to invalidate the contracts that the individual farmers had entered into with the grain dealer because the dealer’s license was revoked.

First, it’s important to understand that the licensure process for grain dealers in the state of Illinois is regulated by the Illinois Grain Code (240 ILCS 40/1-1 et seq.). Much like the codes regulating the professions for Illinois architects, engineers, warehouseman, and many other design and construction professions, the operation of a grain dealership without a license from the state of Illinois is a criminal offense.

What happened in this case was that The Grain Exchange signed the contracts for the future purchase of the grain with the farmers, lost its license, and then after losing the license, assigned the contracts to a subsequent grain dealership that did have a valid license. The subsequent grain dealer sought to enforce the contracts and have the assignment found valid. The farmers wanted the contracts declared void premised on the idea that the original party they had contracted with was unlicensed, but in reality, voiding the contracts favored the farmers because the price of grain had increased from the time the contracts had been entered into with The Grain Exchange. The farmers could now make more profit if they had the chance to sign new contracts.

The court’s analysis struck a middle ground in reasoning but held in favor of the farmers by finding that the that the contracts with The Grain Exchange were anticipatorily repudiated (Even though it was not yet time for the contracts to be performed, the contracts could not be performed because something had happened that rendered performance impossible - Check here for the Uniform Commercial Code’s definitions for anticipatory repudiation at 810 ILCS 5/2-610). The court found that the contracts were repudiated when the license was lost because without a license, it would be against the law for the Grain Exchange to perform under the Grain Code.

At the moment of repudiation (i.e. when the license was lost) the farmers were justified in treating the contracts as terminated. The court would not enforce the assignment made by the Grain Exchange to the other grain dealer after the loss of the license had occurred, and the farmers were not bound by those contracts.

The court noted that if the contracts had been assigned to the other grain dealer prior to the loss of the Grain Exchange’s license, then the assignments might be valid.  There was no mention of the interesting question regarding what would have happened if The Grain Exchange could have gotten a new license before the contracts were due to be performed and had attempted to do so, but the farmers signed new contracts with a different dealer in the interim.  - What if the architect loses his license before completing the design drawings and attempts to renew the license but in the interim the owner hires a new architect for the project?

We’ve written before about the difference between “registration” and “licensure” but nothing has brought home the point as clearly as Timmerman, which is a lesson that licensed professionals or firms should take to heart. The failure to maintain a valid license can completely nullify your existing performed or in the process of being performed contracts, it can subject the unlicensed party to criminal penalties as well as excessive civil damages including the full disgorgement of the earned payments on the contracts. On the flip side, for the sophisticated party, checking the license of a party that has aggrieved you by something under the contract to issue can be one of the first steps to determining the full amount of damages available to you for a breach.

 

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R. David Donoghue of Holland & Knight had an informative post the other day on his Chicago IP Litigation Blog that linked to the Bryan Cave Art Law Blog.

The piece is about debunking common copyright myths. Written by Jonathan Pink, it is humorous and informative. Written in a multiple-choice formatted style, you can read the full text here.

Of note to our readers is Myth #9:

“Myth 9:
Sure, you can copyright a book, a movie, or a song, but there is no way you can copyright a house.
a. This must be true. Just drive through Orange County.
b. Not so fast. I'm from Orange County, and the houses are not all alike; those shades of beige are distinctly different.
c. This is false; you can copyright a building, but only if it was built less than a dozen years ago.
The answer is c. Architectural works are entitled to copyright protection if they were created after December 1, 1990, or embodied in unpublished plans or drawings created before that time, even though they were not actually constructed. See 17 USC §102.
This is good to know if you represent architects or developers. If you represent the developer, advise your client to acquire the copyright in any architectural plans he or she commissions. If you represent the architect, advise negotiating hard when it comes to determining the price of that copyright. Remember, working together, we can rid this state of unsightly farmland, pristine hillsides, and bucolic open spaces.”

We’ve written about the issue before. Obtaining the registered copyright puts you in line to make claims for your attorney’s fees and to have the statutory damages from the Act. In contracting for or against any given fee arrangement, realizing that these rights have value is an important step in understanding the full range of incentives inherent even in standard form agreements like the ConsensusDocs or the AIA standard form agreements.  

As a design professional, imagine not giving up the copyright until project completion… it is entirely possible that the filed copyright could add another cause of action brought in addition to those for past-due payments if an owner tries to complete the building using your plans with a different design professional.

As an owner, imagine owning copyright to plans and being able to finish the design without worrying about whether your disputes with a previous designer need to be resolved. Or better yet, imagine having full right and authority to use the plans on a second or third project.

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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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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.

The second part of this series “The Real Green Goblin – Emerging Legal Liability for Green Design Professionals and Contractors (Part 2.1)” is now up. Again, this insightful piece is worth a read for anyone interested in either design or green issues.

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Unfortunately we’re getting this question quite a bit in today’s market. If you think you’re alone in not getting payment or in having an invoice refused where you put the time and efforts into the design only to have a developer decide that they can’t go through with the project, think again.

Fortunately, the answer is yes, you do have the right to a lien on the property if the building wasn’t constructed – provided that the other requirements of the Mechanic’s Lien Statute are met, e.g. filing deadlines, proper contractual status with the owner, etc.

The authority for placing the lien comes from the statute and was addressed by the Illinois Supreme Court in 1930 in the case of Crowen v. Meyer, et al., 342 Ill. 46.

In Crowen, the Meyer’s were property owners who had a contract with Crowen to prepare plans and specifications for a laundry building that they would erect between “Ninety-Eighth and Ninety-Ninth streets on the east side of South Michigan avenue, in Chicago.” The price for Crowen’s services was agreed at 6% of the total cost of the building. Crowen completed the plans and specifications, the project was bid on, but the defendant refused to proceed with construction and when Crowen demanded payment for his services, the defendant refused to pay him.

Crowen filed his lien. 

The opinion delineates the testimony given by the different parties regarding the project and will be interesting to anyone wanting to see that the disputes between owners and architects haven’t changed much in 80 years.

The defendants challenged his right to a lien and claimed that there could be no claim for lien unless there had been “actual” improvement to the land and that an architect is not entitled to a mechanic’s lien for plans and specifications for a building that was not constructed.

The trial court found for the plaintiff, the appellate court reversed, and the Illinois Supreme Court found that Section 1 of the mechanic’s lien act “gives to the architect a lien for services rendered for the purpose of improving property.”

This case is also important for lien claimants generally because the proposed building here was to be built on three lots but only two were owned by the defendants. The court found that while the claimant couldn’t lien the third lot, a lien for the proposed improvements was valid as to the two lots the owner did own and only for the amount of the work performed for the improvement of those two lots, not the third.

There is scant case law interpreting this remedy in light of Section 16 of the Act which states:

“Sec. 16. No incumbrance upon land, created before or after the making of the contract under the provisions of this act, shall operate upon the building erected, or materials furnished until a lien in favor of the persons having done work or furnished material shall have been satisfied, and upon questions arising between incumbrancers and lien creditors, all previous incumbrances shall be preferred to the extent of the value of the land at the time of making of the contract, and the lien creditor shall be preferred to the value of the improvements erected on said premises, and the court shall ascertain by jury or otherwise, as the case may require, what proportion of the proceeds of any sale shall be paid to the several parties in interest. All incumbrances, whether by mortgage, judgment or otherwise, charged and shown to be fraudulent, in respect to creditors, may be set aside by the court, and the premises freed and discharged from such fraudulent incumbrance.”

People will want to consider this before incurring the costs of filing because it is possible that any lien might be worthless if the property was mortgaged for its full value (and that mortgage was recorded) prior to the contract with the architect because if the building was not constructed, the mortgage would need to be satisfied before the lien.

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For those of you faced with any attempt by a plaintiff to claim that the implied warranty of habitability can be extended to a design professional, relief has been afforded.   This recent order authored by The Honorable Dennis J. Burke offers some profound insight regarding such a fallible argument.

In the opinion, Judge Burke addresses the contention that an exception to the judicially created doctrine of the implied warranty of habitability can involve design professionals. The exception, briefly stated, is that the case of Minton v. Richards, 116 Ill.App.3d 852, allowed a cause of action against a subcontractor who built part of the structure once, when the builder-developer was insolvent, and that this should create an exception which would allow for a suit against design professionals when no relief can be had against a builder-developer.

The opinion obliterates the argument and correctly holds that the doctrine cannot be extended in such a manner.

Obviously, other courts may disagree with the conclusion but they are unlikely to given the unassailable reasoning.

 

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The recent case of Peregrine Financial Group, Inc. v. TradeMaven, LLC, has at least offered some guidance.

In Peregrine, both the plaintiff and the defendant had been sued in another action over a patent dispute. The initial action had been resolved by a federal court through a settlement between the parties and the plaintiff in the patent action and  a consent judgment had been entered.

The indemnity provision in the TradeMaven contract stated that it agreed to hold Peregrine harmless from any claims for “expenses and costs (including any reasonable legal fees and expenses related to [Peregrine’s] defense) arising from any claim of infringement of any trademark, service mark, trade name, copyright, or other proprietary right.” In the patent suit, the parties placed a provision in the consent judgment that each party would bear its own costs and attorneys fees. 

After the federal suit, Peregrine sent a letter to TradeMaven’s counsel requesting the $416,081.22 in attorney's fees. TradeMaven didn’t indemnify Peregrine for the fees so Peregrine filed the indemnification claim in state court for recovery of those fees. The state district court ruled that the claim was precluded by res judicata.

One of Peregrine’s arguments on appeal was that even if Peregrine could have brought its claim for indemnity in the federal suit, it didn’t need to because a previous Illinois Supreme Court Case, Guzman, held that the claim for indemnification did not accrue until after the patent dispute concluded and TradeMaven rejected Peregrine’s written demand for indemnification. 

Guzman ruled that the 13-204 statute of limitations was applicable in construction defect contract dispute for indemnification between a defendant and a third-party in a situation where the third-party suit had been brought with three counts – implied indemnity, express indemnity, and breach of contract – and the opinion was rendered without an express statement of which theory the Court was considering.

The Appellate Court in Peregrine rejected Peregrine's argument and said that Guzman involved an “implied contract of indemnity” and a third-party complaint and that the instant case involved no third-party action where both parties had been named as defendants in the federal action and that the parties had an express contract of indemnity.

Peregrine then argued that the more recent Illinois Supreme Court decision in Travelers extended Guzman to express indemnity agreements. The Appellate Court said that because the indemnity provision in Travelers contained the words “on demand” – “Payments of amounts due Surety hereunder together with legal interest shall be payable on demand” – the express terms of the indemnity agreement in Travelers implied that the indemnity action did not accrue until demand was made and therefore, the instant action was different because the indemnity provision at issue in Peregrine contained no language providing that payment was triggered by demand for payment. 

In Travelers the Supreme Court apparently determined that the fact that the Guzman did not especially state whether it was addressing the nature of the indemnity claim on a breach of contract, implied indemnity or express indemnity basis meant that Guzman did not provide enough guidance to aid in the assessment of a suit based on express contractual indemnity.

Travelers also held that implied contractual indemnity is only available in tort. Which makes it odd that the court in Peregrine could say that the claim in Guzman was about implied contractual indemnity because it was a construction defect case and not one about a tort. 

Travelers also didn’t offer guidance on whether carefully constructed indemnity provisions in regular construction contracts could serve as the basis for a claim for breach of contract premised upon the breach of an indemnity provision thereby making them claims regulated by the ten-year statute of limitations addressed in Travelers,  or whether a claim for "express contractual indemnity" was different than a breach of contract claim and in construction defect case which could be brought as a third-party action (the commercial equivalent of contribution).  In the second type of claim, the defendant is basically saying “if I’m liable to the plaintiff, it is because this third party made a mistake.”  In the latter instance, Travelers would seem to imply that the four-year 13-214 statute of limitation would apply because the claim was based on the construction defect, in the former, because the claim is actually for failure to indemnify after a demand, it would appear that this is a 13-206 matter as discussed in Travelers.

By distinguishing the Travelers case based on the demand language the Appellate Court in Peregrine has created an interesting distinction and not resolved the issue created in Travelers regarding how and under what theory a defendant should sue a third-party in a construction dispute not based on negligence such as one where the party is looking to pass-through any potential economic damages.   Another question raised by these line of cases:

• Is the claim properly one for "express contractual indemnity" because there is an indemnity provision of the contract and the third-party contract was breached, or is it a claim for breach of contract for breach of the indemnity provision or both?

We know that professionals and contractors should arguably include indemnification for “economic damages” in their indemnification provisions if they want to attempt to recover those forms of damages at a later date. Friedman, Alschuler & Sincere v. Arlington Structural Steel Co., Inc., 140 Ill.App.3d 556, 489 N.E.2d 308 (1 Dist., 1985). Friedman and a line of cases following it support the contention that the indemnity provision needs to be specific as to the type of damages the parties will be able to seek, but nothing has settled the question raised by Travelers about where and when, if the provision is drafted properly, a party, if at all, must seek this contractual indemnity and what the cause of action actually is in third-party claims for construction defect where someone is looking to pass-through the claims of another.

For now the best practice seems to be to ensure that the contractual indemnity provisions include the “on demand” language in an effort to preserve a claim and to assert both a claim for express contractual indemnity and a claim for breach of that provision as a breach of contract.

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When Senate Bill 122 was introduced, it appeared as another formality required to reissue the Illinois Architecture Practice Act and the Illinois Structural Engineering Practice Act given the current acts’ sunset provisions of January 1, 2010. The addition of certain amendments and the augmentation of provisions of the act that design professionals have come to rely on make it necessary for any practicing architect or engineer to revisit their respective acts, as passed (read the changes here) to gain a better understanding of the new standards and rules that are applicable to the professions in Illinois.

The Bill, now passed by both houses, is awaiting the signature of the governor. We address most of the changes below:

 

 

ARCHITECTS

• The new act will require that draftsmen, students, project representative and other employees of those lawfully practicing as licensed architects act under the “responsible” control of the licensed architect. The old act required that they act under the “direct supervision” and control of the licensed architect. This appears to provide a broader definition of the acceptable use of unlicensed employees than was allowed before given that “responsible” is not as descriptive as “direct supervision.”

• The new act has a provision for designating someone as “Architect, Retired” which is defined as a person who has been licensed, but chooses inactive status or not to renew the license. This may have roots in the recent events involving Mr. Netsch and should have been done sooner.

• The new act also has a designation for “Architectural intern” – an unlicensed person who has a degree and is actively participating in professional training and maintains a training record as required for licensure – the term was already included in the act but not explicitly defined.

• The new act explicitly incorporates sections of the Illinois Administrative Code regulating the profession. It defines “Design build” in accordance with §1150.85. It makes explicit the duty of an architect to adhere to the standards of professional conduct enumerated in §1150.90.

• The new act prohibits any officer, board, commission or other public entity from accepting for filing or approval any submissions that do not bear the seal and signature of a licensed architect. It is unlawful to affix the seal to any submissions if it masks the true identity of the person who actually exercised responsible control of the preparation of the work.

• The new act states that an architect who seals and signs technical submissions is not responsible for damage cause by subsequent changes to or uses of those submissions where the subsequent changes or uses, including changes or uses made by State or local governmental agencies, are not authorized or approved in writing by the architect who originally sealed and signed the submissions. This is an interesting statement and should likely be fleshed out, but it could be used to try and disclaim liability for certain actions of individuals using plans multiple times or for changes made as required by local agencies.

• The new act gives the Department of Financial and Professional Regulation the power to hire outside legal counsel to investigate claims and also allows for the use of outside prosecutors.

• The new act sets a limit of 5 years from the passage of the first examination for the successful completion of all examinations.

• The new act changes the definitions for the professional design firm registration and requires that the resident architect be “in responsible charge of” the architectural practices in the office rather than “overseeing” the practices and requires that the resident architect be designated as the managing agent of the firm.

• The new act requires that every entity registered as a professional design firm display its certificate of registration or a facsimile in a conspicuous place in each of its offices.

• The new act defines the term “address of record” and makes it the duty of the architect to keep the information updated.

• The new act adds the powers of probation or other disciplinary action to the Departments remedies and changes the recourse to individual licenses rather than to the corporations, persons, or firms as previously done.

• The new act gives the Department the power to force an architect so submit to an examination by a physician to enforce its powers of refusal, revocation or suspension without the showing of probable cause that was previously required.

• The new act mandates the denial or non-renewal of a license if the applicant defaults on an educational loan or scholarship provided by the Illinois Student Assistance Commission or other Illinois agency, if the applicant is in arrears for child support, or if the applicant hasn’t paid their taxes (the tax amendment isn’t new, but before the Department had discretion in such a determination).

• The new act increases the civil penalty for unlicensed practice to $10,000 from $5,000.

• The new act augments the Department subpoena power to include documents and records as well as people.

STRUCTURAL ENGINEERS

• The new act adds “analysis” to the “design or supervision” activities definition.

• The new act gives the Department the power to review an applicant’s qualifications to sit for an exam.

• The new act changes the enforcement of rules for revocation, suspension or refusal of licensure to be effective against individual “licensees” rather than the previous corporations, firms or partnerships.

• The new act also allows for the compulsion to examination by a physician as above and includes the same mandates for denial based on non-payment of school loans, child support and taxes.

• The new act augments the subpoena power as above.

Architects and Structural Engineers should familiarize themselves with the new requirements.

 

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It’s New Suit Friday and this week we have some new cases that just about every reader will be interested in. From attorneys looking at sample complaints and causes of action to design professionals, owners and contractors wondering what issues they might face and what could give rise to liability, this week’s spot is interesting.

In Erickson v. 2678 Orchard LLC, the plaintiff is alleging that the defendant violated several building code regulations after the plaintiff’s property became infested with rodents shortly following the beginning of excavation of the defendant’s property. The complaint also alleges that plaintiff’s tenant vacated the rental property due to the infestation and plaintiff had to reimburse pre-paid rent and incurred a revenue loss. The plaintiff seeks a permanent injunction forcing defendant to remove materials from plaintiff’s property, an end to the trespassing, correction of damages to the property and compliance with the building codes along with counts for trespass, negligence and nuisance.

In Phillips v. Savino, the plaintiffs allege that defendant, contractor, breached its contract when it failed to complete home renovations it had been paid to perform. The complaint states that the plaintiffs purchased their home and contracted with Savino for construction work, the purchase of construction materials, and services as a general contractor. The plaintiffs allege that they paid Savino for work, materials and services approximately $250,000 and that defendant did not complete and/or deficiently completed excavation of the patio, interior and exterior calking, roof flashing, floor resanding, driveway damage and siding work they also seek damages for work performed to fix work that defendant performed, and other out-of-pocket expenses they were asked to pay by the defendant during the term of the job.

In K-Mart Corp. v. Menard, Inc., a sublessor is suing a sublessee for damages which allegedly incurred during the sublessee’s 18 year tenancy in a building in Hanover Park. The complaint seeks damages for monies K-Mart says it had to/ or will have to expend to replace a parking lot a drainage system, a building roof, exposed wiring and many other problems that it claims the sublessee had a duty to maintain and keep in good repair under the lease.

In McWalters v. Lee and GLP, Inc., a partner in a design firm is suing another partner alleging that the partner and the company have damaged him by breaching their shareholder agreement which required that his shares be purchased back at a price described in a specific formula, that the defendant partner breached fiduciary duties to both the plaintiff partner and the company and the because of the breach, the shares are worth less than what they would be worth had the breach not occurred, and that the plaintiff partner was fraudulently induced into purchasing his shares of the company based on the defendant’s false representations that the shares would be redeemed at the price derived through the specified formula. As a shareholder, the plaintiff partner also asserts causes of action against the defendant partner on behalf of the company. The allegations include claims that the defendant partner used company money for personal travel and renovation of his private residences, to pay himself an undeserved salary, to start up a publishing company, and offered a rent-free sublet to a friend.

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Approximately one month after the Third District Appellate Court in Majetich v. P.T. Ferro Construction Company explained that circumstantial evidence alone cannot establish proximate causation where more than one conclusion can be drawn from the circumstances (see “When is circumstantial evidence sufficient to create a question of fact as to proximate cause?”), the First District Appellate Court in Strutz v. Vicere also affirmed entry of summary judgment in favor of defendants where direct evidence of the cause of injury was lacking.

In Strutz, Henriette Strutz filed a negligence action against Christine and Christopher Vicere for the wrongful death of her husband, Russell Strutz. Russell and Henriette had lived in a two-flat owned by the Viceres when Russell fell down the indoor common stairway at their apartment. As a result of the fall, Russell sustained multiple cervical spine fractures, and he died 23 days later. 

There were no witnesses to the accident. Rather, on the morning of March 6, 2005, Henriette found Russell at the bottom of the stairs. At that time, Russell told Henriette, “I fell down over the railing.” When paramedics arrived, Russell stated that he was walking backwards while taking out the garbage when he slipped and fell. 

The paramedics transported Russell to Advocate Lutheran Hosptial. Shortly after his admission to the hospital, Russell’s condition deteriorated, and he lost the ability to speak, became paralyzed and later died on March 29, 2005. 

In the wrongful death suit, Plaintiff claimed that the Viceres failed to maintain the stairs and railing in a reasonably safe condition. Plaintiff further alleged that the staircase and railing violated the Chicago building code. Defendants moved for summary judgment arguing that the element of proximate cause could not be sustained by Plaintiff. The trial court granted the motion and Plaintiff appealed.

On appeal, Plaintiff argued that a jury could reasonably conclude that Russell’s fall was caused by the alleged defects in the stairs. In support of this argument, Plaintiff offered the testimony of an architect expert. The architect testified that the staircase violated the City of Chicago Building Code and was dangerous due to small treads, inadequate and uneven riser heights and tread widths and inadequate lighting. The architect also testified that the staircase was dangerous because there was no handrail on the wall side of the stairs, the height of the handrail on the opposite side was too low, and the staircase was excessively steep. Further, Plaintiff cited Christopher Vicere who testified that he repaired a loose newel post at the railing after Russell’s fall. Plaintiff maintained that evidence of these defects in conjunction with Russell’s statement that he “fell down over the railing” constituted direct evidence of a causal connection between the condition of the staircase and the accident. In the very least, Plaintiff argued that this evidence was sufficient to create a question of fact as to what caused Russell’s fall. 

Moreover, Plaintiff presented evidence of Russell’s careful habits in arguing that a presumption that Russell was exercising due care at the time of his fall precludes entry of summary judgment.

The Appellate Court held that there was no evidence addressing the issue of proximate cause. Strutz v. Vicere No. 1-07-2564, p. 6 (April 29, 2009). Rather, the evidence simply established defects in the premises. “Violations of an ordinance or a failure to comply with the building code, by themselves without evidence that the violation caused the injury, do not establish proximate cause.” Id. Evidence of the defendants’ negligence is insufficient to establish the cause of the alleged injuries. Id. Such evidence only establishes the possibility that the alleged conduct caused the slip and fall. Id. Further, the court stated that evidence of careful habits has no bearing on the issue of evidentiary support for the element of proximate cause. Id. at 7. 

The fact that an accident occurred in the presence of building code violations and/or defects in the premises, without more, is not sufficient to create a question of fact as to proximate cause.  Evidence that a defendant’s conduct was a possible cause will not suffice. Rather, the Illinois Appellate Courts have made it clear that some affirmative proof of causation must be established to sustain a claim of negligence.

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There are a few interesting cases for today.

In what is sure to be a case you’ll want to follow… the complaint in Weatherguard Construction Company, Inc. et al. v. John Does 1-18 is brought by construction companies against posters to a comment section on the website Topix.com for allegedly defamatory remarks and postings about the companies. The complaint includes the comments as well as the IP addresses of many of the posters. In a count for interference with a prospective business relationship, the complaint sets out other comments from the thread which allegedly show people indicating they would not be using the services of the companies after reading the website. The Cook County Clerk of Court’s website lists another case between Weatherguard and Topix.

This complaint in Burns v. GFGR, Inc. et al, alleges breach of contract, professional negligence, consumer fraud and conspiracy arising out of a transaction for the purchase of property. The plaintiffs, real estate investors, are suing, among others, an engineering firm and a real estate agent after they had to pay money to repair a building they bought that had allegedly been inspected at plaintiffs’ request by the engineering firm and found “structurally sound.” Plaintiffs claim they relied on the report prepared by the engineers when they agreed to purchase the building and later were cited by the City of Chicago for code violations including “an unstable West wall structure, rotting columns, beams and insufficient structural support of the rear porch and a front balcony lacking sufficient structural support.” The docket is here. The breach of contract claim seeks damages that include reimbursement for the “lost market opportunity in that Plaintiffs was [sic] unable to take advantage of selling 1619 West Carmen in a favorable real estate market due to delays caused by remediation of the material structural deficiencies mandated by the City of Chicago.”

The complaint in American Builders and Contractors Supply Co., Inc. v. Singles Roofing Company, et al, is brought by a supply company that was charged a $132,752.99 restocking fee by a third-party vendor when a roofing company allegedly cancelled its order. The supply company received a refund, but the restocking fee was a cost they apparently had to pay. The complaint contains counts for fraud, breach of contract and detrimental reliance.

Alleged construction defects led to the complaint in Sundararaj v. Kot. Plaintiffs claim they hired the defendant to build them a $930,000 house in accordance with “certain plans and specifications” and closed on the home in October of 2005. In 2006 and 2007 some leaks were noticed and the leaks were taken care of, in 2008 the plaintiffs noticed “a musty smell in multiple rooms” and had the property evaluated, the result of the evaluation: an allegation of “serious problems” with the construction of the property and are listed in the complaint at paragraph 15. They include the lack of a vapor barrier behind the drywall for the exterior walls, lack of proper flashing at parts of the roof, elevated mold levels and top floor bedrooms with a +20% moisture reading using a TRAMEX moisture meter. The complaint is for breach of contract.

The complaint in Studio D Architecture LLC v. Maresso et al alleges that a former employee of the architecture firm set up a competing company before he ceased working for the plaintiff. Plaintiff claims that the defendant misappropriated proprietary information including computer files, created false files on the plaintiff’s computer system and disabled their website. The trade secret count alleges that several other defendants used the proprietary information and that they knew it was proprietary since the defendant was not an architect.

 

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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.

Shift of Focus in ADA Cases
Through the ADAAA, Congress has conveyed its intent that the primary object of attention in cases brought under the ADA should be whether covered entities have complied with their obligations and that the question of whether an individual’s impairment qualifies as a disability under the ADA should not demand extensive analysis.  There is no denying that the ADAAA has expanded the number of individuals who may be entitled to protection under the ADA. At the very least, the ADAAA has made it easier for employees to state a claim under the ADA and, at the same time, the ADAAA has seemed to make it more difficult for employers to defend against such claims. At this time, the ultimate impact of the ADAAA is difficult to determine. Adding to the uncertainty is the fact that the EEOC has yet to promulgate any regulations interpreting the ADAAA’s provisions. Moreover, until the ADAAA is tested in court, it is virtually impossible to predict the precise standard to which employers will be held in the future.

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In Dorris v. Baxter & Woodman, the plaintiff, Leon Dorris, filed a lawsuit seeking damages for personal injuries sustained when he fell from a metal-grated walkway (air  bridge) that collapsed while he was working on the renovation of a wastewater treatment  plant owned by the City of Woodstock. In his lawsuit, Plaintiff named Baxter & Woodman, Inc. (“Baxter & Woodman”), Joseph J. Henderson & Son, Inc. (“Henderson”)  and Enviroquip, Inc. (“Enviroquip”) as defendants claiming the negligence of each entity proximately caused his injuries. Baxter & Woodman, an engineering firm, was retained by the City of Woodstock to provide engineering services and serve as the City’s representative on the construction project. Henderson was the general contractor for the project and Enviroquip was the manufacturer of the air bridge[1]. Plaintiff worked for Fischer Mechanical Group (“Fischer”),  the plumbing subcontractor on the project. 

As part of the construction project, Henderson erected/constructed a metal-grated platform as part of an air bridge that was to provide access to the center of a digester (large concrete tank used to treat wastewater). Two weeks after Henderson had installed the metal- grated platform, Plaintiff was walking on the platform when a portion of the metal grating collapsed causing him to fall into the digester. At the time of the accident, the metal grating was not secured with banding at the edges or with attachment clips at the ends as specified in the manufacturer’s installation instructions. The specification for the metal grating, included in the construction documents, required that the edges of the grating be secured with banding bars and that the metal grating be installed in accordance with the manufacturer’s installation instructions and approved shop drawings. The manufacturer’s instructions, which stated that the  grating should be banded at the edges and secured with at least four attachment clips at each end, were contained in a shop drawing approved by Baxter & Woodman and included as a  specification in the construction documents. 

The duties and responsibilities of Baxter & Woodman were defined in the contract documents. Specifically, Baxter & Woodman contractually agreed to act as the City’s on-site  project representative during the construction. Baxter & Woodman agreed to enforce the plans, drawings, and specifications and to “provide full and complete construction supervision  services.” The construction supervision services included “daily inspection” to ensure that all work was performed “in conformity with the Contract Documents.” Baxter & Woodman was further required to review and approve shop drawings, manufacturer’s literature and other submittals for compliance with the drawings and specifications. Significantly, this review and approval included the means and methods of construction that were “specifically and expressly called for by the Contract Documents.” Further, Baxter & Woodman had the authority to reject work that did not conform to the contract documents. 

Baxter & Woodman’s contract obligated it to provide a resident project representative to  observe the work in progress and assist the engineer in determining if the work is “proceeding in  accordance with the Contract Documents.” The resident project representative was required to report any work that “does not conform to the Contract Documents.” Per it contract, Baxter & Woodman had the authority to direct or assume control over “any aspect of the means, methods, techniques, sequences or procedures of construction [where] such advice or directions are specifically required by the Contract Documents.” 

Prior to trial, Baxter & Woodman was granted summary judgment as the court determined that it did not owe a duty to Plaintiff.  This decision was based on the court’s belief  that any duty Baxter & Woodman had to inspect the air bridge for compliance with the plans and specifications had not arisen as of the time of Plaintiff’s accident since the construction of the air bridge was not complete when Plaintiff fell. However, the trial court later reversed itself based on the fact that Baxter & Woodman’s contract did not require it to inspect the construction for compliance with the plans and specifications only after the work was complete. There was also deposition testimony indicating that Baxter & Woodman’s resident project representative had the authority to inspect the work whenever he chose. Further, it was Baxter & Woodman’s job to make sure that the work was performed in accordance with the plans and specifications and the construction documents expressly provided that the metal grating for the air bridge be banded and clipped before the platform was assembled over the digester. As such, the trial court reinstated the case against Baxter & Woodman. 

At trial, Baxter & Woodman’s resident project representative, Kevin Hinderliter, testified that he inspected ongoing work for defective materials and to enforce the contract specifications throughout the course of the project. Mr. Hinderliter acknowledged that he had at times discovered work that did not meet the specifications, and in those instances, he directly advised the contractor of the variance so the defect could be corrected. Mr. Hinderliter testified that, at time, he specifically insisted that certain work be redone in a manner that complied with the specifications. Additionally, Mr. Hinderliter discussed safety issues at Baxter & Woodman’s progress meetings and dealt with safety concerns. Furthermore, Mr. Hinderliter testified that on the day of Plaintiff’s accident, he knew that the grating did not have the banding along the edges or the attachment clips at the ends as required by the specifications.

At the close of the evidence, the jury found that Baxter & Woodman was 70% liable for Plaintiff’s injuries and returned a verdict of $11 million in favor of Plaintiff. Judgment of $3,675,000 was entered against Baxter & Woodman after the set off from the Henderson/Enviroquip settlement.

Baxter & Woodman appealed claiming, in part, that it owed no duty to Plaintiff.

The First District Appellate Court held that Baxter & Woodman had a duty to exercise its supervisory authority to ensure that the air bridge’s metal grating was secured by banding bars and attachment clips. Dorris v. Baxter & Woodman, No. 1-07-3126, p. 13 (December 2, 2008). In its reasoning, the Court cited various portions of Baxter & Woodman’s contract which obligated it to enforce the specifications, including the means and methods of the work that were expressly provided for by the contract documents, and provided authority to reject work that did not conform to the plans. Id. As such, the Court stated that Baxter & Woodman clearly and specifically agreed to this duty by the terms of its contract. Id. Further, the Court concluded that the contract documents required Baxter & Woodman to inspect the work for compliance with the specifications on an ongoing basis and to reject work that did not comply with the construction document. Id. at 14. Accordingly, the Court cited Putman v. Village of Bensenville, 337 Ill. App. 3d 197, 208, 786 N.E.2d 203 (2^nd Dist. 2003) in stating that a claim of negligence may be based upon the failure to perform an act required by contract. In such circumstances where the duty of care arises out of a contract, the scope of such duty is defined by the terms of the contract. Putman, 377 Ill. App. 3d at 208-09; see also Ferentchak v. Village of Frankfort, 105 Ill.2d 474, 482, 475 N.E.2d 822 (1985). 

In Illinois, a design professional has a duty to protect a subcontractor’s employee from injury on a construction site where the design professional undertakes significant supervisory responsibilities or agrees to ensure that the work is performed in accordance with the contract documents. Dorris v. Baxter & Woodman, No. 1-07-3126, pp. 12-13 (December 2, 2008); see also Miller v. DeWitt, 37 Ill.2d 273, 284-85, 226 N.E.2d 630 (1967). 

This duty will not be charge of a design professional where the contract provides that the design professional (1) has no supervisory responsibility, (2) has no control of or responsibility for the means, methods, techniques, procedures or sequences of construction, (3) has no responsibility for the failure of any contractor to perform the work in accordance with the contract documents, and (4) has no responsibility to devise, implement or enforce any safety precautions or programs for the project. Dorris v. Baxter & Woodman, No. 1-07-3126, pp. 12-13 (December 2, 2008); see also Putman, 337 Ill. App. 3d at 208-09; Ferentchak, 105 Ill.2d at 480-81, 475 N.E.2d 822 (1985).

Some pointers:

• In order to avoid claims and the liabilities as incurred by Baxter & Woodman, it is very important for design professionals to take certain precautions in drafting their contract. A design professional’s contract should explicitly detail the scope of services it is providing. The contract should unambiguously state that the design professional (1) has no supervisory responsibility, (2) has no control of or responsibility for the means, methods, techniques, procedures or sequences of construction, (3) has no responsibility for the failure of any contractor to perform the work in accordance with the contract documents, and (4) has no responsibility to devise, implement or enforce any safety precautions or programs for the project. As part of a design professional’s construction administration services, the designer often reviews the general progress of the work and may certify that work was performed in accordance with the contract documents. However, if this service is to be included in the design professional’s scope of services, the contract should explicitly state that the designer is not required to make an exhaustive or continuous inspections of the work and that the designer is not required to ensure proper construction methods or safety precautions or to see that construction documents are followed. Rather, the design professional may provide opinions or recommendations to the owner, which the owner need not necessarily follow. 
• Additionally, it is equally important for design professionals to strictly adhere to their contract and not assume any additional duties by their conduct. The design professional should also avoid maintaining a continuous on-site presence so as to avoid any inference that it is supervising the construction or in control of the premises. Further, the design professional should avoid holding or attending jobsite safety meetings or inspections so as to avoid any inference of control or supervision over safety. If the design professional becomes aware of a variance from the construction documents or any potential safety hazard, the designer should report the issue to the owner and qualify its report as an opinion or suggestion for consideration by the owner. The designer should not directly stop any contractor’s work or issue any directive based on the construction work. Again, reporting opinions for consideration to the owner with a qualifier (i.e. this report is only the opinion of the designer and does not constitute a directive of action or in any way modify the designer’s responsibilities or duties under its contract) is the most prudent course of action. 

Following these recommendations does not guarantee that the design professional will not be sued or even found liable; however, these tips are provided to help reduce the risk of exposure associated with design professionals’ services.

 

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A good document retention policy is a must and tailoring it to anyone involved in Illinois’ construction industry is an important part of its creation. With the advent of electronic discovery we all need to be aware of just how much we’re deleting when we erase files. In a fun article over at Law.com, Craig Ball has challenged the Gutmann method (that you need to overwrite your hard drive 35 times to completely erase data). The reality will be fascinating to those of you interested in making sure erased files stay erased.

In a suit filed in Cook County, the developer of the Palmolive Building (seen below) has sued its architecture firm for money that it may be forced to pay in arbitration with Pepper Construction in an arbitration action brought by Pepper against the developer. A copy of the complaint is here.

For those of you wondering why those forum selection clauses are so important, given that Illinois law mandates that construction contracts for project in Illinois be litigated in Illinois under Illinois law… Here’s a complaint filed by FC Stone against former clients who brought a suit in California despite a forum selection clause in their contracts. The suit is for the monies FC Stone had to expend to enforce the forum selection clause in the California court. Paying attention to both the Illinois law and the forum selection clause in contracts can help avoid such a challenge.

The Hartford is suing Grace Electrical Construction for close to $1.8 million that it had to pay out on bonds because Grace allegedly failed to perform. Under the Illinois Public Construction Bond Act (30 ILCS 550) Grace was required to obtain the bonds, but Hartford alleges that it has received more than $2.5 million in claims on the bonds that Grace was responsible for and has paid out the $1.8 million to settle those claims. The complaint can be found here.

 

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With the economy in tatters and so many people losing their jobs and looking for work it’s refreshing to hear about people taking charge of their destiny and succeeding. NPR ran a story on Morning Edition this morning about John Morefield (find it here). Morefield is a Seattle Architect who has been the topic of other blogs recently. (The picture at the left is from the Kelsey Keith article at Flavorwire.)

After being laid off from two separate jobs in one year as projects for the firms he worked for went away, Morefield took to offering advice with a booth at a local farmer’s market with a sign that read “Architecture 5¢”. The task wasn’t a gimmick, it was an honest way to try an develop a business and clientele in a market that has turned sour… and its working.

Morefield’s website “architecture5cents.com” is taking off and the booth has generated numerous contacts and business as homeowners walk by and drop a nickel in his can for some free advice about their building and architecture concerns.

The target audience is the individual homeowner, but good advice and a good idea can lead to a host of possibilities. It’s even been adopted to a certain fashion by lawyers in both print and … blogs.

While we’re generally prohibited from offering specific advice to people by ethical rules and codes of conduct, legal blogs and information sources offer a host of targeted answers and commentary on topics that are relevant to everyone… especially in the construction industry.

Even more poignant is the ability to help out in a tough economy. Every nickel from Morefield’s virtual website is donated to the Ballard Food Bank.

With so much talk about a stimulus package and infrastructure dollars headed our way, its easy to lose sight of the traditional word-of-mouth methods for marketing and face-to-face discussions that can help build a business. But there is no substitute for human interaction.  

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It’s a good feeling when we’re able to show you just how important following through on protecting your rights can be… not to mention the smug satisfaction of being able to say we told you so. 

Warren Freedenfeld Associates, Inc. v. McTigue D.V.M., which the South Carolina Construction Law Blog has posted on, is a case that should have design professionals thinking twice about doing anything with the ownership of their creations other than granting a limited license to an owner.

The architect was retained by a client and drafted plans for a veterinary clinic. The parties executed and AIA standard form agreement, likely the B151-1997 because the opinion references an Article 6 that deems the architect the author of the plans and drawings and this all took place in 1998.

The relationship went south over disputes about payment and budgeting. The architect sent the vet a letter warning that all the plans they had produced were proprietary and that no one could use them to complete the project and demanded return of the plans. The vet responded that the plans were useless and that they had been “rolled up and discarded.”

Shortly thereafter, the architect took the step securing a copyright over the plans by filing an application with the United States Copyright Office.

In September of 1999 the parties formally terminated their disputes over payment with a written Termination Agreement and the agreement stipulated that Article 6 remained in full force and effect. The agreement also said that neither the vet nor his proposed hospital would use any of the work solely produced by the architect.

The vet hired a different architect to complete the hospital and in June of 2000, the veterinary hospital opened for business.

In 2004, the architect came across an article in Veterinary Economics featuring a drawing of the floor plan of the veterinary hospital at issue… and that the design had won a merit award. The architect went to city hall and got a copy of the building plans and concluded that his copyright had been violated.

In September of 2005, the architect filed suit in federal court against the hospital, the vet and several other parties alleging copyright infringement and other violations.

The defendants moved to dismiss based on the three-year statute of limitations contained in the copyright act. The district court granted the motion to dismiss ruling that any reasonably diligent person would have learned of the copyright infringement when the hospital opened, so the copyright claim’s three-year statute of limitations ran from that date in June of 2000. The architect appealed.

The appellate court analyzed the lower court’s determination about when a reasonable person would have been aware of the infringement and found that the availability of the plans on file and the fact that the hospital was open for a time did not amount to notice that would start the limitations clock:

“Architects have no general, free-standing duty to comb through public records or to visit project sites in order to police their copyrights.”

The court held that the record in front of them did not compel a finding that the architect had not been vigilant or that the architect had been on notice since 2000 and reversed the dismissal of the copyright claim.

The architect now has the ability to prosecute his copyright claim and if he prevails, he may ask for his attorney's fees as well. For the small cost of filing the copyright he gained this added protection… not to mention, since he retained the rights to the plans, he had the ability to request them when something went south on the project… in Illinois, if one adds these remedies to the contractor prompt payment act and the mechanics lien act - a design professional’s ability to obtain payment is drastically strengthened.

 

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We know that client satisfaction has to be a priority on anyone’s list. Just imagine the number of projects you’ve been included on or gotten thanks to one happy customer recommending you to another.

But we need to be careful in how far we’re willing to go to satisfy a client because those measures could create liability we didn’t have before and could erase protections we contracted for.

Take the case of Senior Housing, Inc. v. Nakawatase. Nakawatase was the architect on a project to build a multiunit residential building for the elderly. The contract for this project included the AIA standard form language stating:

“8.2 As between the parties to this Agreement: as to all acts or failures to act by either party to this Agreement, any applicable statute of limitation shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than the relevant Date of Substantial Completion of the Work, and as to any acts or failures to act occurring after the relevant Date of Substantial Completion, not later than the date of issuance of the final Certificate for Payment.”

The project was substantially completed on September 1, 1983. In 1984, the building owners found moisture problems leading to water and air leaks every time it rained or the wind blew.

Rather than telling the owner that this was not a design issue and that the owner should contact the contractor directly, Nakawatase conducted an on-site inspection and sent a letter to the owner advising that the contractor had been instructed to re-caulk the windows and that the building would be watched to determine if the re-caulking fixed the problem. In 1985 the owner told Nakawatase that the problem had not been fixed. Nakawatase was asked, and did, prepare bids for the application of a water repellant sealer to the entire building.

We don’t know if that work was ever done, but in 1986, with the problems persisting, the owner hired an independent engineer to inspect the building and find out what was wrong. The engineer concluded that the drawings had a flashing design that didn’t properly allow water drainage. The owner had the problems corrected and sent a demand for payment to Nakawatase in September of 1986. Nakawatase never responded to the demand and in March of 1987, the owner sued Nakawatase.

An important thing to remember at this point is that back then, the applicable statute of limitations was two years.

Nakawatase convinced the trial court that Section 8.2 (which the parties contracted for) was applicable and that since the suit was filed over two years from September 1, 1983, the court should dismiss the matter. Senior Homes appealed.

The appellate court held that Nakawatase could not use the statute of limitations as a defense because it did not deny responsibility for the moisture problems, because it instructed the contractor on the course of action to take in correcting the damages, and acted in apparent acknowledgment of its responsibility by making representations that remedial measures would be taken, observed, and further corrected if necessary.

We know there’s a desire to keep the customer satisfied. We need to balance that desire with its ramifications for post-project remedial work and communications when problems arise. We can end up creating new problems and accepting new liabilities depending on the actions we take when we attempt to investigate or correct a potential defect. You wouldn’t attempt a marathon without warming up, so why would you try to handle a potential conflict without first understanding what your rights and liabilities might be.

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

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

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

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

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

“(a) Actions based upon tort, contract or otherwise against any person for an act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property shall be commenced within 4 years from the time the person bringing an action, or his or her privity, knew or should reasonably have known of such act or omission. Notwithstanding any other provision of law, contract actions against a surety on a payment or performance bond shall be commenced, if at all, within the same time limitation applicable to the bond principal.”

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

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

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

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

The full opinion can be found here.

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

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

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

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

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

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

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

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

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

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

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

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The law provides creators a myriad of opportunities for protecting themselves and their innovations.  We’ve written before and kept our readers abreast of the opportunities to copyright work and the steps the U.S. Copyright Office is taking to ensure an easy process for engineers, architects, and other design professionals to protect their rights.  Having a registered copyright on your design opens the door to protections under the federal copyright act which ads another option that you and your attorney have in case someone uses your design without permission.

We realize that harping on this matter likely won’t convince you that it is in your best interest, which is why we are happy to be able to provide you with proof that it may become necessary.

This recent complaint, filed on October 24, details an interesting scenario.  The plaintiff is an architect who designed a single family home in connection with a sub-division development in the Chicago suburbs.  The general contractor allegedly then took those plans and used them on a house in a different subdivision without the plaintiff’s approval.  The plaintiff brought a cause of action for statutory damages against those believed to be infringing his copyright and has requested an injunction from the court to stop the practice.

The lesson is especially important for those drafting plans for use on projects that could easily be turned around and built somewhere else such as single-family homes and smaller condominium projects.  With the minimal fee for filing and obtaining copyright, it makes sense to pay the fee and get this added protection.

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As we wrote about before, the new AIA BIM and IPD documents have now been released and are available for download.  The new documents are:

• E202-2008 - A New Building Information Modeling (BIM) Protocol Exhibit
• C196 and C197 – 2008 - Two New Integrated Project Delivery (IPD) Agreements
• A441 and C441 – 2008 - Two Additional Design-Build (DB) Agreements
• B207 – 2008 - An On-Site Project Representation.

The documents are available at the AIA website.  They will be of interest to anyone participating in BIM projects and looking for a comparison or alternative to the ConsensusDocs BIM forms.

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Larger projects tend to offer better protections to contractors and owners through the issuance of sureties and bonds and the design professional is often left with the court system as the sole remedy for recouping payment either through an action for breach of contract, or to foreclose on a lien.  Smaller projects offer similar pitfalls for design professionals… and depending on the amounts owed, recouping the money can seem daunting.

 

In situations where the fee is a fraction of the total project cost, consider the personal guarantee.  It’s an additional agreement signed by an individual, not an LLC or a Corporation obligating the person to the debt owed.   

A recent case from the Northern District, Kawasaki Motors, deals with these types of guarantees (albeit in a motor vehicle financing setting) and is illustrative of the shorter method recoupment on the guarantee can take.

 

In Kawasaki, two individuals had signed personal guarantees for the debts of a corporation that had contracted with the plaintiff.  The corporation defaulted on its obligations and ended up owing roughly $76,000 to the plaintiff.  The plaintiff had a judgment against the corporation and then sought the money from the guarantors that had signed agreements with the plaintiff guaranteeing the debts of the corporation.  The defendants failed to contest the validity of the guaranties and the court ruled in favor of the plaintiffs on summary judgment finding that no issues of fact existed for trial where the contract for they guaranties was not contested and the defendants failed to put forward any reason to contest the amount claimed by the plaintiff.

 

Someone financing a project should be able to personally guaranty the 7% to 10% fee that the design professional will earn… especially on smaller commercial projects or residential ones.  Given that the design professional usually will have completed the majority of its work before financing problems arise, an extra guaranty for those taking such a risk is a welcomed safety net.

 

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    A surety issues performance bonds to a contractor.  A third-party signs an indemnification agreement with the surety, agreeing to indemnify the surety for the payments made on the bonds.  The contractor breaches its contract for construction services and the surety pays out on the bonds.  The payments were made between 1994 and 1996.  The  surety demands payment, the third-party refuses and in 2004, the surety sues for breach of contract stating that the third-party has breached the indemnity agreement.

    That’s the start of the situation in Travelers Casualty & Surety Company v. James Bowman et al. (Ill. Sup. Ct. 2008, Doc. No. 103759).  The trial court dismissed the action of the surety, Travelers, finding that section 13-214(a) which applies a four-year statute of limitations to certain construction actions applied.  Travelers appealed and the appellate court held that the section 13-206 10 year statute of limitations applied to the action.

    For those interested, section 13-214(a) and 13-206 read in relevant part as follows and are important to anyone contracting in the construction setting as they are the statutes of limitations usually found applicable to actions arising from disputes over construction agreements:

• 13-214(a)

“Actions based upon tort, contract or otherwise against any person for an act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property shall be commenced within 4 years from the time the person bringing an action, or his or her privity, knew or should reasonably have known of such act or omission. Notwithstanding any other provision of law, contract actions against a surety on a payment or performance bond shall be commenced, if at all, within the same time limitation applicable to the bond principal.”

• 13-206

“[A]ctions on bonds, promissory notes, bills of exchange, written leases, written contracts, or other evidences of indebtedness in writing … shall be commenced within 10 years next after the cause of action accrued…”

    Travelers asserted in the Supreme Court that the appellate court was right and that a 10 year statute of limitations was correct since they had brought a claim for breach of contract based on the indemnity agreement with the third-party.  The third-party claimed that either the four-year statute of limitations applied, or that an even shorter two-year statute of limitations for contribution and indemnity expressed under section 13-204 applied.

     The Supreme Court agreed with Travelers.  The court noted that it is the nature of the liability to which a person is subject and not the nature of the relief sought by a party is the test for determining the character of a cause of action.  In other words no matter what an attorney might call an action, it is the underlying nature of the action and the facts of the dispute that will determine what kind of action it is.

    Here, although construction omissions had led to the payment by Travelers on the bonds, the payment on the bonds triggered obligations under the separate indemnity agreements with the third-parties and when the third-party refused to pay under the indemnity agreements, Travelers had a cause of action against them for breach of contract.

    With regard to the second theory of a two-year statute of limitations, the Supreme Court held that the third-party was incorrect in claiming that any of its cases had ever held that a two year statute of limitations would ever apply to actions based on written indemnification agreements.  The court stated that the claims of indemnity and contribution addressed under the section 13-204 addressed “cases involving the allocation of damages in connection with an underlying tort claim for injury to person or property.”  It went on to state that such a claim based on indemnity was only for “implied indemnity” (where the law offers indemnity) not for the express indemnity (where the indemnity claim is based on an agreement providing that one party will indemnify the other). 

“In sum, section 13–204 is applicable to claims for implied indemnity involving allocation of damages in connection with an underlying tort claim for injury to person or property, regardless of whether subsection (a) or (b) is at issue. Section 13–204 is not applicable to claims for express indemnification based on a written contract. Because the claim at issue is based on a breach of express indemnification provisions in a written agreement, it is subject to the10-year limitations period in section 13–206.”  Slip. Op. at 12.

The court then held that the 10 year statute of limitation applied to the indemnity agreement.

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In this case, the plaintiff, M&K Chemical Engineering Consultants, Inc., an engineering firm from Illinois bid a project to perform design work to replace a cooling system for a chemical reactor in St. Louis, Missouri.  Before submitting the bid, the plaintiff asked the defendants, Malinckrodt, Inc., and TYCO Healthcare Retail Group, a series of questions about the project.  After getting the answers back, the plaintiff submitted a bid, based, in part, on the answers that the defendants had given, of $99,500.

The defendants accepted the bid and sent plaintiff an email containing a six-pages of the first sides of a double-sided purchase order, a second email containing the second sides of the pages, and mailed a copy of the purchase order to the plaintiff as well.  The purchase orders second side contained a forum selection clause stating that the laws of the State of Missouri would apply to any disputes and the Missouri Courts would have exclusive jurisdiction over any action arising out of the contract.  The purchase order, and subsequent purchase orders for changes the plaintiff wished to make on the project all contained the forum selection clause and a clause indicating that the initiation of performance under the purchase orders constituted acceptance of the terms of the orders.  The plaintiff's president asserted that he never read the second side of the purchase orders in either the email or the mailed copy.

The requirements of the project did not turn out as the plaintiff expected and the plaintiff sued the defendant in federal court in the Southern District of Illinois alleging that the answers the defendants had provided to the plaintiff's original questions (prior to the bid) were false and misleading, and requested a rescission of the contract, and restitution from the defendants for the $162,004 that it went over budget on the project.

The defendants requested that the complaint be dismissed pursuant to the forum selection clause contained in the purchase orders, and the plaintiff argued that the clause could not be part of the contract between the parties because the plaintiff was unaware of the clause when it commenced and performed work under the purchase orders and requested a jury trial on the issue of whether the terms of the contract between the parties included the forum selection clause.

The court held that the clause was part of the contract.  Citing several of the cases we have blogged about before, the court held that performance under the purchase order constituted acceptance of its terms regardless of a parties reading or negotiation of those terms.  We have seen this issue come out both ways for plaintiffs and defendants in the past and it is hard to divine from the courts a standard rule for when terms of an non-negotiated and unread contract will be held to apply and when they will not.  Suffice it to say that apart from the uneven bargaining positions of a consumer and a corporation, it is likely that ignorance of the terms of a contract will not preclude enforcing its terms.

The court also found that the plaintiffs claims of fraudulent inducement to the contract (for defendants answers to the pre-bid questions) would not operate to invalidate the forum selection clause.

The court took special care to note that the likely reason there was such a fight over the issue of venue and applicable was the plaintiff's status as a licensed engineer in Missouri where the project was located.  With only Illinois licensure, Missouri law, the court pointed out, can be more unforgiving toward an engineer than Illinois law.

The Court's original order can be found here.  The first judgment dismissed this matter with prejudice and the court subsequently modified that decision and dismissed the matter without prejudice.

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These are all a bit too short for full entries, but they are important.

The deadline on HB 2094 (The Structural Work Act) has been extended to May 31.

A bill relating to the Notary Public Act, that would lessen fraudulent transfers in Cook County by requiring the thumbprints of grantors as well as sufficient descriptions of those transferring property has been amended.  The bill had been sitting in the judiciary committee since December but has been revitalized.  Important to those concerned about records keeping - the bill requires new records under the amendment to be kept for seven years by title companies and attorneys.

Mostly Memories, Inc. v. For Your Ease Only, Inc. (7th Circ. Doc. No. 06-3560)
The Seventh Circuit has reversed a denial of attorney's fees under the prevailing party statute contained in 17 USC 505.  The plaintiff had dismissed its own case as baseless and the district court had denied the defendant's motion for fees under the act.  The appellate court found that fees were proper and that under the circumstances, a dismissal with prejudice did entitle the defendant's to attorney's fees.  For those concerned about their copyright in designs, this is a boon and another reason to follow through on protecting your work through proper registration.  The opinion is here.

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We had been reporting and continue to report on HB 2094 which would bring the Structural Work Act back into existence.  We had also reported on the original act from 1907 which demonstrated that little work had been performed to update an act to adapt to today's methods of construction and actually provide for worker safety.

Another amendment was introduced to the bill on April 29 which is being held up (the final action deadline for tomorrow has not yet been extended).  The amendment deletes the previous section 8 and adds this:

"Section 11. Illinois licensed design professionals. Notwithstanding the provisions of Section 9 of this Act, no right of action shall accrue under this act against an Illinois licensed design professional who does not have any responsibility for work-site safety and whose involvement, role, and activity is solely and exclusively limited to  architectural, engineering, or land surveying services. For purposes of this Section, "Illinois licensed design  professional" means a person or entity who, at the time the  services in question were performed, was registered as an  Illinois Professional Design Firm or held an active license as an architect under the Illinois Architecture Practice Act of  1989, a structural engineer under the Structural Engineering  Practice Act of 1989, a professional engineer under the  Professional Engineering Practice Act of 1989, or a land  surveyor under the Illinois Professional Land Surveyor Act of 1989."

The proposed amendment would take out the section that had previously required the design professional to comply with the statute.  It leaves in section 9, which gives a private right of action to anyone injured for "direct damages."  We'll have to wait and see if it is adopted, but this is certainly a boon for the design professional community. 

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In McGrath, et al. v. American Family Mutual Ins. Co. (N.D. IL, 07 C 1519) the court has delivered some poignant remarks concerning both the standard under Daubert for expert engineer testimony as well as provided some issues to think about regarding the "latent defect" and "construction design defect" exclusions issued under all-risk insurance policies.

The plaintiffs submitted a claim to their insurance company for water damage inside their home.  The insurance company denied coverage based on two exclusions in the policy, one for construction or design defects and one for latent or inherent defects.  The plaintiffs sued, and the insurance company hired an engineer to provide an opinion regarding the cause of the water damage.  Motions for summary judgment and for judgment under Federal Rule 56(d) limiting the issue of liability were cross-filed.

The engineer had found that external water or moisture from humidity, ice, snow and rain had penetrated the exterior brick walls of the plaintiffs' home due to construction or design defects. 

The plaintiffs moved to have portions of the testimony of the defense expert stricken by questioning his methodology.  Plaintiffs asserted that the expert needed to perform in depth testing of the humidity levels to provide precise calculations regarding his opinions.  The court ruled that the pictures examined by the expert provided enough information for someone with his experience to reach an acceptable opinion regarding the intrusion points of the moisture and that in-depth analysis was not necessary.

The court then went on to interpret the policy exclusions for construction and design defects and latent defects against American Family and in favor of the plaintiffs.  In assessing the nature of the water damage, the court found that because the exclusion failed to include language addressing exclusions for losses resulting from ancillary damages caused by a design or construction defect, that the exclusion only applied to the actual defect and not to the water damage to other portions of the home caused by the defect.  In assessing the latent defect exclusion, the court found that the latent defect exclusion applied to "a hidden defect other than a construction or design defect."  The court analogized latent defects to hidden defects that are unrelated to construction or design such as finding lead paint under layers of previous coats.

Given its conclusions that no exception applied, the found that liability under the policy was established and that the only issues for trial were the amount of damages.

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This is a procedural case.  A worker was hurt on a school construction site.  A lift rolled over and fell on him.  He sued the school district, the electrical contractor that the school district had contracted with for sound equipment and the design-build architect for the project.  The insurer for the electrical contractor brought a declaratory judgment action in federal court against the architect and the school district to determine whether exclusions to the policy applied to those defendants as additional insureds.

For carriers, there's an interesting point about federal law governing necessary parties to a declaratory action:

"Underlying tort claimants are not necessary parties to a declaratory judgment action regarding an insurer's duty to defend what the action is filed by the insured.  However, if the declaratory judgment action is filed instead by the insurer or involves a determination of insurance coverage or both, then the underlying claimant is considered a necessary party."

The plaintiff's in the underlying tort action had been brought in as defendants by the insurance company and asked that they be dismissed or that the action be stayed until their underlying claim was resolved.   The court held that it could dismiss the underlying tort plaintiffs from the action, and that a decision regarding the insurers duty to indemnify the school district and the architect would be stayed until judgment in the underlying proceeding.  The court determined that it could not stay the portion of its case regarding the insurers duty to defend the school district and the architect and allowed that claim to progress since the duty to defend was a ripe issue where the underlying tort action was progressing.  The opinion is available here.

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Illinois is certainly no stranger to the Condo Craze, a quick Google search for blogs on the topic in Illinois should put to rest any notions to the contrary.   There are plenty of interesting and responsible resources on the topic... and the law regarding the issues involved in condominium matters continues to grow.

A case touching on those matters and construction and development as well as architecture is the feature today.  Kirkpatrick v. Strosberg, Doc. Nos. 2-06-0724 and 02-06-0731 consolidated (April 16, 2008, 2^nd Dist.)

The plaintiffs were individuals who contracted to purchase luxury condominium units in Glen Ellyn.  The developer built the units and the plaintiff's moved in.

Some of the measurements of the completed luxury units did not turn out to comport exactly with the finished condos.  For example, depending upon the method in which one measures the square footage of the units, the units did not meet the advertised square footage, additionally, because alterations were necessary towards the end of the project, the ceilings on the top floor units measured eight feet, six inches and not nine feet as advertised in the original brochures.  One of the unit owners spent extra money having his bathroom reconfigured after the initial plans failed to put the pipes in the right places, and another owner measured his cabinetry installation in accordance with the nine foot specs and not the eight feet, six inch specifications.

The owners sued the developer for violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, common-law fraud, and breach of contract.

There was a bench-trial on the matter and the trial court made findings in favor of the plaintiffs for the breach of contract claims, the common-law fraud and the consumer fraud claims involving the ceiling heights, but not the square footage issues.  The court also found that due to the nature of the contracts and the evidence presented by the plaintiffs there was damage, but the plaintiffs' evidence was insufficient and thus awarded only nominal damages of $100 each.  For the plaintiff with the bathroom plans, the court found fault at 50% with the plaintiff's architect, who was the plaintiff's agent, and at 50% with the developer, and thus reduced the damage award of $31,730 by half.  The court found the cabinet plaintiff's claims were barred by language in a rider to the contract by which the seller eschewed liability for improvements made by the buyer:

• "Seller shall not be required to review Buyer's architectural plans for the Buyer's improvements, and Seller shall not oversee Buyer's work on the premises. Seller makes no warranty whatsoever to Buyer that the premises and its components are complete or compatible with the Buyer's improvements. Buyers understand that all dimensions on the Seller's plans and specifications are approximate and subject to modification for actual field conditions. Field measurement is required to conform dimensions prior to ordering materials."

The trial court also awarded $83,000 to the plaintiffs in attorneys fees and $300,000 in punitive damages.

The appellate court upheld the trial court's determination that the square footage of the units, when measured properly, was not contradicted by any of the plaintiffs' evidence.  The court also upheld the $100 damage award finding that the plaintiffs' expert appraiser had taken cost approximations regarding damages from housing prices as they existed seven years after the actual date of sale for the units.

The court's statement of the black-letter law regarding the proper calculation of damages in a dispute over the breach of contract for the sale of real estate is familiar:

• "Damages, in a breach of contract for the sale of real estate, are calculated by the difference between the fair market value of the real estate on the day of the breach and the sale price contracted for by the purchasers."

The appellate then upheld the nominal damages award, finding again that there was no credible evidence on the matter given the appraiser's failure to estimate from the time of the sale and not the market value at the time of the case.  The court struck the $300,000 in punitive damages, citing a 1^st District opinion holding that nominal damages cannot provide a basis for awarding punitive damages.  The court also upheld the trial court's determination that the plaintiff and the defendants were 50% mutually responsible for the cost of the repair to the bathroom; affirmed the cabinetry decision; and awarded the attorneys fees.

Of additional note to appellate practitioners is the court's enforcement of Rule 341(e)(7) granting the defendants' motion to strike portions of the plaintiffs' reply brief, where the brief raised arguments in the reply that were not raised in their initial brief.

For designers: the court stood by the Architect's method of measuring the square footage of the condominiums as the distance from the outside wall to half of the demising wall rather than the plaintiffs' appraiser's "paint-to-paint" method of measuring from the inside wall to the inside wall.

The actual relief in this case would likely have been substantial had the appraiser computed comparable sales in accordance with the proper measure for damages.

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There's an interesting article in April's Architectural Record by Alec Applebaum concerning owner's rep work and the possibility of expanding the role of the designer to create new forms of business for an architect's firm.

Anybody undertaking a design-build arrangement will need to be familiar with rules about general contractors, safety and understand the significant liability risks associated with such a role.  In addition, undertaking owner's rep work could implicate a host of fiduciary responsibilities not considered.  Serious consideration regarding the qualifications and ability that is required to take on any expanded role is important.

We've had plenty of previous discussions about the types of liability a general contractor can face.  We have also been following a piece of legislation in the Illinois House of Representatives that would likely change the face of §414 liability cases.  In following these types of cases under Illinois law in the construction industry we have seen courts rule both ways when considering whether or not a GC undertook to control the work of its subcontractors.  

Now we have another...  In Calderon v. Residential Homes of America, et al. No. 1-07-1470 (2008) we've been given another piece of information concerning what amounts to control under the §414.  In Calderon, the plaintiff was roofing and injured himself while carrying shingles up a ladder to a roofing job.  The defendant was the GC and had a contract that instructed its subs to review a manual regarding safety that was kept in the GC's office and had a site superintendent who went around the job daily to ensure work progress.  The testimony during depositions revealed that the GC's superintendent was not aware that the shingles were transported by ladder rather than by crane or conveyor, and that the superintendent was not instructing the subs regarding how to perform their work, but was reviewing the site for progress.  The court upheld the trial court's grant of summary judgment and found that the facts (which can be read here in the opinion) did not amount to "control" sufficient to establish liability under the §414 exceptions.

There are plenty of minutia to consider when assuming a new role.  Jumping into any unfamiliar type of business arrangement means assuming new risks that you should be prepared for.

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Here's a treat.  HB 2094 was introduced back in February of 2007 as a bill pertaining to the confidentiality of records and persons under the Adoption Act.  It sat in the House Rules Committee from April 27 of 2007 until April 8, 2008. 

On April 8, 2008, it was revived, cleverly, and an amendment was proposed striking the entirety of the bill and inserting what appears as a wholly new proposed bill regarding requirements for safety during construction.  The requirements will undoubtedly be interpreted as providing for strict liability against those found to have violated the act, they also confer a private right of action to people injured and a right for any attorney to enforce the act and receive fees if the Attorney General's office does not act promptly.  The act appears to contain provisions that pertain to just about everyone who could possibly be involved in a construction project.  Of note to Illinois Architects, and anyone drafting plans is Section 8 of the amendment:

• "It shall be the duty of all architects or draftsmen engaged in preparing plans, specifications or drawings to be used in the erection, repairing, altering or removing of any building or structure within the terms and provisions of this Act to provide in such plans, specifications  and drawings for all the permanent structural features or requirements specified in this Act; and any failure on the part  of any such architect or draftsman to perform such duty, shall be a petty offense."

Importantly, this is an attempt, by its own admission, to reintroduce the Structural Work Act which was repealed in 1995.  The legislature had attempted to introduce the act in 2001, and our readers will have no trouble comparing the provisions of that bill, with all its clauses, to sections which are similar to this new attempt to bring back the Structural Work Act.

There are multiple articles and analysis comparing the shift in the law and the liability of different parties to construction efforts after the repeal of the original Structural Work Act.  Most notably, the shift created a fairer system allowing for comparative fault to be assessed by a finder of fact, and brought liability back to common law standards under §§ 414 and 343 of the restatement of torts.. forcing individuals to actually prove that those they were suing had some form of notice which provided a duty of care that was breached resulting in a plaintiff's injury.  Under the proposed act, Illinois law would again fall back into the category of states creating duties and responsibilities for construction entities where none may have existed.

Additionally, what does the "failure to act promptly" provision mean?  Could attorneys get into the business of policing construction sites for violations of the act, suing and recouping costs and fees?

If the real purpose of the act is to provide greater safety at construction sites and in planning, why confer a private right of action to those injured where fair and balanced methods of determining fault and damages exist under the common law and through other statutes?

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There's certainly a difference between "registration" and "licensure"...

We've come across quite a few architects and engineers who seem to forget that a professional design firm needs to be registered.  It's an extra step, in addition to the professional's individual licensure and registration that's required in Illinois.  But what exactly is the impact of forgetting to register?

Here's an interesting case from the Central District of Illinois, pointing out that a contract will not be voided, and a developer's claim for restitution will not stand even if a professional forgets to register the design firm.  In Brethren v. OSM (C.D. Ill. 06-3161) the court points out that even though a firm may forget to register, the work was still done by a licensed professional and as such, there is no claim. 

Now, if the professional performing the work was unlicensed, certainly the restitution claim would be able to go forward.  The only real teeth the registration law has to compel the registration of the firm comes from the statute authorizing penalties for such a failure to register, 225 ILCS 305/21.  Work by a licensed architect is still work by a licensed architect.

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©    Maintaining the copyright in a design can give an architect or engineer another tool in ensuring payment and completion of the contract.  The right to come in and take back the designs or to seek an injunction has teeth and copyright is a limited issue in most standard form contracts.  While disputes based on the licenses and the copyright terms of the contract carry meat, the A/E might consider registering their plans with the US Copyright Office prior to turning them over to other parties.

        Having the protection of the registered copyright allows for the statutory provisions of US Copyright law to be used as well as seeking the remedy under the contract and can offer the added benefit of allowing the A/E to seek to recoup statutory damages as well as legal fees.  A short primer is available from the office, and the limited fee, especially on designs that may be used multiple times can offer an added assurance that payment in full will occur.  

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The new ConsensusDOCS forms were published late last year and will be the subject of the ABA Construction Industry Forum's 2008 Fall Meeting.  With all the buzz we thought it would be pertinent to sit down and read these documents.  This posting is one of many expected to come regarding the new ConsensusDOCS.

            The language implying a fiduciary duty hasn't changed much over the years and is often described by the courts as a "relationship of trust and confidence" between parties.  With that definition entrenched in case law we thought it a bit peculiar that the normal contracting relationship between an architect and an owner would be particularly described as one of "trust and confidence" in ConsensusDOCS 240 section 2.2. 

In the construction setting, plaintiff's with claims have been seeking to impose a fiduciary relationship in one form or another on contractors and architects to gain more damages and a heightened standard of care for some time.  Thankfully, many courts have often struck down the concept of parties contracting for construction services as entering into a fiduciary relationship thus allowing plaintiff's to bring causes of action outside the normal breach of contract claim or based on a heightened standard of care.  (See, 262 F. Supp. 2d 1004; 812 F. Supp. 72)

With the concept of "trust and confidence" and its implication of a fiduciary relationship in mind, it's odd that the ConsensusDOCS Guidebook from October 31, 2007, would explicitly delineate that the contracting parties should not be agreeing to a heightened standard of care:

• "Standard of Care (Section 2.1): A definition of the standard of care applicable to architectural and engineering services performed under this Agreement is not included in this Agreement (previous additions of AGC contracts did include such a definition). The drafters of the new Consensus documents determined that it would be better for the design professionals to be held to a standard imposed on them by their own profession, rather than one defined by this Agreement.

• "Contractors and Owners should not modify this Agreement by adding language that would hold any design professional to a standard of care that is above that which is customary and normal for design professionals in the same time and location, because that might result in the unintended consequence of voiding errors and omissions coverage available to the respective design professionals."

 
But then go on to say that the A/E is accepting a relationship of trust and confidence in Section 2.1 of document 240:

 

• "Relationship of the Parties (Section 2.2): This provision requires the Architect/Engineer (A/E) to accept the relationship of trust and confidence in exercising its skill and judgment in furthering the interests of the Owner and expressly affirms the A/E's representation that it possesses the requisite skill, expertise, and licensing to perform the required services. The new language is preferable, but it should be noted that it was not included in the previous AGC 240 Owner-Designer professional Agreement, no longer published."

       It is also a bit boggling that understanding the implication of the "trust and confidence" language, that no other provision in the document would specifically state that nothing in the contract should be construed as creating a fiduciary relationship between the parties.  Perhaps the authors just thought such a provision unnecessary given the lack of case law supporting a fiduciary relationship in such a setting.  But why then be specific as to the language of "trust and confidence" between the parties?  Why not just state that the parties agree to "good faith and fair dealing" or accept a "contractual relationship for the provision of A/E services"?  And, even if a standard of care is not affected by the language, could "trust and confidence" through its fiduciary implications mean that there are now added duties that the A/E must be aware of?

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            We haven't seen as much discussion as would seem to be merited by the provisions of the Illinois Contractor Prompt Payment Act (815 ILCS 603/1 et seq.).   This act has written itself into every construction contract in the State of Illinois (excepting public works, single family homes and buildings with fewer than 12 family units, of course).  This lack of constructive commenting is likely because the Act didn't become law until August 31, 2007.  However, from the comments and criticisms we have seen, there's an extremely important and sure to be contested issue that needs to be addressed:  Is it possible to "opt" out of the provisions of the Act?

The original version of the House Bill (HB 0743) that introduced what later became the Act included language at the beginning of Section 10 which read:

• "Construction contracts.  All construction contracts shall be deemed to provide the following unless they expressly exclude the provisions of this Act"

            This provision was the sole subject of Senate Committee Amendment No. 1, which was adopted by the Senate and the House and incorporated into the Act and struck the "unless they expressly exclude the provisions of this Act" language from the Act.

            This creates a strong argument for anyone wishing to claim that it was the express intent of the legislature to not allow parties to "opt" out of the act.  Combine this with the ideas that the public policy of the act was to ensure prompt payment to contractors and subs as defined by the Mechanic's Lien act; to allow contractors and subs an additional recourse should payments not be forthcoming; to shorten the time it takes for payment and approval of work, and we end up with a decent case that parties could end up contracting around the act for naught.

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            We're constantly in wonderment over the different building initiatives and collaborations that can occur when good people get together for something important and worthwhile.  This recent article at Quad-Cities Online reports on one of those projects in the making.

            Apparently, the fine developers at Artspace are again eyeing Illinois for a project, this time in Rock Island.  As part of the growing trend across Illinois' different towns to revitalize downtown areas as a place for community and commerce to interact, Rock Island's own District project is well on its way.

These initiatives are bringing construction work to many areas, and as public interest projects and artistically centered and planned locations, are allowing architects to have some free reign in progressive and green design.  We think an Artspace project in Rock Island would make a fine addition to their downtown, which already merits a visit in its own right and includes some delectable treats like The Blue Cat Brew Pub, and Lagomarcino's vintage confectionary just across the Mississippi river.  And, we'd be remiss to not mention that the area is home to a true Illinoisconstructionblog "must-see", Saarinen's John Deere Corporate Headquarters.

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