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

 

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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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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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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In July of this year Governor Quinn signed the Illinois Green Buildings Act (20 ILCS 3130/1 et seq.) into law. The bill outlines instructions and guidelines for Green Building Standards to be used in the development, design and construction of Capital Development Board projects. The bill mandates that the projects conform to LEED, Green Globes or some other “equivalent certification.” In addition to the bill, the CDB has instituted Green Building Guidelines for State Construction which do not offer the same “out” language of “or equivalent certification” as the Act and instead mandate LEED NC, with no exception for another standard.

It’s a safe assumption that we’re all in favor of sustainable development and design… even if we weren’t it’s a safe assumption that “green building laws” have a rational basis sufficient to withstand scrutiny with regard to pushing for that sustainable goal. What is unclear is whether state sponsorship of a private entity’s green rating system to the exclusion of other systems can be countenanced where it means that the competing rating systems are adversely affected and could possibly lead to the citizenry being denied the right to express the viewpoint of a comparable “green rating system.”

There are currently not any specific federal standards for the regulation of “green rating systems.”   Private entities advance different methods, systems, goals and ratings which have yet to be either subjected to government oversight and accountability or run through the gamut of consumer protection lawsuits that could shed light on the practices and procedures for making a decision to favor one material over another, one method to an alternative.

While LEED has undoubtedly advanced to the front of the pack with the dominant market share in sustainable building standards, it is still a system run by a private organization that is advancing its method against others. A government’s singular implementation of the LEED system not only excludes other systems from competing for or consideration in government projects (profits are made from the certification process), it may also silence dissent regarding alternative private viewpoints about sustainability. If there is no government or regulated objective standard regarding a green rating system, what and how it must accomplish, why is one private individual’s viewpoint any less valid, or entitled to less consideration than another’s by the state? 

Where is the recourse, outlet, or method for appealing a decision about what is “sustainable” or “green”? Where is access to the public forum for expression of “sustainable” or “green” by other private entities or individuals? 

As we push toward sustainable construction and, hopefully, the eventual state and local regulations enacted after careful study of environmental issues that it will entail, it is best to recognize lessons learned from our past about letting private entities become quasi-state actors or the codification of one viewpoint to the exclusion of another.

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2009 has been an exciting year for Section 5 of the Illinois Mechanics Lien Act. The Illinois Supreme Court’s Weather-Tite decision set the record straight regarding the failure of an owner to withhold the funds delineated in a Section 5 statement, and the 2^nd District’s recent case of Weydert Homes, Inc. v. Kammes, is reiterating some of the other basic rules regarding the Section 5 statement.

Apart from holding that the Section 5 statement must be sealed/signed by an officiant as we discussed yesterday, Weydert is worth reading for the court’s discussion of a few other salient points:

• Perfection of the lien claim is not tied to providing a Section 5 statement. Whether or not an owner has requested the statement and whether or not it has been provided by the contractor are irrelevant issues to determining whether the lien is properly recorded under the statute.
• Provision of a Section 5 statement is predicate to enforcing the lien claim. The court refused in Weydert to address the absurdity of an owner continually requesting Section 5 statements to preclude a valid foreclosure by the GC. The holding did reaffirm the notion that the failure to provide the statement upon a valid request would defeat a lien claim.
• An owner must require the statement before paying the contractor any monies. This means that asking for the statement and then paying money before the statement is received may waive the protections.
• The failure to provide the Section 5 statement may not preclude a claim for breach of contract or quantum meruit if the owner is not prejudiced by the possibility of additional, undisclosed, subcontractor claims arising after the enforcement of breach of contract or quantum meruit actions have begun.

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Here’s a bit of trivia for today. The name of the clause at the foot of an affidavit or any other oath administered by an official that describes when where and in front of which official the oath was sworn is called the “jurat.” Jurat stems from the latin, juratum “sworn,” which conjugates from the verb jurare “to swear.”

This small clause and the seal of the notary or other official are very important. They distinguish and oath from simple swearing under the Illinois Oaths and Affirmations Act (5 ILCS 255/0.01 et seq.).

While many of us in everyday life make very little distinction between swearing to something before God and swearing to something before another person, the law makes a distinction between written attestations made in front of a person with the authority to administer oaths and simply making the oath, written or not, without the presence of such authority.

Oaths differ from affidavits:

"An oath, which has been defined as any form of attestation by which a person signifies that he or she is bound in conscience to perform an act faithfully and truthfully, is distinguished from an affidavit, which is a voluntary written statement of fact under oath sworn to or affirmed by the person making it before some person who has authority under the law to administer oaths and officially certified by the officer under his or her seal of office. The difference between an affidavit and an oath is that an affidavit consists of a statement of fact, which is sworn to as the truth, while an oath is a pledge." 58 Am. Jur. 2d Oath & Affirmation §3 (2009).

And not all oaths are equal… which is the point of this first post regarding the recent case of Weydert Homes, Inc. v. Kammes, et al., (2^nd Dist. Doc. No. 2-08-0768).

The sanctioned method of demonstrating that the oath was made in front of the proper authority is the presence of the officiant’s seal in the jurat.  Proving that the attestation is a proper “oath” becomes more difficult without the seal.

The distinction between an oath with a completed jurat and one without such an attestation is critical to today’s case and to future assurances that Section 5 of the Illinois Mechanic’s Lien Act (770 ILCS 60/5) has been complied with.

Section 5 of the Act requires that the statement to the owner, made by the contractor at the request of the owner before amounts are paid which delineates the monies owed to the subcontractors must be “in writing, under oath or verified by affidavit.” In Weydert, a general contractor seeking to assert a mechanic’s lien claim provided a statement to the owner. The GC claimed that the statement was a Section 5 statement, and the owner argued that the statement could not be a proper Section 5 statement where the GC’s president had signed the statement which said that it was “under oath”, but the jurat at the bottom of the statement had not been completed.

The trial court dismissed the mechanic’s lien claim. The issue was presented to the appellate court.   The appellate court also invalidated the lien and found that there was a distinction between both affidavits and oaths under the mechanic’s lien act because the word “or” was used in the language of Section 5.   The appellate court also held that Illinois’ law codified the requirements of an oath under the Oaths and Affirmations Act. The Oaths and Affirmations act requires that a required oath shall be administered by a person empowered to administer such oaths, namely, a court, judge, clerk of court, county clerk, deputy county clerk, Secretary of State, notary public, certified shorthand reporter or a commissioned officer in active service of the US armed forces.

The failure to have the jurat completed meant that the statement did not comport with Section 5.

Apart from the obvious lesson regarding the need to have the Section 5 statement notarized or signed by a recognized officiant, the distinction between an oath and an affidavit should be of some interest to those consistently confronted with affidavits attempting to establish legal conclusions to advance cases rather than properly limiting their attestations to statements of fact.

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If there’s one thing our legal system abhors, it’s a lie. Apart from just making a decision about liability or guilt, juries help ferret out the veracity of our fellows by listening to live testimony and making a decision about credibility. The success of a lie, its perpetration on our populace, can shake the foundational beliefs regarding the just nature of our judicial process. 

Lie takes on many names. The fun lie of what is possible is fiction. The lie under oath is perjury. The damaging lie we are concerned with today is fraud.

In our previous posts on the case of Cordeck v. Construction Systems, Inc., we have discussed the issues raised by a bank, FMB, with a mortgage on a property against which two mechanic’s liens were filed and foreclosed on. (The liens and the appellate briefs of the parties can be found in the earlier posts) One lien was filed by a contractor, CSI, the other, by the contractor’s sub, Cordeck. Cordeck’s lien alleged that it was owed over $1 Million for work on the project because it had performed close to $1 Million under the contract and $500 thousand in extras and had only been paid $500 thousand.

During discovery on the issue of work performed, Cordeck only supplied evidence of $100 thousand in extra work – the other $400 thousand was not substantiated by the documentation produced. After this revelation, Cordeck apparently settled its claim for the extra work with the general, CSI and amended the Cordeck lien by reducing more than $500 thousand. In the trial court, the bank, in challenging the Cordeck lien, made the argument that the magnitude of the reduction compelled the conclusion that Cordeck’s initial lien claim was intentionally overstated and should therefore be invalidated.

The operative principle here is that “where a lien claimant knowingly files a lien containing a substantial overcharge, the claim should be defeated on the basis of constructive fraud.” Much like timeliness, constructive fraud is a lien defeating issue. A finding of constructive fraud as a result of an intentional overstatement of the amount invalidates the entire lien. The overstatement is not enough to prove an intent to defraud, constructive fraud must be proved though additional evidence from which the intent to defraud can be inferred. (Slip Opinion at 9).

In its opinion, the appellate court provides a litany of examples of overstatement invalidating a lien claim and additional evidence as proof of constructive fraud:

“In Lohmann Golf Designs, Inc. v. Keisler, 260 Ill. App. 3d 886 (1994), the contractor filed liens against each of three separate properties for the full amount of the total claimed to be due, resulting in a total lien filing of triple the outstanding debt. 260 Ill. App. 3d at 891-92. In Fedco Electric Co. v. Stunkel, 77 Ill. App. 3d 48 (1979), the contractor's president admitted that his lien total had intentionally overcharged and undercredited the property owner, apparently due to animosity resulting from prior difficulties in collecting payment. 77 Ill. App. 3d at 50-51. In Marsh v. Mick, 159 Ill. App. 399 (1911), the court found that the contractor's overcharge was a claim for the full amount of a contract that it had not completely performed; the court also found that the overstated liens were intentionally filed to compel the property owners and other lienors to pay him an "unjust amount." 159 Ill. App. at 405.”

The appellate court found that at the trial court level, the bank had not produced any such additional evidence of an intent to deceive, but took note of the fact that the bank had been denied a copy of the settlement agreement between the sub and its general. The Court held that the potential relevance of the settlement agreement was evidenced by the facts that the general’s original answer to the sub’s complaint stated that the sub’s work was substantial or not done at all; that the general spent a substantial sum to correct problems with the sub’s work; that over $400 thousand of the original lien claim was not supported by the evidence provided by the sub during discovery; and that after the settlement, the sub abandoned its claim for the extras reducing the lien by more than half.

With the potential relevance noted, the court found that the bank should have been given a copy of the settlement agreement because to the extent that it may or does demonstrate acknowledgement that any portion of the sub’s original claim was not asserted for a valid debt, it would constitute the additional evidence that would support the bank’s claim of constructive fraud.

Even after the amount claimed by the sub was reduced, proof that the original amount claimed was constructive fraud would invalidate the whole lien.

So what does that mean for the sub? It means that the sub better hope that the settlement agreement doesn’t contain any terms stating that the debt wasn’t valid or even inferring such a case – which it likely doesn’t, given that settlement agreements rarely, if ever, acknowledge anything other than that a claim has been made and usually specifically state that the settlement agreement makes no recognition regarding the validity of the settled claims… but you never know.

The lesson in defending against a lien is to be on the lookout for overstated sums and in filing and prosecuting a lien is to make sure you’re not inflating the amounts owed for some reason.

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In yesterday’s post we began our discussion of the issues raised in the recent appellate court opinion of Cordeck Sales, Inc. v. Construction Systems, Inc. et al. (Doc. No. 1-08-0554). The opinion is the second opinion rendered in this case within the past two years. Both opinions discuss a host of issues pertaining to the Illinois Mechanic’s Lien Act and are recommended reading for contractors, subcontractors, owners and anyone involved in a construction project that worries about having to file a lien to get paid.

A short description of the case and the appellate briefs filed by the parties can be found in yesterday’s post. In short, a bank with a mortgage appealed several issues involving liens filed by contractors on a condominium development project. The bank wanted the liens invalidated and the contractors wanted to be paid. The liens filed by the two contractors can be found here, and here. Both purport to be subcontractor liens, but the opinion refers to Construction Systems (CSI) as a general contractor (Section 7(c) of the Act states that a statement that a party is a subcontractor will not invalidate a later determination that the party was, in fact, a contractor).

One of the issues raised by the bank, First Midwest Bank (FMB), in challenging the lien filed by CSI, involved the timeliness of CSI’s lien filing given facts and evidence regarding CSI’s last date of work.

Timeliness is a make-or-break issue under the Illinois Mechanic’s Lien Act. This means that the failure to file within the statutorily prescribed time limits, even by one day, can completely invalidate a lien. This all-or-nothing style issue is contrasted with issues surrounding property descriptions within the lien or innocent errors in stating the amounts owed which can be weighed by court’s and, as we have seen in other posts, ignored if justice may require it. In short, and in lieu of another hyphenated catch-phrase; timeliness is essential.

Under the Act, against private property, a general contractor must file the lien within four months of the date of completion of the work, a subcontractor must send notice of the lien within 90 days of completion to the required parties and the lien must be filed within 4 months from the completion date. For a public contract the timelines are different – here is our post from April regarding the issue – and getting the notice of lien on file with the proper public officer is essential to your claim.

The requirements are not simply some arbitrarily imposed deadlines.  The limits protect subsequent purchasers and owners from having their property interests infringed by unforeseen or delinquent claims for payment and provide contractors with a clear map for obtaining payment when it is owed them.  The boon is that there are clear guidelines for what must be done that can be relied on; the detriment is that if the guidelines are not followed to the letter, there may be no relief at all.  Without the statutory requirements, the Act would be nothing more than another cause of action to add to a complaint that would inevitably take as long to litigate as any other cause of action.  The desire to protect the right of contracts and see that the contractor is paid is on equal footing with the rights of the owner when the edicts of the Act are followed, e.g. requiring notice of subcontractors performing work, and statements of amounts owed.  This is true because if the Act were followed, assuming the owner had money to satisfy the contract, a lien would not be possible or necessary.  When the act is not followed, and liens become necessary, issues like timeliness become important.

Usually, timeliness can be established through work-orders, employee logs, emails or even GPS logs of the location of fleet trucks. However, as is the case with the challenge to the timeliness in this matter, two conflicting assertions regarding the date of a party’s completion of work with adequate proof for each can create an issue of fact that can preclude summary judgment.

In this case, FMB had evidence from logs kept by the project manager, AMEC Construction Management, recording the times and dates that contractors were present that placed CSI on the project at no time from May 25 of 2003 forward. CSI presented an affidavit of its vice president indicating that he and other workers were on the project through June 18^th, 2003. This is important because the date for filing the lien in a timely fashion is four months from the last date of work/date of completion. Since the CSI lien was filed on Septembe25, 2003, that date would be May 23, 2005 or after for the lien to be timely. If CSI is correct about the last date of June 18^th, the lien is timely, if the logs are correct and CSI was not there on May 25^th or afterwards, the lien would not be timely.

After reviewing the evidence the trial court granted summary judgment in favor of CSI because of the affidavit of the vice president, the appellate court reversed that decision and remanded the case for further proceedings finding that the absence of CSI from the project manager’s logs created an inference in favor of FMB, the CSI affidavit created an inference in favor of CSI and that these two competing inferences should be determined by the trier of fact and not resolved in summary judgment. Note that the dissenting opinion in this case offers some additional information about the affidavit – it apparently stated the names of the employees, the hotels that they stayed in, detailed the work they performed and the materials they used.

The lessons from the opinion and its holding are apparent. Adequate documentation of the work performed is essential. Keeping time logs, receipts, and any other form of documentation regarding the work can either win the issue of timeliness, create an issue precluding summary judgment, or even outright defeat a claim that a given lien was timely filed. It is imperative that your operations take these facts into account and that a system for documentation and proof is established. 

Tomorrow we will address the issue raised in this appeal regarding constructive fraud in stating the amounts due and owing in a lien claim.

 

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After yesterday’s outline and brief discussion of the opinion in International Production Specialists, Inc. v. Schwing America, Inc., several of our readers have written in with a common question:

“Why was a case involving a project in Illinois litigated under Wisconsin law where the Illinois Construction Contracts Act (815 ILCS 665/1 et seq.) bars such a practice?”

For those not familiar with the Illinois Construction Contracts Act, construction contracts - “contract for the design, construction, alteration, improvement, repair, or maintenance of real property, highways, roads, or bridges” - that are performed in Illinois are prohibited by the statute from containing a forum selection clause that subjects the contract to the law of another state or that “requires any litigation, arbitration, or dispute resolution to take place in another state.”

In IPS v. Schwing, the project and a majority of the work took place in Illinois. A review of the docket and filed documents on Pacer didn’t turn up the purchase order referenced in the opinion or the change order. However, we do know that the original purchase order was sometime in 2001 and the subsequent negotiations were in 2004.

Unless the 2004 change order augmented a forum selection provision in the 2001 contract, the Construction Contracts Act would not apply because it did not go into effect until 2002 and it does not apply retroactively, or so says the Illinois Second District’s opinion in Foster Wheeler v. LSP Equipment (Doc. No. 2-03-0963).

The other possibility, if the contract didn’t pre-date the act, would be that neither party brought up the argument because they wanted to avail themselves of Wisconsin law, and the court did not seek to enforce the act sua sponte. In any event, the application of Wisconsin or Illinois contractual law would not have altered the considerations of betterment or the principals of contractual damages.

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

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

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

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

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

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

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

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

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

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

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

 

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Take a look at this chart:

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

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

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

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

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

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

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

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

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

The lesson for all home contractors is to get the agreement in writing. There likely wouldn’t be an appeal if the contract was in writing because the lien claim and the breach of contract claim would have remained as well as the alternative theory of unjust enrichment. However, even if a contractor fails to comply with the law, there is still a possibility that he could receive justice if his intentions and actions are honest.

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

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

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

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

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

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

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

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

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

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

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

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

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Apparently defendants in an action brought against them by a condominium association can now challenge the ability of the board to bring the action even if the entity named in the suit is just the association.

We haven’t seen the pleadings, and the opinion only states that the “complaint was filed by the Association’s board of directors.” However, the named plaintiff in the caption is the association and not the board of directors on behalf of the association and the trial court docket reflects the association as the party as well.

In River Plaza Homeowner’s Association v. Healey et al. (1^st Dist. Doc. No. 1-07-1281), The suit was brought to stop the proposed construction of a multi-unit condominium by an existing multi-unit condominium building next door to the construction site. As we said, the opinion states that the named plaintiff is the association for the existing condominium, but the board of directors brought the suit. The defendants challenged the standing of the board of directors to bring the suit because the board had not gotten the 2/3’s vote of the association’s members required by the condo’s by-laws for the board to bring suit on behalf of the association. The trial court dismissed the case and all the parties apparently agreed that the suit could be brought if the vote were taken and 2/3 majority voted to sue. The plaintiff appealed the issue. (other issues were also raised by defendants on appeal based on the trial court’s dismissal, but they are not the topic of the opinion nor the topic we are addressing).

The opinion is about the standing of the board to bring the suit, but another word is used once in the opinion to describe the case. On page 12 of the opinion the court says “In the case at bar, the trial court dismissed the complaint due to the board’s legal incapacity to bring this suit on behalf of the Association.” (our emphasis). Again, this leads us to believe there was something in the pleadings that led to this result, but the Association is the only named entity and the board is not implicated by the caption.

In addressing the issue of whether or not defendants had the ability to challenge the standing of the board, the court cited a case about the exclusive authority of the board to bring a suit in a case where unit owners had attempted to intervene and bring their own suit when a condo board was already bringing a suit on behalf of an association. Board of Directors of Kennelly Square Condominium Ass'n v. MOB Ventures, LLC, 359 Ill.App.3d 991, 836 N.E.2d 115 (1 Dist. 2005).

However, in Kennelly, the matter raised by defendants was the impropriety of the unit owners individual suits when Section 9.1(b) of the Illinois Condominium Property Act (765 ILCS 605/1 et seq.) gave the Association the right to bring the action and the ability to enforce the rights of the unit owners exclusive of the unit owners individual suits. The court reasoned that this was proper given the language of 9.1(b) and the public policy result that no defendant should be made to defend piecemeal litigation if suits could be maintained by every unit owner and the Association.

There appears to be no such implication in this suit, rather, the court has allowed defendants who are neither parties to a contract (the condo declaration and its by-laws), third-party beneficiaries of a contract or who have been given a statutory right, to enforce the terms of the agreement. 

This doesn’t seem right. If ABC corporation’s rights have been infringed and a suit is brought in which ABC is the named plaintiff against a defendant -- would the defendant in such a case have a right to say that because ABC’s corporate by-laws contain a provision that requires that before a suit be brought in the name of ABC a 2/3 vote of the shareholders must be obtained and the 2/3 vote has not been obtained therefore a suit cannot be filed against the defendant? Aren’t the shareholders of ABC the only parties who have the ability to challenge whether or not the conditions of the by-laws have been met. How could a third-party, without any stake in ABC contest whether or not ABC followed the by-laws.

Again, the use of the term “incapacity” on page 12 is interesting. Black’s law dictionary defines “representative capacity” as “The position of one standing or acting for another, esp. through delegated authority.” The laws give the condo association the status of a not-for-profit entity and it must be registered as such, it has the ability to sue and be sued, but the court here looks to the fact that the board of the association seems to have directed that the association bring suit without attaining a 2/3 vote. It appears that what the court is doing is stating that because the authority was not given, the association has no capacity to bring suit... but standing is the doctrine that they invoke when the board apparently directed that suit be brought and even though the association has standing and it is the named entity, not the board.  Perhaps some strange application of the ultra vires doctrine is being applied stating that unlike other corporations, a condo association must show that it complied with its by-laws before asserting the rights that any other corporation would have... but that's not addressed in the opinion.

Apart from the idea that we do not know what was in the pleading that brought the issue of the board bringing the suit on behalf of the association into question, or why, when the association is the named party, a capacity/authority/standing issue can be raised about the board not achieving a 2/3 vote, some real issues arise from this opinion:

• Does it only apply to associations or will defendants be allowed to challenge the standing of a corporation if the corporation has a rule in its charter or operating agreement that contains a clause stating that before an action can be brought on behalf of the corporation, a vote of the shareholders must be taken? 
  
• Does this mean that in pleadings both corporations and associations must state that authority has been granted to bring the suit or that no such clause requiring authority exists or does the burden first fall to the defendants to discover such a provision and attempt to enforce it? – if so, is Illinois at odds with Federal Rule 9(a)(1) which specifically addresses the capacity/authority argument apart from rules regarding standing.

The lack of information in the opinion leads us to the narrow conclusion that from now on in condominium cases it may be best to plead that the condo association’s by-laws for bringing suit have been met or to challenge standing based on such a requirement if you are defending against such an association

 

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An important lesson in asserting a claim for a lien is elaborated in Inter-Rail Systems, v. Ravi Corp. Determining whether your work is maintenance or lienable work that has improved the property as part of an overall plan for improvement, and whether you can and have provided proof of the overall value added to the land because of your work is important where the statute doesn’t explicitly describe your work as an improvement. (See the Mechanic’s Lien Act – 770 ILCS 60/1(b))

In Inter-Rail, the plaintiff was contracted by the land owners to clean up a portion of a site containing drums and waste in a warehouse and an adjacent parking lot deemed hazardous by the U.S. EPA.

Specifically, the plaintiff was contracted for the removal and disposal of drums from both the parking lot and the warehouse. The cleanup also required the plaintiff to scrape, sweep and decontaminate or remove any areas of the site or trailers in the parking lot where spills of the hazardous materials had occurred. The plaintiff completed its cleanup work and the defendant failed to pay the balance due – the plaintiff filed a lien and sued to enforce the lien and for other causes of action.

The defendants moved for summary judgment (a finding that they should win without a trial based on the evidence) and the trial court granted their motion finding that part of the work was non-lienable and that the plaintiff’s failure to apportion the lien amount in order to allow the court to distinguish between the amounts owed for lienable and non-lienable meant that the lien failed. The trial court did allow the plaintiff 30 days to re-plead its causes of action on the lien to include apportionment, but when the plaintiff failed to do so, the court entered judgment for the defendants.

The plaintiff appealed and the appellate court upheld the judgment. In its finding, the court noted that the purpose of the Mechanics Lien Act is to “require a person with an interest in real property to pay for the improvements or benefits which have been induced or encouraged by his or her own conduct.” “The focus of the inquiry to determine whether a mechanic’s lien should be granted is whether the work performed has enhanced the value of the land to be charged with the lien.” This notion of “enhanced value” appears to necessitate that the work be part of an overall plan to improve the property. The court cited cases it distinguished from this one by noting that in all the other cases involving debris clean-up where removal of debris/contamination was concerned, the removal was also part of other work in a plan to improve the property, whether it be the removal of debris from a demolition site, or removal of debris after storage tanks are taken out of the ground, such removal is part of an overall plan to improve the property and thus, not similar to the present case where the plaintiff cleaned up the site. 

The court even went so far as to say that the plaintiff had not filled the contaminated drums with the hazardous waste, did not change the structure of the site… “It merely removed and disposed of the drums, already filled with the waste, and performed incidental cleaning activities. None of these activities were shown to be part of an overall plan to improve rather than simply maintain the property.”

Surprisingly, the court went on to distinguish this case from a case of asbestos removal where the removal of asbestos was found by a federal court to have improved the premises where the plaintiff in that case had provided expert testimony that the value of the asbestos contaminated property was significantly less with the asbestos inside of it than without the asbestos – and a trial was held where that information was provided… Here, as the court points out, the plaintiff failed to offer evidence that its work improved the property, “such as evidence of the value of the site prior to and after the work it performed.”

The golden ruling:

“We conclude that the activity of removing and disposing of drums containing hazardous waste, in and of itself, does not constitute an improvement to real property so as to be a lienable activity under the Act. As there was no evidence that plaintiff’s work was part of an overall plan to improve the property, its work was not a lienable activity under the Act.”

The court went on to note that even if some of the work were lienable the failure of the plaintiff to apportion its lien and subsequently amend its complaint meant that the plaintiff had waived the argument.

A lesson in defending against the liens for owners should be obvious… look for a way to argue maintenance. For those looking enforce a lien, apportionment and characterization of the work and proof of an enhanced value should be paramount.

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On November 25, 2008, in Ready v. United/Goedecke Services, Inc., Docket No. 103474, the Illinois Supreme Court, in a plurality decision, held that section 2-1117 of the Code of Civil Procedure does not apply to tortfeasors or defendants who have settled before judgment.   As a result, the Court found that settling defendants should not be included in the apportionment of fault for the purposes of determining relative liability pursuant to section 2-1117.

In doing so, the Illinois Supreme Court ostensibly resolved a conflict among the Illinois Appellate Courts.  Justice Freeman construed the statutory language "defendants sued by the plaintiff" to be ambiguous, citing the diverse appellate holdings and the majority's disagreement with the dissenting opinion. The plurality relied upon:  (1) the Legislature's failure to amend the statute after it was first construed not to apply to settled parties in Blake v. Hy Ho Restaurant, Inc., 273 Ill.App.3d 372 (5^th Dist. 1995); and (2) the 1995 tort reform amendments (deemed unconstitutional in Best v. Taylor Machine Works, 179 Ill.2d 367 (1997)) which had included settling defendants in the apportionment of fault as evidence that section 2-1117, as enacted in 1986, was never intended to include settling tortfeasors in the allocation of fault.  In a special concurrence that supplied the fourth vote to reverse, Justice Kilbride agreed that section 2-1117 was unclear but concluded that the meaning was clear from an examination of the statute as a whole.  Justice Thomas took no part in the decision. Justice Garman, in a dissent in which Justice Karmeier concurred, would have found the plain meaning of section 2-1117 to be unambiguous based on dictionary definitions of the word "sued" and disagreed with the plurality's reliance on certain tools of statutory construction. The dissent concluded that the result reached by the plurality was contrary to the goals of the legislature in striking a balance between fully compensating injured parties and fair imposition of liability upon tortfeasors. 

As a result of this decision, a minimally responsible defendant may not be allowed to present evidence of the fault of settled parties or other tortfeasors who might have been responsible for the plaintiff's injuries.   A lone defendant, which may be only 1% at fault, could be liable for 100% of the judgment, less the amount of the settlements with the more culpable defendants.  Similarly, defendants confident that they are less than 25% at fault in comparison to other parties may find themselves jointly and severally liable because the more culpable defendants settle at the eve of trial.  On the other hand, plaintiffs benefit from only needing to present their cases against defendants at trial rather than having to deal with the empty chairs of the settling, and potentially more culpable, defendants.  While the non-settling defendants are entitled to an offset of any settlement amount, it appears from this decision that the fault of the settling defendant is not to be considered by the jury in allocating fault.  It is unknown at this time whether the legislature will address this ruling through an amendment to section 2-1117.

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Pepper Construction Company is being sued for its work constructing the high-rise condo building over at 720-726 Randolph in Chicago.  The complaint alleges multiple counts including:

• Delays on the project
• Faulty workmanship
• Slandering the title to the land
• Breach of warranty
• Breach of their contract with the owner
• And fraudulent concealment of defective work
  

This may be the first in a series of suits over this property, the City View Tower. 

Starting on page 23 of the complaint, you’ll see an interesting claim regarding the mechanic’s lien and its something worth noting if you’re either involved in the construction of condominium projects (high-rise or not) or if you’re developing them.  There are multiple cases presently before the courts regarding this issue.  The Condominium Property Act requires that mechanic’s liens be apportioned – Section 9.1.  So, in addition to making sure the strict timing requirements of the Mechanic’s Lien Act are followed, anyone seeking to file their lien against a condominium property (any property where the condominium declaration has been recorded) should familiarize themselves with Section 9.1 before filing.

 

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Here's something you're sure to be interested in.  We had previously discussed an order in Vancil v. Tres Amigos (C.D.IL, Doc. No. 06-71254) regarding Tres Amigos attempt at attaining summary judgment to extinguish two mechanic's liens filed by former subcontractors of Vancil in a bankruptcy proceeding initiated by Vancil.  That entry is here.

Today, the court denied Tres Amigo's motion for reconsideration.  Of note to everyone working in the industry and dealing with mechanic's liens, this order, holds that section §60/9 of the mechanic's lien act, which allows the parties to an Illinois mechanic's lien foreclosure to contest each other's rights without the need for multiple pleadings between all of the parties, is a procedural statute and not a substantive right given to the parties.  Because the federal court is not bound by state procedure, but rather, by state substantive law, in order to maintain an action against the other lien claimants, a party must file pleadings against the other parties in order to contest the issues between them.  Given this assessment of the nature of the rights granted under §60/9 the court denied Tres Amigo's motion for reconsideration and held, again, that it needed to have pleadings on file against the lien claimants it was contesting, or no remedy was available from the federal court.

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Given the glut of Bankruptcy cases we have been seeing over the past four months where differing lien matters are being resolved over limited funds in bankruptcy actions, it's refreshing to see an interpleader action.  (An action filed by a party that has control or possession of property that should go to some other party, but first it needs the court to determine which party is the correct party.  In the context of this action, which involved a developer in control of funds that would have been paid to a general contractor but for the fact that the contractor was no longer in business.)  The reason this is refreshing is that lately we have been seeing cases where the GC gets behind and starts using all kinds of funds from different projects to pay its bills.  Often, the GC does not reveal its financial state to the parties it contracts with know of its financial state until it is too late.  The GC goes bankrupt, which consumes the remaining monen that was to be paid out to its subs and other creditors... resulting in a GC that can't pay and multiple liens filed against property owners who had no idea that the payments they were certifying weren't getting to the subcontractors and creditors.

In this action, the company that went under had also failed to make its FICA payments to the IRS.  At the time the interpleader action was filed, the developer was still in possession of some money that it intended to use to pay the GC.  This money was put forth in the interpleader action with a request to adjudicate a settlement of the pending mechanic's lien claims in state court.  The developer also added the US as a party because of the lien the US had on the missing FICA tax payments.  The US then filed a motion to remove the case to federal court to which the mechanic's lienors and other creditors objected.  The court denied the motion to remove the case back to state court finding that the interpleader action had properly consolidated all the cases, and that venue was correctly in federal court under the US Code.

The case is also a reminder that one quick way to federal court when you can't get diversity jurisdiction is to join the U.S. Government as a party.

The case is available here.

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Illinois farmers are a tough bunch.  So it's not surprising that as a pro se defendant and appellant, farmer Peter Schultz, was instrumental in allowing the court to deliver one of the nine cases in existence dealing with the Illinois Drainage Act (70 ILCS 605/1 et seq.) 

This act is important to anyone developing a parcel of land and many contractors.  It establishes the Drainage Districts in the State and also governs taxation and contracting and bidding on projects with the Districts.  It provides the process by which determinations regarding drainage from one parcel to the next are made, along with establishing a procedure for adjudicating issues involving drainage.

In Halpin v. Schultz, Doc. No. 3-06-0767 (3^rd Dist.) the appellate court was faced with a trial court's decision granting Mr. Schultz' neighbors the right to enter onto his land and install new drainage tiles.  The neighboring farm wanted to extend their drainage tiles beyond their property, connect them to Schultz' and thereby, arguably, change the course of drainage on their property.  Schultz argued that the tiles between the property were never connected, and shouldn't be connected.  This is important given that, in addition to excess water, many toxins from pesticides and sewage from livestock also end up in being transported through these types of tiles and can effect the quality of groundwater in the area and the growth of crops.

At trial, the plaintiffs did not introduce any evidence comporting with the Drainage Act's requirements that a dominant landowner seeking to extend and replace tiles on a subservient landowners property show that the tiles would then drain at an exit point off the property of the subservient landowner.  In other words, if the neighbors wanted to drain in the direction of Schultz' property, they were required to show that they would be draining "through" Schultz' property and that the water would exit into a proper ditch or culvert beyond Schultz' property.  They failed to introduce any evidence to that effect and the appellate court reversed the trial court's decision outright.

Additionally, the court noted the severe constitutional implications involved in letting one private land owner assert rights with regard to another individual's lands. 

• "The law does not favor the expropriation of private property for the public good without just compensation.  Even less attractive is the expropriation of private property for the private benefit of an adjoining property owner."

The judgment of the trial court was reversed.

Justice Holdridge dissented asserting that a different standard of review should be applied and framed the issue of this case, not as one addressing the interpretation of the Drainage Act, but of one regarding the trial court's determination of the evidence in competing testimony and felt that the trial judge did not create reversible error in his determination regarding the course of the natural drainage of the properties at issue.

Holdridge saw this case as a question of whether certain new improvements on portions of the neighbors land, namely the creation of a two-acre pond and the development of a housing division on a portion of the property had created a new "natural" flow of water where water that may previously not have traveled over Shultz' land.  However, addressing these questions under the act would require more time and effort than the plaintiffs may want to put into this matter.  And, without an attorney, perhaps Shultz was unequipped to properly raise these issues.

Developments, ponds, and farms aside, the act of construction on open land can raise a host of issues that, if not properly considered at the time of construction, can lead to a mess of litigation, which can be a headache, unless, of course, you know how to farm.

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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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Here's a reminder from the Northern District of Illinois Bankruptcy Court.  In Vancil v. Tres Amigos (docket #06-71254) the owner of a property, Tres Amigos, was looking to extinguish liens filed by two subcontractors of Vancil.  Tres Amigos brought the action to extinguish the liens where the two subs had not properly served Tres Amigos with their 90 day notices under the Illinois Mechanic's Lien Act.

A problem arose when the Court noted the Tres Amigos had never made one of the subs a party to the action and that it failed to assert a claim against the other sub, which was a co-defendant.  The Court pointed out the Tres Amigos would likely have prevailed on its claim, had it not failed to properly plead actions for which relief could be granted against the subcontractors.

• The lesson learned here:  Make sure all your ducks are in a row before time, effort and money are spent asking the Court for relief that cannot be granted.

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    For anyone practicing law in today's information age, the constant fees and assessments put forth by different counties for access to recorded documents, court filings, or any other public record is well known.  In fact, the charges for information can sometimes be exorbitant if someone is getting involved in multi-party litigation.

    This newly proposed Senate Bill #2175 should come as a welcome proposal to the small practioner concerned about handing over the expense of accessing public data to a client.

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            If the story in this case (Klose v. Mende, (3rd Dist.)) were about saving a school or an orphanage, it would be a made for TV Movie.  A town found documents from 1856 while cleaning out the old town hall, and those documents were enough to save their proposed plan to repave a portion of their roads.  The lack of the documents had forced a court to rule against the town and in favor of plaintiffs - who did not want a portion of their property paved over.

            After finding the records, the town made their deadline for filing before the limitations period ran and it looks like they'll be getting their road.

            The lesson for everyone here cannot be underscored enough, save the documents.  From lien waivers to deeds and even mortgage releases, the chance that they could defeat some form of litigation is worth placing them in a safe or safety deposit box, and if nothing else, they may serve to clarify some issues that might otherwise be disputed.

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