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

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the contracts that the individual farmers had entered into with the grain dealer because the dealer’s license was revoked.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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It’s a case worth parsing through if you have the time because the Municipalities you deal with could be exacting costs from you that are not allowed under State law and that you could recoup.

In Raintree Homes, Inc. and Raintree Builders, Inc. v. The Village of Long Grove (2^nd Dist. Doc. No. 2-06-1105) the second district appellate court was faced with the review of a district court’s determination that the provisions of the Village of Long Grove’s “impact fees” that were assessed on those applying for building permits were void under the Illinois Municipal Code (65 ILCS 5/1-1-1 et seq.)

The Village had been assessing “impact fees” which had increased in cost over the years from 1993 to 1997 against anyone applying for a building permit pursuant a village ordinance (Section 4—1—4 of the Long Grove Municipal Code which was repealed in 2003 and new “fees” have since been implemented). A statement contained in the “impact fee” provision of the code contained a description regarding the purpose of the fee as being for parks and schools, but the application of the money showed that some went to the Village, some went to the schools and parks for different purposes, and the district court found that none of the uses comported with what was allowed under the Illinois Municipal Code.

The appellate court upheld the ruling and the court’s order that the Village pay back to Raintree some $114,700 in impact fees that it had paid from 1993 to 1997.

The appellate court’s decision found that because the funds from the impact fees were put into a general operation fund rather than being used for the purpose of improving/funding or having to do with “school grounds” which is a term elaborated upon by a 2002 opinion (Thompson v. Village of Newark) and augmented by a 2003 amendment to the code to include “land or site improvements, which include school buildings or other infrastructure.”

The appellate court also held that the portion of the fee attributed to the parks and other various land improvements or “open space” was not tailored pursuant to the Illinois Municipal Code to limit the use of the fee to “only newly acquired open space.”

The opinion also contains a lengthy analysis and discussion of “duress” concerning a business’ need to pay for a fee given the need to have the license or benefit conferred by paying the fee for the operation of the business and its later ability to contest the fee without losing that right under the voluntary payment doctrine.

The important part here is that Raintree got the fees back. This was in large part due to the specific manner in which the purpose portion of the municipal code was drafted and the distinct method in which the funds were distributed and used. It is likely that a statute that was more vague and less accurate testimony regarding the application of the fees would have offered a different result even if the fees were applied the same.

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

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

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

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

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

We have the complaint against American Dream and Villalvazo here.

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

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

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

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

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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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