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

 

You’re not alone. Recently, the Third District Appellate Court issued an opinion in direct conflict with what we thought we knew about the Home Repair & Remodeling Act (the “Home Repair Act”).   

Here’s what we thought we knew. When a contract does not comply with the Home Repair Act, it is invalid and cannot form the basis of a breach of contract action or an action to foreclose a mechanic's lien. See K. Miller Constr. Co. v. McGinnis, 394 Ill. App. 3d 248, 913 N.E.2d 1147 (1^st Dist. 2009); Smith v. Bogard, 377 Ill. App. 3d 842, 879 N.E.2d 543 (4^th Dist. 2007); Central Illinois Electrical Services, LLC v. Slepian, 358 Ill.App.3d 545, 831 N.E.2d 1169 (3^rd Dist. 2005). 

Then, the Second District issued its opinion in Artisan Design Build, Inc. v. Bilstrom (2^nd Dist. September 22, 2009), which stated that a violation of the Home Repair Act did not automatically preclude a contractor from recovering at law (foreclosure of mechanic’s lien) or equity (quantum meruit). 

More recently, the Third District Court sided with the McGinnis line of cases in issuing its opinion in Roberts v. Adkins on January 7, 2010. Our discussion on the Artisan Design Build and Roberts cases are posted here. 

However, just one week latter, it appears as though the Third District has changed its mind. In Fandel v. Allen, the Third District Court stated that the Illinois Legislature did not intend for the Home Repair Act to give a private right of action to consumers or to create an affirmative defense to mechanic’s liens.  

The Fandel case involved a roofing contractor who had submitted a bid to replace the roof on the defendant’s home. The contractor provided the defendant with a written, itemized work order for the roofing work, which totaled over $9,000. The work order was not signed by the defendant, and the contractor failed to provide the defendant with the consumer rights brochure as required by the Home Repair Act. After the work was completed, the defendant issued a check for payment in full but later stopped payment on the check. The contractor filed a mechanic’s lien and then brought an action to foreclose on the lien. The trial court granted summary judgment for the defendant based on the contractor’s failure to comply with the Home Repair Act in obtaining a signed contract and providing the consumer rights brochure.  

However, the Third District Appellate Court reversed in stating that the Home Repair Act contains no explicit or implicit language indicating that the Legislature intended to provide homeowners with a private right of action to enforce the Home Repair Act or that the Home Repair Act provide an affirmative defense to mechanic’s liens. The Third District Court further noted that the defendant did not claim that she was not aware of her rights; rather, she simply maintained that the roofing contractor’s procedural errors in failing to comply with the Home Repair Act invalidated the mechanic’s lien as there was no valid contact. In its decision, the Court cited the Mechanic’s Lien Act (“MLA”) in stating that the MLA does not distinguish between oral and written contracts. Additionally, the Court stated that violations of the Home Repair Act do not automatically invalidate a contract. Instead, the Court explained that the roofing contractor’s violations of the Home Repair Act were simply due to oversights “grounded in ignorance of the statute” and that the consumer protection interests were not injured as the defendant received the benefit of the bargain. Moreover, all of the elements of a valid contract were present (offer, acceptance, and consideration).  

Accordingly, the Fandrel Court held that a valid and enforceable oral contract existed and that the contractor’s performance created a right to a mechanic’s lien. The Third District Court also added that a homeowner’s rights under the Home Repair Act may be asserted in a private cause of action under the Illinois Consumer Fraud Act where the homeowner sustains actual damages resulting from a violation of the Home Repair Act.

So, what do we now know? Given the different treatment of the Home Repair Act between the different courts, the Illinois Supreme Court may accept an appeal on this issue. Also, we will keep you updated on SB 2540, which would partially clarify parties’ remedies under the Home Repair Act. Until then, contractors must educate themselves on the Home Repair Act to ensure compliance as “ignorance of the statute” will, at best, subject you to lengthy and costly litigation.

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You may recall our discussion of the Second District’s decision in Artisan Design Build, Inc., v. Bilstrom, in which the Second District was faced with the same decision as the other districts have been faced with… what, if anything, does a contractor’s failure to comply with the Act mean for its claims against the homeowner?

The Second District interpreted the Act to mean that the contractor’s failure to provide the consumer with the brochure does NOT remove the contractor’s right to recover in either equity (quantum meruit) or law (breach of contract, mechanic’s lien).

“To hold that a failure to provide a consumer with the brochure allows the consumer to defeat all legal and equitable claims by the contractor would lead to mischief and a result the legislature could not have intended.”

In reaching this conclusion, the Court said it was looking to legislative intent, which is a phrase and methodology addressed in many of the cases involving this Act. However, the Court attempted to discover the legislative intent through reading the “plain language” of the statute but does not examine what the legislature had to say about the bill in debate or committee.

In Roberts d/b/a Roberts Cleaning, Maintenance and More v. Adkins, the Third District has now added its voice to the discussion and disagreed with the Second District. In, Roberts a contractor sued to enforce a mechanic’s lien and the homeowner asserted, as an affirmative defense, that the contractor violated the Home Repair Act by failing to provide a consumer rights brochure or a written agreement. The Court determined that the failure to obtain a written contract was a violation of the Home Repair Act and further determined that, “[W]hen a contract does not comply with the Act, it is invalid and cannot form the basis of a breach of contract action or an action to foreclose a mechanic’s lien.”

Stay tuned for further discussions regarding SB 2540, introduced by Senator Wilhelmi to address at least part of the confusion regarding the remedy associated with the Home Repair Act. The proposed amendment will entirely replace Section 30 of the Act to clarify and more accurately identify the remedies available to private parties under the Act.

 

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Owners, developers and builders working in the renovation arena please note that the EPA’s new regulations on lead paint take effect on April 22, 2010.  The regulations are contained at Title 40, Part 745 of the Code of Federal Regulations.  The importance of this legislation and its impact on contractors is clear. However, it should also be noted that it is anticipated that preparation and cleanup alone may double the work time and the costs of extra time on projects and training required may be passed on to the consumer.  

There are some very important highlights:

• Effective April 21, no contractor may offer or perform renovations in “target housing” without certification.  Target housing means any housing constructed prior to 1978, so renovators working in homes, apartments or condominiums built prior to 1978 need to take this seriously.
• There are only very limited exceptions, such as where a certified inspector has determined the project is free of lead paint beyond permitted levels.  Projects with no children or pregnant woman that are owner occupied can also qualify for excluding coverage, but only if the owner signs off that the contractor is not required to meet the regulatory practices.
• Contractors performing renovations have extensive obligations to give disclosure and notice to building occupants in writing prior to renovation, including providing EPA publications.  Persons and contractors performing work in this arena must provide their customers the EPA’s brochure, Renovate Right (pdf).
• The regulations further include specific work practice standards, so watch out for potential employee personal injury claims and OSHA inspections and violations as well.
• Even relatively minor work is swept up in the requirements: generally work disrupting more than 6 square feet of painted area is regulated.
• When working with possible lead issues, workers will need to place heavy plastic sheets on the ground, seal the room, seal off vents to the area where the project is taking place, remove or cover furniture in the area, cover the ground and plants outside of the work area, close all windows, and mark off the work area to keep non-workers away. Contractors will be required to post warning signs, restrict occupants from work areas, prevent dust and debris from spreading, conduct a thorough cleanup and verify that the cleanup was effective.
  
  

This legislation has contractors and building inspectors working to get up to speed on the new rules and licensing requirements. Contractors also must be EPA-certified to work in buildings that could have lead paint. Contractors must be certified by April 22, 2010.  Meetings will be offered for contractors to become certified to work in buildings that might have lead paint. The Illinois Department of Public Health has issued a news release (pdf) which includes list of meetings and locations at which contractors can become certified.

 

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We’ve been reporting repeatedly on the recent decisions regarding the different Appellate Divisions’ interpretations of the Home Repair Remodeling Act and its use as both a sword and a shield.

Today’s Chicago Daily Law Bulletin has an article by Bethany Krajelis discussing the leave to appeal filed in the case of Artisan Design Build v. Bilstrom.  If granted, the Illinois Supreme Court would be hearing the case and likely putting to rest the district split.

Our entry on Artisan can be found here.

 

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We’ve been writing with updates regarding the recent decisions by the differing appellate district’s in the state on whether causes of action can exist for payment when a contractor has failed to follow the requirements of the Illinois Home Repair and Remodeling Act (815 ILCS 513/1 et seq.) The debate between the districts is fast becoming an issue that the Illinois Supreme Court should decide given the rampant differences in the manner non-compliance with the act is treated depending on which appellate district the non-compliance occurred.

Adding clarity and insight to this debate is a post from one of the best construction law blogs out there. Josh Glazov’s Construction Law Attorney Blog (based right here in Chicago). This recent post discussing both our articles and additional information concerning the reality of the way some trade associates are dealing with informing their members about the act, its requirements and offering recommendations about how to go about complying with the act is worth a read.

What’s also worth reading are the posts Mr. Glazov recently did on FDIC takeovers and how they can affect your projects along with these fun discussions of his recent jury duty on a case picked up and reported on in the Chicago Tribune by Ameet Sachdev.

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Restrictive covenants can make or break the real estate purchase/financing underlying the project. They run the gamut of justifications from restrictions for safety and public welfare all the way to terms for convenience of access and rules governing aesthetic choices. Generally they are enforced by the courts and a recent Appellate Court case shows that there may be creative alternatives for circumventing restrictions that might otherwise keep a project from going forward.

The restrictive covenant that a developer wanted to invalidate in Vo-Land, LLC, v. The Village of Bartlett (Doc. No. 1-08-0632) was an agreement to keep land developed in 1987 from being used as something other than open-space.

Vo-Land was the subsequent owner of a 107 acre parcel of property in the Village of Bartlett. In 1987, the previous owner had entered into a covenant with the Village that allowed it to construct 1,875 residential unites on its property provided that 96 acres of the site be maintained as a golf course or other open space. Vo-Land later took ownership of the property.

In 2004, Vo-Land sought to amend the zoning for the property and wanted to close the golf course, reduce the 96 acre open space mandate to 51 acres and build 350 new residential units on the remaining golf course land. The Village board denied Vo-Land’s request and refused to release the restrictive covenant and also denied Vo-Land’s request to have the zoning of the parcel amended.   That wasn’t the end to Vo-Land’s quest.

The owner brought an action asking the court to void the restrictive covenant, or, in the alternative, to force the village to allow it to apply for amended zoning – a petition for disconnection for the property from the village pursuant to Section 7-3-6 of the Illinois Municipal Code.

“Section 7-3-6 of the Illinois Municipal Code provides that property owners may have land disconnected from a municipality by court proceeding if the property: "(1) contains 20 or more acres; (2) is located on the border of the municipality; (3) if disconnected, will not result in the isolation of any part of the municipality from the remainder of the municipality, (4) if disconnected, the growth prospects and plan and zoning ordinances, if any, of such municipality will not be reasonably disrupted, (5) if disconnected, no substantial disruption will result to existing municipal service facilities, such as, but not limited to, sewer systems, street lighting, water mains, garbage collection and fire protection, (6) if disconnected the municipality will not be unduly harmed through loss of tax revenue in the future." 65 ILCS 5/7-3-6 (West 2002). The Code further provides that "[i]f the court finds that the allegations of the petition are true and that the area of land is entitled to disconnection it shall order the specified land disconnected from the designated municipality." 65 ILCS 5/7-3-6 (West 2002).”

The trial court supported the validity of the covenant and even went so far as to hold that Vo-Land was estopped from challenging its validity. The previous owner had agreed to keep the restrictive covenants conditions in place for 35 years in exchange for being allowed to develop portions of the property. Much like any other form of contract, Vo-Land would not be allowed the benefit of the zoning variance that allowed the initial construction without the open-space restrictions that gave a benefit to the village. The appellate court agreed.

The appellate court also agreed that Vo-Land was entitled to have its property disconnected from the municipality, thus rendering the restrictive covenant moot. Of the six factors listed above, the village fought the disconnection based on the third factor arguing that a water station would become isolated if the 107 acres were no longer part of the village. The water station was actually across a road from the acreage and that road, with a highway right-of-way owned by the village, was the only place that the village actually touched the water station’s parcel as well. The courts found that disconnecting the Vo-Land land would not lessen the touching between the water station property and the village.

This solution, a creative way of circumventing the municipalities decision to deny releasing the restrictions, was available because the restrictions imposed on the developer did not also include covenants restricting an owner of the 107 acre’s ability to disconnect from the village – something that could have been included by the municipality in 1987.

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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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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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The district split that we identified in our posting about K. Miller Construction Company, Inc. v. McGinnis (1^st Dist. Doc. No. 1-08-2514) has another fracture. Last week, the Illinois Second District Appellate Court handed down its decision in Artisan Design Build, Inc. v. Bilstrom (2^nd Dist. Doc. No 2-08-0855).

In case you don’t feel like re-reading, the split is over the Illinois Home Repair and remodeling Act (815 ILCS 513/1 et seq.) and whether the failure of a contractor to comply with the act will strip the contractor of the right to recover monies that it is owed or whether the failure to comply with the act bars certain claims but not others. For instance, a contractor may be owed $10,000 for a job, but failed to provide a copy of the pamphlet required under the act – in the fourth district, this would be a bar to all claims for payment including mechanics liens, breach of contract claims, unjust enrichment claims and the like. In the first district, the failure to provide the pamphlet would not currently bar an unjust enrichment claim but would bar the mechanic’s lien claim and the breach of contract claim given that the act calls contracts made in contravention of its requirements “unlawful” and unlawful contracts are void. (see K. Miller above.)

Now comes a new wrinkle. 

In Artisan, the plaintiff was a contractor who claimed it was owed in excess of $208,695.69 for construction work on a house in Hinsdale, Illinois. The plaintiff wasn’t paid and sued the owner alleging it had a mechanic’s lien for the sum, that the owner had breached the contract, and also pled a claim for unjust enrichment (even if there wasn’t a contract, the owner benefited from the work and should have to pay for that work).

The owner asked the district court to dismiss the case because the plaintiff had failed to provide the owners with the brochure, had failed to commence or complete work within the contracted time period, and didn’t maintain insurance. The district court dismissed the case on the basis that the plaintiff admittedly did not furnish the owners with the consumer rights brochure. The plaintiffs appealed and asked that the appellate court overturn the decision.

The Second District was faced with the same decision as the other districts have been faced with… what, if anything, does a contractor’s failure to comply with the act mean for its claims against the home-owner?

The Second District interpreted the act to mean that the contractor’s failure to provide the consumer with the brochure does NOT remove the contractor’s right to recover in either equity (quantum meruit) or law (breach of contract, mechanic’s lien).

“To hold that a failure to provide a consumer with the brochure allows the consumer to defeat all legal and equitable claims by the contractor would lead to mischief and a result the legislature could not have intended.”

In reaching this conclusion, the Court said it was looking to legislative intent, which is a phrase and methodology addressed in many of the cases involving this act. Oddly, apart from attempting to interpret legislative intent through reading the “plain language” of the statute, none of the cases attempt to examine what the legislature had to say about the bill in debate or committee.

Many of the transcripts of the Illinois Legilsature’s general session debates dating back to 1971 are available online. These transcripts include debate on House Bill 1177 from the 91^st General Assembly’s session in 1999 that became the Home Repair and Remodeling Act. Of note from the debates are the main debate from the House after the final reading of the bill, and the similar debate from the Senate.

From the Senate and House transcripts on the matter, we see that there was not only opposition to this bill on the part of people who felt the bill just added an extra hoop for honest contractors to have to jump through without punishing the ne’er-do-wells who were the reason for the bill, but that the main justification for its passage was the protection of seniors and unwary consumers. Another point was the information this bill would force on people having their homes repaired – like the rights involved in contracting, an up-front contract price, and – after a 1994 amendment – a knowing acceptance or relinquishment of arbitration and the right to trial by jury. The debates focus on the Attorney General’s ability to prosecute and say nothing about voiding contracts or allowing a private right of action (an issue heavily debated by the justices of the Courts).

During the original House debate, representative Winters had these closing remarks,

“The Attorney General of the State of Illinois has listed home repair fraud as the #1 consumer complaint in their offices. Over the last five years, they average almost 500 complaints from consumers a year of being ripped off by artists who simply go up and down the street looking for the elderly, looking for the unprotected, looking for the uninformed. This Bill seeks to inform the consumer, it is not onerous to the contractors, a simple brochure and contract language is all that it requires….

“The only way that the criminal provision in this would be put forward is in fact that the State’s Attorney or the Attorney General can find a consistent pattern of fraud. And it is only a civil penalty in this Bill, it is not criminal. We have other criminal statutes under deceptive business practices. This Bill is simply civil penalties for failing to have the brochure disseminated and signed off by the consumer. It is a great consumer protection Bill, very little burden to the, to the contractors of this state. And I would urge adoption of this Bill.” [emphasis added]  IL H.R. Tran. 2000 Reg. Sess. No. 55

The failure to have the brochure passed out and signed off on was to be the ground for a penalty… and not just the loss of the right to arbitrate or to have a trial by jury, that provision wasn’t even part of the act until 1994, so the statement that there would be a penalty for failure to have the brochure passed out contemplated some other form of a civil penalty.

The notion that there should be some form of a penalty for failure to comply with the act by passing out a brochure along with the “shall” language of the act's requirements seems to make more sense when interpreted with the loss of the legal rights given the nullification or voidance of any contract between parties subject to the act where the act hasn’t been complied with. But again, that reading means that Section 35 of the act giving the AG and SAGs the power to enforce the act is not the sole mechanism for enforcement… If the act was to help seniors, did that really mean that the legislature wanted the “500” annual complaints referenced by representative Winters to be handled solely by the AG’s office? Wouldn’t it make more sense to allow Seniors to void any contracts and eliminate mechanics liens where the act hasn’t been complied with… if, as discussed in the General Assembly’s debates, compliance was as simple as handing over a brochure?

Another issue comes out of the transcripts of the assembly’s deliberations – that of the knowing contractor vs. the unwary contractor.

Back in March of this year, we discussed a case called Kunkel v. P.K. Dependable where the 5^th District decided that a contractor guilty of a violation under the act wouldn’t have to pay the attorneys fees of a home owner forced to go to court and pay an attorney to prosecute this kind of action if the contractor didn’t “knowingly” not comply with the act.

Interestingly, the Assembly transcripts show that the “knowing” issue was also important to the legislature and they expected the contractors to know about the act and also thought other State agencies as well as trade associations would hand out brochures and increase awareness… but in the end, that “knowing” would not be an issue.

The best way to make sure there are no problems is to comply with the act.  The brochure is linked above and getting the homeowner to sign off on it, having insurance, and delineating the terms of the project in a written contract or statement are what the act requires.  No home-owner should be allowed to reap a windfall for the failure to turn over the pamphlet, but if allowing a few wind-falls finally forces everyone to comply with the act, which is what the legislature intended, it is not unlikely that a few more courts may award a few wind-falls to accomplish that.

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If people really bought into the adage that you can’t fight city hall, or at least the asserting-your-rights-against-a-state-seeking-to-infringe-on-them principle that it represents, we’d all be British subjects. In truth, we’d be a lot of things, likely all the same things given the unusual mandate authority consistently seems to have for homogeny. But this post isn’t a lesson about the Shakman decrees or the recent end of the Chicago Desegregation order or any other lesson in the history of fighting city hall. It’s a new chapter in the fight and it involves challenging public works projects... anyone thinking they might need to fight city hall or challenge bid awards when Chicago’s 2016 Olympic dreams are realized will want to bone up on the proper procedures for fighting city hall… which is what today’s case is all about.

The plaintiff’s in Ziller v. Rossi (Doc. Nos. 2-09-0511 and 2-09-0592) were fighting town hall, literally… they wanted to keep it from being built, and based on their town board’s inadequate notices for the issues to be discussed at town meetings and improper requests for funding in light of pending requests to present the issues to the electors of Grafton Township, they were successful. 

The board was attempting to enter into lengthy installment contracts and pledge public funds in excess of $3.5 million in debt certificates in order to purchase land and construct a new town hall. Plaintiffs were a group of individuals who sought to challenge the board’s authority for the action given the board’s failure to follow the proper statutory procedures and rules for acting in such a manner.

In 2007 and in 2008, the board had voted to purchase land for, and construct, the town hall, but had failed to properly place notification of these actions on the notice of the meeting that was required to be distributed prior to the meetings. They had also passed an ordinance in a similar manner for financing the projects. The plaintiffs challenged the action and sought an injunction from the court to stop the board from taking any steps towards purchasing the land, financing the purchase, entering into construction contracts for the town hall, or constructing the town hall because the notices for the meetings were in violation of the Illinois Township Code (60 ILCS 1/1 et seq.).

In addition to claiming that the board had violated the Township Code and that because of the violation, the boards actions were void, the plaintiff’s also followed the code and submitted their own petition to submit the town hall issue to the electorate during an election rather than allowing the town board to vote on the matter and bind the citizens. (In addition to other issues, the town code allows citizens to submit petitions requiring that question of constructing a town hall, be put to the electorate during the general election and not decided by the town board when appropriate). The plaintiffs sought a second injunction compelling the clerk to certify the question in their petition to the proper election officials to be submitted to the electorate at the general election.

The trial court granted the plaintiff’s request for an injunction and told the board that it could not obligate the township and that its previous actions had not comported with the requirements of the township code and required clerk to certify the question. The town board appealed the decision and the appellate court’s opinion upheld the decision of the trial court. The township code must be followed and the petition should be submitted to the electorate for a vote.

Few issues are as publicly contentious as the use of common property, this is why the procedures for addressing these issues are so heavily detailed in statute. The greater guidance for public deliberation and decision regarding the commons, the less chance a party has to feel like they were not given a voice and heard… This assumes the procedures were followed. When the procedures aren’t followed, not only is it more likely that trouble will result, it is more likely that someone is attempting to assert their rights over another and that the assertion may not be entirely justified or proper.

The municipal codes, county codes and township codes and local government regulations of the State of Illinois are an interesting mix and rarely do the issues of electoral procedure become so entwined with issues of construction, zoning, environmental law and even the private rights of citizens against each other… If you want to fight city hall, the first thing to know is how to fight city hall, and the Illinois statutes, along with the city’s own codes are a good place to start.

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An interesting issue we’ve been coming across in contract negotiations over the past few months are the different retainage mandates of the states for private and public contracts. Most states have statutes affecting the amount of retainage permissible in public contracting, and some states have laws governing the amount of retainage allowed in contractual arrangement for private agreements.

What’s fascinating about the different laws regarding retainage is that they evince the true spirit of a republic with the different states acting much like the laboratories Justice Brandeis contemplated in New State Ice Co. v. Liebmann.  Some states fashion their laws to protect owners, some to protect contractors, some even attempt to protect subcontractors and owners.

In Illinois there is no construction law for private contracts regarding retainage, but there is the recently proposed amendment to the Contractor Prompt Payment Act, that we’ve posted about before. For public contracts, the Illinois Statutes don’t specify a percentage, but based on certain amounts for the public construction of highways, the state may place funds with an Illinois financial entity if the retainage is over $20,000 and the parties agree. Funds can be withheld at the request of a contractor/sub. For Highway projects, the Standard Specifications for Road and Bridge Construction dictates terms for retainage.

Wisconsin statutes list a maximum percentage of 5% on public contracts and, like many of the retainage statutes for public contracts, states that no funds can be retained after 50% of the work is complete along with terms for additional retainage for nonsatisfactory progress. There is no Wisconsin statute for retainage on private projects.

In Michigan, the statutes for retainage on public contracts cap the amount at 10% and there is no law regarding private retainage.

Ohio has retainage set at a maximum rate of 8% under the Ohio Revised Code  and mandates the escrow of the funds with interest falling to the contractor.

Minnesota has a public project limitation of 5%. Minnesota also has a private project construction law statute that allows an owner to keep up to 5% but does not allow for retainage for residential improvements nor is the owner allow to retain funds from an architect, or for other professional services.

Iowa has a public limitation of 5% of the labor and materials.

The retainage statutes outside the Midwest with provisions for private contracts generally deal with either limiting retainage percentages or with specifying to whose benefit interest on retained funds will run.

As with any transaction, where the different incentives rest is important.  The question of which party is receiving the benefit of an agreement to retain funds until some future contractually agreed term is met is also varied. Statues like Alabama’s (§8-29-3), provide that retained funds produce interest for the subcontractor while the benefit of retaining monies to ensure proper performance accrues to the contractor/owner. 

Texas’ Property Code regulates retainage on private contracts through its mechanic’s lien statute. This method is novel and makes sense by allowing the retainage on the owner’s end while also protecting the owner and any possibly affected subcontractors by ensuring that some funds are at least set aside in case a contractor fails to pay monies through to its subs.

Some states like California and Vermont provide for explicit release dates if retainage has been held back, but make no determinations regarding percentages. Interestingly, none of the 50 states has any egregious conditions for retainage or a law that clearly favors one party to the transaction over the other.

Given the plethora of statutes concerning the matter, it’s best to check for the particular state legislation before deciding to include or exclude a retainage provision and such a provisions specific terms.

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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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Back in April of 2008 we wrote about a lengthy opinion delivered by the 1^st District Appellate Court concerning a mechanic’s lien dispute over the property shown below:

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Since the Appellate Court delivered that opinion some of the parties were apparently able to settle their disputes and some of the parties found new issues to appeal. On September 9, 2009, the Court issued a second appellate opinion in this matter addressing several issues surrounding mechanic’s liens. Over the next few days, we will be addressing these decisions.

The full set of facts is available in the opinions. In short, Cordeck was subcontracted to Construction Systems, Inc. (CSI) to supply and install structural steel for a condominium project in Chicago. On January 23, 2003, Cordeck filed this lien stating it was owed $1,003,489.70 for work on the project and filed suit to foreclose on that lien in April 2003. In August of 2003, the condominium declaration was filed (if you want to read it, you’ll have to go to the Cook Count Recorder of Deeds office – it’s document 0324110024). On September 25, 2003, CSI filed this lien claiming it was due $1,979,412.00 and filed an answer and amended counterclaim in the Cordeck case alleging as much.

A bank holding a mortgage on the property, First Midwest Bank (FMB) challenged the validity of the liens filed by both Cordeck and CSI, the challenges and the Court’s decisions are the subject of our posts on this case.

The first challenge raised by FMB to the lien filed by CSI was that the lien failed to sufficiently describe the property encumbered by the lien. Here is the appellate brief filed, you will see that it contains arguments regarding the sufficiency of the description under Section 7 of the mechanic’s lien act, but also that it asks the court to consider the issue of Section 9.1 of the Illinois Condominium Property Act which arguably requires apportionment of a mechanic’s lien on a condominium property once a unit has been conveyed to a purchaser.

Here are the briefs in response to the appellate brief and the reply brief filed. You will see that the argument made in contravention of applying the apportionment rule of 9.1 centers around the fact that no unit had yet been transferred to a purchaser when CSI filed its lien and arguably then, CSI was not required to apportion the lien.

The reason we’re attaching the briefs and discussing the argument is that the appellate opinion didn’t address the issue. While we don’t know why the Court did not want to finally wade into the waters of Section 9.1, we can see from the briefs that a decent argument was advanced in contravention of applying the apportionment requirement to the CSI lien which may be the reason it wasn’t included in the opinion.

FMB also argued that even if Section 9.1 did not apply, the fact that a more recent and particular property description had been filed prior the recording of the CSI lien meant that the CSI lien was invalid if it did not include the most recent and more particular description. The Court addressed the description included in the CSI lien in accordance with the terms of Section 7(a) which requires that the claim for lien include:

“a sufficiently correct description of the lot, lots or tracts of land to identify the same”

The court found that the description of the CSI lien met the requirement that “the description be sufficient to identify the affected land” – adequate under the standard of the Act – and rejected the request to invalidate the lien on the basis of the description.

As you can see from the lien, it used the plat of survey description, included the common address of the property and also had the property identification numbers for the parcels that had existed prior to the apparent merger of the property into a different number. It is also interesting that there was testimony from an employee of the recorder’s office who testified that a lien recorded on the property as a whole would appear in a search of the chain of title of each unit included in the condominium declaration. (This is perhaps true of searching at the actual recorder’s office, but searching online with the PINs for the condominium units shows none of the liens filed by Cordeck or CSI. The first condominium unit PIN can be found on this map from the Assessor’s Office).

There are more than a few parties that would have appreciated a discussion of the application of Section 9.1, but the facts appear to have been against the treatment of the issue. For now, we have another case that offers some welcome guidance regarding the sufficiency of a property description under the Act. 

Tomorrow we will discuss the issue of timeliness in filing the lien raised in this case.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

The provision at issue read:

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

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

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

 

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Not if it’s against the express language of a statute or the contract requires written modification.

With all the public projects coming on-line thanks to the stimulus package it is time to make sure that you understand the contractual limitations and requirements for getting add-services paid for under your contracts.

The recent case of U.S. NeuroSurgical, Inc. v. City of Chicago (7^th Cir., Doc. Nos. 07-3520 and 08-2851) is an express warning to anyone thinking about performing additional services based on an oral or written representation that they'll be paid for from a municipality’s representative.

In NeuroSurgical, an entity that NeuroSurgical is the successor to, GHS, had a 1995 contract with the City of Chicago’s Department of Health to design and implement a computer information system for use in its clinics. The information system agreement contemplated a system that would accept entries of patient information that were made by input from a keyboard and the possibility of extending the system to include patient information entered by scanning in a form document that would automatically be placed in the system without the need for keyboard input.

The contract between GHS and the City contained a section requiring that no changes to the contract were valid unless they were in writing and signed by the parties.  The contract also had a provision governing the procedure for requesting additional services from GHS which included an obligation that after such a request GHS submit a written work plan and project estimate and description and then, if approved by the City, the agreement was to be codified in a formal “work order” and submitted for approval in accordance with the contractual provision requiring that it be signed by both parties.

During contractual performance, the City requested that GHS implement a system capable of scanning data forms at one of the clinics. Scanning is a difficult process and implementing such a system required what GHS felt was additional service work. GHS claimed it had been given oral authorization to perform the additional work by the City employee responsible for monitoring the project. After the scanning system was implemented, GHS billed the City for the additional work which amounted to $532,033.35. The money wasn’t paid and in 2002, a suit was brought by GHS’ successor against the City for payment of the $532,033.35.

After a bench trial, the district court denied any relief to GHS. In addition to determining that the work was part of the contract, the district court also found that even if the work had been outside the scope of the contract, the fact that the contractual modification wasn’t executed by the City’s chief procurement officer and wasn’t in writing as required both by the City’s municipal code and the contract precluded recovery.

GHS appealed and the Seventh Circuit rendered an opinion upholding the verdict.

So, what’s important for the industry?

The Seventh Circuit held that anyone contracting with a municipality is presumed to know that both the Illinois Municipal Purchasing Act (65 ILCS 5/8-10-16) and any Municipal ordinances pertaining to the contract (in this case Chicago Municipal Code 2-92-050) are in effect. The contractor is also presumed to understand that the authority conferred by such statutes may not confer the authority to authorize payment or alter agreements to the city official who is dealing with the contractor – even though that person may be stating that the additional services are authorized and that payment will be maid.

The appellate court agreed that pursuant to the acts, GHS wasn’t entitled to payment because the procurement officer for the municipality had not approved of the additional services and signed an agreement approving those services, the City was not bound by any agreements to pay for those services. Additionally, because the contractual process for altering the contract was not followed, the City did not have a duty to pay for those additional services. Also, the fact that the city did pay for a small portion of the additional services did not mean that the City could be legally obligated to pay for the rest of the services.

The contractor cannot expect the municipality to pay for the services if the statutes are not followed and the process for amending the contracts isn’t adhered to. A contractor performs additional services at its own peril if the conditions are not met.

On the flip-side, a municipality may find a method through this decision for challenging the additional services performed by a contractor.

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It’s a long time to wait to get paid, but a new Northern District decision has held that the 10-year Statute of Limitations contained at 735 ILCS 5/13-206 governs an engineer’s claim for non-payment of invoices issued pursuant to work performed under a contract.

It’s a debate you may see quite often for construction work given that there is a separate statute in this state that applies a four-year statute of limitations for claims based on many acts or omissions in construction work:

“(a) Actions based upon tort, contract or otherwise against any person for an act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property shall be commenced within 4 years from the time the person bringing an action, or his or her privity, knew or should reasonably have known of such act or omission. Notwithstanding any other provision of law, contract actions against a surety on a payment or performance bond shall be commenced, if at all, within the same time limitation applicable to the bond principal.” 735 ILCS 5/13-214(a).

But that statute does not apply to claims made by a design professional for the owner’s breach of contract by failing to pay invoices.

In Burbach Aquatics, Inc. v. City of Elgin (N.D. Il. Doc. No. 98 CV 4061) an engineer brought a breach of contract action against the City of Elgin for the City’s failure to pay invoices it issued for work it performed under the contract. The complaint can be found here and a copy of a modified 1985 AIA B141 entered into in 1995 between the City and the engineer is attached.

Pursuant to the contract, Burbach alleges that it rendered services for the renovation/replacement of municipal swimming pools and bathhouses owned by the City.

The work was performed and on June 13, 2001; August 9, 2001; and July 2, 2002, the engineer issued invoices for the work. Section 11.5.2 of the contract stated that the invoices were due and payable 20 days from the date on the invoices.

The complaint alleges that Elgin never paid the invoices and on July 17, 2008, Burbach brought suit to collect the $135,559.72 owed under the contract along with the interest owed at 18% per section 11.5.2. (That’s $24,400.75 per year in interest and over the six years is $146,404.50 in interest – more than the amount owed on the contract.) No claim was also brought for the additional interest that also might be owed this engineer under the Local Government Prompt Payment Act (50 ILCS 505/1).

The City filed a motion to dismiss the case saying that the four-year statute of limitations applied and that even if the 10-year statute applied it ran in 2005 because the contract was signed in 1995.

The court disagreed and issued this opinion. In the opinion, the court found that the activity complained of by Burbach giving rise to the breach of contract action was the City’s failure to pay the invoices, and not an activity enumerated in the 13-214 statute. The court cited to two familiar cases, Prate v. Thomas, and Paschen v. Kankakee, both cases involved a breach of contract claim for the failure to pay a contractor for work performed under a contract, where the 13-214 statute was found inapplicable, and held that the 13-206, 10-year statute of limitations applied.

The Court also held that the claims did not arise until 20 days after the date on the invoice since that was how long the City had to pay the invoice and it breached its contract when it failed to do so. The statute of limitations would not expire until 10-years from the 20-day date.

This is yet another reminder that paying attention to these dates in the contracting process, as well as having a decent percentage fee for failure to pay can amount to, as here, a hefty sum if the failure goes on long enough and decreasing the amount of interest may be in the best interest of others.


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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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Over the past two years we’ve seen quite a few Acts from the Illinois legislature regarding the industry and its operations. We’re still waiting on good case law interpreting the contractor prompt payment act. We saw the downfall of the attempt to reintroduce the structural work act. And now we have our first case regarding the act that many parties tried to defeat – the Illinois Employee Classification Act (820 ILCS 185/1 et seq.) (the ECA).

The ECA is a must-know for any contractor in the state that wants to classify the people working for it as an “independent contractor.” Prior to the act, we all know that it was common practice, for whatever reason, to call many employees independent contractors. Pay scales, union dues, liability issues, insurance rates and coverage, even labor laws played a part in the decision to classify someone working for you as someone working for you or someone you’ve contracted with to perform work for you.   The purpose of the act was to allow a statutory remedy for the widespread practice of employing laborers as independent contractors in a manner that circumvented many other obligations someone who was an employer would otherwise have.

The ECA invokes penalties and offers both public and private rights of action for those effected by their misclassification as “independent contractors.” This Synopsis of the ECA is available from the legislature’s website:

“Creates the Employee Classification Act. Provides that an individual performing services for a contractor is deemed to be an employee of the employer. Provides that an individual performing services for a contractor is deemed to be an employee of the contractor unless it is shown that: (1) the individual has been and will continue to be free from control or direction over the performance of the service for the contractor, both under the individual's contract of service and in fact; (2) the service performed by the individual is outside the usual course of services performed by the contractor; and (3) the individual is engaged in an independently established trade, occupation, profession or business; or (4) the individual is deemed a legitimate sole proprietor or partnership. Provides that subcontractors or lower tiered contractors are subject to all provisions of the Act. Provides that he Department of Labor shall post a summary of the requirements of this Act in English, Spanish, and Polish on its official web site and on bulletin boards in each of its offices. Provides that it is a violation of the Act for an employer or entity not to designate an individual as an employee under the Act unless the employer or entity satisfies the provisions of the Act. Provides for civil remedies and civil penalties.”

The ECA was introduced in February of 2007, passed both houses that May and was signed into law by the Governor in August of that year. The ECA took effect on January 1, 2008. 

Up through now, a majority of the claims made under the ECA have fallen by the wayside or been resolved in other venues and usually on other grounds. That looks like it may be changing given that on June 3, 2009, in the case of Chicago Regional Council of Carpenters et al v. Joseph J. Sciamanna, Inc. et al (N.D. IL – Doc No. 08 C 4636), a Northern District of Illinois court denied several parties motions to dismiss the amended complaint (a copy of the amended complaint can be found here) in favor of allowing the action to continue.

The action in Sciamanna was brought by the Chicago Regional Council of Carpenters and several other parties against a contractor and others seeking monetary, equitable and declaratory relief for the alleged misclassification of employees as independent contractors at construction sites building the Hilton Garden Inn hotels in Warrenville and Schaumburg.

Originally filed in state court, the action was removed to federal court by the defendants. In the amended complaint, plaintiffs allege that two of the workers on the site were misclassified under the act by Sciamanna and suffered because of that misclassification by not having been paid wages, employment benefits, proper payroll tax withholdings, FICA payments, Workers Compensation Insurance and payments under the Illinois Unemployment Insurance Act. The amended complaint seeks redress for the failure to properly post notices regarding the ECA at the site and for retaliation against the workers after they filed the suit seeking to exercise their rights under the ECA. Relevant to many employers, the union is also seeking classification as an interested party under the act and that it be granted monetary damages and attorneys fees. This is important given that individual employees may not always have the money or resources to obtain counsel to enforce their alleged rights, but suits brought by their unions for such practices could profoundly change the playing field for contractors practicing in violation of the ECA under the assumption that a single employee – contractor – may not have the ability to enforce their rights.

The opinion rendered by the District Court can be found here.

Parties should be paying attention to this and any other similar cases given that the actual allowance of a per-day fine for violation of the act to the union, or for damages and attorneys fee awards may start to make it incredibly costly for contractors to classify workers as independent contractors without first making sure that the classification comports with Section 10 of the act:

§ 10. Applicability; status of individuals performing service.

(a) For the purposes of this Act, an individual performing services for a contractor is deemed to be an employee of the employer except as provided in subsections (b) and (c) of this Section.

(b) An individual performing services for a contractor is deemed to be an employee of the contractor unless it is shown that:

(1) the individual has been and will continue to be free from control or direction over the performance of the service for the contractor, both under the individual's contract of service and in fact;

(2) the service performed by the individual is outside the usual course of services performed by the contractor; and

(3) the individual is engaged in an independently established trade, occupation, profession or business; or

(4) the individual is deemed a legitimate sole proprietor or partnership under subsection (c) of this Section.

(c) The sole proprietor or partnership performing services for a contractor as a subcontractor is deemed legitimate if it is shown that:

(1) the sole proprietor or partnership is performing the service free from the direction or control over the means and manner of providing the service, subject only to the right of the contractor for whom the service is provided to specify the desired result;

(2) the sole proprietor or partnership is not subject to cancellation or destruction upon severance of the relationship with the contractor;

(3) the sole proprietor or partnership has a substantial investment of capital in the sole proprietorship or partnership beyond ordinary tools and equipment and a personal vehicle;

(4) the sole proprietor or partnership owns the capital goods and gains the profits and bears the losses of the sole proprietorship or partnership;

(5) the sole proprietor or partnership makes its services available to the general public or the business community on a continuing basis;

(6) the sole proprietor or partnership includes services rendered on a Federal Income Tax Schedule as an independent business or profession;

(7) the sole proprietor or partnership performs services for the contractor under the sole proprietorship's or partnership's name;

(8) when the services being provided require a license or permit, the sole proprietor or partnership obtains and pays for the license or permit in the sole proprietorship's or partnership's name;

(9) the sole proprietor or partnership furnishes the tools and equipment necessary to provide the service;

(10) if necessary, the sole proprietor or partnership hires its own employees without contractor approval, pays the employees without reimbursement from the contractor and reports the employees' income to the Internal Revenue Service;

(11) the contractor does not represent the sole proprietorship or partnership as an employee of the contractor to its customers; and

(12) the sole proprietor or partnership has the right to perform similar services for others on whatever basis and whenever it chooses.

(d) Where a sole proprietor or partnership performing services for a contractor as a subcontractor is deemed not legitimate under subsection (c) of this Section, the sole proprietorship or partnership shall be deemed an individual for purposes of this Act.

(e) Subcontractors or lower tiered contractors are subject to all provisions of this Act.

(f) A contractor shall not be liable under this Act for any subcontractor's failure to properly classify persons performing services as employees, nor shall a subcontractor be liable for any lower tiered subcontractor's failure to properly classify persons performing services as employees.

Another interesting point is that the private right of action accrues at the final date of the provision of services and lasts for 3 years. The ECA defines both “construction” and “performing services”:

“Construction” means any constructing, altering, reconstructing, repairing, rehabilitating, refinishing, refurbishing, remodeling, remediating, renovating, custom fabricating, maintenance, landscaping, improving, wrecking, painting, decorating, demolishing, and adding to or subtracting from any building, structure, highway, roadway, street, bridge, alley, sewer, ditch, sewage disposal plant, water works, parking facility, railroad, excavation or other structure, project, development, real property or improvement, or to do any part thereof, whether or not the performance of the work herein described involves the addition to, or fabrication into, any structure, project, development, real property or improvement herein described of any material or article of merchandise. Construction shall also include moving construction related materials on the job site to or from the job site.

“Performing services” means the performance of any constructing, altering, reconstructing, repairing, rehabilitating, refinishing, refurbishing, remodeling, remediating, renovating, custom fabricating, maintenance, landscaping, improving, wrecking, painting, decorating, demolishing, and adding to or subtracting from any building, structure, highway, roadway, street, bridge, alley, sewer, ditch, sewage disposal plant, water works, parking facility, railroad, excavation or other structure, project, development, real property or improvement, or to do any part thereof, whether or not the performance of the work herein described involves the addition to, or fabrication into, any structure, project, development, real property or improvement herein described of any material or article of merchandise. Construction shall also include moving construction related materials on the job site to or from the job site.

With the ECA’s broad classification of both “construction” and “performing services” everyone thinking about calling someone an independent contractor should revisit the issue in light of the ECA and the potential for a cause of action brought by multiple worker or the union.

 

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House Bill 236 has passed both houses and is now awaiting the signature of the Governor. Once signed, the bill will require the stated 10 day notice to home-owners from general contractors placing liens on owner-occupied homes.

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Joshua Glazov over at the Construction Law Attorney Blog has an April 23, 2009, posting about Illinois House Bill 344 which, as introduced, would amend the Illinois Contractor Prompt Payment Act to limit, on a percentage basis, the amount of retainage legally allowed under construction contracts to contractors and subs.

The bill passed the house with the percentage provisions intact and the Illinois Senate now has amended the bill to include a definition of retainage:

(d) "Retainage" means funds that are earned by the contractor but not paid until some agreed upon date, such as the completion of the job.

The senate amendment also eliminates the percentage restrictions on outright retainage and instead has proposed making this bill a restriction on retainage for materials:

(b) Under a construction contract, it is unlawful to withhold retainage on materials required for completion of the construction contract that are delivered to a job site and are billed in accordance with the periodic payments in the construction contract.

This  provision is interesting given that the bill could alter the general nature of invoices by allowing those parties that do not distinguish between materials and labor in their payment applications to parse out the two and demand payment for the materials listed in the  payment applications leaving the owner without recourse to its contract's retainage provision for those payments.

CLAB’s posting lists and links to some advocacy groups that can be contacted to comment on the bill.

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O'Connor Construction Company v. Belmont Harbor Home Development is a classic case in construction dispute damages. The plaintiff filed a mechanics lien against a condominium project after the developer refused to let it complete the project. O'Connor had been the carpentry subcontractor responsible for blocking and for trim finishing. It completed most of its work under its contract and had been asked to work, contrary to the contract, to finish the units as units were sold rather than finishing the project as a whole.

After a dispute over payment applications, O'Connor requested that the developer deliver the materials it needed to complete the project in a timely fashion, and the developer failed to supply the needed materials in a timely way. O'Connor then filed a mechanics lien for the amount it was owed under its contract and refused the developer's demand to rescind the lien. When O'Connor would not rescind its lien, the general contractor terminated the contract with O'Connor.

The facts in the trial court showed that O'Connor's contract price plus extras was $351,989.00. This is what O’Connor would have been paid under its contract if the contract had been completed. It also showed that O'Connor had been paid $175,189.50. The trial court found that O'Connor had substantially completed its contract and that the cost to finish the contract for work that was not performed after O’Connor was let go was $41,200. Using a method of calculating damages that would award damages for the benefit received by the developer from O'Connor's work, the trial court found that O'Connor was owed $50,876.50. On appeal, the appellate court found that this was the wrong measure for damages in both a mechanics lien action and a breach-of-contract action.

The appellate court found that the proper measure of damages owed to O'Connor would be $351,989.00 O'Connor would have received had it been allowed to finish the project minus the $175,189.50 that O'Connor had been paid, and also less the $41,200 it would cost the defendants to finish the work O'Connor was in not allowed to complete. This is in stark contrast with the $50,876.50 figure the trial court had awarded. The appellate court also found that under the mechanics lien statute O'Connor was allowed its attorneys fees where a portion of the payment that O'Connor was owed had not been turned over, and the defendants testified that it was due to O'Connor.

Also worth noting in the opinion is the fact that the mechanics lien statute provides interest at 10% per annum, which was greater than the 5% per annum O'Connor could expect under its contract. As we’ve said before, along with the Contractor Prompt Payment Act the mechanics Lien act provides any party who has not been paid a powerful tool and obtaining payment for services rendered. Knowing that in a fixed-price contract, there is a certain expectation you may have when someone else breaches your contract, using the mechanics in statute to get that payment back allows you a remedy that you otherwise might not have… and awards damages in a manner similar to contractual damages and possibly not just for damages in line with the benefit someone has received from your work.

In a day and age when attorneys fees can become a considerable hindrance to the prospect of recovering on low-cost contracts – it is worth noting that payment held without just cause can  entitle someone to remuneration for the fees of having to bring a court action under the statute.

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Those of you follow our blog know that we've been waiting for the Illinois Supreme Court's Weather-Tite decision for quite some time. The facts of Weather-Tite were undisputed.  The University hired a general contractor who hired subs for the renovation of a residence hall. On five different occasions, the general contractor submitted sworn statements in accordance with the Illinois Mechanics Lien Act to the University requesting payment.

After receiving monies for each of the first four sworn statements, the University paid the general contractor the amount listed on each statement. For the last statement, the University paid the money to the general contractor but the bank where the funds were deposited exercised a right of set-off and took the money from the account of the general contractor before the subcontractors were paid the amounts reflected in the general contractor's last sworn statement.

Several of the subcontractors including Excel filed mechanics lien claims against the University for payment. The University was awarded summary judgment on the Excel claim in the trial court, following a determination that Excel did not have a valid lien pursuant to Section 5 of the Mechanic's Lien Act, the appellate court reversed and the decision was appealed to the Illinois Supreme Court.

In the Supreme Court, the University argued that section 5 of the Mechanics Lien Act only required it to pay the amount listed on the general contractor's sworn statement to the University. Excel argued that under section 5, and in conjunction with other sections of the Act, the university was required to withhold the amounts listed on the general contractor's sworn statement shown due to Excel.

The Illinois Supreme Court has agreed with arguments contrary to those of the University advanced by Excel and the opinion is informative to anyone working on a construction project. The Illinois Supreme Court has ruled that Section 5, read in conjunction with sections 27 and 32 of the Illinois Mechanics Lien Act, requires that any owner receiving a contractor's sworn statement withhold the funds noted on the statement for payment directly to the subcontractor(s). Failure to withhold the funds subjects the owner to the possibility of a mechanics lien against its property if payments are made to the contractor and the contractor in turn fails to pay the subcontractor. The opinion is not only well written, it is extremely informative and delineates certain guidelines a party should follow when paying for work.

As delineated by the court, it was the intent of the Illinois legislature that there be an orderly method for conducting construction transactions to protect subcontractor claims: (1) The owner and general contractor enter into a contract for the construction work; (2) as the work is completed, the general contractor submits a section 5 sworn affidavit that must list all subcontractors and the amount due, or to become due, or advanced; (3) when the section 5 sworn affidavit lists an amount due or to become due a subcontractor, section 24 requires the owner retain sufficient funds to pay the subcontractor; and (4) section 27 requires the owner to make subcontractor payments upon receiving notice of a subcontractor claim pursuant to a section 5 sworn statement. To protect itself an owner can require a lien waiver be provided by a contractor when the subcontractor is paid and the owner can require a lien waiver by every subcontractor when paying the contractor.

In supporting its opinion, the court looked to the Knickerbocker decision of 1914 in the Luczak Brothers decision of 1983.

The Weather-Tite opinion represents sound guidance that the general contractor's sworn statement provides the owner notice of subcontractor claims and imposes a duty on the owner to retain funds sufficient to pay those subcontractor claims. Owners should be aware that if the contractor's sworn statement shows monies owed to the subcontractor the owner should withhold those funds for payment directly to the subcontractor or wait to release those funds until a waiver is provided.

The delineation of construction project payment procedures along with a sound interpretation of section 5 and the requirements given to owners should provide a decent path for anyone to follow regarding when payments can be made to a contractor and what should be requested of the contractor when the owner believes that there may be subcontractors on the project. For subcontractors, in order to avoid an owner's claim that it had no knowledge that a subcontractor was performing on the project, the subcontractor's 60 day notice of performing work on the project should probably be sent at the beginning of the project. Once all parties have knowledge of who is working on the project and who is responsible for payment, the current problem of the possibility of a contractor failing to pay the subcontractors and liens being placed on the premises or the possibility of a contractor going bankrupt before subcontractors are paid funds advanced by the owner can ultimately be lessened or done away with entirely.

 

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House Bill 236, which alters the Illinois Mechanic’s Lien Act and requires contractors on single-family homes to provide a notice to the home-owners of the filing of a lien within ten days of recording has passed the Senate (as amended) and is now back in the House for approval of the amended bill.

For those of you looking for more information, our other posts on this topic contain a bit more detail.

 

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We first wrote on the travails and accomplishments of Mr. Schultz back in 2008. The case involves the Illinois Drainage Code and will be important to any land owner, particularly farmers.

The case was granted leave to appeal and has now been argued in front of the Illinois Supreme Court.

As in the previous court, Mr. Schultz argued the case himself. Video of the argument can be found here. 

If you listen to the argument, you'll see that the attorneys for the Halpin's are arguing that the appellate court essentially re-tried the case at the appellate level and that the appellate decision was against the manifest weight of the evidence and that the appellate court abused its discretion.

This will be an important decision for developers and those who represent them.  We may end up seeing confirmation of the appellate court's constitutional concern:

"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."

 

 

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We wrote about HB 236 for the first time back when it was introduced here, and criticized its lack of clarity. When the bill was then amended we wrote about it again, here, and again asked why the bill couldn’t be as specific for the service of notice as other portions of the Mechanic’s lien act, so that contractors, architects, engineers, or anyone practicing in Illinois who could be planning to file a lien could have a little more specificity.

Well, the HB 236 was passed out of the Illinois House after the last amendment and in the Senate, it has finally been amended to address those concerns we’ve raised.

In lieu of amending Section 1, the new proposed Senate Amendment 001 would amend Section 7 by adding paragraph notations “a” through “c” to the already existing paragraphs of Section 7 and then would add the following:

 (d) A contractor for improvements of an owner-occupiedsingle-family residence must give the owner written noticewithin 10 days after recording a lien against any property ofthe owner. The notice is served when it is sent or personally delivered. If timely notice is not given and, as a result, theowner has suffered damages before notice is given, the lien is extinguished to the extent of the damages. The mere recording of the lien claim is not considered damages. This subsection does not apply to subcontractors, and it applies only to contracts entered into after the effective date of this amendatory Act of the 96th General Assembly.

For some reason, the Illinois Construction Industry Committee has yet to weigh in on this bill. It appears that the movement in the Senate may be as fast as the movement in the House.

Depending on how you want to spin this, it’s either an added protection for home-owners or another burden to the general contractors involved in home projects.

My personal take is that the ten-day requirement is not a burden in the least and that, since we traditionally treat home-owners differently (i.e. bankruptcy, the home repair and remodeling act) there’s no reason not to let a home-owner know that someone they’ve contracted with directly is claiming that they have not been paid.  After all, we make subs notify the home-owner as well.  Dropping a piece of mail into a post-office box after you’ve filed the lien isn’t going to lead to the end of enforceable Mechanic’s Liens.

 

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In 1990, Congress enacted the Americans with Disabilities Act (ADA) to provide a clear and comprehensive national mandate for eliminating discrimination against individuals with disabilities. Upon enactment of the ADA, the United States Supreme Court became constitutionally obligated to interpret and enforce the law in a manner consistent with Congress’s directives. But as a result of several prominent Supreme Court decisions in ADA cases, legislators in Congress have become displeased by the manner in which the law has been interpreted. In response, Congress has passed the ADA Amendments Act of 2008 (ADAAA), effectively expanding the scope of the original law.

Congress found that the Court has “narrowed the broad scope of protection intended to be afforded by the ADA, thus eliminating protection for many individuals whom Congress intended to protect.” Moreover, Congress found that the definitions of two seminal legal terms used by the Equal Employment Opportunity Commission (EEOC) were inconsistent with Congressional intent because they expressed too high a standard for individuals seeking protection under the law. Thus, Congress drafted the ADAAA with the goal of correcting the judicial contraction of the ADA’s scope, as well as the EEOC’s expansion of several of the ADA’s minimum applicability thresholds.

Although the ADA prohibits discrimination on the basis of disability in several different areas, the ADAAA will likely have its greatest impact in the employment context, requiring employers with 15 or more employees covered by the ADA to adjust their policies and procedures to comply with the ADAAA. Some of the new law’s significant provisions are described below.

Effect on Construction and Design Professionals

Congressional intent is clear from the Amendments Act’s findings and purposes. Employers and other entities covered by the ADA can no longer rely on the Sutton trilogy or Toyota. Nearly two decades of federal court decisions interpreting the new rules will affect construction of new facilities and alterations of existing buildings at places of public accommodation, including, but not limited to, retail stores, restaurants, recreation and entertainment facilities, sports facilities, hotels, motels, resorts, healthcare facilities, educational institutions, and service offices. The revised ADA Standards also apply to new construction and alterations of commercial facilities (i.e., facilities whose operations affect interstate commerce) and to state and local government facilities.

Many questions remain unanswered. For example, what does “materially restricts” mean? What are transitory impairments and how should the six-month duration rule apply? When is an impairment episodic or in remission? How will courts apply the major life activities of concentrating, thinking, and communicating? What other major life activities and mitigating measures were not enumerated in the Amendments Act?

Scope of “Disability” Broadened
Determining an individual’s entitlement to protection under the ADA hinges on whether or not that individual suffers from a “disability,” as the term is defined by the ADA. Although other terms and phrases found within the definition of disability have been changed by the ADAAA, the definition of “disability” itself was not. However, what the ADAAA does do is state that “the definition of disability…shall be construed in favor of broad coverage of individuals under [the ADA], to the maximum extent permitted by the terms of [the ADA].” This provision was included in the ADAAA to reinstate the broad scope of protection afforded by the ADA that, in the view of the Congress, the Supreme Court has improperly narrowed.

List of “Major Life Activities” Expanded
To qualify as a disability under the ADA, a physical or mental impairment must substantially limit “one or more major life activities” of an individual. In one Supreme Court decision legislatively overruled by the Congress’s enactment of the ADAAA, the Court had held that the word “major” in this context “need[s] to be interpreted strictly to create a demanding standard for qualifying as disabled.” In the ADAAA, however, Congress has explicitly rejected this standard as contrary to the broad scope of protection that is available under the ADA.

Loosening of “Substantially Limits” Requirement
While under the ADA a physical or mental impairment must “substantially limit” one or more major life activities, the ADAAA includes several provisions that loosen this requirement. First, the ADAAA rejects the Supreme Court’s requirement that the word “substantially” be interpreted strictly to create a demanding standard for individuals seeking to qualify as disabled. Furthermore, the ADAAA rejects the Supreme Court’s rule that the word “substantially” be read to mean “prevents or severely restricts.” In this regard, the ADAAA significantly reduces the degree of impairment required for protection under the ADA.

Second, the ADAAA provides that an impairment that substantially limits one major life activity need not limit other major life activities to be considered a disability. Third, the ADAAA provides that an impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when it is active.
Finally, the ADAAA provides that the determination of whether an impairment substantially limits a major life activity shall be made without regard to the ameliorative effects of mitigating measures such as medication, prosthetics, hearing aids, mobility devices, and oxygen therapy equipment. This provision in the new law expressly overrules a case in which the Supreme Court held that determining whether an impairment substantially limits a major life activity requires reference to the ameliorative effects of mitigating measures. However, there is an important exception to this rule—one that states that the ameliorative effects of ordinary eyeglasses or contact lenses shall be considered in determining whether an impairment substantially limits a major life activity.

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

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It’s Friday, so you know what that means, we bring you a collection of the complaints in some of the latest suits filed regarding matters touching on the industry:

• Sure to be of interest to Chicago White Sox fans, Pacific Construction has brought a  breach of contract claim against Maverick Pools. The complaint alleges that Maverick breached the contract by “refusing to unload and install” two pre-manufactured pools and to construct a thermal pool. The damages sought are in excess of $107,496.00.

• The complaints and allegations regarding the current mortgage crisis and the industry are likely just beginning. In this suit, a class action suit for federal securities violations is brought against Corus Bank and several others. The allegations are that Corus failed to tell investors that it was buying condominiums at prices that were inflated in developments financed by Corus and that the purchases caused inflated appraisals which led to inflated values on Corus’ books… So the bank allegedly didn’t actualize the proper losses on the loans it had made for the condominiums.

• In one of the weirder suits we’ve seen over the past year, some owners allege that a building was built on their land without their knowledge. Gavric v. Brosna Construction alleges that the defendants owning a parcel adjacent to the plaintiffs’ constructed “a three story, sub-standard, apartment building” on their property illegally. The complaint alleges trespass, conversion, negligence, seeks termination of a lien placed on their land by the contractor who built the project, a count for slander of title, and seeks remedy under Illinois Forcible Entry and Detainer Act. (735 ILCS 5/9-101 et seq.)

• In a home defect case, Rangel v. Jumic, et al, alleges that defendants failed to disclose material defects that they were aware of prior to the sale of a home to plaintiffs. The defects complained of include problems with the heat distribution system, water infiltrating through the masonry, cracks in portions of the home and problems with the hardwood floors. The suit contains counts for breach of contract, breach of the implied warranty of habitability and fitness for a particular purpose and violations of the Illinois Residential Real Property Disclosure Act. (765 ILCS 77/1 et seq.)

• Finally, a condominium association has brought a suit against the developer of its property at 1255 South State Street as well as the owner of the garage in which residents of the condominium park. The complaint alleges that the developers deal with the owner of the garage and the effect of forcing a fee for parking in the garage that a recorded Declaration had on the plaintiffs was not disclosed to the plaintiffs. Prior to November of 2007, the residents had access to the garage and their parking spaces by use of “a remote clicker” provided by the garage owner and that in November of 2007, the garage owner installed a parking “toll system” that restricted the residents ability to come and go from their parking spaces.  There are several problems with the transponders alleged in the complaint among them, that the new parking system is not a benefit to the users of the property, that the residents were not properly informed of its installation, and that the owner has improperly requested that the residents pay for a portion of the new system. The residents seek a declaratory judgment regarding the new parking system and their rights granted by easement, and allege breach of fiduciary duty, fraud and consumer fraud.

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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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Take a look at that beautiful aerial of Chicago’s City Hall from the Cook County Assessor’s Interactive Mapping Site (the left side with the beautiful garden, that’s it… the right side that’s simply roof… that’s the county’s side). It has a Property Identification Number (PIN), it can be located, but you can’t lien it - it’s public property.

More pertinent to today’s discussion is this:

 

 

 

 

 

 

 

The Irving Park Brown Line stop… again, a public space, recently renovated and again, you can’t lien it… it’s public.  Anyone getting ready to work on building projects for Chicago's hopeful 2016 Olympic bid will want to familiarize themselves with ways to get paid for public works projects.

Section 23 of the Illinois Mechanics Lien Act governs the application of the act to public projects, or rather, to the public funds behind the public project. The distinction is important because unlike a regular action, Section 23 only allows a person performing work for someone who has a contract with the public entity (or someone in the chain of such contracts – but certainly not those entities contracting directly with the public body) who has performed work on a public project to place a lien on public funds dedicated to that project… and only on those funds that haven’t been disbursed by the time it notifies the public entity in charge of the project that it is claiming a lien.

Time is of the essence in exercising your mechanics lien rights on these public funds. You need to get the notice on file as soon as possible so there will still be a chance that funds are left, and then you’ll be forced to file a court action within 90 days after your notice is received or you will lose the rights. An attorney can walk you through the process, but suffice it to say, timing is important, and so is getting the notice right.

To that end, today’s case involves exactly such a lien for work done on the Brown Line Renovation Project mentioned above. Here is a copy of the complaint. EMCO Metalworks is suing the CTA and McHugh for foreclosure of its mechanics lien on the public funds and for breach of contract. The electronic case docket can be found here.

The complaint will be informative not only for the pleading, but also for the notice provided as Exhibit C.

The lessons about timing and making sure you’re ready cannot be overlooked when you know you will be filing suit within 90 days of the notice if you have not been paid.

 

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We’ve been following this mechanic’s lien case for you and wrote about the appellate court opinion here, and the decision to allow appeal here. Now that oral argument has occurred, we can soon expect the opinion, but before that happens, here’s something you’ll want to watch… the video of the oral argument. (.wmv file new window)  A link to just the Audio is available as well. (new window)

 

 

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That’s right, you’ve seen them everywhere, and we’ve been watching HB 1142 for some time. Now that the bill is out of out of committee and has been properly amended, it’s worth being aware of.

The bill seeks to create the “Manufactured Housing Buyer Protection Act.” Introduced by Representative Michael W. Tryon (R – Crystal Lake) the full text of the bill can be found here.

From the Illinois Congressional Website, the bill:

“Provides that, if, after a reasonable number of attempts, the seller of a manufactured housing unit is unable to conform the manufactured housing unit to any of its applicable express warranties, then the manufacturer must either provide the consumer with a new manufactured housing unit of like model line, if available, or otherwise a comparable manufactured housing unit as a replacement, or accept the return of the manufactured housing unit from the consumer and refund to the consumer the full purchase price or lease cost of the new manufactured housing unit, including all collateral charges, less a reasonable allowance for consumer use of the manufactured housing unit, but only when the consumer has first resorted to an informal settlement procedure applicable to such disputes. Provides that persons electing to proceed and settle under the Act are barred from a separate cause of action under the Uniform Commercial Code. Provides guidelines for commencement of such actions. Requires the seller who sells a new manufactured housing unit to a consumer, upon delivery of that manufactured housing unit to the consumer, to provide the consumer with a written statement clearly and conspicuously setting forth in full detail the consumer's rights under specified provisions of the Act. Makes the Act applicable to manufactured housing sold after the effective date of this Act.”

The only amendment to the bill has changed the definition of Manufactured Housing in the Act to coincide with the definition of Manufactured Home from the portion of the Illinois Administrative Code governing Modular Dwellings and Mobile Structures (77 Il. Adm. Code 880.10) which reads:

"Manufactured Home" means a structure that is transportable in one or more sections that, in the traveling mode, is 8 body feet or more in width or 40 body feet or more in length or, when erected on site, is 320 or more square feet; that is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities; and that includes the plumbing, heating, air-conditioning, and electrical systems contained in the structure.  These units previously were known as "mobile homes".  The construction of these units is regulated by the federal Department of Housing and Urban Development.

If you take a look at the amendment, it looks like the bill is excepting those Manufactured Homes that have a permanent foundation.

Of note to those involved in the installation, purchasing, or manufacturer of this form of housing is that an informal mediation/dispute resolution procedure has been added for the parties pursuing their rights under this act. Also, the election to proceed under the act would mean that a party cannot sue under the UCC. Finally, everyone should be aware that an 18 month statute of limitations is created by this act that runs from the date the housing unit is delivered to the consumer.

The process involved in making this type of housing is the subject of an interesting three-part video from Behind the Scenes (link to Part 1) over at Youtube.

The other parts of this video can be found here:

Part 2

Part 3

 

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

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

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

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

 

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The Sun-Times has a short piece today on SB 0456 which became Public Act 95-0998. We first reported on this bill back in May of 2008. The Sun-Times’ article reflects that the bill will go into effect on June 1. If you scroll down to Sec. 3-102(h), you’ll see that the failure of the notary to get the fingerprint as part of the record doesn’t mean much outside an allegation of fraud:

(h) The failure of a notary to comply with the procedure set forth in this Section shall not affect the validity of the Residential Real Property transaction in connection to which the Document of Conveyance is executed, in the absence of fraud.

Also, if you’re a property owner with some reason to worry about providing your thumbprint, the act has a provision regarding how and when these records will be disclosed:

(i) The Notarial Record or other medium containing the thumbprint or fingerprint required by subsection (c)(6) shall be made available or disclosed only upon receipt of a subpoena duly authorized by a court of competent jurisdiction. Such Notarial Record or other medium shall not be subject to disclosure under the Freedom of Information Act and shall not be made available to any other party, other than a party in succession of interest to the party maintaining the Notarial Record or other medium pursuant to subsection (d) or (e).

The weirdest part about the whole act is that most of the changes will be nullified by the statute’s own language on July 1, 2013 unless the legislature acts by then to amend the law:

(k) Subsections (a) through (i) shall not apply on and after July 1, 2013.

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The Skyline is posting on the City’s appeal of the First District’s recent decision regarding the City of Chicago’s Landmarks ordinance in Hanna v. City of Chicago (Doc. No. 1-07-3548).

This case will go to the Illinois Supreme Court and Illinois towns are lining up to join in the appeal. Student’s at Northwestern’s Medill School of Journalism have put together an informative article and interview regarding this case.

Quite a lot of commotion has been tossed around regarding the opinion of the appellate court. Some people see it as declaration that the landmarks ordinance is unconstitutional, but the truth is that the appellate court seemingly went out of its way in the opinion to say that they were simply stating that the plaintiffs had put enough information in their complaint to state a claim against the city on the grounds that the ordinance is unconstitutional.

The Court agreed that the terms in the ordinance could be construed as vague and that the provision of the act which allows the landmarks commission’s recommendation to become enacted if the city council does not take final action within 365 days of the recommendation.

We will follow up on this case as it progresses, but it does not appear to be the windfall for the plaintiffs that some of the articles are making it out to be.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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Our Illinois General Assembly has a proposed amendment to the Improvement to Real Property statute.

Here is the issue...that statute at sub-paragraph (b) talks about a four year period to assert claims arising out of improvements to real property.  The Illinois Contribution Among Tortfeasors Act addresses a two year period in which a party defendant can assert a right of contribution against a tort-feasor. 

Here is the disconnect, in a tort case arising out of an improvement to real property, must the contribution right be asserted in the two year period per the Ill. Contribution Among Joint Tortfeasors Act or is a four year period afforded the right of action as suggested by sub-paragraph (b) of the Ill. Improvement to Real Property statute.

I was under the impression that the Contribution Act controlled the issue and that a defendant had to observe the two year limitation.  The legislature wants to make that very clear in the proposed House Bill which at sub-paragraph (f) makes explicit the contribution limitations period controlling.

You can track the Bill here.

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We had previously written about this proposed amendment to the Illinois Mechanic's Lien Act.  HB 0236 originally would have required notice to home-owners from original contractors prior to filing a lien.

The new amendment alters the bill substantially, changing its nature from a bill requiring pre-filing notice to a bill that creates a post-filing step for contractors.

The amendment turns the bill into one creating a requirement that a contractor provide the owner written notice by certified mail within 10 days of the recording of the lien.

This is really pointless.  A contractor would certainly want the owner to have notice after the lien has been filed because usually those filing liens are trying to get paid without the heavy cost of litigation.  The whole point to filing the lien is that you have one more bargaining chip in getting the money you're owed and also have an extra claim if you need to collect in court.  So what kind of contractor wouldn't or doesn't let the owner know that a lien is in place?

Additionally, when will "notice" be considered served.  Under Section 24 (770 ILCS 60/24) for subcontractors:

"notice by registered or certified mail is considered served at the time of its mailing."

Here, we have not added the caveat for contractors.  Why?  Do we seek to completely strip a contractor of its rights if it can't get the home-owner to sign for the certified mail?  And why was this changed from a pre-filing requirement to a post-filing measure?

 

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

Blair Kamin over at the Chicago Tribune’s Skyline Blog has posted some interesting stories:

Today’s is a piece on Chicago philanthropist Richard Driehaus’ announcement at a Landmarks Illinois event on Saturday night of the creation of grant program to preserve Historic Illinois Courthouses – certainly of interest to anyone in the restoration business.

Skyline also has this piece featuring an article about the new Blue Chip Casino Hotel  in Michigan City by Chicago architect Lucien Lagrange.

Additionally, the best video of the Trump spire going into place comes from the Tribune.

The South Carolina Construction Law Blog has an article detailing a New York case interpreting a New York statute similar to Illinois’ own Construction Contract Indemnification for Negligence Act. The Illinois statute has become a must-know for anyone in the industry since the Virginia Surety decision and carries the possibility of drastically altering the limitation of liability that would otherwise be in place for parties under the worker’s compensation statutes.

We’d also like to be the first to welcome the Chicago Construction Law Developments blog to the blogosphere. Illinois is gaining independent information sources for its construction industry at a fast pace.

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It’s unclear if we can go a week without attempting to amend the Illinois Mechanic’s Lien Act to accomplish what the Mechanic’s Lien Act could accomplish if Section 32 were just removed.

Last week we wrote this entry on HB 0236 which sought to keep contractors from filing liens without first providing written notice to the owner.

This week, State Senator Pamela J. Althoff has introduced SB 2073 which would bar a subcontractor from any remedy under the act for work on owner-occupied single-family homes unless the contractor’s written agreement with the home-owner includes this statement:

  "THE LAW REQUIRES THAT THE CONTRACTOR SHALL SUBMIT A SWORN STATEMENT OF PERSONS OR SUBCONTRACTORS FURNISHING LABOR, SERVICES, MATERIAL, FIXTURES, APPARATUS OR MACHINERY, FORMS OR FORM WORK BEFORE ANY PAYMENTS ARE REQUIRED TO BE MADE TO THE CONTRACTOR."

IT IS IMPORTANT THAT YOU READ AND UNDERSTAND THE DUTIESTHAT YOU HAVE AS AN OWNER OF THE PROPERTY TO THE CONTRACTOR  AND TO ANY SUBCONTRACTOR THAT THE CONTRACTOR USES. THESE  DUTIES ARE PRINTED AND INCLUDED IN THIS CONTRACT UNDER THEHEADING NAMED "PROPERTY OWNER'S DUTIES UNDER THE LAW".

The underlined portions are the one’s being added.

The Illinois Construction Industry Committee doesn’t have anything up on its website about this bill yet.

A few comments…

Adding “or subcontractors” to the language of the already required statement accomplishes nothing. Subcontractors are included as “persons” in that statement.

This bill requires that a new section entitled “Property Owner’s Duties Under The Law” be included in all contracts, but adds nothing to the Act about what that portion of the contract should say and doesn’t enumerate the duties that need to be included in the statement. Does this amendment seek to now impose a duty to include in contracts a complying section and list every duty owed by a property owner under the law? - Does that mean the Act or the entirety of the Law?

The Amendment also adds the following penalty provision:

  (iv) The failure of a contractor to include thestatement contained in paragraph (i) on the face of the contract relieves the owner of the property of any legalobligation to pay any subcontractors under this Act.

Normally, the contractor couldn’t give away the rights of the sub, but since the act is a legislative remedy, the legislature is free to divine the methods and remedies it affords those performing construction work. But what has a subcontractor done by performing work and not getting paid that it would even have a chance to rectify at the time the owner and the contractor enter into an agreement? Usually, subs aren’t even involved in the process at the time the contract is entered into. We understand the goal is to protect home-owners, but why punish the subs?

Again, Section 32 of the Act, that strips the Act's remedies for the home-owner’s already made payments from the home-owner for failure to request and exercise its rights under the Act, could be removed and the home-owner would not have to pay the monies it has already paid for the benefit of the subs to the subs again if the contractor has failed to pay those monies out.

 

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

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

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

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

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

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

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

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

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

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

The full opinion can be found here.

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With all the talk recently of Ethics in State Government and the recently enacted mandates about State Contracting, we thought we would take the time to inform our readers about the topic.

Illinois law, (Public Act 95-971; 10 ILCS 5/9-35; 30 ILCS 500/20-160 and 30 ILCS 500/50-37) requires that vendors register with the State Board of Elections; requires that a copy of the registration with the Board of Elections be submitted with bids/proposals for State contracts; and requires contract certifications of State Vendors; and restricts political contributions to State Officers and Congressional Representatives by State Vendors and their affiliated entities.

a.            The Brief Timeline of the Act

In an effort to establish new restrictions on campaign contributions and solicitations for contract awards by state contractors and bidders, Governor Rod Blagojevich issued Executive Order Number 3 on August 26, 2008. The intention of the Executive Order was the enhancement of transparency in the State procurement process and to ensure that the award of State contracts is based solely upon price, quality, service and other merit-based factors. “What all State vendors need to know about new ethics requirements” Fact Sheet, Illinois Department of Central Management Services, accessed February 24, 2009.

Following the Governor’s lead, the Illinois Legislature passed its own version of the Executive Order into law on September 25, 2008, as Public Act 095-0917. The Executive Order contains restrictions that appear to be broader than the Act. The effect of passing the Act into law was to take an Order that could otherwise have been rescinded by a successive Governor and turn it into a law that arguably, is less stringent than the order.

The Act and Executive Order took effect January 1, 2009.

b.            The Entities Impacted By the Act

The Act and Order basically apply to any for profit entity or an affiliated entity of a for profit entity in the State of Illinois that has bids or proposals on State Contracts exceeding $50,000; is awarded State Contracts exceeding $50,000; or a combination thereof exceeding $50,000.  

Under the Act, State Contracts are contracts with any State Agency including all boards, commissions, agencies, institutions, authorities, and bodies politic and corporate of the State, created by or in accordance with the Illinois Constitution or State Statute, of the executive branch of State government and includes, colleges, universities, public employee retirement systems, and institutions under the jurisdiction of the governing boards of the University of Illinois, Southern Illinois University, Illinois State University, Eastern Illinois University, Northern Illinois University, Western Illinois University, Chicago State University, Governors State University, Northeastern Illinois University, and the Illinois Board of Higher Education. 30 ILCS 500/50-37.

Pursuant to Executive Order No. 3 the following and their boards of directors/governors are also included:

Capital Development Board

Department on Aging

Department of Agriculture

Department of Central Management Services

Department of Children and Family Services

Department of Commerce and Economic Opportunity

Department of Corrections

Department of Employment Security

Department of Financial and Professional Regulation

Department of Healthcare and Family Services

Department of Human Rights 

Department of Human Services

Department of Juvenile Justice

Department of Labor

Department of Military Affairs

Department of Natural Resources 

Department of Public Health

Department of Revenue

Department of State Police

Department of Transportation

Department of Veterans’ Affairs

Governor’s Office of Management and Budget

Guardianship and Advocacy Commission

Historic Preservation Agency

Illinois Arts Council

Illinois Criminal Justice Information Authority

Illinois Emergency Management Agency

Illinois Finance Authority

Illinois Housing Development Authority

Illinois Investment and Development Authority

Illinois Power Agency

State Fire Marshal

“A State contract is any type of agreement between a State agency and a business entity that is governed by the Illinois Procurement Code, including contracts for the procurement, use or disposal of supplies, services, professional or artistic services. A State contract also includes construction contracts, leases of real property, or capital improvements contracts, including master contracts, contracts for financing through use of installment or lease-purchase arrangements, renegotiated contracts and change orders. State contracts governed by the new ethics requirements do not include cost reimbursement contracts; purchase of care contracts as defined by Section 1-15.68 of the Illinois Procurement Code; grants, including but not limited to grants for job training or transportation; and grants, loans or tax credit agreements for economic development purposes.” Illinois Department of Central Management Services Fact Sheet.

The Act also applies to any affiliated entities of those entities covered by the Act. The Act defines affiliated entities as:

“i) any subsidiary of the bidding or contracting business entity, (ii) any member of the same unitary business group, (iii) any organization recognized by the United States Internal Revenue Service as a tax‑exempt organization described in Section 501(c) of the Internal Revenue Code of 1986 (or any successor provision of federal tax law) established by the bidding or contracting business entity, any affiliated entity of that business entity, or any affiliated person of that business entity, or (iv) any political committee for which the bidding or contracting business entity, or any 501(c) organization described in item (iii) related to that business entity, is the sponsoring entity.” 30 ILCS 500/50-37.

If an entity questions the Act’s applicability the following examples from the State of Illinois Fact Sheet in assessing the matter are helpful:

c.             The Requirements and Restrictions Placed on Those Affected by The Act

Executive Order Number 3 (2008) and Public Act 095-0971 place requirements and restrictions on their affiliated entities and all affiliated persons. 

An Affiliated Person is described under the act as:

“(i) any person with an ownership interest or distributive share of the entiy or an Affiliated Entity in excess of 7.5%, (ii) an executive employee of the entity or an Affiliated Entity, or (iii) the spouse or minor child of anyone covered by (i) or (ii).” 30 ILCS 500/50-37

Any qualifying business entity is required to register with the State Board of Elections pursuant to the Illinois Election Code 10 ILCS 5/9-35. Any qualifying entity must submit certification to the State procurement officer in charge of its qualifying contracts stating that it has registered and it must provide proof of registration when bidding on future contracts pursuant to the Illinois Procurement Code 30 ILCS 500/20-160. Any business entity, affiliated person or affiliated entity is prohibited from making political contributions as described in the Illinois Procurement Code 30 ILCS 500/50-37.    

1.            REGISTRATION

 

Pursuant to the Act and Executive Order Number 3, all qualifying entities were required to register with the State Board of Elections by January 31, 2009. If an entity has not registered with the State Board of Elections, the directions for registration may be found at:

http://www.elections.il.gov/BusinessRegistration/RegistrationProcess.aspx

And the proper form for registration may be found:

http://www.elections.il.gov/Downloads/BusinessRegistration/PDF/BEREPForm.pdf

The form must be completed and submitted to the State Board of Elections as described in the directions. The form must include the information regarding all “affiliated entities” and all “affiliated persons” for the entity.

After registration, the Board of Elections is required to provide a “certificate of registration” to the entity. The statute mandates that this certificate will be electronic and accessible through the State of Illinois Board of Elections website. However, the Board currently lacks the resources to fulfill this provision, thus, it is currently time-stamping copies of the first page of the registration forms and returning them to the registering entity to serve as the certificates of registration. State Board of Elections, BEREP Procedures website (last accessed February 24, 2009).  Here's a little more on this topic from the Illinois Issues Blog.

2.            CERTIFICATION

The Act imposes some affirmative duties on qualifying entities and their affiliates regarding the certification of its registration including:

               

I.             Within 10 days of registration, the entity must provide a copy of the certificate to each affiliated entity and affiliated person disclosed in the registration form.

II.                  The entity must notify all political committees to which it contributes, at the time of contribution, that it is registered with the State Board of Elections. Each of the entity’s affiliated entities or affiliated persons must also notify the political committees to which they contribute, at the time of contribution, that they are affiliated with the entity, which is registered.

III.                Every bid or proposal submitted by the entity for a State Contract after January 1, 2009, must be accompanied by a copy of the certificate of registration received after registration has been sent to the Board of Elections.

IV.                Every State Contract the entity receives after January 1, 2009, should contain a statement that the entity has registered as a business entity with the State Board of Elections and acknowledging the entity’s continuing duty to update its registration. The contracts will also include a statement that the contract is voidable for the entity’s failure to update its registration.

V.                  By March 31, 2009, the entity must submit a copy of the certificate of registration all of the applicable chief procurement officer(s) for the entity’s contract(s):

There are 5 Chief Procurement Officers for the State. 

·         For contracts for vertical construction or vertical construction-related services, the Chief Procurement Officer is the Executive Director of the Capital Development Board.

·         For contracts for highway construction or highway construction-related services, the Chief Procurement Officer is the Secretary of the Illinois Department of Transportation.

·         For contracts for procurements made by a public institution of higher education, the Chief Procurement Officer is designated by each public institution of higher education.

·         For contracts for procurements made by the Illinois Power Agency, the Chief Procurement Officer is the Director of the Illinois Power Agency.

·         For all other procurements, the Chief Procurement Officer is the Director of the Department of Central Management Services.

VI.                The entity has a continuing duty to ensure that the registration is accurate, and must report any change in information to the State Board of Elections within the time periods set forth in Public Act 95-0971. Notify the BOE within 10 days of any change if a contract is in place, within 2 days of any change if a bid or proposal is pending.

VII.              The entity has a duty to keep the registration information up to date for 2 years following the completion of any State Contract.

3.            ENTITY’S and AFFILIATE’S POLITICAL CONTRIBUTION RESTRICTIONS

                The Act and Executive Order Number 3 impose some restrictions on the entity, its affiliated entities and affiliated persons contributions to political campaigns. The following restrictions appear to apply to all three groups:

I.                    Contributions cannot be made to any political committees established to promote the candidacy of the officeholder responsible for awarding any of the contracts the entity currently has or bids on. From the time of the term of office of the officeholder to 2 years following the expiration of the contract, whichever period is longer.

II.                  Contributions cannot be made to any candidate for the office responsible for awarding contracts that entity currently has or bids on. For 2 years following the completion of the contracts.

For the purposes of these rules, the Lieutenant Governor, Attorney General, Secretary of State, Comptroller and Treasurer are the responsible officeholders for the contracts awarded by their agencies. For all other contracts awarded by executive branch state agencies, the Governor is considered the responsible officeholder. 

Additionally, if the contract or bid is with one of the above listed executive branch agencies, Executive Order No. 3 prohibits:

III.                The entity and its affiliates cannot solicit a political contribution on behalf of or make a political contribution to any State office or declared candidate for state office or any political party. Note: this apparently includes any member of the general assembly and any other state office. These restrictions are in place for two years after the contract ends or until the bid is awarded.

IV.                The entity will be required to certify that no such contributions have been made.

d.            The Penalties Provided Under the Act and Executive Order

 

                In addition to the monetary penalties already delineated for the failure to register. Any Contract awarded to an entity that fails to comply with the Act may be rescinded by the awarding agency or the State, without recourse to the contract recipient.

                The Act imposes further monetary penalties of $1001.00 dollars for the failure to notify the entity’s affiliated entities and affiliated persons of registration.

                If an entity violates the requirements of the Act 3 or more times within a 36-month period, then all contracts between the State and that entity shall be voided and the entity shall not bid for any State contract for 3 years from the date of the last violation.

                Any political committee that receives or has received a contribution in violation of the Act shall pay an amount equal to the value of the contribution to the Sate within 30 days of receiving notice of the violation.

                If a political contribution is inadvertently made in violation of the Executive Order, then the entity may request full reimbursement from the receiving entity. Any contributions made within 60 days of a gubernatorial primary or general election are not considered inadvertent.

 

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It’s not every day that we get to scoop the Train Law Blog, so today is special. With the economic stimulus package passed and the potential for infrastructure projects moving in Illinois… albeit slowly… we are pleased to report on a little known law that could generate some revenue and increase safety for those building and working in train switching yards.

An Illinois statute (625 ILCS 5/18c-7401.1) in effect since July of 2004 that allows for the Illinois Commerce Commission to enact standards for safe walkways in areas around railway yards (which they’ve done) has been upheld by the 7^th Circuit.

In Norfolk Southern Railway Company v. the Illinois Commerce Commission (Doc. No. 08-116), the railway argued that the state laws and requirements for standards in the construction of walkways between tracks at switching areas was preempted by a federal statute. It’s important to first look at how railway tracks are usually built:

The railway claimed that not only did the federal law cover the standards the Illinois law sought to impose (it didn’t) but also that the changes Illinois required for worker safety would, in fact, worsen the safety of the workers and the trains by allowing drainage that could damage the layers of ballast and sub-ballast under the tracks.

It is important so something like this doesn’t happen:

But the argument went nowhere with the court. Absent some showing of evidence that the walkways, as required by the state, would cause the damage, or that the federal statute somehow did discuss the matters involved the railway’s argument was unfounded given the language of the federal statute.

So, let’s hope that some jobs can be created bringing railyards up to code.

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Introduced by Representative Kathleen A. Ryg, HB 0236, the bill seeks to amend 770 ILCS 60/1 (Section 1 of the Mechanic’s Lien Act in Illinois) to include a provision requiring contractors (read “not subs”) on owner-occupied single family residences to given written notice before filing a lien:

 

(e) A contractor for improvements of an owner-occupied single-family residence must give the owner written notice before filing a lien against any property of the owner.

 

The act already contains such a similar provision for subcontractors in Section 21(c):

 

(c) It shall be the duty of each subcontractor who has furnished… work for an existing owner‑occupied single family residence, in order to preserve his lien, to notify the occupant either personally or by certified mail, return receipt requested, addressed to the occupant or his agent of the residence within 60 days from his first furnishing labor… The notification shall include a warning to the owner that before any payment is made to the contractor, the owner should receive a waiver of lien executed by each subcontractor who has furnished labor, services, material, fixtures, apparatus or machinery, forms or form work.
    The notice shall contain the name and address of the subcontractor or material man, the date he started to work or to deliver materials, the type of work done and to be done or the type of materials delivered and to be delivered, and the name of the contractor requesting the work. The notice shall also contain the following warning:

"NOTICE TO OWNER

    The subcontractor providing this notice has performed work for or delivered material to your home improvement contractor. These services or materials are being used in the improvements to your residence and entitle the subcontractor to file a lien against your residence if the services or materials are not paid for by your home improvement contractor. A lien waiver will be provided to your contractor when the subcontractor is paid, and you are urged to request this waiver from your contractor when paying for your home improvements."
    Such warning shall be in at least 10 point bold face type. For purposes of this Section, notice by certified mail is considered served at the time of its mailing.

 

As you can see, the description of 21(c) is a bit more informative and contains a lengthy mandate of procedures that are required to be followed as well as prescriptive language for the notice.

The problem with the subcontractor’s failure to perform the task of notifying the home-owner is that the act gives the appearance of protecting the home-owner but fails to follow through.

Section 32 of the act strips the home-owner of its protections if it fails to request the Section 5 statement of entities performing work on the project:

 

Sec. 32. Payments to contractor by owner.

No payments to the contractor or to his order of any money or other considerations due or to become due to the contractor shall be regarded as rightfully made, as against the sub‑contractor, laborer, or party furnishing labor, services, material, fixtures, apparatus or machinery, forms or form work if made by the owner without exercising and enforcing the rights and powers conferred upon him in Sections 5, 21 and 22 of this Act.

 

As a home-owner, even if you’ve only made a contract with one entity, you still need to request the list of subcontractors… or you won’t have the protections of the act.  If you get the statement from the contractor and it shows that money is owed to a sub, you need to withhold that money from the payment to the Contractor.  Unless you comply with all the terms, the fact that the sub is required to give notice to a home-owner is meaningless.

Certainly, the bill makes sense.  Home-owners can’t be considered in the same manner as sophisticated developers who may fully understand the rights and obligations that having work performed on their homes entails.  The protections provided by the act for subcontractor liens would be better if they had actual teeth and didn’t dissipate completely with the failure to comply with Section 5 in obtaining the statement regarding subcontractors and their work.  Especially in an age where we are seeing more and more residential contractors fail to pay their subs or declare bankruptcy leaving the subcontractors without money and putting them in a position to place liens on owner-occupied single family homes.

To apply those same principles to contractors makes sense as well, but the failure of this amendment to specify a time limit for giving the notice prior to filing the lien is an oversight by the legislature to make this amendment have a meaning. 

As it reads, notice could be given the day before the lien is filed.  What protection does that afford the home-owner?  What if it was just taped to the door?

A better amendment would be to require that before a contractor can file a lien, it should have to deliver to the home-owner the required Section 5 notice listing all the subs and the monies owed.  This would not only give the home-owner adequate notice, it would, with the proper time limitations, allow the home-owner to obtain financing necessary to pay the amounts owed.

You can follow the bill’s status here.

 

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The litigation involved the foreclosure of a mechanic’s lien by a HVAC and plumbing subcontractor. The general had hired the sub based on a contract for $465,000 to perform work on a property in Chicago commonly known as 3947-55 King Drive and 401-415 E. Oakwood.  As noted in the Google street map below, this location was home to Chicago's Rosscoe's which was the subject of a suit in 2008 (the Chicago IP Litigation Blog's Entry on the subject can be found here) and has since changed its name to Chicago's Home of Chicken and Waffles.

View Larger Map

The sub performed $289,302 in work before the relationship went south and it terminated its relationship with the general. The sub filed liens for the full amount – because the property was on two different parcels, it apparently recorded two separate liens against the properties, each for the full amount, rather than just recording a single document that listed the multiple properties.

Four days after the liens were filed, the sub sued to foreclose its lien and brought two extra counts, one for unjust enrichment and one for quantum meruit (two equitable claims alleging that even if there was no contract with the property owner, the owner benefited from the work the sub did, so the sub should be paid).

After multiple motions, the trial court dismissed all the claims made by the sub. The trial court found that the fact that two liens were recorded for a total that was in excess of the actual amount owed was constructive fraud on the part of the sub requiring dismissal of the foreclosure action. The court also found that the equitable claims were not available because the sub had no contract with the land owner.

The appellate court reversed finding that the duplicative filings did not amount to a showing of constructive fraud where the defendants could not show there was an intent to defraud and even the Illinois Mechanic’s Lien Act stated that the misstatement of the amount required a showing of intent to defraud before the misstatement could be used to defeat the lien. The appellate court upheld the trial court’s determination that the equitable claims were unavailable to a subcontractor that only had a contract with the general.

While no one is going to recommend filing a lien that hasn’t been proofed and double-proofed, it’s nice to see the intent of the law given form here to help people get paid even if a small technical error arises.

The opinion can be found here.

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Deciding how you’re going to structure your business and with whom you want to work is an important aspect of any transaction in this industry. Partnering up with someone in a joint-venture is a common arrangement - whether it be to gain better footing in a bidding scenario, or to accomplish a task that you couldn’t take on alone. But apart from increasing profits and minimizing loss, did you know it could eradicate a liability? Well, this case will be of interest:

Two companies came together in the summer of 1999 to form a joint venture in connection with an IDOT project to repair the McCluggage Bridge over the Illinois River in Peoria. The terms of their joint venture were set forth in a written agreement that stated the two were joint venturers for bidding, performing under the contracts and completing the project. If the bids were awarded, they were to be entered into in the names of the parties as joint venturers. They were to share losses and profits. Party A would provide all the labor and payroll and taxes and worker’s compensation and was entitled to reimbursement for those expenses from the JV before it and Party B split profits. IDOT awarded the JV the contract and in 2000 an accident occurred at the project where employees of Party A, employees of Party A and whose worker’s compensation premiums were paid by Party A were injured. The injured workers filed for and received their workers’ compensation benefits through Party A’s workers’ compensation insurer. This was their sole remedy against Party A under the Illinois Workers’ Compensation Act (820 ILCS 305/5(a)). With the help of attorneys they then sued Party B, the JV and a whole host of other entities.

The attorneys for Party B and the JV moved for and won their motion which argued that they had the same immunity afforded to Party A under the Workers’ Compensation Act because they were joint venturers. The injured workers appealed and the appellate court reversed the decision so the JV and Party B appealed to the Illinois Supreme Court. The SC found that because joint ventures are governed by the principals of partnerships and because in partnerships, the partners are agents of the partners and of each other, and because the immunity afforded by the Workers’ Compensation Act applies to the agents of the employer there was immunity for Party B and for similar reasons for the JV. So they couldn’t be sued for the injuries to the workers.

So, what the injured workers wanted, which was more money from Party B and the JV even though half of the JV – Party A, was immune, was not available because the parties had a written joint venture agreement where the JV reimbursed the expenses for the workers’ compensation insurance and the principals of partnership applied.

This decision opens the door to some interesting questions regarding the collaborative processes proposed by certain standard form agreements. Could this be a lesson that the drafters of the Integrated Project Delivery contracts should learn from? Would an IPD between entities that created a separate LLC (the AIA-C195 for example) for the project be able to offer the same immunity from suit by an injured worker to its members as a joint-venture could under this structure?

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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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The Illinois Supreme Court has granted leave to appeal in Weather-Tite, Inc. v. University of St. Francis. The case involved whether a subcontractor could recover money from an owner when the owner had not complied with the withholding provisions of the mechanic’s lien act once it received the final notice from the GC and did not withhold the funds stated in the notice for the subcontractor.

We previously covered and discussed this opinion here. 

The Court’s determination that it will accept briefing on the matter means that it could address issues related to striking a balance between the statute and the reality that payments are often disbursed to a GC by an owner without meticulously following the act and withholding payments when a balance is owed to subs.

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• Senate Bill 2725 which was originally introduced as a bill regarding the Conveyances Act, and which has been through several permutations on differing subjects in the past year has now been amended by the Illinois House of Representatives as a proposed bill that would halt certain mortgage foreclosures and any evictions for 90 days from the date it is signed. If passed, the bill would still need to go back to the Senate for approval.
• The Skyline is now reporting that the Trump Spire won’t be lifted into place until mid-December, which probably ruins your plans to watch it during an outdoor picnic. The article sets the tentative date for the weekend of December 13 and 14.
• There’s an article over at Greener Buildings about the Green Building Impact Report 2008 that will be of interest to those looking for a report delineating the actual reduction in environmental impact that green buildings (read LEED) have achieved.

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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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The Skyline is reporting that Sunday’s anticipated capping of the Trump Tower has been postponed, indefinitely.

 

Chicago Real Estate Daily is reporting on the new mortgage foreclosure rates and figures for October.

 

For those of you involved in contracting for snow and ice removal on residential properties:  In a case from the First District, Divis v. Woods Edge Homeowners’ Association (Doc. No. 1-08-0411), the court has held that the Snow and Ice Removal Act (745 ILCS 75/1) applies to a company that contracted with the condominium homeowners association for the removal of ice and snow and that the company could assert the act as an affirmative defense to a suit brought by a condominium resident against the association, the management entity and the company that was contracted to remove the ice and snow for a fall that he suffered when he slipped after exiting his unit.

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

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

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

• 13-214(a)

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

• 13-206

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

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

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

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

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

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

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

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Malec v. City of Belleville (5^th Dist., Doc. No. 05-07-0456) is a case worth noting.  The City of Belleville adopted a group of ordinances in 2006 that provided for the formation of a tax-increment-financing district (TIF) pursuant to the TIF Act.  The city also adopted an ordinance creating a business district, approved a redevelopment plan, tax increment allocation financing for the Developers, a tax within the created business district and authorized the use of general sales tax revenues to reimburse the Developers for project development costs.  A complaint filed by the plaintiff alleges that these ordinances were to help finance a Wal-Mart, Lowe's, housing development and some other businesses.

Plaintiff, a taxpayer, brought suit challenging the city's enactment of the taxes under the TIF Act.  The district court dismissed the plaintiff's claim, finding that he lacked standing to bring his action as a taxpayer.  The 5^th District reversed and found that if the actions of the city in creating the TIF and business district did affect the general revenue of the city, then a taxpayer would have standing.  The court also held that the taxpayer could challenge the creation of the TIF through claiming that the areas that had been created did not meet the criteria of being "blighted" as the Act required (under the act "blighted" is a term of art that requires a area meet a myriad of factors in order to qualify for the TIF districting).  See 74.4-3(a) of the Act.  The argument was that the areas would have developed as business districts on their own, and as such, the creation of the special districts to generate revenue that would be paid to the developers affected the general revenue of the city because the city would have generated the revenue for itself and would therefore have no need to pay developers to do it.  (No mention of the timing was made, i.e., whether an argument that a development district would create business in a matter of a year as opposed to a naturally occurring district developing over, say, ten years).

While the case is not a blow to the creation of the districts for development, it does lend individuals another form of suit which could be used to slow down any form of development relying on TIF funding and is a case we'll keep an eye on.

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In Stewart v. Gino's East, et al. (N.D. IL, Doc. No. 07 C 6340), the defendants, restaurants that accept credit cards for payment, were sued under the Fair and Accurate Credit Transactions Act (FACTA) in a class action alleging they violated the FACTA by not removing the expiration dates of credit cards from their customer's receipts.  One of the defendants brought a third-party action against a company that installed the software and hardware used for the credit card transaction for breach of contract.  The third-party complaint attaches the contract.  It is a short agreement entitled "Construction Contract" and appears to be a standard contract used by the defendants for the contractor installing the equipment and allows the architect final approval on the remediation of unsatisfactory work.

The third-party complaint alleges that the description of the services provided in the contract meant that the contractor would assure that the software and hardware were in compliance with all applicable laws, including FACTA.  The contractor brought a motion to dismiss and argued that nothing in the contract obligated it to make sure the system was in compliance with FACTA and pointed to provisions of the contract arguing that they were not ambiguous and precluded a complaint against the contractor. 

The court found that the provisions pointed to by the contractor were silent about the system or hardware complying with FACTA (after all, it reads like a contract for the installation of the machines):

• "You do hereby warrant, that all material and equipment supplied for this job shall be new and free from faults and defects, and standard written equipment warranties shall be included and delivered to owner and also included is an one year warranty (from completion of the contract work) on all workmanship and materials."

The court went on to hold that other provisions could be interpreted to mean that compliance with FACTA was included in the contract:

• [the contractor] is "authorized to furnish all labor and equipment to do the POS set up for the building"

• "[t]he work is intended to be complete and fully useable as a finished product or system."
  
• "that all material and equipment supplied for this job shall be new and free from faults and defects."

Finding that these contractual provisions might be interpreted to require the system, as installed, would be compliant with FACTA.  The court denied the motion to dismiss, pointing out that these ambiguities created a question requiring future litigation.

Now, obviously, the court, and we, don't have all the facts about the nature of the agreement, but if it was just an agreement for the work on the installation of the equipment, then the ambiguities have created an issue and possible liability in a situation where absolutely none was intended.  Again, it might seem like a pain to have lawyers reviewing your agreements and helping negotiate even something as small as this contract must have seemed, but there is a reason such a big deal is made over contractual language.

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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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The Mechanics Lien is a testament to the fact that the same problems have been occurring in construction projects since construction began.  The concept behind the act is rooted in equity - a person puts time and effort into improving something and has a right to remuneration for those improvements.  Usually, the improvements cannot be removed from the thing, so justice requires some remuneration, either by getting to sell the thing for the money owed on the improvement or by having a right in any eventual sale.  Many state's have lien laws similar to Illinois' that can cover a multitude of types of work, from car, boat and horseshoe repair to construction work, mining work, and liens for judgments awarded to parties in litigation.  What those state laws have in common for the most part, is the creation of a system for conducting affairs in that trade or business that, when followed, can grant parties rights they would otherwise not have outside of the statute.

In the case of the Illinois Mechanics Lien Act, compliance with the provisions of the act can protect the owners of property from subcontractors' liens when the owner complies by requesting statements from the general regarding amounts owed to subs and then withholds the amounts owed the subs from payment to the general for their benefit.  Subs and generals can protect themselves by providing the proper documentation required under the act to the owner and will have a claim for unpaid monies that attaches to the land and allows them to foreclose on the lien and the possibility of selling the property to satisfy that judgment.  The important point is that the parties need to follow the letter of the act or problems (the same old problems that were cause for the creation of the act in the first place) will arise and they will not have the protections that they thought they did.

Depending on your viewpoint, a comedy of errors came together and an owner's problems were exacerbated for not following the act, forcing the Third District to reverse a Will County trial court decision in favor of an owner (University St. Francis) against an electrical subcontractor (Excel Electric, Inc.) in this case.

St. Francis hired a general contractor to renovate a residence hall at the university.  The GC hired Excel as the sub.  Work was performed and up to the final invoice, the GC submitted invoices showing the subs and the amount due to the subs.  The original invoices were all paid.  The final invoice was sent to St. Francis by the GC showing the amount of the final payment as $458,237.56 and stating the $130,948.48 was due to Excel.  St. Francis transferred the full amount to the GC (which included the 130k for Excel) to the GC's Harris Bank account, but instead of having access to the money, Harris Bank took the funds pursuant to its right of set off for a debt that the GC owed Harris Bank.  Excel and other subs never got their money.

Excel filed its claim for a lien and noticed St. Francis that it was owed $140,547.09 (likely the amount plus interest, but the opinion is silent regarding the discrepancy).  Another sub that had a lien filed a foreclosure action and pursuant to the statute, Excel joined in that action and filed a counter-complaint to foreclose on its lien.  The university and Excel both filed motions for summary judgment.  Excel argued that it had a valid and enforceable lien in the amount of $130,948.48 and St. Francis argued that the lien was not enforceable.  The trial court agreed with St. Francis and based its opinion on an understanding that because Excel did not file its notice of lien until after St. Francis had made final payment to the GC.

The appellate court reversed.  The opinion is worth reading for anyone in the industry who is interseted in either enforcing liens or trying to get out of them.  The court cited the notice provisions required in §5(a) and §24(a) of the Act and noted that the final invoice from the GC put the university on notice that Excel was owed money.  Under the act, St. Francis should have withheld the funds for the benefit of Excel (possibly paying them directly to Excel, or at least waiting to obtain a final lien waiver from Excel before transferring payment).  It is interesting that if the final statement from the GC had been fraudulent, and listed the amount as $60 or that no money was owed Excel and then St. Francis did, in fact either retain the $60 or make payment, Excel's claim against the university would not stand.

Owners should note that they need to request that final statement of subcontractors and amounts due and owing to be protected under the Act.  Contractors should note that they need to get their notices and billings to the owner in a timely fashion under the act to preserve their rights.

 

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The Illinois EPA asked the State Attorney General's office to seek an injunction and civil penalties against the defendant for operating a "construction or demolition debris" landfill without a permit.  The defendant, a company operating a landfill in the Village of Ford Heights (a village the court describes as "an economically depressed community south of Chicago"), argued that the debris (a mound 70 feet tall spanning 26 acres) would be "waste" and therefore in violation of the Illinois Environmental Protection Act (415 ILCS 5/21(d)(2)) but for the fact that the landfill was the proposed site of an all-seasons downhill skiing facility which placed it under an exception to the act.

The question was certified:

   "Whether clean construction and demolition debris deposited onto the land for the purpose of providing the infrastructure for a recreational facility to be built at the site and to be used for snow skiing/snow boarding (facts which are undisputed for purposes of the August 4, 2007 partial summary judgment order) constitutes 'waste' under the Illinois Environmental Protection Act and requires a permit in compliance with the Act's waste disposal requirements including but not limited to 415 ILCS 5/3.305, 415 ILCS 5/21 et seq., 415 ILCS 5/21.1 and 35 Ill. Adm. Code 812.101(a)."

The court put aside the question regarding whether the debris deposited by the defendant was, in fact, "clean construction or demolition debris" reserving the issue for trial.  Assuming that the debris was "clean" the court found that there was nothing in the actions of the defendant by leveling the debris once it reached the site, demonstrating that it "separated or processed" the debris.  The court also found that the planned ski hill did not create an exception amounting to "returning [the debris] to the economic mainstream in the form of raw materials or products."  (415 ILCS 5/3.160)  The court reasoned that accepting the claim that the future use created an exception would negate landfill regulation by allowing any landfill operator with a future intention to avoid meaningful regulatory oversight.  The court additionally dismissed the defendants argument that an exception for using the debris as fill material was met - stating that the fill material exception was negated when the debris reached a height (70 feet) well above the adjacent land as the exception stated.

Answering the certified question in the negative, the court remanded the case.  The opinion is here.  For more information on what to do with construction debris, the IL EPA maintains this construction debris website.

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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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This is a case from the first district about the collapse of a building in Chicago.  The Chicago Province of the Society of Jesus (a Jesuit organization) had a building and demolition work adjacent to the building went awry causing the collapse of the Jesuit's structure.

The parties (and there are many) sued each other and some of the defendants decided to settle.  In total, the Jesuits sought close to $3 Million in damages from the defendants on theories of negligence, violation of the Adjacent Landowner's Excavation Protection Act and violation of the Illinois Municipal Code.  Six of the defendants offered a total of $1,185,000 to settle the claims made against them.

In Illinois, parties can seek a "good faith finding of settlement" under the Illinois Joint Tortfeasor Contribution Act allowing a party that settled to be discharged not only in settlement with the plaintiff, but also from all liability to any other party that might be pointing a finger in their direction.

Here, some of the parties that did not settle objected to the attempts by the settling defendants to obtain a good faith finding because that finding would mean that the non-settling defendants could not seek any more contribution from the settling defendants and would be left paying for whatever damages might be assessed down the road.

In addressing the matter, the court provided a decent summary of the relevant case law and standards regarding "good faith" findings of settlement and upheld the trial court's determination that the settlements were made in good faith.  Effectively allowing the settling defendants to have their liability capped and be removed from the case.

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For those who haven't been following SB 2014, the synopsis of the bill reads:

"Amends the Illinois Municipal Code. Provides that any decision by the corporate authorities of any municipality regarding any petition or application for a special use, variance, rezoning, or other amendment to a zoning ordinance (instead of any special use, variance, rezoning, or other amendment to a zoning ordinance adopted by the corporate authorities of the municipality) is subject to de novo judicial review."

• We have written about it here and commented on its status here.

The bill has now passed both houses and has yet to be sent to the Governor for signature or veto.

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For those following HB2094.  The saga has ended for this version of the bill.  The legislature did not vote on HB 2094.

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

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

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

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

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

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

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

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

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In this case, subcontractor brought a suit against the Illinois Department of Transportation (IDOT), and the general contractor on a project.  The bid on the project was to perform services for the general to excavate a trench, install a sewer pipe, and supply backfill.  The contract required that the parties abide by the IDOT Standard Specifications and the plans specified in the general contract.  The suit alleged a claim for foreclosure under the mechanics lien act, in which IDOT was named a party, a claim for breach of contract, and a claim that the GC had violated the State Prompt Payment Act (30 ILCS 540/0.01 et seq.)  The trial court dismissed IDOT from the case, and found that the IDOT specs precluded the breach of contract and lien actions.  The trial court then determined that retaining payment was improper and awarded interest under the State Prompt Payment Act.  The parties appealed.

Here, the appellate court concluded that the trial court was right in dismissing IDOT given that the mechanics lien act authorizes the funds to be set aside before resolution of the issue, but does not authorize making a state agency party to a foreclosure action. The opinion discusses a topic that should be of interest to those contracting with the state when it considers payment under the mechanics lien act.  §23 of the act authorizes subcontractor remedies through liens against public funds for state projects, but the act has never applied to contractors.  Additionally, suing pursuant to this section means that a subcontractor will be bringing an action for an accounting within 90 days of providing the required notice, and the only way to bring in an officer of the state under the act is in an action claiming they failed to comply with §23 of the statute.

The breach of contract claim filed against the GC was premised on an interpretation of IDOT Standard Specifications.  (This may bore some of our readers, but it is actually pertinent to anyone looking for courts to favorably interpret government specs.)  §208.03(b) governs methods of measurement quantities for trench backfill, and contains a clause stating that any backfill required in excess of the maximum quantity as calculated but he specs "shall be furnished by the Contractor at his/her own expense."  The plaintiff argued that there was no established width to the trench and tried to say that use of the word "shall" in §550.04 (the IDOT spec which states exactly how wide a trench should be on such a project) didn't really mean shall, but meant something like "shall not be less than," which, you don't have to be Bryan A. Garner to understand, is bad form in just about every school of legal interpretation... especially when the court can read other sections of the IDOT specs and see that when IDOT meant to set a minimum limit on something, it used some variant of "shall not be less than" and not just "shall."

Utilizing this reading of §208.03 the court upheld the trial courts determination that the plaintiff was not owed monies for the excess it was required to provide and the dismissal of the breach of contract claim was proper.

With regard to the final argument, the court held that it was IDOT that failed to make prompt payments to the GC who, pursuant to provisions of the contract and federal regulations was then to turn around and hand the money over to the plaintiff.  Contrary to the trial court's opinion, the GC was not in error when it did not turn over monies that had not been forwarded by IDOT.  The GC would only be in error if IDOT had turned over the funds and then the GC failed to pay them to the subcontractor.  The appellate court also said that the trial court had properly interpreted the State Prompt Payment Act, but because the GC did not owe money to the plaintiff, there was no violation of the act.

[NOTE: In addition to the State Prompt Payment Act, there are other prompt payment acts that can be alternative sources for causes of action regarding getting paid such as the Contractor Prompt Payment Act, the Local Government Prompt Payment Act, any of which, along with a host of other methods, can be utilized under the law in securing payments owed.]

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In Bjork v. Draper (Doc. No. 2-06-1145, 2^nd Dist), neighbors of a house located in the Lake Forest Historic District, included in the National Register of Historic Places, brought suit against the house owners to enforce the terms of a "Conservation Easement" (an easement agreement that creates a type of land preservation agreement that is enforceable between parties normally granted pursuant to the Illinois Real Property Conservation Rights Act) which the neighbors felt the home owners were violating with alterations to their home and subsequent amendments to the easement entered into between the home owners and the Lake Forest Open Lands Association which was the conservation entity that had been granted the easement.

The terms of the easement included a right for the amendment of the easement as well as a statement that the purpose of the easement was to assure that the property would be "retained forever predominately in its scenic and open space condition, as lawn and landscaped grounds."

The trial court heard the neighbors' claims regarding interpretation of the easement, the amendments that the owners and the Association had entered into, and determined that a portion of the landscaping improvements that the owners had made pursuant to a third amendment were in violation of the easement.  The court also determined that the two prior amendments to the easement, allowing the owners to expand their driveway and to construct an addition to their home, were valid.

The neighbors appealed the decision of the trial court and the appellate court found that all the amendments violated the easement's statement of purpose regardless of the provisions in the easement allowing for amendment.  The court then remanded the decision to the circuit court for a determination in line with its opinion regarding exactly which improvements, if any, the owners would be forced to remove from their property.

Dealing with these types of regulations in a construction context is always challenging, but usually negotiating construction terms around conservation easements can be handled in a manner that can increase the historic value and preservation of the structures.  Here, the opinion reveals that the owners took steps to comply with the easement, hired an attorney and negotiated with the Association, it was the neighbors who brought the suit.  These facts are not inconsequential and show why the court in remanding the case, emphasized that the trial court could eventually determine that none of the improvements would need to be removed.

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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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As we continue to follow HB 2094, we are pleased to present the 1907 edition of the Structural Work Act.  We'd like to thank our friends over at the Cook County Law Library for having an in-tact copy of the 1908 Code.  The spine of the book can be seen to the left.

As you can see, not much is different between the HB 2094 proposed act and the 1907 version.  Except the penalties.  It used to be that the penalty for violation could cost an architect $25 to $200, now it would be a "petty offense."

In one of the cases that established the "good faith" exception to the exclusionary rule exercised for 4^th Amendment violations (United States v. Leon, 468 US 897 (1985)), Justice Blackmun delivered a concurring opinion addressing decisions based on  empirical data and offered some guidance regarding how the law should approach its own determinations when they are premised on empirical evidence:

    "As the Court's opinion in this case makes clear, the Court has narrowed the scope of the exclusionary rule because of an empirical judgment that the rule has little appreciable effect in cases where officers act in objectively reasonable reliance on search warrants. Because I share the view that the exclusionary rule is not a constitutionally compelled corollary of the Fourth Amendment itself, I see no way to avoid making an empirical judgment of this sort, and I am satisfied that the Court has made the correct one on the information before it. Like all courts, we face institutional limitations on our ability to gather information about "legislative facts," and the exclusionary rule itself has exacerbated the shortage of hard data concerning the behavior of police officers in the absence of such a rule. Nonetheless, we cannot escape the responsibility to decide the question before us, however imperfect our information may be, and I am prepared to join the Court on the information now at hand.
    "What must be stressed, however, is that any empirical judgment about the effect of the exclusionary rule in a particular class of cases necessarily is a provisional one. By their very nature, the assumptions on which we proceed today cannot be cast in stone. To the contrary, they now will be tested in the real world of state and federal law enforcement, and this Court will attend to the results. If it should emerge from experience that, contrary to our expectations, the good-faith exception to the exclusionary rule results in a material change in police compliance with the Fourth Amendment, we shall have to reconsider what we have undertaken here. The logic of a decision that rests on untested predictions about police conduct demands no less."

If the Supreme Court of the United States can recognize that empirical evidence can lead to the need to reconsider its own rules then, when:

"It is the intent of the General Assembly that this Act is to be liberally construed to effectuate its beneficial purpose of protecting persons engaging in occupations of working in and about construction, repairing, alteration, or removal of buildings, bridges, viaducts, and other structures. This liberal interpretation exists so as to provide workers with a safe place to work and to afford relief to injured workers."

a state legislature drafting a law designed for a purpose (Worker Safety) should also revisit its law with empirical evidence and determine if the standards set out in that law can accomplish that goal.  The point is exacerbated by the fact that Structural Work Act was in effect from 1907 to 1995.  There should be plenty of data out there to determine if the standards and rules set forth by this statute should be updated.

The real question then is, have methods, means and ability of contractors and construction trades to provide for safety changed such that the standards should be augmented?  Is it sound law that the physical requirements of structures under the act should just read as they did in 1907, given that the industry has advanced?  What about OSHA requirments? 

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In Ambrosia Land Investments, LLC, v. Peabody Coal Company (7^th Circ., Doc. No. 07-1945) the Seventh Circuit tackled the fascinating question of whether or not the Illinois Construction Statute of Repose applied to a coal mine.  While we may not think this would be interesting to everyone, the construction statute of repose is actually a fun topic, and the 7^th Circuit did a great job of covering the topic.

Along with a poignant discussion of the relevant Illinois case law regarding the statute, the court held that a coal mine on a piece of property would constitute an "improvement to real property for statute of repose purposes."  The court went on to find that the former mine owner was being sued as an owner of the mine and not as a party engaging in construction-related activities, so the plaintiff's case for damages to its property from mine subsidence did not fall under the activities covered by the statute.

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

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

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

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

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

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

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

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In  West American Ins. Co., v. Trent Roofing, et al. (ILND, Doc. No. 06 C 1239) the evidence before the court was that the plaintiff's building burned when a roofer caught the place on fire with a torch.  The roofer performing the work was a man named Eller.  A man named Covelli had applied for permits in the name of a different entity called Trent Roofing.  Trent Roofing performed no work on the building.  No written contract existed between Trent Roofing and the plaintiff or any other party.  Trent also presented evidence that it never authorized Covelli to obtain permits under the Trent Roofing name.

The court found that no contractual duty existed between Trent and the plaintiff.

The interesting portion of the courts decision is at Slip Op. 5, where the court refutes the plaintiff's allegations that independent statutes such as OSHA regulations, the Illinois Roofing Industry act, and the City of Burbank's building and fire code, created some form of duty that Trent Roofing owed to the plaintiff.  Too often parties point to the existence of regulatory statutes, that give no right of private action to individuals, in an attempt to show that a duty exists or that some duty of care was breached.  Here, the court dismissed the claims that these statutes created a duty of care and granted Trent Roofing's Motion for Summary Judgment.

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In MD Electrical Contractors, Inc., v. Fred Abrams (Il. Sup. Ct. 2008; Doc. No. 104000)  the plaintiff had sued under the theory of quantum meruit, stating that it had no contract with the defendant for electrical work performed on the defendant's home.  The defendant claimed that the Home Repair and Remodeling Act prohibited a suit by the plaintiff.  The circuit court had reasoned that quantum meruit was a legal theory that implied a contract where none existed.  Since the Home Repair and Remodeling Act was against the contract, and the subcontactor fell under it, the court could not imply a contract where the act would forbid such a contract.  The Appellate Court had disagreed and remanded the decision.  And now, the Supreme Court's decision has squarely stated that the act does not apply to subcontractors.

• The Home Repair and Remodeling Act applies only to those who contract directly with the Home Owner.

The court refused to address the intriguing issue of whether or not a sub-contractor could have any recourse in quantum meruit, or outside the Mechanic's Lien Statute.

In a strong-toned dissent, Justice Freeman points out that the complaint was insufficient on its face to offer the factual issues that the court relied upon in determining this matter.  The complaint asserts that MD Electrical was a sub-contractor, but there is no evidence of that fact anywhere in the record.  The dissent goes on to argue that the court did not have to reach the issue of the Home Repair and Remodeling Act's application to sub-contractors and should not have done so.

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We've previously discussed the Illinois construction statute of repose (735 ILCS 5/13-214).  The benefits it conferred to design professionals and others by the statute's ten-year limitation cannot be underestimated. 

In Ryan v. Commonwealth Edison Company (Doc. No. 1-06-3309, 1^st Dist. Ill. App.) the Illinois first district appellate court has broken with itself and sided with the third district in asserting a "status/activity" distinction for claims that will be barred under the statute of repose.

The court was confronted with the issue of whether Com Ed's duty to maintain a transformer that exploded and injured the plaintiff was separate and apart from its installation work and therefore, not subject to the statute of repose.  The court found that Com Ed's status as an installer and any claims that arose from the installation might fall under the statute of repose, but made a determination that since Com Ed had a duty to maintain the equipment (derived from its capacity as the power supplier and not its status as the installer) the statute would not apply.

• Now that we have a definite split, we could see the Illinois Supreme Court address the "status/activity" distinction.  More importantly, because the court made the determination regarding Com Ed's duty in this case, we should be alert for more judicial determinations of ongoing duty.  Will the decision only apply to utility companies supplying services which necessitate a duty to maintain equipment?  Even apart from any undertaking to maintain structures/equipment after installation?  Even when the duty has been contracted or left in the hands of some other entity like a municipality?

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    It's not often that we get a 97 page opinion from an appellate court, even more rare is the occasion that any such opinion would be of interest to the industry.  This week, we were happy to find both in Cordeck Sales, Inc., v. Construction Systems, Inc., et al., (Doc. No. 1-06-3702, 1^st Dist).

    In Cordeck, a developer had gone belly-up on a multi-million dollar condo development.  Multiple mechanics liens were filed by the various entities involved in the construction for work performed, the lender filed a claim to foreclose its mortgage, and a receiver had been appointed to sell the individual units and collect the proceeds into a pot from which the resolved disputes would be compensated.  The opinion doesn't go too far in creating any substantively new nuances to the statute that Representative George Scully has called "a patchwork of quilts...of patches put on this quilt over the past hundred years" (Slip op. at 44).  Some clarifications and holdings are still important.  Of interest are:

• A reminder that the dates of the contracts are the attachment dates for the liens of contractors and subs.  They will be instrumental in establishing the priority of liens against third parties and other claimants.
• The date of recordation for a mortgage will establish the date of a mortgage for the determination of priority in the scheme of liens and claims against third parties.
• Construction Managers can have liens, even on contracts prior to the 2004 and 2006 amendments to the Act.
• Amendments to a recorded lien for amounts of work done over time past the date of the first recorded lien can still affect the assertions of rights against the owner, but may not have affect as to the right in priority or assertions against third parties.
• Fees earned on a project are not inherently "unalienable."

Of note to many practitioners:

• If a deponent is claiming a fifth-amendment right against self incrimination in answer to questions, the determination regarding the propriety of such an assertion will be made on a question by question basis in the trial court.

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In Trtanj v. The City of Granit City (Ill. App. Ct., 5^th District, No. 5-07-0002), the plaintiffs owned a house that was filled with sewage after a thunderstorm.  During the thunderstorm, three sewage lift stations that normally operated to transport sewage through the city's system were left without power.  The city took two to three hours in getting the sewage systems back online.  As a result of the rainfall and issues with a clay pipe connecting the plaintiffs' property to the city's system, water and sewage backed up into the plaintiff's home.  Prior to the motion for summary judgment brought by the city, the city's superintendent of water testified that it should only take 15 minutes to set up a temporary lift system and 15 minutes to get it operational.

The plaintiffs brought an action in 2002 and later amended their complaint in 2005 alleging negligence in the design, construction, operation and maintenance of the sewer system, that the backup was a temporary nuisance, and also brought an action in trespass against the city.  The city responded in a motion for summary judgment that the claims were barred under the statue of repose (735 ILCS 5/13-214), that the tort immunity act applied (745 ILCS 10/2-201) to protect the city from suit, and that it was not liable because the backup occurred during an extraordinary rainstorm.

The trial court granted the motion for summary judgment and the plaintiffs appealed.

The appellate court found that material issues of fact existed where the city had known about the outside water infiltration into the sewer system through the plaintiff's clay pipe; and where the city's own superintendent of streets had testified that it should only take 15 minutes to set up the temporary pumps, not the two to three hours that it did take.

In adjudicating the repose claim, the court said that the statute of repose applied only to the construction and improvements of real property.  Because the plaintiff had alleged that the design installation and construction of the sewer station was at fault, the court found that these allegations were barred by the statute of repose when the design, construction and installation had occurred more than ten years prior to the filing of the lawsuit. 

The court went on to find that the statute did not protect the city from the claims that the maintenance and operation of the sewer system and the lift stations that occurred after their installation and within the ten year period were negligent.

The court cited a previous case, Prochnow v. Elpaso Golf Clib, Inc., 253 Ill. App. 3d 387, finding that while those claims that involved the design, construction, supervision, observation or management of the construction were exempt if the acts were outside of the ten year period, the persons responsible for possession or control and suppliers of the materials used in the maintenance and operation were subject to liability for reason of construction defects.

The court then went on to address the city's claim of immunity.  Holding that the statute protects only those acts of a municipality that are shown to be both an exercise of discretion and a policy determination, the court stated that acts which are ministerial are not protected.  After a discussion of the differences between policy determinations, acts of discretion, and ministerial acts, the court found that because the city's operation of the sewage system was subject to statutory and regulatory guidelines the actions were ministerial, and that there were material issues of fact concerning whether or not the city complied with those guidelines.  "Once a municipality decides to perform pubic work, the municipality must perform the public work with reasonable care and in a nonnegligent manner" (Slip Op. at 13).

The court also found that the determination of what might amount to an extraordinary sum of rainfall was not before the court and presented a question of fact for the jury.

The appellate court reversed the trial court's grant of summary judgment to the extent it was inconsistent with the appellate opinion.

Of note to design professionals and construction companies is the application of the ten year statute of repose.  Getting done with the work and getting out will start the clock running on the ten year period.  However, if follow up maintainance work is performed, that work is still potentially the subject of litigation. More importantly for many claimants is the willingness of the court to interpret the immunity statute and discern between policy, discretion, and ministerial acts.  It should not be overlooked that too often courts are willing to apply the immunity statute without adherence to the guidelines or undertaking the analysis to determine the exact nature of the act, perhaps inspections, construction, and maintenance can all be pled correctly to make certain the municipality has to explain its actions rather than simply pleading immunity.

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    A case from the Northern District (Smith v. The Village of Norridge), involving actions brought by an individual against the police, a landlord shopping center and its tenant, emphasizes the significance of indemnity provisions in a contract.

   At issue are cross-claims filed by the landlord of the facility arguing that the tenant is required to indemnify the landlord under a paragraph of the lease which reads that the tenant must:

"[i]ndemnify and save Landlord ... harmless from and defend against any and all demands,claims, actions, damages, costs and expenses, including [costs and attorneys' fees] arising from the conduct or management of the business conducted by Tenant."

  The lease contained a similar provision requiring the tenant to procure insurance for such acts and that the insurance was required to cover the landlord as well.  The cross-claims are pled as breach of contract actions stating the because the contract contains the indemnity provisions, the tenant's failure to indemnify (and obtain insurance in the second claim) amounts to a breach of the contract.

  The court disagreed with the tenants' argument that the Illinois Landlord-Tenant Act (765 ILCS 705/1(a)), which provides:

"(a) Except as otherwise provided in subsection (b), every covenant, agreement, or understanding in or in connection with or collateral to any lease of real property, exempting the lessor from liability for damages for injuries to person or property caused by or resulting from the negligence of the lessor, his or her agents, servants or employees, in the operation or maintenance of the demised premises or the real property containing the demised premises shall be deemed to be void as against public policy and wholly unenforceable."

would bar this action.  The Court found that the provision would apply if the claim against the tenant had been one for indemnity for the negligent acts of the landlord.  However, the landlord pled an action for breach of contract, and the acts alleged as the root of the claims were intentional, so under two separate rationales, the ILTA did not apply.

 
  Accordingly, the court denied the tenant's motion to dismiss the cross claims.

 

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SWPlaza III, LLC v. TSA Stores, Inc., is a Central District opinion dealing with the termination of a lease in a shopping center after a tornado damaged the tenant's commercial store.  The lease contained a provision allowing the tenant to terminate the lease if the damage reached a specific percentage of the total reconstruction cost (35%); the tenant's estimate exceeded the percentage limit and it terminated the lease.  The landlord sought to enforce the lease and claimed that the estimates provided by the tenant were made in bad faith.  The Court held that a significant issue of fact existed regarding the propriety of the estimates.

• In what will undoubtedly become a cited case should House Bill 5293 be passed amending the requirements and standards in Illinois for expert testimony, the Court went through an extensive analysis of the qualifications of a construction contractor providing estimates and his ability to offer testimony as an expert under Daubert.

Illinois Construction Blog

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    In an eminent domain case, Marseilles Hydro Power, LLC v. Marseilles Land and Water Co., arising under the Federal Power Act, and involving the interesting issue of deed construction and proper drafting, the Seventh Circuit has laid out some interesting points regarding deed construction premised on prior recordings and conveyances, along with an affirmation of the eminent domain standards applicable to the Federal Power Act.

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In what is sure to be a contested issue, the new House Bill 5572 is a proposition to require written notice from the contractor to the owner of a single-family, owner-occupied dwelling, prior to filing a lien against any property of the owner.

• Given that there is no time provision installed in this legislation, and that it does not include a method for serving the notice, and that the term "any" could be construed in multiple ways, it is likely that we'll see some revisions of this bill before it could be incorporated into the mechanic's lien act.

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

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

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

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

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Two new bills have been introduced to change the Condominium Property Act.

• HB 5037 - Will allow municipalities the ability to appoint receivers for distressed condominium properties and eventually have the properties sold.  Of interest is the definition of  "distressed condominium property":

"Distressed condominium property" means a parcel containing condominium units which are operated in a manner or have conditions which may constitute a danger, blight, or nuisance to the surrounding community or to the general public, including but not limited to one or more of the  following conditions:  

(A) the building is substantially unoccupied, or  has serious violations of any applicable local building code;  

(B) 60% or more of the condominium units are in foreclosure or are units against which a judgment of foreclosure was entered within the last 18 months;

(C) there has been a recording of more condominium units on the parcel than physically exist;

(D) any of the essential utilities to the parcel or condominium units is either terminated or threatened with termination;

(E) there is a delinquency on the property taxes for at least 60% of the condominium units; or

(F) the board of managers has not met within the last 12 months or is otherwise not functioning."

While the act gives the receiver the power to enter into a sales contract for the property with court approval, it appears to be silent regarding any applicable standards for pricing the sale, or achieving any form of FMV.   

• HB 5189 - In a possible response to a fluctuating real estate market, the bill would amend the act to statutorily provide that owners can rent up to 20% of the properties and that no condo board can enact rules to the contrary. 

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

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

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    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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       It started with a simple article about developers paying to have their properties re-zoned in a Sunday edition of the Chicago Tribune.  The expose blossomed into a myriad of comments and subsequent features and commentary all the way to a piece soliciting comment from the Mayor.  Chicago Neighborhoods were beginning to look a bit more like the image below with set-offs and accommodations made in different zones for single-zoned lots and properties:

    That media attention and discussion has now resulted in Senate Bills 2014 and 2022.   SB 2014 seeks to allow de novo review of decisions regarding zoning applications, altering the previous system of review upon the approval and adoption of a zoning decision.  SB 2022 alters the notice times for publication regarding hearings for changes, and in unincorporated parts of the state, requires that notice be sent to adjacent parcels within 1.5 miles of the proposed re-zoning.
    These changes come too fast on the heals of those articles and reports to realistically be deemed anything but fallout from scrutiny into the development practices going on in the State.  Thus, developers should be aware that they may soon have a few extra technical hurdles to overcome before getting those zoning requirements they need for their projects.

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

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

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

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

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

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