Construction Litigation 101

Transcription

1 Construction Litigation 101 Seminar Topic: In this course, participants will learn ways of helping their clients when it comes to construction litigation and how to determine the issues to resolve before litigation is filed. You will also learn how to figure out the real problem between the parties and what to do when drafting the contract for your client. The instructor will discuss different causes of action such as: breach of contract, fraud, bounced check statute, conversion, fiduciary violation and wage claim. This material is intended to be a guide in general. As always, if you have any specific question regarding the state of the law in any particular jurisdiction, we recommend that you seek legal guidance relating to your particular fact situation. The course materials will provide the attendee with the knowledge and tools necessary to identify the current legal trends with respect to these issues. The course materials are designed to provide the attendee with current law, impending issues and future trends that can be applied in practical situations. Page 1

2 Copyright 2015 Printed in the United States of America. All rights reserved. No part of this monograph may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, except for citation within legal documents filed with a tribunal, without permission in writing from the publisher. Disclaimer: The views expressed herein are not a legal opinion. Every fact situation is different and the reader is encouraged to seek legal advice for their particular situation. The Apex Jurist, is Published by ApexCLE, Inc South Emerson St., Suite 248 Mount Prospect, Illinois Toll Free South Spring Street Springfield, Illinois Toll Free Ordering Information: Copies of this monograph may be ordered direct from the publisher for $24.95 plus $4.25 shipping and handling. Please enclose your check or money order and shipping information. For educational, government or multiple copy pricing, please contact the publisher. Library of Congress Cataloging-in-Publication Data ApexCLE, Inc. 1. ApexCLE, Inc. 2. Law-United States Guide-books. 3. Legal Guide 4. Legal Education. Page 2

3 About The Author Charles Silverman was a middle-school teacher for a number of years before making a career change to law. A graduate of DePaul University College of Law, his intellectual property education includes working with clients in DePaul s IP Clinic, a certificate in General Intellectual Property along with his J.D., and a research credit in Inspiration and Innovation: The Intrinsic Dimension of the Artistic Soul, by Roberta Rosenthal Kwall (81 NOTRE DAME L. REV. 1945). Charles runs his own firm, concentrating on real estate related litigation issues. At one time focused on foreclosure defense, the slow rebound of the construction industry had lead him back to his first area of practice, mechanic s liens. Charles is a firm advocate for small businesses, and he donates his time to the Decalogue Society of Lawyers, serving as its Treasurer. Author s Address: Author s Website: chsilvlaw@yahoo.com Author s Mailing Address: 123 W. Madison St, Suite 1600 Chicago, IL Author s Phone Number: (312) Page 3

4 Construction Litigation 101 Building Causes of Action By Charles Aaron Silverman, Attorney at Law...like there is another kind Disclaimer #1: This is not a seminar about the Mechanic's Lien Act, but much of the lecture by necessity will deal with said Act. But do not rely on this lecture to practice Mechanics Lien Law. Disclaimer #2: Like many areas of law, you will not make money doing this unless you do it in volume, because it can involve a LOT of court time. Disclaimer #3: These materials are not really big enough to kill large insects with, for the bigger creepy-crawlies, you are advised to use your old law school textbooks. Why is construction litigation special? Why do you need to know different ways to sue? Contractor Lifestyle Real Estate cannot run away from local corruption or government costs Why should we be discussing Mechanic's Liens? Because it is the best way for recovering unpaid money. It really is a fantastic method for getting your guy paid, you take the money out of the property itself! Sometimes even if the work was done by mistake! 770 ILCS 60/2. And you might get attorney fees even if the contract doesn't allow for them. 770 ILCS 60/17. (Could you do it on a boat? Yes. 770 ILCS 60/37. Could you do it with a goat? If the goat improved the land, via Australian grass cutting or fertilizer. 770 ILCS 60/1. But not if the goat simply recorded a final plat. (Christopher B. Burke Engineering, Ltd. v. Heritage Bank of Central Illinois, 2015 IL App (3d) (January 27, 2015) Peoria Co. (CARTER) Affirmed. - Read your ISBA s!) 1 1 Dr. Seuss Page 4

5 So then why not only Mechanic's Liens' if they are so great? Your client probably has a fantastic printer that can print and copy and scan, and in color, and hundreds of pages a minute...and they don't have a computer, a monitor, or a keyboard, or a mouse. Why? Mechanic's Liens are sold by non-lawyers who are probably practicing law, and they are frequently bad liens. (See eg 770 ILCS 60/11) Even if the lien is prima facie a good lien, there may be other legal objections, such as your client blowing the notice requirements, or doing them but being unable to prove them. (See e.g. 770 ILCS 60/5, 60/21, 60/24, and 60/25), or waiting too long (770 ILCS 60/7), or filing the suit in the wrong division after getting a put up or shut up letter 2 (770 ILCS 60/34 & 60/35, and note: "Failure to comply with Mechanics' Lien Act's time limitations results in loss of statutory remedy afforded under Act." Vernon Hills III Ltd. Partnership v. St. Paul Fire and Marine Ins. Co., App. 2 Dist.1997, 222 Ill.Dec. 762, 287 Il1.App.3d 303, 678 N.E.2d 374. And yes the suit has to be in chancery for foreclosure of a lien, but even if you release the lien because the window was missed, other relief can be sought.) There is no messing around with 'good faith attempts' when it comes to Mechanic's Liens. See e.g. "Mechanics' lien statutes are in derogation of common law, and thus such statutes must be strictly construed." Vernon Hills III Ltd Partnership v. St. Paul Fire and Marine Ins. Co., App. 2 Dist.1997, 222 Ill.Dec. 762, 287 Ill.App.3d 303, 678 N.E.2d 374. (Although also see "Contractor's error in styling himself as corporation, rather than as sole proprietorship, in his initial complaint to foreclose his mechanics' liens was mere "misnomer," which did not affect validity of complaint or date on 2 They are called 'put up or shut up' letters by several practitioners, because while it is not a legal term, it describes the legal theory quite well. "Notice provision in statute requiring party claiming a mechanics lien to commence suit to enforce lien with 30 days of demand is in the nature of a statute of limitations and was intended to force the issue on validity of claims." Chicago Whirl y, Inc. v. Amp Rite Elec. Co., Inc., App. 1 Dist.1999, Dec. 622, 304 III.App.3d 641, 710 N.E.2d 45. Page 5

6 which foreclosure action was commenced for limitations purposes; defendants were aware of contractor's identity, as evidenced by their demands upon contractor to file suit within statutory time limits prescribed in Mechanics Lien Act." Bristow v. Westmore Builders, Inc., App. 2 Dist.1994, 203 Ill.Dec. 680, 266 Ill.App.3d 257, 640 N.E.2d 339.) Practical issues as to multiple causes of action or one cause of action, and court filing fees. (Note 770 ILCS 60/9) So, there are a lot of bad liens out there, and a lot of 'iffy' liens, and a lot of liens that may not be enforceable for a variety of reasons. So what are our other ways of helping our clients when it comes to construction litigation? Not so fast. 2. Issues to resolve before litigation is filed. 1) What is the real problem between the parties? 2) What pieces should have been in play before they came to see you? The real problem between the parties (aka Litigation is a last resort) Identify the dysfunction (Contractor lifestyle, sub-contractor trust, ownerdeveloper pennywise and pound foolish) Litigation: Court time and court travel. Who can afford this? (Be careful about your retainer.) Pieces that should have been in play (aka what to do when drafting the contract for your client who had the brains to hire you before it went to heck in a handbasket) (aka you have to know what a healthy body should look like before you diagnose a sick one) Who is the client? Corporation or person? (Not all misnomers are forgiven, a corporation cannot sue if it never existed. Also, who gave the notices or demands, a corporation or an employee? Can this person be considered a regular employee?) Page 6

7 What do they want? Money. But money when? Is that more important that clearing the title. What's the real, most important goal? If revenge, fine! Is there a written contract? What should have been in the contract / should be put into the contract: With WHOM are you contracting, and will they pay for a background check? SoL? Define this as a written contract! Venue...BY THE WAY, see a VERY important FDCPA decision which is also part of these materials. Is your claim consumer debt or not? Don't take chances. Jury demands Arbitration? Interest on claims (note the Mechanic's Lien Act gives them 10%) Materiality Attorney fees! These are things non-lawyers do not think about, and can be summarized as 'If things blow up, then what?' Contracts written by businessman usually miss these issues Page 7

8 V. Causes of Action Breach of Contract Benefit: There was a breach of contract! This cause of action definitely exists. Drawback: Was it written? Can damages be proven? Liquidated? What about all the issues raised above? Biggest drawback is damages. If you sue for $2,000, you are lucky to collect $500. Also: "Never push a desperate man about a dischargeable debt." Fraud! Common law fraud is almost impossible to plead and prove and judges do not like it. Prepare for 8-9 months of briefed motions to dismiss. Consumer Fraud and Deceptive Business Practices Act. (815 ILCS 505 et. seq.) Easier to plead and prove, less elements than common law fraud, not dischargeable, sometimes attorney fees and punitive damages. Is it 'consumer' fraud? "The protections of the statute are not limited to consumers. That this is so is made clear by the full title of the act itself, which indicates that it is 'An Act to protect consumers and borrowers and businessmen against fraud, unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.'" Sullivan's Wholesale Drug Co. v. Faryl's Pharmacy, Inc., 214 Ill. App. 3d 1073, 1082, 573 N.E.2d 1370, 1376 (1991). But see 815 ILCS 505/1(e) regarding end use in commerce. Bounced check statute It is worth it to watch this lecture just for this one cause of action alone. 720 Illinois Compiled Statutes at section 5/17-1 discusses the penalties for bad checks. Subsection (E) of the statute discusses civil liability, and states in relevant part: "A person who issues a check or order to a payee in violation of paragraph (B)(1) and who fails to pay the amount of the check or order to the payee within 30 days following either delivery and acceptance by the addressee of a written demand...shall be liable to the payee or a person subrogated to the rights of the payee for, in addition to the amount owing upon such check or order, damages of treble the Page 8

9 amount so owing...plus attorney's fees and court costs...as part of the written demand required by this subsection (E), the plaintiff shall provide written notice to the defendant of the fact that prior to the hearing of any action under this subsection (E), the defendant may tender to the plaintiff and the plaintiff shall accept, as satisfaction of the claim, an amount of money equal to the sum of the amount of the check and the incurred court costs, including the cost of service of process, and attorney's fees." (Bold emphasis added.) And if you send it certified mail & regular mail and they refuse to pick up the certified mail, it is considered as if they were noticed by certified mail. Put this in your demand letter: AS PER THE STATUTE, THE PARTY RECEIVING THIS LETTER IS ADVISED THAT THEY CAN AVOID THE TREBLE DAMAGES IF THEY PAY FOR THE CHECK AND ALL COSTS AND ATTORNEY FEES BEFORE COURT HEARING The issue of being the attorney and the party making the demand (this applies for the Conversion cause of action as well): The attorney cannot be a witness. Rule 3.7 of the Illinois Rules of Professional Conduct prohibits a lawyer from acting as advocate at a trial in which the lawyer is likely to be a necessary witness unless "(1) the testimony relates to an uncontested issue; (2) the testimony relates to the nature and value of legal services rendered in the case; or (3) disqualification of the lawyer would work substantial hardship on the client." See Muellman Cohen v. Brak, 361 IIl.App.3d 52, 53 (2005). Some judges will say you are the one who testifies to the essential element of a demand, some won't care. I just have my paralegal sign an affidavit that says "I shoved this letter signed by Mr. Silverman into the envelope" and now it isn't a problem. Conversion If the issue is that you paid a contractor or a sub and they did nothing or very little, just demand it back. Conversion is an intentional tort, go for punitive and pierce the corporate veil, and it should not be dischargeable. 3 3 I've never filed an adversarial for conversion in a bankruptcy, but I cannot see why as an intentional tort it would be a dischargeable debt. Page 9

10 This will work even on unused portions of the money tendered. You can argue for breach of contract for bad work for 20% of the retainer, and conversion for the other 80% if the contractor barely started. Fiduciary violation This almost never occurs, unless you have a situation where it can be argued that the other party is a trustee. For an example see 770 ILCS 60/ Wage Claim See To make a long story less long, if your client the subcontractor was there long enough to be getting a W2 over several months (and not payments to a corporation), it's better than they let the State of Illinois chase the guy. 4. Miscellaneous considerations when handling clients. Clients should sign certain disclaimers before they even meet you Consult fees weed out crazy people (and make you some money) Manage client expectations. Make sure they know (and have signed a writing) stating what you can and cannot do, and what you did and did not promise Trial Retainers in your IOLTA account encourage settlement! Use the Square! I am not being paid to endorse them, I just love them! Never do a full contingency (except when you have them cold on a bounced check), always do a hybrid, at the very least it will make your client think twice about bothering you MOST IMPORTANTLY: IF YOU ARE GOING TO A CERTAIN COURTROOM FOR ONLY ONE CASE, EVENTUALLY EITHER YOU OR YOUR CLIENT WILL GO BROKE. Page 10