Is The Legislative Reaction to Cypress Creek a Fix in Support of Lien Claimants?

Interior of a Transperth B-series train at Clarkson, Western Australia. :Mitchell JohnsonThe much anticipated legislative fix for the LaSalle Bank c. Cypress Creek 1 case has stalled in the State Senate.  House Bill 3636 seeks to change the language of Section 16 of the Illinois Mechanics Lien Act to deal with the Illinois Supreme Court’s decision that puts properly secured construction lenders on equal footing with lien claimants during the apportionment of sale proceeds following a foreclosure.

The Illinois House of Representatives passed the bill on April 14.  The version passed by the House took away the equal footing put in place by Cypress Creek and added language to Section 16 stating that lenders “shall not be preferred to the value of any subsequent improvements” and gave the lien claimants preference as to the value of “all” improvements placed on the property during construction “whether or not” they were provided by the lien claimant.

If you followed the decisions, the House bill basically enacts the method of apportionment and damage calculation that the Illinois Third District Appellate Court had awarded in the opinion that was appealed to the Illinois Supreme Court.

After the House passed the bill, it went to the Senate where it was amended with the following language:

“When the proceeds of a sale are insufficient to satisfy the claims of both previous incumbrancers and lien creditors, the proceeds of the sale shall be distributed as follows: (i) any previous incumbrancers shall have a paramount lien in the portion of the proceeds attributable to the value of the land before any improvements;  and (ii) any lien creditors shall have a paramount lien in the portion of the proceeds attributable to the value of all subsequent improvements made to the property.”

This amendment is a little tricky.  It keeps the distinction of the House bill, but appears to go on to say that courts should first award from the sale proceeds the full amount of the lenders payment for the land, and then, after that award, give the remaining proceeds to lien claimants.  I

It’s the use of the word “paramount” that’s confusing.  A quick search of the Illinois statutes shows that the word is most often used in the preamble of acts to discuss the purpose and importance of the act.   

When it is used in the statutory language with purpose, “paramount” is used to establish or express a priority of right:

• 755 ILCS 50/5-5
  
• 735 ILCS 5/8-1209
• 615 ILCS 5/26
• 820 ILCS 310/21

Garners Modern American Usage defines paramount as “superior to all others” or “most important”.

If the added words of the Senate bill don’t change the method of distribution and award amounts established by the House bill, then they shouldn’t be added.  As it reads, the Senate bill would do away with the method for calculating monetary awards of foreclosure proceeds established in both the Appellate and Supreme Court Cypress Creek cases and appears to award the proceeds of a sale in the amount of the full amount of the land value first to the lender and then would take whatever remains from the sale proceeds and give it to the mechanic’s lien claimants… if not, why add “paramount”?

The bill appears to have stalled in the Senate for now.  But anyone concerned about the changing rights of contractors and lenders should keep an eye its progress.

LaSalle Bank NA v. Cypress Creek - Rehearing Denied

The request for rehearing on the matter was just denied.  True to the original opinion from February, Justice Freeman had a well argued dissent that is not posted on the IL Supreme Court website.  We've taken the liberty of posting it below.  It raises a slough of the arguments regarding the construction industry and the way it interacts with lenders:

"JUSTICE FREEMAN, dissenting:

"In my original dissent I warned that the court's decision will cause confusion to Illinois mechanics lien law, an area of practice that is both "technical and complex." Slip op. at 22 (Freeman, J., dissenting, joined by Burke, J.). The court made no attempt to address the legal concerns raised in that dissent concerning its unsupportable interpretation of section 16 of the Mechanics Lien Act. And, because it did not do so, both contractors, Eagle Concrete and Edon Construction, now seek rehearing, in large part because the decision has consequences that they believe the court may have inadvertently overlooked or, perhaps, could not foresee.

"For example, Eagle notes that the court's construction of the statutory phrase "at the time of the making of the contract" will have an adverse impact on subcontractor's liens, which have, until now, related back to the date of the original contractor. Eagle also asks, in light of the court's holding, "what happens to the value given to a project  [*2] by a contractor which was neither paid nor for whom a lien was filed?" Eagle explains that this question is a direct result of the court's interpretation of section 16. Eagle further asserts that in the wake of the court's opinion, there will be "only two possible ways for a contractor to ensure payment of its work. It will either need to require the lender to prepay for the next segment of work or require the owner to post a payment bond." Eagle asserts that it is "rare" in the construction industry for there to be such bonds.

"Edon, for its part, points out that, in the wake of the court's opinion, "trial courts will be confronted with the virtually impossible task of determining the exact components of a building which are subject to claims of lien creditors," which is the result of the court's novel interpretation of section 16.

"The points raised by these contractors demonstrate that the court's opinion, apart from contradicting existing case law, will unnecessarily disrupt existing commercial practices and cause a ripple effect on the marketplace For these reasons, the contractors' contentions should be addressed. As Edon aptly observes:

"If the Court fails to reconsider its decision  [*3] and the Majority Opinion stands, *** mechanic's lien[s] will no longer provide protection to contractors. The inevitable result will be chaos in the construction industry. Contractors will [no] longer be able to rely upon the protection of the Act and will have to require payment in advance, which will increase the risk assumed by owners and developers, delay completion of troubled projects, and interfere with economic recovery."

"The court's resolution of this case unfairly gives a financial advantage to the banking industry at the expense of the construction industry in the area of mechanics liens. This is not merely unfair, it contradicts the express intent of the General Assembly in enacting the Mechanics Liens Act. Historically, this court has consistently viewed the Act's purpose to "protect" those who increase or improve, by the furnishing of labor and materials, the "value or condition of the property," that is, contractors like Eagle and Edon. R.W. Dunteman Co. v. C/G Enterprises, Inc., 181 Ill. 2d 153, 164 (1998); see also Weather-Tite v. University of St. Francis, Inc., 233 Ill. 2d 385, 391 (2009)(same). Apparently, that is no more.

"Rehearing is appropriate where the reviewing  [*4] court has overlooked or misapprehended a point. Ill. S. Ct. R. 367 (eff. Sept. 1, 2006). Rehearing is warranted under these circumstances, and I dissent from the court's denial.
"JUSTICE BURKE joins in this dissent."

What You Can Expect to Get Out Of the Upcoming ABA Sticks and Bricks Seminar in Ann Arbor, MI – Part 1

The upcoming ABA Sticks and Bricks seminar coordinated by Clark Hill’s own Matt Rechtien is a stellar opportunity for those looking to familiarize themselves with the processes of the industry.  Young attorneys interested in construction law, accountants, engineers or anyone seeking an understanding of the means, methods and materials will benefit highly from this one-day seminar.  To highlight what you’ll be learning, we thought it best to discuss each of the seven topics in two entries.  This entry involves the presentations on Concrete, Curtainwalls and HVAC/MEP work.

Concrete:

The Concrete seminar delivered at the Sticks and Bricks event will give the attendees valuable insight and information regarding:

• ·        Concrete Materials;
• ·        Concrete Form Work;
• ·        Concrete Placement, Finishing and Curing; and
• ·        Common Problems Associated with Concrete.

Curtainwall:

The Curtainwall portion of the seminar educate attendees regarding issues surrounding curtainwall design and the construction basics such as:

• ·        Performance Requirements For Curtain Walls;
• ·        Problems Associated with Curtain Walls; and
• ·        Masonry Buildings and Contemporary Curtain Wall Design.

HVAC/MEP:

The HVAC/MEP portion of the program will give the attendee important information regarding:

• ·        Mechanical Systems including Air Conditioning and Heating;
• ·        Information regarding HVAC system Components;
• ·        An understanding of HVAC Schematics;
• ·        Electrical Systems; and
• ·        Plumbing Systems and Schematics; and
• ·        Fire Suppression Systems.
• ·         

Plenty of thought and effort goes into presenting each of the issues for the person looking to become acquainted with construction.  Anyone looking to further that understanding would do well to attend.  In our next entry, we will discuss what the attendee will get from the program portions on Steel, Foundation Work, Roofing and Masonry.

Matthew Rechtien of Clark Hill to Host the ABA Stick’s and Brick’s Construction Conference on November 11 in Ann Arbor

ABA Forum on Construction IndustryEver wanted to learn the construction process from the experts?  Well, here’s your chance.  On November 11, Clark Hill’s  own Matthew Rechtien will be the coordinator of the ABA’s Sticks and Bricks Conference in Ann Arbor, MI.

The ABA’s Forum on the Construction Industry holds this event as an opportunity for lawyers, engineers and other construction industry professionals to learn the techniques and practices of the construction process from actual practitioners.

The Ann Arbor event focuses on all aspects of the construction process with specific focus on the topics of site work and foundations, concrete, roofing, steel work, masonry, curtainwalls and HVAC/MEP design and installation.  Each of the topics is covered in its own presentation from an industry expert.

This is a valuable program for anyone involved in consulting or representing those in the industry, or those who would like to start working for the industry but who may have only a passing knowledge of the details of construction.  You are sure to come away from this presentation with an understanding of the fundamentals necessary to advance your career.

The Ann Arbor Sticks and Bricks event is sponsored by Wiss, Janney, Elstner Associates, Inc.

The location of the event is the Courtyard Inn in Ann Arbor, 3205 Boardwalk, Ann Arbor, MI.

For more information, or to register, please see the attached brochure or contact Matt for further details at (313) 967-4072.

Illinois Legislature Passes Modification for Private Right of Action Under The Home Repair and Remodeling Act

Amanda Bicknell - Home Repair in South DakotaSenate Bill 2540 was sent to Governor Quinn for signature on Friday.  The bill eliminates an ongoing issue prevalent in some recent judicial opinions and dissents regarding a private right of action under the Illinois Home Repair and Remodeling Act (815 ILCS 513).

The debate was sparked in recent opinions like 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); and Central Illinois Electrical Services, LLC v. Slepian, 358 Ill.App.3d 545, 831 N.E.2d 1169 (3^rd Dist. 2005).  The appellate courts have been reaching different conclusions about the rights and remedies asserted under the act and the Illinois Supreme Court has yet to chime in on the matter, although Artisan Design Build v. Bilstrom remains on the Leave to Appeal Docket for this term.

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