Court Rules information provided from Inspection and Testing that is used for construction remains protected by Economic Loss Doctrine

Spray fireproofing on an I-beamThe GC hired Piasa to install drywall frame, spray-on fireproofing as well as acoustical and EIFS work.  The GC also hired Patriot to provide inspection and testing of the fireproofing material.  Part of Patriot’s contract required Patriot to report and deficiencies in the fireproofing to the GC and Piasa.  The project specs and manual called for this testing to occur as the fireproofing was installed and for prompt reporting of any deficiencies.

Piasa installed fireproofing and Patriot inspected it.

Piasa, was subcontractor on a project and was terminated by the GC.  Piasa filed this complaint against the GC for breach of contract and the surety for requesting monies it claimed it was owed, after a counterclaim was filed against Piasa, Piasa sued Patriot for negligent misrepresentation alleging that any defects it might be found liable for with regard to the fireproofing should be passed on to Patriot because Patriot had the responsibility for the testing.

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Court reaffirms that Receivership is the rule in commercial foreclosure actions, with few exceptions

Block 37It’s becoming apparent that apart from having financing in place to pay off the balance of a loan, no mortgagor in a commercial foreclosure action is going to be able to defeat a mortgagee’s request to appoint a receiver. 

Consider the recent case of Bank of America, N.A. v. 108 N. State Retail LLC et al. (Doc. No. 1-09-3523).  The matter involves the Block 37 project in downtown Chicago.  A consortium of lenders led by Bank of America filed suit to foreclose their interests in the retail and entertainment development when the developer defaulted on the terms of the loan.  According to the opinion, the developer signed several letters during the term of the project acknowledging the default at the request of the lenders to keep the project funded.  The events giving rise to the default were a failure by the developer to have $5 million in liquid assets and a failure to make sure the funds available under the loan equaled or exceeded the budget to complete the construction of the project as required by the loan agreement.

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The Economic Loss Doctrine Bars Suits For Negligence Where Only The Building Gets Damaged?

CASE STX480.jpgA recent Illinois Third District opinion has helped to clarify the economic loss doctrine’s application in the state and it’s a necessary read for any material suppliers and subcontractors.

The facts of Westfield Ins. Co. v. Birkey’s Farm Store, Inc. (3d Dist. Case no. 3-09-0501) are relatively easy to follow.  Plaintiff’s bought a tractor that had an added auto steer system from Birkey’s.  The tractor was made by CNH.  The tractor caught fire and was extensively damaged.  Plaintiff’s sued Birkey’s and CNH alleging counts in negligence and product liability amongst others.  Birkey’s and CNH moved to dismiss the negligence and product liability claims arguing they were barred by Illinois’ application of the economic loss doctrine.

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Architect/Designer Loses Copyright Action Over Invalid Deposit Copy Filed For Registration

Copyright icon by PlenumchamberEvery member of the team should be aware of the  process of protecting the copyright of the drawings.  It’s a short and simple submission to the United States Copyright Office and whomever purchases or retains a copyright as agreed in the contract needs to ensure the protection in order to take advantage of it should a dispute arise. 

We have long been proponents of protecting the copyright interest in the deliverables.  The parties to many construction contracts expend substantial time and effort in coming to an agreement.  The agreement normally includes provisions regarding ownership/licensure of the drawings, or at least it should if time and effort is taken to reach an suitable arrangement over other terms.  Regardless of the arrangement for ownership or licensure, copyright is generally a material portion of the “ownership” clause.  Failure to register the copyright diminishes not only the effectiveness of the copyright provisions that have been negotiated and lessens the legal remedies and rights available to the party vested with the copyright.  You’ve spent money protecting your copyright through contract only to give up the main benefit of that protection under the U.S. Copyright Law by failing to register.

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Are Courts Finally Willing To Entertain Reasonable Liquidated Damages Clauses?

Land sales contract. Sumerian clay tablet, ca. 2600 BC., Taken by Marie-Lan Nguyen“It is true that, when people make contracts, they usually contemplate the performance rather than the breach.” – The Common Law, Oliver Wendell Holmes, Jr.

As the sophistication of contracting parties has grown, Holmes’ comment can be read today as an admonishment as much as it can be understood to express the mindset of contracting parties.  The body of case law on liquidated damages clauses in contracts that’s been created since Holmes first published The Common Law is proof that contemplation of the breach is now a necessary part of the contemplation of performance.

Today’s opinion, Ner Tamid Congregation of North Town v. Krivoruchko (IL N.D., Doc. No. 08 C 1261) is a must read for understanding that in the formation of a contract, the debate is far from dead between allowing sophisticated parties to commingle liquidated damages with the right to sue in a hybrid “election of remedies clause” and a simple Illinois public policy against those clauses.

The opinion from Judge Cole is a summation of the origins and state of the law regarding both the interpretation of contracts and liquidated damages clauses in agreements fit for a textbook.  Similar sets of facts are currently being litigated in courts across the nation given the economic downturn and the bursting real estate bubble. 

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