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.

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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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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