Illinois Court: LLC Member Can File Mechanics’ Lien Against Property Owned by That LLC

How meta is this fact pattern? Peabody-Waterside v. Islands of Waterside, LLC, 2013 IL App (5th) 120490, examines the distinction between LLC entity liability and an LLC member’s personal liability through the lens of a mechanics lien claim filed against an LLC by one of its own members.

Recall that Illinois law recognizes a clear line of demarcation between the LLC entity and its constituent members.

A judgment against a limited liability company (LLC) doesn’t equate to a judgment against an LLC member.  805 ILCS 180/10-10.  Similarly, a judgment against an LLC member isn’t binding on the LLC.  805 ILCS 180/30-20(a), (b).

A judgment creditor of an LLC member cannot look to LLC assets to satisfy the judgment.  Instead, the creditor must seek a “charging order” against the LLC’s distribution to the member – the member’s “distributional interest.”

In Peabody, the defendant LLC owned real estate that had a $7.5M mortgage on it.  That LLC was itself comprised of two separate LLCs, each holding a 50% interest in the defendant.  The plaintiff was one of the LLC members.

Plaintiff recorded a contractor’s lien against the LLC’s property for about $4.5M after the plaintiff did site preparation and grading work on the site under a written cost-plus construction contract with the LLC owner.  Plaintiff sued naming the owner LLC and the lender as defendants.

The prior lender moved for summary judgment on the plaintiff’s lien claim.  It (the lender) argued that since the plaintiff – as 50% member of the owner entity – was in effect a “joint owner” of the property, it couldn’t lien its own property.  The trial court agreed and entered judgment for the lender. The plaintiff appealed.

Result: Reversed.

Q: Why?

A: The general rule is that a contractor can’t lien its own property. ¶ 8.  For example, a joint venturer can’t lien property owned by the joint venture.  That’s because joint venturers are each viewed as co-owners of the joint venture’s property and the law doesn’t allow a co-owner to lien his own property.

Not so with an LLC.  Where property is titled in an LLC, the members do not have ownership interests in the property.  An LLC has an independent legal existence from its members and managers.  Any real or personal property that an LLC owns is owned by the LLC; not its members.

Membership in an LLC does not confer an ownership interest in the LLC’s real or personal property.  An LLC member is not a co-owner of LLC property and has no transferable interest in it.  805 ILCS 180/30-1.

Here, since the liened property was owned by the LLC, plaintiff – a member – wasn’t a joint owner of the property.  In addition, contrary to the lender’s argument, there was no evidence of fraud or collusion between the plaintiff, the other LLC’s other member and the LLC property owner.  ¶¶ 10-11.  As a result, plaintiff’s mechanics lien was valid.

Take-aways: Peabody-Waterside provides solid example of a court recognizing the separate, independent existence of an LLC from its members.

The Court also shows a willingness to look at “policy” reasons or equitable concerns in reaching its holding: it discussed how the plaintiff had a standard cost-plus contract with the owner, that it performed over $4.5M worth of services that enhanced the land and wasn’t paid.

Taken together, these factors weighed in favor of allowing the plaintiff’s lien.

Construction Manager Who ‘Controls’ Site Can Be Liable For Subcontractor Employee’s Injury

Calloway v. Bovis Lend Lease, Inc., 2013 WL 4428894 (1st Dist. 2013) examines a construction manager’s negligence liability to a subcontractor’s employee where the construction manager entrusts work to the subcontractor but still exercises some control over its work.

Facts: A father and son were piping installers for a subcontractor on a construction project managed by the defendant.  They sustained fatal (father) and permanent (son) injuries when a trench wall collapsed. The father’s estate sued the defendant for wrongful death and the son sued for negligence.

Held: The First District upheld the jury verdict of over $8M for the son and just over $1M for the Estate (after a 49% damages reduction for contributory negligence) against the defendant.

Reasoning:

Affirming the jury verdict, the court held that the defendant construction manager entrusted the underground piping work to the subcontractor (the father and son’s employer).  However, it also exercised a sufficient amount of supervisory control over the subcontractor and was responsible for overall project safety.  These rules were integral to the court’s decision:

one who employs an independent contractor is not liable for the independent contractor’s acts or omissions;

– If the employer retains control over the operative detail of the contractor’s work, the employer is liable under agency law principles (i.e. respondeat superior);

– if the employer retains only supervisory control – such as power to direct timing of the work or to forbid the work from being done in a potentially harmful way – the employer can be liable unless he exercises that control with reasonable care to prevent injury to others;

– when a contractor entrusts part of work to a subcontractor but superintends the entire job through a foreman, the entrusting contractor can be liable if  he (1) fails to prevent the subcontractor from jeopardizing the safety of others; (2) knows or should know that the subcontractor is engaging in unreasonable dangerous activity; and (3) has the opportunity to prevent the dangerous activity by exercising his retained power of control;

– a principal contractor’s right to order work stopped or started, to inspect its progress or receive reports, or make recommendations is not enough – standing alone – to confer liability on the principal contractor;

– the key inquiry in determining whether a contractor owes a duty of care under negligence rules turns on whether the contractor retains control or the right to supervise the contractor.

¶¶ 47-50; Restatement (Second) of Torts, Section 414

The court found that defendant entrusted the underground piping work to plaintiffs’ employer and did more than just administrative work on the job.  The contract documents gave defendant the authority to act as the owner’s agent and afforded it wide latitude in bidding and choosing contractors on the project.  ¶¶ 60-63.

The court cited as support for its findings the evidence that defendant was in charge of overall project safety and even produced safety videos and published safety protocols.  Several witnesses also testified that defendant had day-to-day control over the project and actively monitored its progress.  ¶¶ 68-75.

Witness Discovery Deposition Admitted Into Evidence As A Party Admission

The court affirmed the trial court’s allowing defendant’s former employee’s discovery deposition to be read to the jury.  Rule 212(a)(5) allows a discovery deposition to be used at trial where the deponent isn’t a retained expert, his evidence deposition hasn’t been taken and he can’t testify due to death or infirmity.  SCR 212(a)(5).

The First District found that Rule 212(a)(5) didn’t apply since the deponent wasn’t dead or sick. He was just out of the country.  However, under Rule 212(a)(2) and (3), the discovery deposition was properly read to the jury as a party admission.  These sections specifically allow discovery depositions to come into evidence as party admissions.  A statement is not hearsay if (1) it’s a statement offered against a party; (2) is a statement by the party’s agent (3) concerning a matter within the scope of the agency and (4) is made during the existence of the relationship.  ¶ 88.

The court found that the deposition met all of the rule’s requirements for a party admission and was properly read to the jury.  ¶ 89.

Conclusion: Calloway discusses an entire gamut of important and recurring substantive, procedural and evidentiary topics including compensable damages, contributory negligence, the Dead Mans’ Act, the hearsay rule and exceptions, proper discovery sanctions and the importance of jury instructions.  The case is especially instructive on the entrustment rule – derived from Section 414 of the Restatement (Second) of Torts.  Calloway makes clear that regardless what the contract documents say, if a construction manager retains a sufficient level of supervisory or “superintending” control over a project, it can be subject to negligence liability to third parties if it fails to exercise reasonable care.

 

 

 

 

Negligent Infliction of Emotional Distress: The Physical Injury Requirement

Ultimate_Post_wCat__V402326037_Maggie”, “Mr. Kitty” and “Carmel Cream.”

Are they the stage names of the um, “dancers”, at your local gentleman’s club, peut-etre?

Not sure. But they are the names of the plaintiff’s cats who figure prominently in Myers v. Condominiums of Edelweiss, Inc., 2013 WL 4597973 (N.D.Ill. August 29, 2013). 

Myers examines what happens when a condominium association’s no-pet policy collides with a Federal discrimination statute.

The plaintiff lived in a condominium unit managed by defendant (which has a recorded no-pet policy) for over 15 years.  For that entire time, plaintiff has had multiple cats in her unit: a clear violation of the no-pet rule. 

After several years of litigation in Illinois eviction court (ultimately resolved in plaintiff’s favor), plaintiff sued in Federal court alleging that the defendants (condominium association and individual board members) violated the Fair Housing Act (42 U.S.C. § 3601 et seq.)(FHA) and joined state law claims for intentional and negligent infliction of emotional distress against the defendants.

Held: Defendants’ summary judgment motion on negligent infliction claim granted.

Reasoning:

cats) was reasonable and necessary under the FHA standard. *6.

Intentional Infliction of Emotional Distress

The court denied summary judgment for the defendant on this count.  An intentional infliction plaintiff must allege (1) defendant’s conduct was “extreme and outrageous”; (2) defendant intended to inflict severe emotional distress or knew there was high probability that his conduct would do so; (3) defendant’s conduct actually caused severe emotional distress. *7. 

To determine whether conduct is extreme and outrageous, the court considers  (a) the power and control the defendant has over plaintiff; (b) whether defendant believed his objective was legitimate; and (c) defendant’s awareness of plaintiff’s susceptibility to mental distress.  *7. 

The court found that a jury could find the Association’s conduct extreme and outrageous.  The Association, knowing of plaintiff’s chronic depression (supported by a doctor’s opinion), still sued to evict her and didn’t follow its by-laws by not first calling a meeting to discuss the no-pets infraction. *3, 8.  The Association’s decision to try and force plaintiff from her home instead of “less disruptive” measures raised a question of fact on the extreme and outrageous element.  *8.

Negligent Infliction of Emotional Distress (the ‘Impact Rule’)

Defendant’s motion on plaintiff’s negligent infliction claim was  granted.

A Negligent infliction plaintiff must satisfy the impact rule: a plaintiff can’t recover for emotional distress suffered due to a defendant’s negligence unless the emotional distress is accompanied “by a contemporaneous physical injury or impact to the plaintiff.”  *8. 

Emotional pressure, loss of business, and reputational damage do not constitute sufficient physical injury or impact.  *9.  Since plaintiff didn’t offer any physical harm or injury (beyond mental anguish) evidence, she failed to raise a genuine fact question on whether she suffered physical impact sufficient to survive summary judgment.

Take-aways:

– Whether given conduct is extreme and outrageous for an intentional infliction claim is a highly fact-specific calculus with no bright-line rules;

– For a negligent infliction claim, physical injury is required.  Mental distress, economic and reputational harm don’t suffice;