Possible Problematic Lien Notice Starts Limitations Clock in Lawyer ‘Mal’ Case

In Construction Systems, Inc. v. FagelHaber LLC, 2019 IL App (1st) 172430, the First District affirmed the time-barring of a legal malpractice suit stemming from a flubbed contractor’s lien filing.

Several months after a lender recorded its mortgage on a commercial project, the law firm defendant, then representing the plaintiff contractor, served a Section 24 notice – the Illinois mechanics’ lien act provision that governs subcontractor liens. 770 ILCS 60/24.  While the notice was served on the project owner and general contractor, it didn’t name the lender.  In Illinois, where a subcontractor fails to serve its lien notice on a lender, the lien loses priority against the lender.

After the contractor settled its lien claim with the lender’s successor, it sued the defendant law firm for malpractice. The contractor plaintiff alleged that had the law firm properly perfected the lien, the plaintiff would have recovered an additional $1.3M.

Affirming summary judgment for the defendant law firm, the First District agreed with the trial court and held that plaintiff’s legal malpractice suit accrued in early 2005. And since plaintiff didn’t sue until 2009, it was a couple years too late.

The Court based its ruling mainly on a foreboding February 2005 letter from plaintiff’s second counsel describing a “problematic situation” – the lender wasn’t notified of plaintiff’s subcontractor lien. The court also pointed out that plaintiff’s second attorney testified in her deposition that she learned of possible lien defects in February 2005; some four years before plaintiff filed suit.

Code Section 13-214.3(b) provides for a two-year limitations period for legal malpractice claims starting from when a plaintiff “knew or reasonably should have known of the injury for which damages are sought.” [⁋ 20]

A plaintiff’s legal malpractice case normally doesn’t accrue until he/she sustains an adverse judgment, settlement or dismissal. An exception to this rule is where it’s “plainly obvious” a plaintiff has been injured as a result of professional negligence.

The court rejected plaintiff’s argument that it never discovered the lien defect until 2007 when the lender’s successor filed its summary judgment motion (which argued that the lien was defective as to the lender). According to the court “the relevant inquiry is not when [Plaintiff] knew or should have known about the lack of notice as an actual defense, but when [Plaintiff] should have discovered [Defendant’s] failure to serve statutory notice of the mechanic’s lien on [the prior lender] prompting it to further investigate [Defendant’s] performance.” [⁋ 24]

The court again cited the above “problematic situation” letter as proof that February 2005 (when the letter was sent) was the triggering date for plaintiff’s claim. Another key chronological factor was the plaintiff’s 2005 payment of attorneys’ fees.

In Illinois, a malpractice plaintiff must plead and prove damages and the payment of attorneys’ fees can equate to damages when the fees are tied to a former counsel’s neglect. Since plaintiff paid its second counsel’s fees in 2005 for work she performed in efforts to resuscitate the lien’s priority, 2005 was the limitation period’s triggering date. [⁋ 25]

Construction Systems cites Nelson v. Padgitt, 2016 IL App (1st) 160571, for the proposition that a plaintiff does not have to suffer an adverse judgment to sustain legal malpractice injury. In Nelson, an employment contract dispute, the Court held that the plaintiff should have discovered deficiencies in his employment contract (it provided for the loss of salary and commissions in the event of for-cause termination) in 2012 when he sued his former employer, not in 2014 when the employer won summary judgment.

The Court also rejected plaintiff’s argument that its damages were unknown until the lien litigation was finally settled and that it couldn’t sue until the lien dispute was resolved. The court held that the extent and existence of damages are different things and that it’s the date a plaintiff learns he/she was damaged, not the amount, that matters.

Lastly, the court nixed plaintiff’s judicial estoppel concern – that plaintiff couldn’t argue the lien was valid in the underlying case while arguing the opposite in the malpractice suit. According to the court, the plaintiff could have entered into a tolling agreement that would suspend the statute of limitations pending the outcome of the underlying case.

Conclusion

Construction Systems reaffirms that a legal malpractice claim can accrue before an adverse judgment is entered or an opponent files a formal pleading that points out claim defects.  Moreover, the payment of attorneys’ fees directly attributable to a former counsel’s neglect is sufficient to meet the damages prong of a legal malpractice case.

This case and others like it also make clear that the limitations period runs from the date a plaintiff learns she has been injured; not when financial harm is specifically quantified.

To preserve a possible malpractice claim while a plaintiff challenges an underlying adverse ruling, practitioners should consider tolling agreements to suspend any statutes of limitation and guard against possible judicial estoppel concerns (taking inconsistent positions in separate lawsuits).

Earned Bonus Is Proper Subject of Employee’s Wage Payment Claim; Reliance on Employer Pre-Hiring Statements Is Reasonable – IL ND

After leaving a lucrative banking position in Florida for a Chicago consulting gig, Simpson v. Saggezza’s (2018 WL 3753431 (N.D.Ill. 2018) plaintiff soon learned the Illinois job markedly differed from what was advertised.

Among other things, the plaintiff discovered that the company’s pre-hiring revenue projections were off as were the plaintiff’s promised job duties, performance goals and bonus structure.

When plaintiff complained, the Illinois employer responded by firing him. Plaintiff sued the defendants – the employer and a company decision maker – for unpaid bonus money under the Illinois Wage Payment and Collection Act, 820 ILCS 115/1, et. seq. (IWPCA) and for other common law claims. Defendants moved to dismiss all claims.

In denying the bulk of the defendants’ motion, the Court discussed the nature and reach of earned bonus liability under the IWPCA in the context of a motion to dismiss.

The IWPCA defines payments as including wages, salaries, earned commissions and earned bonuses pursuant to an employment contract.  820 ILCS 115/12. An earned bonus is defined as “compensation given in addition to the required compensation for services performed.”  Il. Admin. Code, Title 56, s. 300.500.

The IWPCA allows an earned bonus claim only where an employer makes an unequivocal promise; a discretionary or contingent promise isn’t enough.  So as long as the plaintiff alleges both an employer’s unambiguous promise to pay a bonus and the plaintiff’s satisfactory performance of the parties’ agreement, the plaintiff can make out a successful IWPCA claim for an unpaid earned bonus.

Here, the plaintiff sufficiently alleged a meeting of the minds on the bonus issue – the defendant-employer unequivocally promised a $25,000 bonus if plaintiff met a specific sales goal – and that the plaintiff met the goal.

The court then partially granted the employer’s motion to dismiss the plaintiff’s statutory and common law retaliation claims.

IWPCA Section 14(c) prevents an employer from firing an employee in retaliation for the employee lodging a complaint against the employer for unpaid compensation. 820 ILCS 115/14(c).  Since the plaintiff alleged both an agreement for earned bonus payments and that he was fired for requesting payment, this was enough to survive a motion to dismiss.

The court did, however, dismiss plaintiff’s common law retaliatory discharge claim.  To prevail on this claim, a plaintiff must allege (1) he was terminated, (2) in retaliation for plaintiff’s conduct, and (3) the discharge violates a clearly mandated public policy.

The Court rejected the plaintiff’s argument that an IWPCA violation was enough to trigger Illinois public policy concerns. The court held that to invoke the public policy prong of the retaliation tort, the dispute “must strike at the heart of a citizen’s social rights, duties and responsibilities.”  And since the Court viewed an IWPCA money dispute to a private, economic matter between employer and employee, the employer’s alleged IWPCA violation didn’t implicate public policy.

Lastly, the Court denied the defendant’s motion to dismiss plaintiff’s fraud in the inducement claim.  In this count, plaintiff alleged he quit his former Florida job in reliance on factual misstatements made by the defendant about its fiscal health, among other things.

To sufficiently plead fraudulent inducement, a plaintiff must allege (1) a false statement of material fact, (2) known or believed to be false by the person making it, (3) an intent to induce the other party to act, (4) action by the other party in reliance on the truth of the statement, and (5) damage to the plaintiff resulting from the reliance.  To be actionable, a factual statement must involve a past or present fact; expression of opinions, expectations or future contingencies cannot support a fraudulent inducement claim.

Where there is a disparity in knowledge or access to knowledge between  two parties, the fraudulent inducement plaintiff can justifiably rely on a representation of fact even if he could have discovered the information’s falsity upon further investigation.

While the defendant argued that the predicate fraud statements were non-actionable embellishments or puffery, the court disagreed.  It found that plaintiff’s allegations that defendant made factually false statements about the defendant’s financial state and the plaintiff’s job opportunities were specific enough to state a claim.

The court noted that plaintiff alleged the defendants supplied plaintiff with specific financial figures based on historical financial data as part of their pre-hiring pitch to the plaintiff. Taken in totality, the information was specific and current enough to support a fraud claim.

Afterwords:

Earned bonuses are covered by IWPCA; discretionary or conditional bonuses are not;

The common law retaliation tort has teeth. It’s not enough to assert a statutory violation to implicate the public policy element.  A private payment dispute between an employer and employee – even if it involves a statutory violation – won’t rise to the level of a public policy issue;

An employer’s false representations of a company’s financial status can underlie a plaintiff’s fraud claim since financial data supplied to a prospective hire is information an employer should readily have under its control and at its disposal.

Vague Oral Agreement Dooms Mechanics Lien and Home Repair Act Claims – IL First Dist.

The First District recently examined the quantum of proof necessary to prevail on a breach of oral contract and mechanics lien claim and the factors governing a plaintiff’s request to amend its pleading.

In Link Company Group, LLC v. Cortes, 2018 IL App (1st) 171785-U, the Defendant hired the plaintiff – his former son-in-law – to rehab a residence in the Northern suburbs of Chicago. After a dispute over plaintiff’s construction work and billing issues, the plaintiff sued to foreclose a mechanics lien and for breach of contract. The defendant counter-sued and alleged plaintiff violated the Illinois Home Repair and Remodeling Act (IHRRA) requires, among other things, a contractor to provide certain disclosures in writing to a homeowner client. The trial court granted summary judgment for the defendant on plaintiff’s lien and contract claims and denied summary judgment on defendant’s IHRRA counterclaim. All parties appealed.

Affirming, the appeals court first took aim at the plaintiff’s breach of contract and mechanics lien claims.

While oral contracts are generally enforceable, they must contain definite and essential terms agreed to by the parties. For an oral contract to be enforceable, it must be so definite and certain in all respects that the court can determine what the parties agreed to.

Here, the substance of the oral contract was vague. When pressed at his deposition, the plaintiff was unable to articulate the basic terms of the parties’ oral construction contract. Since the court was unable to decipher the key contract terms or divine the parties’ intent, the plaintiff’s breach of contract failed.

The plaintiff’s inability to prove-up its oral contract claim also doomed its mechanics lien action. In Illinois, a valid mechanics lien foreclosure suit requires the contractor to prove an enforceable contract and the contractor’s substantial performance of that contract. Since the plaintiff failed to establish a binding oral contract, by definition, it couldn’t prevail on its mechanics lien claim.

The First District also affirmed the trial court’s denial of the plaintiff’s motion to amend its complaint. While amendments to pleadings are generally liberally allowed in Illinois, a court will not rubber stamp a request to amend. Instead, the court engages in a multi-factored analysis of (1) whether the proposed amendment would cure the defective pleading, (2) whether other parties would sustain prejudice by virtue of the proposed amendment, (3) whether the proposed amendment is timely, and (4) whether previous opportunities to amend the pleadings could be identified.

Here, the plaintiff’s proposed implied-in-fact contract was “nearly identical” to the stricken breach of oral contract claim. An implied-in-fact contract is one where contract terms are implicit from the parties’ conduct. Here, the parties conduct was too attenuated to establish definite contract terms. As a result, the proposed implied-in-law contract claim was facially deficient and didn’t cure the earlier, failed pleading.

Ironically, the plaintiff’s failure to allege an enforceable oral agreement also precluded summary judgment on the defendant’s IHRRA counterclaim. A valid IHRRA claim presupposes the existence of an enforceable contract. Since there was no written agreement and the parties’ oral agreement was unclear, there was no valid contract on which to hook an IHRRA violation.

Afterwords:

This case cements proposition that a valid oral contract claim requires proof of definite and certain terms. A plaintiff’s failure to allege a clear and definite oral agreement will prevent him from asserting either a mechanics lien or Home Repair Act claim based on the putative oral agreement.

Link Company also illustrates the four factors a litigant must satisfy in order to amend a pleading. If the proposed amended complaint fails to allege a colorable cause of action, a court can properly deny leave to amend despite Illinois’ liberal pleading amendments policy.