Illinois Mechanics’ Lien General Contractor Doesn’t Morph Into a Subcontractor When Property is Sold Before Recording

imageQ: Does a general contractor transform into a subcontractor where a property owner sells its property to a third party AFTER the general contractor completes its improvements but BEFORE it records its mechanics lien?

A:  No.

Q: Does it matter?

A: Yes.  Because unlike a general contractor, a subcontractor must serve a 90-day notice to the new owner in order to preserve its lien rights under Section 24 of the Mechanics’ Lien Act (the Act).  770 ILCS 60/24.  If the subcontractor doesn’t serve the 90-day notice, the lien is invalid against the third party buyer.

Those are the key questions and answers distilled from Dirtwerks Excavating, Inc. v. Koritala, 2013 IL App (2d) 130329-U, a December 2013 Second District case where real estate was sold by the original owner to various purchasers after a paving general contractor completed its work but before it timely filed its mechanics’ lien.

Facts:

Plaintiff general contractor timely recorded his lien against several properties within the four month time period required by Section 7 of the Mechanics’ Lien Act (the “Act”), 770 ILCS 60/7.  But before the contractor recorded its lien, the owner sold the properties to various home buyers.

Those home buyers successfully moved to dismiss the lien on the basis that the plaintiff converted to a subcontractor once the properties were sold.  And since the plaintiff contractor never sent a 90-day notice (per 770 ILCS 60/24), the contractor’s lien wasn’t enforceable against the defendants.

Held: Trial court reversed.  Plaintiff’s lien was proper, timely and valid against the homeowner defendants.

Reasoning:

Illinois Mechanics’ Lien Act: ‘Contractor’ v. ‘Subcontractor’

The Act’s purpose is to protect those who in good faith furnish material or labor for the improvement of real estate.  The Act permits a lien on the property where a (a) benefit has been received by the owner and (b) where the property’s value or condition has been increased or improved by the furnished labor or materials. ¶ 5. 

A “contractor” under the Act is any person who contracts with a land owner or someone authorized by the owner to enter a contract with the contractor.  A “subcontractor” is one who performs construction work for the contractor.  770 ILCS 60/1(a)(contractor def.); 770 ILCS 60/21(a)(subcontractor def.).  A subcontractor must serve the owner with written notice of its lien within 90 days after completion of the work.  770 ILCS 60/24.  A contractor does not have to comply with the 90-day notice requirement.  He (a contractor) only has to file his lien within 4 months of completion. 770 ILCS 60/7.

Can Unverified Pleading Come Back to Haunt You?

No.  A complicating factor in Dirtwerks was that plaintiff alleged in its original complaint that it was a subcontractor.  But in later complaint amendments, it alleged it was a general contractor.   But since the original complaint wasn’t verified, it was superseded by the later filed complaints. 

A verified complaint that is amended remains a part of the record and can be used to impeach the pleader.  Not so with an unverified pleading.  Once an unverified pleading is amended, it’s erased from the record.  Even so, the plaintiff’s allegation in the first complaint that it was a subcontractor wasn’t a binding admission since it was a legal conclusion (and not a factual allegation). (¶¶ 6-7).

Lien Claimants’ Status Is Determined by the Original Contracting Parties

The Court’s key holding is that the plaintiff’s status (general contractor or subcontractor) was determined by the original contracting parties.  Plaintiff originally contracted with an entity that owned the properties.  That the properties were later sold to third parties didn’t change plaintiff from a general contractor to a subcontractor (who was required to send a 90-day notice). (¶ 9).

The court pointed to cases dating back more than a century for the proposition that once a lien attaches on the date of the owner-general contractor contract, a property buyer takes the property subject to the lien – so long as the lien is recorded/perfected within the four-month window.  

In fact, Section 7 of the Act expressly binds subsequent property buyers.  That section states that a timely recorded lien binds a creditor, incumbrancer or purchaser.   (¶10); 770 ILCS 60/7.

Take-away: This seems like a fair result.  The contractor shouldn’t be penalized just because a prior owner happens to transfer the property to a new buyer before the contractor records its lien.  Dirtwerks also solidifies lien law axioms that a plaintiff’s status – be it contractor, subcontractor, or sub-subcontractor, is determined by the original contracting parties and a timely recorded lien will bind subsequent purchasers.

 

 

 

 

12(b)(6) Motions and Fraud Pleading Rules – A Case Note

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Wojcik v. Interarch, Inc., 2013 WL 5904996 (N.D.Ill. 2013), provides a good summary of the factual allegations required to allege fraud and civil conspiracy claims.

The plaintiffs sued a national franchisor and its site development consultant for fraud and other business torts when their Saladworks franchise failed.  Defendants moved to dismiss all claims.

Held: motion granted in part; denied in part.

Reasons:  The Court first recited some key Federal court pleadings and motions rules:

– A 12(b)(6) motion tests whether the complaint state a claim on which relief can be granted;

–  FRCP 8 notice pleading requires a complaint to contain sufficient factual matter that states a claim that is plausible on its face;

– a plaintiff doesn’t have to plead facts in his complaint that anticipate possible affirmative defenses  (FRCP 8(c)(1);

– FRCP 9(b) requires heightened pleading specificity for fraud and civil conspiracy claims including the ‘who, what, where, when and how’ of the fraud and the conspiracy;

– FRCP 9’s pleading specificity rules are designed to discourage a ‘sue first, ask questions later’ mentality and to account for the stigma attached to fraud-based claims;

– a negligent misrepresentation claim is not subject to FRCP 9’s elevated pleading rules;

– FRCP 12(b)(6) generally only looks at a complaint’s four corners except where the complaint either attaches or specifically refers to outside documents;

–  a court may consider exhibits to a 12(b)(6) motion if the exhibit supplements a document attached to the complaint or where the defendant relies on the exhibit for the ‘same purpose’ as a document attached to the complaint

*5-6, 11; FRCP 8, 9, 12.

Applying these rules, the Court struck several of defendants’ motion exhibits that either weren’t attached to or incorporated by reference in plaintiffs’ complaint. *8.

The Court then sustained the plaintiffs’ fraud claims against the franchisor defendants.

While a fraud plaintiff must specifically plead the “who, what, when, where and how” of the fraud, allegations of malice, intent, knowledge of falsity and subjective matters can be alleged generally.  FRCP 9(b).

Here, the plaintiffs fraud claims were detailed.  They specifically pled the defendants knowingly misrepresented and omitted material facts involving the restaurant’s projected profits, build-out and construction costs, and general operating expenses.  Taken together, the allegations satisfied the pleading requirements for a valid fraud claim.  Wojcik, *11.

The plaintiffs’ civil  conspiracy claims failed.

An Illinois civil conspiracy plaintiff must plead and prove: (1) an agreement to accomplish an unlawful purpose or a lawful purpose by unlawful means, (2) a wrongful act in furtherance of the agreement, and (3) injury to the plaintiff.  Wojcik, *11.

The agreement is the foundation of the conspiracy and requires proof of a defendant’s knowing and voluntary participation in a “common scheme” to commit an unlawful act or lawful act in an unlawful manner. 

Accidental, inadvertent, negligent or haphazard conduct is not enough to impose conspiracy liability on a defendant.  The plaintiff must plead the agreement’s critical details – including the “who, what, where, when and how” – to survive a motion to dismiss.  *12.

The Court held that plaintiffs’ conspiracy claims were too conclusory.  The plaintiffs merely parroted the elements of conspiracy and failed to plead critical details of the defendants’ agreement or their “common scheme” to harm the plaintiffs.  At most, plaintiffs pled negligence or breach of contract; not a conspiracy. *12.

Take-aways:

A court can consider external submissions on a 12(b)(6) motion where the challenged complaint incorporates or relies on an external document.  Wojcik also illustrates the required factual allegations that will satisfy Illinois state law fraud and civil conspiracy claims under Federal pleading rules.

 

Jane Austen You Ain’t! Guidance Counselor Loses First Amendment Suit

typewriter 

In Craig v. Rich Township High School District 227, et al. (12.3.13), a tenured high school guidance counselor and basketball coach pled himself out of court in his Section 1983 action alleging retaliation for self-publishing a book on relationship advice.  The coach claimed the defendant School District violated his First Amendment right to free expression by terminating him because of the book’s provocative themes.  The Seventh Circuit upheld the Illinois Northern District’s dismissal of the plaintiff’s lawsuit.

Plaintiff penned “It’s Her Fault”, an ostensible how-to book on adult relationships geared towards young women.  But much of the book consists of the author’s graphic depictions of his own sexual proclivities and exploits.

“It’s Her Fault” is complete with excruciatingly detailed anatomical references and sage (and paradoxical) advice like women should be submissive to their men yet also wield sex as a power source in their relationships.  The author also cautions women not to “go hoeing around” (we can’t have that now!!) but to experience some um, “variety” in their opposite sex encounters.

Plaintiff has his demons, though.  For while he modestly describes himself as “beyond the highest caliber of men!”, he still confesses a tendency to objectify women and a perpetual weakness for cleavage (cue ‘Debbie Downer’ ‘wah wah’ sound).

In his tract, the author also makes the sweeping generalization that women are too emotional and not logical enough for workable relationships.

I suppose it was no surprise then, that when the school board caught wind of plaintiff’s salacious literary offering, it fired him.  Plaintiff sued, claiming the school fired him in retaliation for exercising his First Amendment rights.

The Seventh Circuit upheld the Northern District’s dismissal of plaintiff’s claims and found that the school’s interest in serving its students in a non-sexualized atmosphere trumped the plaintiff’s right to free expression.

The Book Touches On a Matter of ‘Public Concern’

The court first found that Plaintiff’s book involved a matter of public concern under the First Amendment.  A First Amendment plaintiff must show his expression touches a matter of public concern.

“It’s Her Fault”‘s subject matter – adult relationship dynamics – does interest a large enough segment of society to merit First Amendment protection, the   Court said.

How so? Well, the public concern test doesn’t require the challenged speech to rise to the level of a profound life-and-death subject, such as the secrets of the universe or the nature of God (or something “orthonological” as the late David Foster Wallace might say).

All that’s required is that the topic appeal to some segment of society and be one that people might be interested in.

Here, the Court found that the book’s  adult relationships subject matter met the test and for proof pointed to the glut of relationship advice columns and self-help books that permeate our culture.

The School’s Interest in Restricting Speech Outweighs Plaintiff’s Interest in Publishing His Book

But the court ultimately found that the school was justified in firing plaintiff based on policy concerns.

A government defendant can restrict speech that involves a matter of public concern if the government can prove that the employee’s interest in commenting on the matter is “outweighed by the government’s interest in promoting effective and efficient public service.” 

An employer’s assessment of the possible havoc reeked by an employee’s challenged speech must be supported by tangible evidence and be more than mere speculation.

The Court found defendant’s concerns that plaintiff’s book would create an intimidating educational environment were well-founded.  As a coach and guidance counselor, the plaintiff held a position of trust and authority in relation to the students which made it likely the students would feel uncomfortable seeking advice from him.

The Court also noted that plaintiff’s blatant objectification of women in his book would likely make female students apprehensive about seeking  counseling services.

Because plaintiff’s book created such a sexually charged atmosphere, the court wrote,  it impeded the school’s ability to educate its students.  As a result, the defendants’ interest in avoiding a likely disruption in its services outweighed plaintiff’s free expression rights.

The Court also rejected plaintiff’s claim that the book’s content was protected because it had nothing to do with plaintiff’s employment and was done on plaintiff’s own time.  The Court noted the book made multiple references to plaintiff’s guidance counselor role, the book’s foreword was written by another teacher at the school and the acknowledgements section was replete with praise for specific students.

Since plaintiff directly linked himself  to the school,  his “my own time” argument failed.

Take-aways: Craig describes in detail the kind of expression that qualifies for public concern protection and the government interest that will override a public employee’s right to free expression.

Where a public school’s learning climate could be compromised due to a book’s inflammatory and hypersexual content, a person’s right to express himself can be curtailed.