Third-Party Beneficiary Claims in Public Construction Contracts – Illinois Law

Lake County Grading Company, LLC v. The Village of Antioch, 2013 IL App (2d) 120474, 985 N.E.2d 638 (2nd Dist. 2013), illustrates the importance of joining an alternative common law claim with a statutory one when the statutory claim  is time-barred.

The plaintiff subcontractor sued a public entity under a third-party beneficiary theory for improvements plaintiff made to two residential subdivisions.  After the general contractor who hired plaintiff defaulted and filed for bankruptcy, the plaintiff sued the public entity under the Public Construction Bond Act, 30 ILCS 550/1 and the Mechanics’ Lien Act, 770 ILCS 60/23 and also brought claims for third-party beneficiary breach of contract. 

The lien and Bond Act claims were dismissed and the trial court granted summary judgment for the plaintiff on its third-party beneficiary claims.

Affirming the trial court, the First District rejected the Village defendant’s argument that plaintiff’s sole remedy was under the Bond Act.  The Bond Act requires a subcontractor like plaintiff to serve a verified notice within 180 days of the completion of its work and to file suit within one year after the public entity accepts the project.  30 ILCS 550/1, 2; Lake County, ¶¶ 17-19. 

Siding with the plaintiff, the Court noted that Bond Act states that the Act’s statutory remedy is “in addition to and independent of any other rights and remedies provided at law or in equity”.  Id., ¶ 20.  The Court then stated some key third-party beneficiary rules:

– a person’s status as a third-party beneficiary turns on whether the contract language shows that the parties’ intent was to directly benefit the supposed third-party plaintiff;

– the contract language must show that the contract was made for the direct, not merely incidental benefit of the third party;

– the intent to directly benefit a third party must be shown by express provision in the contract identifying the third-party beneficiary by name or description of a class to which the third party belongs;

– if a contract makes no mention of the plaintiff or a class to which he belongs, he is not a third-party beneficiary of the contract;

– the plaintiff bears the burden of showing that the contracting parties intended to confer a benefit on him.

( ¶ 24)

Applying these rules, the Second District found that the plaintiff was a direct third-party beneficiary under both the Bond Act – which is “read into” the prime contract and the prime contract itself. Read together, the two documents clearly conferred third-party beneficiary status on plaintiff. (¶¶ 26-27).

Once the Court found that plaintiff was a third-party beneficiary of the prime contract, the Court applied Illinois’ four-year limitations period for construction-related claims (see 735 ILCS 5/13-214) instead of the Bond Act’s shortened 180 day/one-year limitations period. (¶ 31). 

The Court also declined to apply the Bond Act’s 180-day notice period was because the Village failed to require the general contractor to tender a payment bond as required by the Bond Act.  (¶ 25)  Since the Village failed to require a payment bond of the general contractor, there was no bond for the plaintiff to sue on.  This rendered the 180-day rule inapplicable.

Take-aways: 

The case illustrates that where a subcontractor blows the 180-day Bond Act notice rule, he can still sue as a third-party beneficiary of the prime contract.  

This case also makes clear that the party suing as a third-party beneficiary must demonstrate that the contract language clearly shows that the plaintiff is an intended, direct contract beneficiary.  Finally, the case provides an interesting contrast to the Mechanics’ Lien Act cases that hold that a subcontractor’s exclusive remedy against an owner is a statutory mechanics’ lien foreclosure suit. 

Judgments By Confession: How to Open (Not Vacate) Them (IL Law)

confessional

The two key rules that govern challenging  a confessed judgment in Illinois are Supreme Court Rule 276 and  Code Section 2-1301 (735 ILCS 5/2-1301).  The latter provides that “any person for a debt bona fide due may confess judgment by himself or herself or attorney duly authorized, without process” and that the “application to confess judgment shall be made in the county in which the note or obligation was executed or in the county in which one or more of the defendants reside or in any county in which is located any property, real or personal, owned by any one or more of the defendants.”  735 ILCS 5/2-1301(c).

Confession of judgment provisions in consumer transactions are void.  A “consumer transaction” is a sale, lease, assignment, loan, or other disposition of an item of goods, services, or intangibles where the primary purpose is for personal, family, or household use.  Id.

Rule 276 provides that a motion to open a judgment by confession (“JBC”) shall be supported by (1) affidavit in the manner provided by Rule 191 for summary judgments, and be accompanied by a (2) verified answer the defendant proposes to file.

Rule 276 states that if the motion to open and supporting affidavit disclose a prima facie defense on the merits to all or part of plaintiff’s claim, the court shall set the motion for hearing. The plaintiff (the party opposing your motion to open the JBC) may file counter-affidavits.

Rule 276 continues: “If, at the hearing upon the motion, it appears that the defendant [the moving party] has a defense on the merits to the whole or a part of the plaintiff’s [the party that entered the JBC] claim and that he has been diligent in presenting his motion to open the judgment, the court shall sustain the motion either as to the whole of the judgment or as to any part thereof as to which a good defense has been shown, and the case shall thereafter proceed to trial upon the complaint, answer, and any further pleadings which are required or permitted”.  Ill. Sup. Ct. R. 276.

The defendant (or party opening a confessed judgment) can also assert counterclaims.  SCR 276.  Even if the moving party fails to establish a defense, he can still proceed on a counterclaim if the court finds that the moving party pled facts to support a counterclaim.

The burden on a party moving to open a JBC is lighter than on a summary judgment or  Section 2-619 motion to dismiss.  In fact, all the trial court does is determine whether the moving party’s motion and affidavits disclose a prima facie defense.  Kim v. Kim, 247 Ill.App.3d 910, 913-14 (2nd Dist. 1993).

On a motion to open a JBC, the court doesn’t look into disputed facts.  Instead, the court accepts as true all facts asserted by the moving party in his affidavits.

While a plaintiff (or party contesting the motion to open) may file counter-affidavits in opposition to a motion to open, the trial court may not try the merits of the case on the affidavits or counter-affidavits because this would encroach on the right to trial by jury.

A motion to open a confessed judgment is addressed to the sound discretion of the trial court and will not be overturned on review absent an abuse of discretion.

Take-aways: Rule 276 provides clear and simple requirements for a motion to open a JBC.  The moving party must attach a supporting affidavit and a proposed responsive pleading (which is verified).  The movant must also show meritorious defense and diligence in bringing the motion (similar to Section 2-1401 standards).

Once the JBC is opened, it proceeds like any other civil lawsuit, with motion practice, oral and written discovery and ultimately a trial.  I have to stress again that opening a JBC shouldn’t be a cause for too much (premature) celebration.  All it means is you can now defend a suit on the merits.  I say this because I have seen multiple instances where a defendant successfully opened a JBC, acted like he won the case (and taunted me too!), only to lose on a 2-619 motion or summary judgment motion a very short time later.

Can a LinkedIn Account Be Stolen (or Converted)?

Earlier I discussed the three claims on which plaintiff prevailed at trial (albeit with no damages) against her former employer, Edcomm.  For symmetry’s sake, I now summarize the five state law claims which defendant won. 

These claims are (1) identity theft, (2) conversion, (3) tortious interference with contract, (4) civil conspiracy, and (5) civil aiding and abetting.  In analyzing these claims, the Pa. district court assessed some creative attempts to adapt and expand common law tort rules to a modern-day computerized context. 

(1) Claim and Factual Basis: Identity Theft.  Edcomm used plaintiff’s “identifying information” (see 18 Pa. Cons. Stat. s. 4120(a)) without plaintiff’s permission when it hijacked her LinkedIn account and replaced plaintiff’s credentials with those of plaintiff’s successor (can you say “salt in the wound”?).

Ruling and Reasoning: Identity theft claim fails.  Plaintiff’s name was publicly available and never possessed by Edcomm.   Also, Edcomm inadvertently left plaintiff’s “honors and awards” on Morgan’s LinkedIn page. 

Plaintiff’s honors and awards are not sufficient identifying information such that someone who viewed Morgan’s page would think he was actually viewing plaintiff’s page.  In addition, because Edcomm didn’t purposefully leave plaintiff’s honors and awards on plaintiff’s former LinkedIn page, plaintiff couldn’t show that Edcomm used plaintiff’s information for an improper purpose.  * 9.

(2) Claim and Factual Basis: Conversion.  Edcomm effectively stole or “converted” plaintiff’s LinkedIn account – which is plaintiff’s property or chattel.

 Ruling and Reasoning: Conversion claim fails because a LinkedIn account is not the type of “tangible property” (touchable, feelable, palpable, e.g.) contemplated by a conversion suit. 

Software, domain names and satellite signals are intangible property not subject to conversion under Pennsylvania law.  A LinkedIn account is “an intangible right to access a specific page on a computer”; it is not palpable property that can be converted.  *9-10.

(3) Claim and Factual Basis: Tortious interference with contract.  Edcomm tortiously interfered with plaintiff’s contract with LinkedIn when Edcomm blocked plaintiff’s access from the page.

Ruling and Reasoning.  The claim fails.  Plaintiff definitely has a contract right in her LinkedIn account by virtue of the User Agreement and Edcomm definitely interfered with that contractual relationship. 

However, plaintiff regained control of her account within a month of being fired and she could not prove measurable monetary loss.  No damages = no tortious interference under Pa. law.

(4) Claim and Factual Basis: Civil Conspiracy.  Edcomm and individual employee defendants conspired to misappropriate and damage plaintiff’s LinkedIn account.

Ruling and Reasoning: Plaintiff fails to prove a civil conspiracy.  A corporate defendant and employees or agents of that corporation cannot conspire with each other under the intra-corporate conspiracy doctrine.  

Plaintiff didn’t show malice (a required conspiracy element under Pa. law): that defendants’ sole purpose was to injure plaintiff (as opposed to keeping what Edcomm believed to be company property).     *11.

(5) Claim and Factual Basis: Civil Aiding and Abetting. The individual Edcomm agents aided and abetted in Edcomm’s misappropriation of plaintiff’s identity.

Ruling and Reasoning: Judgment for defendant.  While plaintiff proved an actionable wrong: misappropriation of publicity, invasion of privacy and unauthorized use of name, plaintiff failed to show individual defendants’ “substantial assistance” in the wrongful conduct.  Since plaintiff did not provide the court with sufficient evidence of each individual’s actions, plaintiff’s civil aiding and abetting claim failed.

Parting Shots:

– Pirating a social media account is not conversion; since the account is an intangible right to access a computer page rather than tangible property;

– A civil conspiracy claim requires concerted activity by at least two or more persons, and that a corporation cannot, by definition, conspire with its own agents.