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Construction Law Today

Waiting for Claim Assignment Doesn’t Toll Statute of Limitations: American Family v. Plunkett

Posted in Assignments, Illinois, Insurance, States, Statute of Limitations

After paying a flood damage claim, an insurance company waits too long to get an assignment of the rights to sue a contractor and architect. Result: the insurance company’s lawsuit gets dismissed and the Illinois Appellate Court affirms. The decision: American Family v. Plunkett (PDF).


An owner’s property floods in the summer of 2006. The owner files an insurance claim for the damage. The insurance company denies that claim, prompting the owner to sue the insurance company (Lawsuit 1).

The owner and insurance company settle Lawsuit 1. Because conditions suggest that design and construction defects may have caused the flood, under the settlement agreement the owner promises to assign—to the insurance company—their design and construction defect claims. But that assignment isn’t part of the settlement documents and money exchanged.

Then in 2008 (and still without the owner’s assignment), the insurance company sues the architect and the contractor for defective design and construction (Lawsuit 2). (By paying the owner’s insurance claim under the Lawsuit 1 settlement, the insurance company contends that they now—by subrogation—stand in the owner’s shoes to pursue the defect claims.) The architect and contractor successfully move to dismiss Lawsuit 2. Two courts agree that the insurance company cannot subrogate to the owner’s claims against the architect and contractor—the insurance company must get the owner’s assignment of those claims.

After protracted struggle, the owner finally assigns their design and construction defect claims to the insurance company. The insurance company then files a new lawsuit against the architect and contractor, this time as assignee of—not subrogee to—the owner’s claims (Lawsuit 3).

The architect and contractor recognize that the insurance company filed Lawsuit 3 after the four year limitations period on the design and construction defect claims expired. They move to dismiss (arguing that the claims are time-barred). The trial court agrees, and grants the motion. The insurance company appeals. Continue Reading

Construction Mortgage Foreclosure Does Not Wipe Out Reciprocal Easement Agreement Rights: Bank of America v. Cannonball

Posted in Construction Finance and Insolvency, Illinois, Mechanics Liens, States, Uncategorized

A foreclosing construction lender recently tried to wipe out liens securing debt under a shopping center cross-use and easement agreement. The Illinois Appellate Court denied that attempt. The decision: Bank of America v. Cannonball LLC.


It starts with a new shopping center with a Home Depot, a Kohl’s, and a Target. The local village subsidizes part of the developer’s construction cost. To fund that subsidy, the village sells bonds to investors. And to raise money to service the debt owed under those bonds, the village imposes a special service area tax on the businesses that sell goods and services in the shopping center. (The tax obliges those businesses to collect a surcharge on each sale to pay the tax).

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No Mechanics Lien For Pre-Purchase Due Diligence Consultants

Posted in Claims, Environmental, Illinois, Mechanics Liens, States

synthetic fuel engineerFees for property purchase feasibility consulting are not secured by a mechanics lien. That’s what a panel of Illinois Appellate Court Justices held in Mostardi-Platt Associates v. Czerniejewski.


Power Holdings of Illinois wants to build a new synthetic fuel plant that processes coal into gas. They need land for the proposed plant. So, as principal they hire ADA Resources as an agent to scout locations. The agent’s role includes analyzing whether a particular piece of land will suit Power Holdings’ proposed plant. And so the agent hires Mostardi-Platt Associates to consult on feasibility, particularly, feasibility of of regulatory approvals.

In their search for suitable land, the agent comes across the Czerniejewski farm. The Czerniejewskis grant the agent—and so Power Holdings as principal too—an option to buy their farm. Afterwards—as part of deciding whether to exercise the option and buy the farm—the agent has the consultant study the feasibility of getting regulatory approvals for a plant on the Czerniejewskis’ farm. Continue Reading

No Setoff for FDIC Contract Repudiation Damages Under Placida v. FDIC

Posted in Attorneys Fees and Costs, FDIC & Bank Failures, Florida, States, Uncategorized

Bank With a Closed Sign PostedWhen a bank fails and the FDIC repudiates a construction loan—ending further “draws” or disbursements—the borrowers can’t setoff damages they suffer because of repudiation to reduce the amount of debt they owe under the loan. That’s what a panel of judges from the US Court of Appeals for the 11th Circuit decided in Placida v. FDIC.

Placida v. FDIC Backstory

This case starts with a construction loan from Freedom Bank to borrower, project owner, and developer Placida Professional Center, LLC. The loan documents comprise a promissory note, a construction loan agreement, a mortgage against the project, and personal guarantees from two of the borrower’s principals.

Freedom Bank fails while construction is still underway, and while one of the borrower’s monthly draw requests is still pending. Then—about a week after appointment as Freedom Bank’s receiver—the FDIC repudiates the construction loan under 12 USC § 1821(e). The result: as Freedom Bank’s successor, the receiver will not fund any more draws, including the one that was pending on the Appointment Date. With the flow of monthly construction loan disbursements cut off, the project soon grinds to a halt as unpaid builders and suppliers stop providing work and material and start recording mechanics lien claims against the project.

The borrower files administrative claims with the receiver for:

  • Damages caused by loan repudiation, and
  • A declaratory judgment, declaring that the note, the mortgage, and each guarantee is “of no further force or effect”

The receiver denies the borrower’s administrative claims and sends the borrower a notice of denial. That notice explains how the borrower may seek judicial review of the claim denial: file a lawsuit in federal court. And the notice also identifies the borrower’s deadline for filing that lawsuit.

The borrower files that lawsuit in the Middle District of Florida. About three months later, the receiver sells the loan to a joint venture limited liability company composed—60/40—of the FDIC and a private investor. Then the case goes to trial before Judge James S. Moody, Jr. Continue Reading

Construction Contract Requires Written Invoice Before Owner Must Pay Contractor: Kasinecz v. Duffy

Posted in Completion, Illinois, Mechanics Liens, States, Uncategorized

Chute removing demolition debris from high window out to dumpsterA panel of Illinois Appellate Court justices recently reminded contractors: if you want to get paid, comply with your contract. That reminder—along with some other interesting things to remember—comes in this decision: Kasinecz v. Duffy (PDF).

Kasinecz v. Duffy Backstory

Kasinecz v. Duffy starts as an owner and prime contractor contract to renovate a building. Their contract says that interim—monthly—payments are due from owner to contractor “upon invoicing.”

As often happens, as the renovation work progresses, things start to go badly, fostering suspicion, polarizing owner from contractor, and vice-versa. A principal polarizing force: the owner’s response to contractor payment requests—the owner stops paying. The owner contends that the contractor hasn’t submitted invoices as the contract requires, and so the owner isn’t obliged to to pay. Payments stop. The contractor gathers-up tools, equipment, and material, then abandons the work still in progress.

Contractor Claims

Departed and still unpaid, the Contractor sues the owner:

  • For breaching their contract

  • For quantum meruit (a contract substitute imposed by judicial equity)

  • To foreclose a mechanics lien securing the debts represented by the the breach of contract and quantum meruit claims

At a bench trial, Judge Bonnie Wheaton hears evidence and decides for the owner. She finds the contractor breached the contract first, by insisting on payment but not submitting the contractually mandated invoices. The contractor appeals. Continue Reading

Illinois House Votes to Pass HB3636 to Amend Mechanics Lien Act

Posted in Bills and Proposed Legislation, Illinois, Mechanics Liens

Illinois House FloorThis afternoon, the Illinois House voted to pass (PDF) HB3636, a bill to amend the Illinois Mechanics Lien Act and overturn the Illinois Supreme Court’s Cypress Creek v. LaSalle Bank (PDF) on the priority of construction mortgages vs. mechanics liens.

Already passed by the Illinois Senate, this bill now goes to Governor Quinn for him to consider—the last stop before it can become law.

Want more on what HB3636 does, why, and how it might affect you? Navigate to this video and press play.


FDIC vs. Construction Lenders Jury Verdict: IndyMac Bankers Liable for $169 Million

Posted in California, Construction Finance and Insolvency, FDIC & Bank Failures, States

Jurors awarded this $169M verdict (PDF) against three former IndyMac Bank executives for originating dubious construction and development loans. It happened last Friday in Los Angeles at the US District Court for the Central District of California.

$169M Verdict Against Former Indyac Bank Executives

In their original complaint (PDF), the FDIC alleged:

  • That the former bank executives were too permissive in underwriting and originating a host of development and construction loans
  • Their permissiveness was negligent
  • And their permissiveness breached the fiduciary duty of care each executive owed to the bank before it failed

The jurors agreed with the FDIC on the 21 loans that went to trial. The result: a verdict for the FDIC on every count—and, in one combination or another, against each former executive respectively—totaling about $169M in damages.

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Arbitration: Supreme Court Reaffirms It’s Mandatory For State Law Claims Under Federal Arbitration Act

Posted in Alternative Dispute Resolution, Arbitration, Oklahoma, States, Uncategorized

The US Supreme Court just issued another decision reaffirming that the Federal Arbitration Act compels state—as well as federal—courts to recognize and enforce contractual arbitration provisions, even when the focus of the litigants’ dispute is violation of state law. The decision: Nitro-Lift v. Eddie Lee.


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Video: Plain Language Explanation of Cypress Creek and House Bill 3636

Posted in Mechanics Liens

Do you get a headache trying to navigate through the Illinois Supreme Court’s Cypress Creek decision on mechanic lien vs. mortgage priority and Illinois House Bill 3636 to seeking to overturn that decision? Here’s relief.

The Illinois House Judiciary Committee held hearings on House Bill 3636 yesterday in Chicago. At hearings last spring the committee asked stakeholders and witnesses to return later and explain—simply—what the Cypress Creek decision does, what House Bill 3636 proposes to change, and the effect those changes would have. And because it’s impossible to simply explain using only words, the Illinois Bankers Association produced and presented this video at yesterday’s hearing…..  

Personal disclaimer: I worked on production of this video and presented in testimony before the committee yesterday.


Fraud Claim Killer: The Contract Non-Reliance Clause–It’s Not Just For Securities Anymore (Part 2)

Posted in Limitation of Liability and Exculpatory Clauses

Man Pointing Finger in Viewer's FaceIn Episode 1 of Fraud Claim Killer we talked about how the contractual non-reliance clause just became a lot more potent in the Schrager v. Bailey (PDF) decision. And at the end I promised to fill you in on:

  • Limits on non-reliance clauses
  • When judges are reluctant to enforce them
  • What makes them reluctant
  • Tips to make your non-reliance clause useful and enforceable

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