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06/01/89 the Village of Pawnee, v. Azzarelli Construction

June 1, 1989

THE VILLAGE OF PAWNEE, PLAINTIFF-APPELLANT AND CROSS-APPELLEE

v.

AZZARELLI CONSTRUCTION COMPANY ET AL., DEFENDANTS-APPELLEES AND CROSS-APPELLANTS (AZZARELLI CONSTRUCTION COMPANY, THIRD-PARTY PLAINTIFF AND CROSS-APPELLANT;



APPELLATE COURT OF ILLINOIS, FOURTH DISTRICT

Robert A. Williams Construction Company,

Inc., Third-Party Defendant and

Cross-Appellee)

No. 4-88-0470

539 N.E.2d 895, 183 Ill. App. 3d 998, 132 Ill. Dec. 332 1989.IL.821

Appeal from the Circuit Court of Sangamon County; the Hon. Richard J. Cadagin, Judge, presiding.

APPELLATE Judges:

JUSTICE LUND delivered the opinion of the court. McCULLOUGH, P.J., and GREEN, J., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE LUND

Plaintiff Village of Pawnee (plaintiff or Pawnee) filed a fourth-amended complaint against defendants Azzarelli Construction Co. (Azzarelli) and Fidelity & Deposit Company of Maryland (Fidelity) seeking damages in excess of $1 million. Plaintiff alleged various theories of recovery for a sanitary sewer system, which Azzarelli constructed for plaintiff, but which was found to have excessive amounts of water passing through the system. Fidelity is Azzarelli's surety by virtue of a performance bond executed between the two parties. The causes of action were narrowed down by rulings of the circuit court of Sangamon County until only a breach of contract claim remained. The jury found liability against defendants on this claim, but awarded damages of only $35,379. Plaintiff appeals, and defendants filed cross-appeals. We affirm.

Plaintiff has alleged numerous errors in its appeal, while defendants have alleged but a few. Because of our holdings below, we can consolidate the issues into the following outline: (1) whether a directed verdict should have been granted plaintiff on the affirmative defense of waiver by inspection and acceptance; (2) whether the burden of proof instruction was contradictory, and also gave an insufficient description of the principle of law regarding latent defects; (3) whether the court abused its discretion in refusing plaintiff's jury instruction on damages, and whether the damage award of $35,379 was clearly inadequate; (4) whether plaintiff should have been granted directed verdicts as to Azzarelli's remaining affirmative defenses; (5) whether the court erred in eliminating plaintiff's claims for breach of fiduciary duties, conspiracy to breach fiduciary duties, common law fraud, and fraud under the Consumer Fraud and Deceptive Business Practices Act (Ill. Rev. Stat. 1987, ch. 121 1/2, pars. 261 through 272); and (6) whether the court erred in allowing plaintiff's engineering expert to be cross-examined concerning sources of government funding for his engineering services. Initially, we deal with a motion filed by plaintiff to strike Azzarelli's statement of facts contained in its appellate brief. We ordered the motion taken with the case, and we now deny the motion.

On February 8, 1971, plaintiff and the consulting engineering firm of George H. Knostman, Jr., and Associates entered into a contract whereby the engineering firm would design plans for a sanitary sewer system for plaintiff and would supervise the construction of the system. Knostman prepared the plans. Plaintiff then executed a contract with Azzarelli on May 8, 1972, to construct the system. The system consisted of approximately 14 miles of sewer pipes, 234 manholes, 4 pumping fixtures called lift stations, and a sewage treatment plant. Azzarelli subcontracted the construction of the sewage treatment plant to Robert A. Williams Construction Company, Inc. (Williams). Azzarelli brought Williams into the litigation as a third-party defendant. Williams was dismissed from the suit at the close of plaintiff's case, and plaintiff has abandoned any claim for damages concerning work subcontracted to Williams.

Azzarelli was paid $785,871.76 for the project, and final payment was made on September 9, 1974. Plaintiff claimed that the system was fraught with defects and that it first became aware of the defects in February 1979.

Plaintiff filed its initial complaint on October 2, 1979. At one point in the ensuing litigation, plaintiff refused to supply Azzarelli with a bill of particulars. The circuit court ordered plaintiff's claims against Azzarelli dismissed with prejudice but, on appeal, this court reversed. (Village of Pawnee v. Knostman (1983), 115 Ill. App. 3d 842, 450 N.E.2d 1272.) The cause was remanded to the circuit court for milder sanctions against plaintiff and for further proceedings in litigation.

On May 24, 1985, the court allowed plaintiff to file a fourth-amended complaint. The complaint contained nine counts. Counts I and II were claims against Knostman for breach of contract and negligence, respectively. Count III alleged Azzarelli constructed the sanitary sewer system in a defective manner in breach of its contract with plaintiff. Count IV alleged breach of fiduciary duties against Knostman and Azzarelli. Knostman, as plaintiff's agent, allegedly submitted false payment estimates to plaintiff for progress payments to be made to Azzarelli. Plaintiff accused Knostman of violating representations that the progress of the construction had been inspected and that the work was acceptable as of the date of each estimate. Azzarelli had also signed the estimates. Count V alleged fraud, and count VI alleged conspiracy to defraud and to breach fiduciary duties by Knostman and Azzarelli based on the same false payment estimates. Count VII alleged the submission of false payment estimates was a violation of the Consumer Fraud and Deceptive Business Practices Act (Ill. Rev. Stat. 1987, ch. 121 1/2, pars. 261 through 272). Count VIII alleged wilful and wanton conduct by Knostman and Azzarelli. Count IX was a claim against Fidelity based on its performance bond. Following motions to dismiss by Azzarelli and Knostman, the court dismissed count VII. Count VIII was later ordered stricken, without objection from plaintiff. Plaintiff makes no argument concerning count VIII in this appeal.

Azzarelli responded to count III, plaintiff's claim for breach of contract, by alleging several affirmative defenses. The three relevant affirmative defenses are as follows:

" Affirmative Defense I

1. Plaintiff, pursuant to the parties' contract, appointed and designated George H. Knostman, Jr., defendant, as its engineer and agent to inspect the performance of this defendant and authorized him to waive any deficiencies therein and to accept this defendant's performance on behalf of plaintiff.

2. Said George H. Knostman, Jr., inspected this defendant's performance as it progressed and was fully informed as to the nature and quality of this defendant's performance.

3. Said George H. Knostman, Jr., as plaintiff's duly authorized agent, accepted defendant's performance and waived any deficiency therein."

" Affirmative Defense V

1. Article 33 of the parties' written contract required plaintiff to notify this defendant of all work and materials condemned by its engineer as failing to conform to the contract and afford this defendant a reasonable time within which to replace and re-execute this defendant's work according to such contract without expense to plaintiff. Without notice to this defendant and prior to the filing of the original complaint, the plaintiff with respect to conditions it now contends to be breaches of this defendant's duties under the such [ sic ] contract, did the following:

a. Abandoned and dismantled the sand filters installed at the treatment plant;

b. Removed a water line from a sanitary sewer line and repaired both lines;

c. Repaired various joints of pipe of the sanitary sewer line;

d. Repaired leaks in the dikes of lagoons of the treatment plant;

e. Repaired leaks in air piping and diffusers installed in the lagoons of the treatment plant.

2. Plaintiff's above-described actions prevented this defendant from investigating the alleged defective work and material and replacing and re-executing any that in fact failed to conform to the parties' contract. Plaintiff thereby waived, and is estopped to make, any claim for damages with respect to any of the above conditions.

Affirmative Defense VI

1. The allegations of paragraph 1 of Affirmative Defense V are adopted as the allegation of Paragraph 1 of this Affirmative Defense.

2. Plaintiff's above-described actions prevented this defendant from investigating the alleged defective work and material and replacing and re-executing any that in fact failed to conform to the parties' contract. Plaintiff thereby failed to mitigate its damages with respect to any of the above conditions."

On January 6, 1988, plaintiff and Knostman filed a stipulation stating all claims against Knostman had been settled and asking that the causes of action against Knostman be dismissed. The court granted the motion.

The trial began on March 7, 1988, and lasted 15 days. The basis of the lawsuit was an excessive amount of water flowing through plaintiff's sanitary sewer system. In engineering parlance, the problem is described as infiltration and inflow. At its worst moments, usually during flooding, the sewage treatment plant had been unable to filter the excessive water flow and had broken down or was shut down in order to spare the inevitable. The sewer system backed up, and raw sewage would overflow into two nearby branches of the Sangamon River. Needless to say, the overflowing sewage system concerned the citizens of Pawnee, as well as government agencies, such as the Illinois Environmental Protection Agency . The focus of the trial was on Azzarelli's responsibility for the excessive water flow. In all, six engineering professionals testified at the trial, assigning the defects in the sewer system to various causes. Simply stated, the evidence was vigorously disputed as to the quality of Azzarelli's workmanship.

Plaintiff called George Knostman as a witness. Knostman testified that he is a professional engineer. He designed the sewer system and treatment plant for plaintiff, and then supervised and inspected Azzarelli's performance of the construction. The construction of the sewer system started in the spring of 1972. It was substantially completed by the spring of 1973. As the job progressed, payments were made to Azzarelli in accordance with periodic pay estimates. Knostman prepared the pay estimates and submitted them to plaintiff's village board. The final pay estimate contained an implied representation that the work had been completed and performed in a satisfactory manner. According to Knostman, in September 1974, there was no problem with excessive water entering the sewer system. The lift stations could not even be tested because of a lack of water flow. All of the sewer lines were checked for alignment. Knostman made no test for infiltration, as prescribed by the contract, because the residents of Pawnee had connected up to the sewer system during construction, and this prevented an accurate test of the system by itself. Knostman did notice problems with infiltration and inflow as early as February 1975. Knostman and Azzarelli attempted to find the source of the excessive water flow prior to Knostman's departure as city engineer in 1977. However, Knostman could not arrive at a determination.

On cross-examination, Knostman explained the difference between inflow and infiltration. Inflow is a sudden, heavy flow of extraneous or storm water, which enters the sanitary sewer by way of a normal opening or connection. Infiltration is ground water that seeps through cracks in sewer pipes and manholes. It is impossible to make a sanitary sewer system perfectly watertight. The goal is to make the sanitary sewer system as watertight as possible. The original specifications for the Pawnee project allowed for an excess flow of 20,000 to 22,000 gallons per day for the system.

Knostman was on the job daily during construction. He and two others inspected all the work of Azzarelli. Knostman observed the manholes being installed and stated they were constructed properly. During the summer of 1973, he examined all of the sewer lines and measured the distances between manholes. In certain cases, the manholes were not aligned as he had originally planned them. However, this was usually because of a deviation made during construction to accommodate utilities in the ground. According to Knostman, the utilities in Pawnee belong to plaintiff, and any relocation of utilities would have been at plaintiff's expense. Knostman considered the final payment estimate as a written statement that the work was acceptable. The final estimate was prepared in April 1974 after inspection of the entire system in preparation of a list of deficiencies. Azzarelli returned twice to correct the deficiencies, and Knostman was told by the city employees that the system was satisfactory. Knostman gave his opinion that plaintiff received the system Knostman designed and Azzarelli was entitled to payment in full. Knostman was satisfied that no construction defects were causing the excessive infiltration and inflow problems in Pawnee. Knostman stated that poorly installed residential and commercial service connections could be the source of the problem.

During the construction of the sanitary sewer, Knostman recalled a point where the path of the sanitary sewer intersected with a storm sewer. It was Knostman's opinion that plaintiff would have to pay to remove the conflicting storm sewer, which would cost between $2,500 and $5,000. As an alternative, Azzarelli agreed to install a temporary "running trap" at no cost to plaintiff. Following construction of the running trap, Knostman tested this portion of the sanitary sewer to see if storm water was entering the system. Knostman concluded that the trap was properly constructed and no excessive leaks were present. Pawnee is a town which is subject to mine subsidence. After the project was completed, Knostman noted that certain manholes were six to seven inches below their original elevation when installed.

Robert Rape, a village employee, who had worked under Knostman's supervision, testified for plaintiff. Rape was plaintiff's superintendent of utilities from 1972 until 1974, and he had three employees in his department. During construction of the sanitary sewers, the utility department marked the utilities for Azzarelli's crews. On several occasions, Rape observed Azzarelli crews tamping fill with their feet after the backhoe had overdug the depth of the sewer trench. He also saw sewer pipes move when dirt was backfilled into the trench. Rape testified that some of the pipes appeared to separate during backfilling. After the sewers and manholes had been installed in 1973, Rape and his employees inspected all the manholes. Rape testified that out of approximately 250 manholes constructed, 80% of them were leaking. Rape made a list of the leaks and other defects, and the list was furnished to Azzarelli for correction. Azzarelli's crew came back in 1973 and made repairs to the defects noted on Rape's list. Rape reinspected the manholes after the repairs by Azzarelli in 1973 and still found defects. Rape gave his opinion that approximately one-half of the defects had been corrected. Azzarelli sent back a second crew of workmen to make additional repairs in 1974.

Knostman prepared a map of Pawnee marking the "T" and "Y" pipes installed by Azzarelli for the residential and commercial service connections to be made to the sewer system. Rape estimated that he observed some 200 to 300 of these lateral connections. Occasionally, the residents did not use the "T" or "Y" connections because the connections were not in the locations shown on the map, or the connections were facing the wrong direction. In those cases, the residents broke into the sewer pipe to make their sewer connection. On four or five occasions, Rape recalled that lift station No. 2, the pumping station nearest the creeks, had flooded because of excess groundwater in the sewer system.

Two other engineers testified for plaintiff. Edward Campbell was plaintiff's city engineer from 1977 until 1982. He had previously worked for the IEPA for several years. Before becoming plaintiff's engineer, he had established his own consulting engineering firm. Campbell testified that he was originally hired by plaintiff to conduct a study of plaintiff's sanitary sewer system. Although he never completed the study, he conducted several tests of the system. Campbell supervised television examinations of portions of the sewer system in 1978 and 1979. He also excavated some of the pipes and examined them personally. Campbell found several defects in the construction of the sewer pipes. He inspected the running trap, and he testified that water was flowing directly from the storm sewer into the lower sanitary sewer. He testified that he inspected the majority of the manholes and gave his opinion that they had been improperly constructed. Campbell gave his opinion that most of the problems in defects were caused by poor workmanship on the part of Azzarelli.

Campbell made a series of studies of the water flow through plaintiff's sewer system between the years 1977 and 1981. According to Campbell, the system showed a problem with excessive inflow and infiltration. His studies found no correlation between inflow and infiltration in the sanitary sewer's various subsystems and the number of residential service connections present. However, he gave his opinion that, perhaps, 25% of the excess water flow problem was as a result of sloppy service connections.

On cross-examination, Campbell stated that plaintiff had added nearly 2 miles to the 14 miles of sanitary sewer constructed by Azzarelli. Further, the amount of pipe involved in the lateral connections to residences and commercial buildings could be as high as 8 to 12 miles. Campbell acknowledged that portions of Pawnee have a history of flooding.

The third engineer to testify for plaintiff was Nathan Wilcoxon. Wilcoxon was employed by Crawford, Murphy & Tilly, a consulting engineering firm. Wilcoxon and the firm replaced Campbell in 1982 as the city's engineers. Wilcoxon prepared a sanitary sewer evaluation study, which was required of every municipality by the IEPA. As part of this report, flow studies were conducted in 1983 and 1984. The flow study showed there was excessive water flow in the system. Television surveys were again used to inspect portions of the system. Wilcoxon testified the surveys disclosed a number of open joints. Wilcoxon had the running trap removed at a cost of $11,000. During this removal, he observed several defects in the pipes and joints in or near the running trap. It was Wilcoxon's opinion that the running trap had been improperly constructed.

The studies also examined the manholes. The manholes showed defects. The connections between the sewer pipes and the manholes were not completely sealed in some cases, and there were also cracks visible. As a result of these findings, ...


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