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State Farm Mutual Automobile Insurance Co. v. George Hyman Construction Co.

August 03, 1999

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, PLAINTIFF,
v.
GEORGE HYMAN CONSTRUCTION COMPANY, N/K/A THE CLARK CONSTRUCTION GROUP, INC., DEFENDANT-APPELLANT, AND ASSOCIATED CONTRACTORS CO., INC.; MARLEY COOLING TOWER CO.; F.E. MORAN, INC., FIRE PROTECTION, AND THE FIDELITY AND GUARANTY INSURANCE COMPANY AND UNITED STATES FIDELITY AND GUARANTY COMPANY, ITS SURETIES; THRALL DISTRIBUTION, INC., F/K/A WILKINS PIPE & SUPPLY CO., INC.; AMERICAN FIRE AND ELECTRICAL SYSTEMS; ROBERT IRSAY, DIVISION OF JUPITER MECHANICAL INDUSTRIES, INC.; ECONOMY MECHANICAL INDUSTRIES, INC., AND NATIONAL UNION FIRE INSURANCE CO. OF PITTSBURGH, PA., ITS SURETY; FISCHBACH & MOORE, INC., AND NATIONAL UNION FIRE INSURANCE CO. OF PITTSBURGH, PA., ITS SURETY; EGAN MECHANICAL CONTRACTORS, INC., AND GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA, ITS SURETY; J.A. HOUSE, INC.; PERMA-PIPE, INC.; AND SEABOARD SURETY CO., ITS SURETY; THE LEVY COMPANY AND ST. PAUL FIRE & MARINE INSURANCE CO., ITS SURETY; A.A. CONTE & SON, INC.; CENTRAL SUPPLY COMPANY; GIBSON ELECTRIC CO., INC., CARROLL E. LANE, D/B/A THE LANE COMPANY; AMERICAN HOME ASSURANCE CO. AND NATIONAL UNION FIRE INSURANCE CO. OF PITTSBURGH, PA., AND FEDERAL INSURANCE CO. AND SEABOARD SURETY CO. AND ST. PAUL FIRE & MARINE INSURANCE CO., SURETIES FOR CLARK; CONCEPT PLUMBING, INC., AND UNITED FIRE & CASUALTY COMPANY, ITS SURETY; PHOENIX AIR CONTROL, INC.; MIDWEST INSULATION CONTRACTORS, INC.; JOHNSON CONTROLS, INC.; AND JADE CARPENTRY CONTRACTORS, DEFENDANTS-APPELLEES.



Appeal from Circuit Court of McLean County No. 95L310 Honorable Ronald C. Dozier, Judge Presiding.

The opinion of the court was delivered by: Justice McCULLOUGH

On November 13, 1995, State Farm Mutual Automobile Insurance Company (State Farm) filed suit against Clark Construction Group, Inc. (Clark) (then known as George Hyman Construction Company (Hyman)), Clark's subcontractors, and their respective sureties for breach of a contract to construct a large office building. Clark and its subcontractors filed cross-claims against each other. Now Clark has settled with State Farm and seeks to have the remaining cross-claims between it and the subcontractors arbitrated. The primary issues on appeal are whether the remaining cross-claims fall within the scope of the subcontracts' arbitration clause and whether Clark is procedurally barred from seeking arbitration. The trial court denied arbitration, and Clark is before this court on interlocutory appeal. We affirm.

I. BACKGROUND

On March 10, 1992, Hyman entered into a contract (prime contract) with State Farm to act as a general contractor for the construction of the State Farm Corporate South project, which consisted of seven new multistory office buildings, related support structures, and site improvements. The construction contract was detailed in a series of "Contract Documents." A second phase of construction, providing for three additional buildings, was later added.

Hyman eventually restructured and became Clark. Clark subcontracted various portions of the work to Associated Contractors Company, Inc.; Marley Cooling Tower Company (Marley); F.E. Moran, Inc., Fire Protection (Moran); Thrall Distribution, Inc., f/k/a Wilkins Pipe and Supply Company, Inc.; American Fire and Electrical Systems; Robert Irsay, division of Jupiter Mechanical Industries, Inc.; Economy Mechanical Industries, Inc. (Economy); Fischbach & Moore, Inc. (Fischbach); Egan Mechanical Contractors, Inc. (Egan); the Levy Company (Levy); A. A. Conte & Son, Inc. (Conte); Central Supply Company; Gibson Electric Company, Inc. (Gibson); Carroll E. Lane, d/b/a the Lane Company; Concept Plumbing, Inc. (Concept); Phoenix Air Control, Inc. (Phoenix); Midwest Insulation Contractors, Inc. (Midwest); Johnson Controls, Inc.; J.A. House, Inc. (House); and Jade Carpentry Contractors (Jade). The parties agree that the subcontracts are identical for all purposes relevant to this appeal. Each subcontract incorporates the provisions of the contract documents as to that subcontractor's work.

Article 11 of the subcontracts provides, in part:

"b. In the case of any dispute between [Clark] and Subcontractor, in any way relating to or arising from any act or omission of [State Farm] or involving the Contract Documents, Subcontractor agrees to be bound to [Clark] to the same extent that [Clark] is bound to the [State Farm], by the terms of the Contract Documents, and by any and all preliminary and final decisions or determinations made thereunder by the party, board or court so authorized in the Contract Documents or by law, whether or not Subcontractor is a party to such proceedings. ***

c. Any controversy between [Clark] and Subcontractor not relating to or arising from any action or inaction of [State Farm] and not involving the Contract Documents shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association [(AAA)]. *** If [Clark] notifies Subcontractor that [Clark] contends any arbitration brought under this Article 11.c. involves a controversy within the scope of Article 11.b., the arbitration shall be stayed until the procedures under Article 11.b. are completed and it is determined thereunder that the controversy does not fall within 11.b."

During construction, several of the subcontractors and material suppliers asserted claims and filed mechanics liens against the subject property. In response, on November 13, 1995, State Farm filed suit against Clark and the subcontractors to foreclose the mechanics liens pursuant to section 30 of the Illinois Mechanics Lien Act (Lien Act) (770 ILCS 60/30 (West 1994)). In addition, State Farm sought damages in excess of $12.5 million for the late completion of the project and damages of over $20 million for various breaches of the prime contract. Clark and several of the subcontractors filed counterclaims against State Farm.

On November 15, 1996, Clark filed cross-claims against the subcontractors. These were "pass-through" contribution or indemnification claims for State Farm's claims against Clark arising from the subcontractors' breaches. Clark also sued the subcontractors' sureties and sought indemnification for claims against it by other subcontractors. On November 27, 1996, Clark moved to foreclose its mechanics lien.

The subcontractors also filed cross-claims against Clark. Egan and House alleged State Farm and Clark were jointly and severally liable for tortious interference with the subcontracts, making unreasonable demands, failing to give reasonable time extensions, interfering with scheduling and staffing, and failing to respond to adverse site conditions. Economy, Egan and House alleged breaches of subcontract due to these actions. Concept, Economy, Levy, Egan, House, and Moran alleged Clark failed to coordinate and supervise work on the project, causing unnecessary work and extra costs. Concept, Egan, and House sought equitable reformation of the contract due to demands from Clark and State Farm amounting to cardinal changes.

Levy, Moran, Egan, Concept, and House alleged Clark wrongfully withheld monies paid to it by State Farm for work they performed. Conte, Egan, Moran, Concept, Gibson, Levy, and Economy sued Clark's sureties for money owed to them under the subcontracts for materials and services rendered. Concept, Economy, Levy, Gibson, Conte, Egan, and Moran sued to foreclose mechanics liens. Concept, Economy, Levy, and Moran brought separate actions to hold Clark and State Farm jointly liable under section 28 of the Lien Act (770 ILCS 60/28 (West 1994)). Concept, Economy, and Gibson sought recovery under a quantum meruit theory for materials and supplies they had provided to the project.

Clark's answer to the cross-claims of Egan and House is not included in the appellate record. In Clark's answers to the remaining subcontractors' cross-claims, it asserted several affirmative defenses unrelated to its own cross-claims. The affirmative defenses against Gibson, Economy, Levy, Moran, and Concept also incorporated by reference Clark's cross-claim against the subcontractors. They alleged these subcontractors breached the subcontracts and were estopped from asserting their claims for the reasons stated in Clark's cross-claim. Clark alleged it was entitled to offset damages for breach of subcontract against the subcontractors' claims or to recover such amounts in recoupment. The affirmative defenses against all of these subcontractors except Gibson alleged the subcontractors had not complied with all conditions precedent for their claims.

On February 24, 1997, Levy moved to dismiss Clark's cross-claim against it, arguing, in part, the arbitration clause in the subcontract required this claim to be arbitrated. On April 21, 1997, Clark responded to the motion to dismiss, stating several ways in which Levy's claims related to the prime contract documents. Clark argued in the alternative that it was premature to determine if the cross-claims involved State Farm and the contract documents until evidence was heard on the merits. Levy's motion was denied.

On June 12, 1997, Gibson filed a motion similar to Levy's, seeking dismissal of Clark's cross-claims against Gibson in the state court action, because the terms of the subcontract required arbitration of these cross-claims. Clark filed a motion opposing arbitration, stating that the court already rejected Gibson's arguments in rejecting Levy's motion. Clark also argued the dispute between Clark and Gibson related to State Farm's suit.

On July 30, 1997, Clark filed a motion for summary judgment against Conte, Concept, Moran, Gibson, Jade, and Levy, arguing they expressly waived certain claims. This motion was denied. Clark then engaged in extensive discovery directed at the subcontractors.

On March 4, 1998, the trial court referred this case to mediation. On April 23, 1998, State Farm and Clark entered a settlement agreement whereby (1) State Farm agreed to dismiss all of its claims relating to the construction; (2) Clark agreed to dismiss its claims against State Farm and to obtain dismissal of the pass-through claims of its subcontractors; (3) State Farm agreed to make final payment of $3.6 million to Clark under the prime contract and to create a $1.15 million settlement fund for subcontractors; (4) Clark agreed to obtain release of the mechanics liens filed by the subcontractors and certain of their material suppliers and to assume all liability to the subcontractors' claims pending against State Farm, including the mechanics liens; and (5) State Farm and Clark agreed to move to dismiss all remaining subcontractor and material claims on the basis that they involve neither State Farm nor the contract documents.

On May 22, 1998, Clark filed a motion to compel arbitration of all remaining claims between Clark and its subcontractors. Clark also moved to release mechanics liens, dismiss subcontractor claims against State Farm, and dismiss subcontractor claims against Clark that involved State Farm or the contract documents. When the subcontractors opposed dismissal of the mechanics lien claims, Clark sought a stay of all mechanics lien claims pending arbitration of the underlying claims against Clark. Written orders denying the motion to compel arbitration and the motion to ...


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