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Hayes Mechanical, Inc. v. First Industrial

June 14, 2004


[6] Appeal from the Circuit Court of Cook County 00 CH 03036. Honorable Clifford Meacham, Judge Presiding.

[7] The opinion of the court was delivered by: Justice McBRIDE

[8]  The issue on appeal is whether a construction contractor that renovated a commercial building pursuant to a contract with the building's tenant stated claims of quantum meruit and unjust enrichment against the building's owner, after the tenant failed to pay all of the contractor's charges. The contractor contends the circuit court of Cook County abused its discretion by denying leave to file a proposed amended complaint containing sufficient factual allegations. The contractor is also arguing the circuit court erroneously determined that the contractor's only avenue of relief was statutory - the Mechanics Lien Act (770 ILCS 60/1 et seq. (West 2000)).

[9]  The record discloses the following relevant facts. On March 17, 1998, defendant The Stiffel Company (Stiffel) leased the subject real property, a 200,000-square-foot one-story warehouse at 4307-09 South Morgan Street, Chicago, from the property owner, defendant First Industrial, Inc. (First Industrial), for a term of 15 years and 6 months. Stiffel intended to relocate its corporate offices and the manufacture and warehousing of lamps and light fixtures from a multibuilding, multifloor facility on Chicago's northside to the South Morgan Street property. The parties' written lease indicated that Stiffel was accepting the premises on an "as is" basis, and, with the exception of certain "Work Items," First Industrial was not obligated to make any repairs, replacements, or improvements of any kind or nature in connection with the lease. Stiffel, however, was authorized to improve the warehouse at its own expense pursuant to plans approved by First Industrial. According to an attachment to the lease entitled "Tenant Improvements Work Letter," it was Stiffel's "responsibility to be certain that the work [could] be performed in the Premises without any modifications to [First Industrial's] building." Despite the fact that First Industrial had the right to review and approve or disapprove Stiffel's plans, the parties emphasized that First Industrial "shall have no liability to *** [any party] by reason of the existence and exercise of such approval rights." The letter also indicated that Stiffel could borrow as much as $2 million from First Industrial toward some of the renovation costs, if it gave First Industrial notice within 45 days of the lease start date. Stiffel was prohibited from applying any of the borrowed funds to its architectural or construction plans or building permits and could borrow no more than 75% of the actual work costs. It could obtain the loan funds as needed by depositing 25% of the work costs into an escrow account established at its own expense, and was required to pay a 3% fee and 11.5% annual interest on the loan during the renovation period. In addition, Stiffel had to repay the entire loan at 11.5% annual interest on or before the tenth anniversary of the lease or "immediately" if it failed to complete its renovation within nine months. If Stiffel did not accept First Industrial's financing, it could still proceed with the renovation. Regardless of how the renovation was financed, Stiffel agreed to protect the property from any mechanics or materialmen's liens, to maintain insurance, cause the general contractor and any sub-contractors to maintain insurance, and to protect, defend, indemnify, and hold First Industrial harmless from all losses and claims resulting from the renovation. Stiffel was also made responsible for all structural and nonstructural repairs and maintenance at the leased premises. Finally, Stiffel was obligated to remove its fixtures, equipment, and furnishings at the end of the lease, and to repair any damage resulting from the installation or removal of its property. The written lease was entitled "Standard Form -- Industrial Building Lease."

[10]   On or about May 4, 1998, Stiffel and plaintiff construction contractor Hayes Mechanical, Inc. (Hayes Mechanical), executed an "Agreement for Design and Construction," which obligated the contractor to substantially complete the office renovation and some of the factory renovation at the South Morgan Street property by August 1, 1998, and obligated the tenant to make biweekly progress payments. Hayes Mechanical also agreed to provide insurance naming Stiffel and First Industrial as additional insureds, and to indemnify and defend Stiffel and First Industrial against claims arising out of its work. Paragraphs 33 and 34 of the written agreement provided:

[11]   "33. Inspection. [Stiffel's] representative and [First Industrial's] inspecting architect and representatives shall, at all times, have access to the Work whenever it is in preparation or progress, and [Hayes Mechanical] shall facilitate inspection of the Work by the aforesaid persons and by any public authorities concerned with the Work.

[12]   34. [Stiffel's] Lease. [Hayes Mechanical] hereby acknowledges that [Stiffel] has a leasehold interest in the Project pursuant to that certain Standard Form Industrial Building Lease dated March 17, 1998 made by [Stiffel] as Tenant, and [First Industrial], as Landlord (the 'Lease'). [Hayes Mechanical] shall cooperate with [Stiffel] and use its reasonable efforts to help [Stiffel] comply with the terms, conditions and provisions of and the obligations imposed on [Stiffel], as Tenant, under the Tenant's [sic] Improvements Work Letter (Exhibit E to the Lease) ***."

[13]   Stiffel moved into the renovated facility on an unspecified date in 1998. According to Hayes Mechanical's calculations, the total cost of the completed renovation project, including finance charges through February 1, 2000, was $4,355,415.53, and Stiffel paid only $4,101,906 before it ceased making payments at some point in 2000.

[14]   In February 2000, Hayes Mechanical recorded an original contractor's claim for lien against First Industrial at the Cook County recorder of deeds' office, indicating that Hayes Mechanical was owed $253,509.53 for labor and materials provided at the South Morgan Street property. Hayes Mechanical also filed a two-count action in the circuit court of Cook County.

[15]   Count I of the original complaint sought recovery of the lien amount from Stiffel, based on breach of contract. However, Stiffel never answered the allegations and within a few months assigned all of its known assets for the benefit of its creditors. A statement of the company's liabilities and assets dated May 23, 2000, indicated Stiffel had become insolvent. It had $12.8 million in liabilities but only $6.6 million in assets. On June 20, 2000, Stiffel's assignee sent a letter to all of the company's known creditors announcing his intention to sell Stiffel as a turnkey operation in order to maximize the value of the assets and requesting that sworn claim forms be submitted within 30 days. The assignee conducted a public auction on August 23 and 24, 2000, which netted $887,059. On October 18, 2000, after prove-up, the trial court entered a $216,606.62 default judgment against Stiffel on the breach of contract claim. On November 30, 2000, Hayes Mechanical instituted supplementary proceedings to collect the money judgment. It states that "[a]t that point in time" it learned the award was "likely uncollectible" due to Stiffel's financial problems. There is no indication in the record or appellate briefs that Hayes Mechanical submitted a sworn claim form to Stiffel's assignee, nor is there any indication of the amount of funds Hayes Mechanical would have received if it had. Stiffel is not a party to this appeal.

[16]   Count II of the original complaint also sought recovery of the lien amount, but was directed at First Industrial, based on the recorded contractor's claim for lien. First Industrial responded with affirmative defenses, which were later amended, alleging that the claimed amount was fraudulent because it was grossly overstated and included "nonlienable" amounts, such as equipment rental fees, which did not add value to the property. Hayes Mechanical did not answer the amended affirmative defenses. First Industrial also filed a motion for summary judgment on count II of the original complaint, reiterating the amended affirmative defenses. Hayes Mechanical did not meet the trial court's deadline for filing a response to the summary judgment motion. Instead, by its own account, Hayes Mechanical "opt[ed] to pursue a different legal course" and filed a satisfaction or release of its mechanic's lien claim against First Industrial with the Cook County recorder of deeds. In a rider to the release, Hayes Mechanical stated the release would not "bar, release, compromise or settle any of Hayes Mechanical, Inc.'s common-law claims against the Stiffel Company, First Industrial, L.P., or any other entity or individual." The next day, Hayes Mechanical asked for leave to file an amended pleading against First Industrial, which included only the common law claims of quantum meruit and unjust enrichment. Hayes Mechanical contended that its release of the lien claim rendered moot First Industrial's pending motion for summary judgment on count II, and it asked the trial court to transfer the case out of the circuit court's mechanics lien section since "the lien issues [were] resolved."

[17]   In its proposed quantum meruit count, Hayes Mechanical alleged it furnished labor and materials for the renovation of the South Morgan Street property owned by First Industrial "with the expectation that it would receive compensation for such services," and that Hayes Mechanical had not done so "gratuitously." Hayes Mechanical did not specify where it had expected compensation to come from, nor did it indicate that First Industrial had any involvement in the renovation project. Hayes Mechanical further alleged, however, that "First Industrial received the benefit of [the] services in that the Property was improved extensively through [the] provision of labor and materials to the Property," and "First Industrial has accepted and enjoyed the benefits of [the] provision of labor and materials to the property and it would be unjust for First Industrial to retain the benefit of these services without paying Hayes. Hayes Mechanical concluded "the value of the benefit conferred upon First Industrial by the improvements to the Property completed by [Hayes Mechanical] is the reasonable value of the work performed," and prayed for judgment in its favor.

[18]   In its proposed unjust enrichment count, Hayes Mechanical repeated the allegations from its quantum meruit count and added, "First Industrial has benefitted from the services rendered *** [and] First Industrial would be unjustly enriched if it was permitted to retain the benefit conferred on the Property *** without compensating [Hayes Mechanical] for the reasonable value of its services."

[19]   First Industrial responded that the motion for leave to amend should be denied because First Industrial had no direct relationship with Hayes Mechanical and was not a party to the renovation contract, and although it had been aware that Stiffel renovated, First Industrial had no communication with Hayes Mechanical and had ...

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