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Sloan Electric v. Professional Realty and Development Corp.

November 8, 2004


Appeal from the Circuit Court of La Salle County. No. 02-MR-227. Honorable James A. Lanuti, Judge, Presiding.

The opinion of the court was delivered by: Justice Bowman


Defendant, Professional Realty & Development Corporation (PRDC), appeals the trial court's order confirming an arbitration award in favor of plaintiff, Sloan Electric (Sloan). PRDC argues that the trial court erred in confirming the award, because the arbitrator failed to dispose of all of the issues presented and made gross mistakes of fact and law. We affirm in part, reverse in part, and remand the cause.

On July 28, 2000, PRDC, a general contractor, subcontracted with Sloan to perform "design build" electrical work at Stonecroft Village, a senior housing project. The project consisted of a 32-unit structure and a 24-unit structure. In exchange for labor, services, and materials, Sloan was to be paid $221,238. A contract dispute subsequently arose. According to PRDC, Sloan failed to provide an electrical system design plan and "cut sheets" showing every device that would be used in the system. On October 13, 2000, PRDC made a written demand for these documents. Sloan provided a preliminary design plan on December 5, 2000, but in PRDC's opinion, the document was unprofessional, incomplete, and unacceptable. On January 5, 2001, and January 19, 2001, PRDC sent Sloan letters stating that PRDC had not yet received a complete design plan and cut sheets. Sloan submitted some cut sheets and small plans of individual units on January 26, 2001. Four days later, PRDC sent Sloan a letter listing issues that needed to be addressed "[i]n order to complete the *** plan review." Sloan submitted another preliminary plan and more cut sheets on February 14, 2001. PRDC later informed Sloan that the fixtures that Sloan was proposing to install were not of adequate quality.

On March 5, 2001, PRDC sent Sloan a letter entitled "Additional Written Notice to Subcontractor" (additional notice), stating that PRDC intended to terminate Sloan due to Sloan's failure to supply a complete design plan and cut sheets of all products. The additional notice stated that it was served pursuant to section 7.2.1 of the contract, which states that, if the subcontractor repeatedly fails to perform according to the contract and also:

"fails within seven days after receipt of written notice to commence and continue correction of such default or neglect with diligence and promptness, the Contractor may, after seven days following receipt by the Subcontractor of an additional written notice and without prejudice to any other remedy the Contractor may have, terminate the Subcontract and finish the Subcontractor's Work by whatever method the Contractor may deem expedient." (Emphasis added.)

In such an event, the contractor would be entitled to damages from the subcontractor if the completion costs exceeded the unpaid balance of the contract. The same day that PRDC served the additional notice, it hired an electrical inspector to examine Sloan's electrical work because it had "suspicions" that Sloan had made errors.

On March 6, 2001, Sloan delivered additional cut sheets to PRDC's attorney and part owner, Timothy Munson. Sloan's attorney, Wayne Whitmore, also attempted, without success, to arrange a meeting with PRDC to discuss the situation. On March 9, 2001, PRDC's inspector orally reported that the site appeared to have significant violations of the National Electric Code. By March 12, 2001, seven days after PRDC had served the additional notice, Sloan had not provided a design plan that PRDC found satisfactory. That day, PRDC served Sloan a notice of termination and had the police escort Sloan's employees off the construction site. PRDC hired another electrical subcontractor the following day. According to Sloan, PRDC refused to allow Sloan to return to the jobsite to retrieve its equipment.

On March 13, 2001, PRDC received the inspector's written report, identifying numerous code violations. According to PRDC, the majority of the violations were in areas that had already been covered by drywall, and it took a total of 1,161 hours of labor, over a period of five months, to correct the errors. PRDC claims that it suffered $258,195 in damages as a result of the violations.

PRDC did not bring the alleged code violations to Sloan's attention before Sloan's termination. According to Sloan, it never had the opportunity to examine, fix, or challenge the purported violations.

PRDC told Sloan that it had videotaped the defective work, but Munson later stated that the videotape was accidentally destroyed. PRDC subsequently provided 11 photographs allegedly showing defects in Sloan's work.

PRDC had provided the standard form contract that the parties signed, and it contained mediation and arbitration clauses. PRDC served Sloan an arbitration demand, claiming that Sloan breached the contract. According to PRDC, Sloan refused to arbitrate, so PRDC filed an action in federal court for breach of contract. In turn, after PRDC refused Sloan's demand for a final payment of $68,146.02, Sloan filed claims to foreclose on a mechanic's lien and for breach of contract. Eventually, PRDC and Sloan agreed to arbitrate "all disputes."

In arbitration, the parties filed cross-motions for summary judgment. PRDC argued that it properly terminated Sloan for cause, that Sloan breached the contract and caused $258,195 in damages, and that Sloan's mechanic's lien was defective. PRDC's breach of contract claim requested relief under section 7.2.1, and PRDC also claimed that Sloan breached its warranties under sections 4.1.2 and 4.5.1. Section 4.1.2 of the contract required Sloan to submit drawings, samples, and other submissions with "reasonable promptness," so as not to delay the project. Under section 4.5.1, Sloan warranted that its work would be "free from defects." This section further stated, "This warranty shall be in addition to and not in limitation of any other warranty or remedy required by law or by the Subcontract Documents."

Sloan argued in its motion for summary judgment that PRDC terminated Sloan for the alleged code violations without first notifying Sloan of the problems or giving Sloan the opportunity to cure. Sloan further argued that PRDC's termination notices were defective, resulting in a termination for convenience under the contract rather than a termination for cause. Sloan contended that it was therefore entitled to damages under the contract's termination-for-convenience clause, section 7.3. Under section 7.3, Sloan would be entitled to an adjustment for "increases in Subcontract Time and Subcontract sum, including profit on the increased cost of performance, caused by suspension, delay or interruption." Adjustments were not allowed if the performance was suspended "by another cause for which the Subcontractor is responsible" or if "an equitable adjustment is made or denied under another provision of this Subcontract." Sloan claimed that, because the contract was improperly terminated, Sloan was not responsible for PRDC's completion costs. Sloan also argued that PRDC was barred from claiming that Sloan's work was defective, because PRDC had not allowed Sloan to view the deficiencies and had destroyed relevant evidence. In addition to damages under section 7.3, Sloan sought recovery under the Mechanics Lien Act (Act) (770 ILCS 60/0.01 et seq. (West 2000)) because the Act allows the award of attorney fees and costs (770 ILCS 60/17 (West 2000)).

A few days before the scheduled arbitration hearing, the arbitrator, a former judge, contacted the parties and said that an opportunity had arisen for him to return to the bench. He cancelled the scheduled proceedings, stating that he thought that he could decide the case based on the summary judgment motions. The arbitrator subsequently notified the parties that he was ready to rule based on the evidence presented, but that he would consider any additional evidence submitted by the parties by November 11, 2002. In response, PRDC submitted additional documents.

The arbitrator issued a 10-page decision, concluding that a termination for convenience occurred. As the arbitrator's considerations and reasoning are central to the disputes in this case, we quote extensively from the decision. The arbitrator began by stating that the parties had presented him with cross-motions for summary judgment. He recited facts for the first five pages of the decision, and he included copies of PRDC's March termination notices. Among these facts, the arbitrator stated that, after PRDC terminated Sloan:

"Sloan's then [A]attorney Whitmore called Attorney Munson after the [sic] Sloan's removal from the project site, it appears on the same March 12th, 2001, and in sum the conversation between the two was to the effect that Attorney Whitmore suggested that there was no need for [A]attorney Munson to use the police to remove Sloan. Attorney Munson said it was done for the convenience of PRDC to get new electricians on the job immediately to start correcting hundreds of thousands of dollars worth of damages. It appears a videotape of the damage alleged to have been caused by Sloan was made by Attorney Munson, but later was lost and never shared with Sloan. Shortly thereafter Attorney Whitmore for Sloan requested of Munson the authority to enter the site to recover Sloan equipment, and was refused. The depositions of Attorney Munson and Attorney Whitmore make it obvious that any further consideration of Sloan's work was not to be." (Emphasis added.)

The arbitrator mentioned that PRDC hired an inspector to review Sloan's work, and that soon after Sloan's termination, PRDC hired ...

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