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Dt Boring, Inc. v. Chicago Public Building Commission

United States District Court, Seventh Circuit

October 28, 2013

DT BORING, INC., Plaintiff,
THE CHICAGO PUBLIC BUILDING COMMISSION, HARBOUR CONTRACTORS, INC., an Illinois corporation, OPTIMAL ENERGY, LLC, an Illinois limited liability company, and ENVIRONMENTAL DESIGN, INC., an Illinois corporation, Defendants.


ROBERT W. GETTLEMAN, District Judge.

Plaintiff DT Boring, Inc., filed an eight-count amended complaint against The Chicago Public Building Commission ("CPBC"), Harbour Contractors, Inc. ("Harbour"), Optimal Energy, LLC ("Optimal"), and Environmental Design, Inc. ("EDI"), (collectively, defendants). Plaintiff alleges that CPBC heads a RICO enterprise with the goal of fraudulently benefitting CPBC by constructing or renovating public buildings at or below their actual construction cost in a manner that enriches its "preapproved" subcontractors at the expense of other project subcontractors. Plaintiff alleges that Harbour and EDI are two of these "preapproved" subcontractors that participated in the RICO enterprise. Plaintiff alleges RICO violations by Harbour (Counts I, II and III) and EDI (Count III); as well as a lien on public funds against CPBC, Harbour and Optimal (Count IV); fraud against CPBC and Harbour (Count V); tortious interference with contract against CPBC and Harbour (Count VI); unjust enrichment against CPBC and Harbour (Count VII); and promissory estoppel against CPBC and Harbour (Count VIII). CPBC has filed a motion pursuant to Fed.R.Civ.P. 12(b)(1) and 28 U.S.C. 1367 (Doc. 21) asking the court to decline to exercise supplemental jurisdiction over CPBC. Harbour has also filed a motion to dismiss (Doc. 36) under Fed.R.Civ.Pro. 12(b)(1), arguing that plaintiff does not have standing to bring its RICO claims. EDI joins Harbour's 12(b)(1) motion. For the reasons described below, the court grants Harbour's motion to dismiss for lack of standing and CBPC's motion to decline to exercise supplemental jurisdiction.


Plaintiff is a Illinois corporation that consults on geothermal energy and participates in designing, drilling, and installing geothermal well fields and geothermal heating and ventilation systems for governmental, commercial, and residential structures. The shares of the corporation are owned in joint tenancy by Tom Shelton ("Shelton") and his sons. Plaintiff acted as a subcontractor and installer for Optimal, another subcontractor, on CPBC's 12th District Police Station Project in Chicago. Plaintiff and Optimal entered into a second tier subcontract which called for plaintiff to drill 88 geothermal boreholes, install ground loops in the boreholes, dig trenches through which the upper portions of the ground loops would be connected to pressure-equalizing vaults, connect the ground loops to the vaults, then back fill the trenches as part of the HVAC system for the Police Station. Optimal in turn entered into a subcontract with Harbour, which served as the general contractor for CPBC on the project.

The Change Orders

Plaintiff alleges that CPBC and Harbor provided plaintiff, through Optimal, a diagram purportedly showing the location of all underground obstructions so that plaintiff could determine where to place the bore holes. Shortly after work began, however, plaintiff encountered underground obstructions that were not shown on the diagram, which resulted in the need for plaintiff to relocate the planned boreholes. Plaintiff alleges that CPBC's Assistant Project Manager and Project Manager, as well as Harbour's Project Manager, Sam Rae (Rae), orally gave Shelton permission to relocate the boreholes and understood the costs associated with doing so. Plaintiff also allegedly received a forwarded email dated May 17, 2011, from CPBC's Assistant Project Manager to the Project Manager and other CPBC employees authorizing plaintiff to relocate its drilling rigs.

In early June 2011, Shelton inquired why Harbour had not issued written Field Orders regarding the drill rig relocations previously orally authorized. Plaintiff alleges that Rae responded that Harbour had not issued Field Orders because CPBC did not want to pay for the additional costs incurred by the drill relocations. When Shelton questioned this response, Rae allegedly reassured Shelton that the work was authorized and that Harbour simply had to "package" change orders and submit them simultaneously to be paid by CPBC. Plaintiff therefore continued drilling the remainder of the relocated boreholes. Plaintiff timely submitted written change orders to Optimal, and Optimal timely submitted its change orders to Harbour.

Plaintiff alleges that Rae reaffirmed his statement about the need to package change orders in a September 14, 2011, email to Shelton. Plaintiff alleges that Rae's statement were corroborated by statements made by Mark Karaskiewicz, a Harbour employee, who allegedly told plaintiff's counsel in a phone call that plaintiff's and Optimal's change orders must be packaged with change orders from other subcontractors in order to be submitted to CPBC. In September 2011, Karaskiewicz allegedly submitted plaintiff's and Optimal's change orders to CPBC, but they were rejected as "insufficient." Plaintiff claims that CPBC never intended to pay plaintiff for the additional work authorized and engaged in fraud and obfuscation to mislead plaintiff so that plaintiff would continue to work on the project without being paid.

Plaintiff further claims that it is not the only subcontractor to have been defrauded of payment for authorized work by CPBC. Plaintiff alleges that CPBC has engaged in a pattern of activity to skim profits from subcontractors by using similar tactics. According to plaintiff, CPBC will request bids on a project from general contractors, and those general contractors who are part of CPBC's enterprise will submit bids that are substantially lower than other general contractors. The general contractors will then require the subcontractors to lower their preliminary bids in order to be awarded the subcontracts. CPBC will then award the contract to one of its enterprise subcontractors, who will then engage in the following behaviors: refusing to process change orders approving work performed outside of the scope of the original contracts so that CPBC gets the benefit of the additional work for free; creating phony "back charges" for subcontractors' purportedly defective work so that the general contractors can withhold the amount of those back charges; refusing to pay the subcontractor's 10% retainage when due; simply refusing to pay the subcontractor at all; or agreeing to pay the retainage, change orders and/or amounts due, but only if the subcontractor agrees to a "buyout, " or reduction in the amount owed. These actions allow CPBC and the general contractors to earn profits on the projects, despite their low bids, by "pilfering" funds from the subcontractors. The subcontractors fear retaliation in the form of exclusion from future projects and having additional funds withheld if they object to CPBC's practices. These behaviors, plaintiff alleges, often cause the subcontractors to go out of business because they are unable to finance the construction projects or unable to sustain their businesses without payment. Plaintiff cites instances of companies forced out of business by CBPC and its enterprise.

The Asbestos

Plaintiff alleges further damages from its work on the project. Around August 19, 2011, Shelton allegedly encountered a large, wrapped furnace pipe in a concrete culvert or tunnel. The pipe was removed and examined by one of Optimal's principals, who determined that it might contain asbestos. Plaintiff alleges that CPBC had knowledge of the possible contaminant prior to the start of the project and did not alert plaintiff, because CPBC's deputy director appeared to have knowledge of the location of the wrapped pipe without being told of the details of the discovery. EDI was called to test the pipe for asbestos and determined that the material was non-friable and therefore not dangerous. Plaintiff was ordered to continue working.

On September 1, 2011, one of the trenches plaintiff was working in was examined by Optimal and it was determined that it might contain asbestos. Work was halted pursuant to a formal Notice of Delay issued by Optimal, and EDI was called in to take samples of the material, which it concluded was non-friable. Plaintiff was ordered to continue to work and told to position workers downwind when backfilling the trenches. A formal back to work order was issued.

Shelton reported the asbestos to OSHA (the United States Occupational Safety and Health Administration), which conducted a site visit on September 9, 2011, and determined that friable asbestos was present and subsequently issued citations to Harbour and plaintiff. Shelton also notified the Illinois EPA (IEPA) of the potential contaminant.

On September 9, 2011, Optimal received test results that indicated that friable asbestos was present at the project site and Optimal issued a stop work order requiring plaintiff to vacate the site. Shelton also hired an independent environmental testing company to inspect the site, and that company issued a report on September 19, 2011, finding that samples from the site contained friable asbestos. Due to the OSHA investigation and the positive test results, Harbour agreed to maintain ...

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