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Construction Systems, Inc. v. FagelHaber, LLC

Court of Appeals of Illinois, First District, Third Division

June 30, 2015

CONSTRUCTION SYSTEMS, INC., an Illinois Foreign Corporation, d/b/a Construction Systems of Minnesota, Plaintiff-Appellant,
FAGELHABER, LLC, an Illinois Limited Liability Corporation, n/k/a Thompson Coburn LLP, d/b/a Thompson Coburn Fagel Haber, Defendant-Appellee

Appeal from the Circuit Court of Cook County. 09 L 942. Honorable John C. Griffin and Brigid M. McGrath, Judges Presiding.

For APPELLANT: Raymond M. Rudnick, Brian M. Ozog, Carponelli & Krug, Barrington, IL.

For APPELLEE: Donald J. Brown, Jr., Karen Kies DeGrand, Michael J. Borree, Donahue Brown Mathewson & Smyth, LLC, Chicago, IL.

JUSTICE MASON delivered the judgment of the court, with opinion. Presiding Justice Pucinski and Justice Hyman concurred in the judgment and opinion.



[¶1] Plaintiff-appellant Construction Systems, Inc., filed a legal malpractice action against defendant-appellee FagelHaber, LLC, on the grounds that FagelHaber failed to perfect a mechanic's lien on behalf of Construction Systems, resulting in the subordination of the mechanic's lien to a mortgagee's lien. The trial court first dismissed Construction Systems' prayer for prejudgment interest with prejudice. The case was then transferred to another judge and FagelHaber's motion for summary judgment was granted. On appeal, Construction Systems contends the trial court erred in granting summary judgment because the release signed by the parties was intended solely to resolve an outstanding fee dispute and Construction Systems was not aware of its malpractice claim at the time the release was signed. Construction Systems also claims the trial court erred in striking its prayer for prejudgment interest because the statute on which the underlying claim is based allows prejudgment interest. For the reasons that follow, we reverse the judgment of the circuit court of Cook County and remand for further proceedings.


[¶3] On May 30, 2002, Construction Systems, a steel fabrication business that provides material and labor on construction projects, commenced work on a building project located at 6 North Michigan Avenue in Chicago. Global Real Estate Investors, LLC (Global), was the owner of the project and AMEC Construction Services, Inc. (AMEC), was hired as construction manager and agent for the project.

[¶4] Global's members were Bassam Haj Yousif and Romel Esmail. Yousif and Esmail also established a company called Construction Services International, purportedly to operate as the general contractor for the project. However, this company's registration with the Secretary of State was repeatedly allowed to lapse, it was not licensed by the city of Chicago as a general contractor, it did not obtain the necessary permits and did not perform any of the necessary functions of a general contractor, and AMEC was forced to act as general contractor for the project despite that fact that its contract with Global did not provide for such services.

[¶5] The contract amount for the work to be performed by Construction Systems was $2,684,823. During the course of its work on the project, Construction Systems supplied additional materials and labor in the amount of $1,372,477.

[¶6] On June 19, 2003, after failing to receive payments for a number of months, Construction Systems stopped work on the project. A few additional payments were made, leaving an outstanding balance owed to Construction Systems of $3,146,200. Construction Systems then retained FagelHaber to record a lien and protect its interest under the Illinois Mechanics Lien Act (Act) (770 ILCS 60/1 et seq. (West 2012)), and to collect payment of the outstanding balance.

[¶7] On April 3, 2003, FagelHaber performed a tract index search on 6 North Michigan. On May 6, 2003, Cosmopolitan Bank and Trust (Cosmopolitan) recorded a mortgage on 6 North Michigan. Without updating the tract index search, on August 6, 2003, FagelHaber served a notice of lien on Global and AMEC. The notice of lien was not served on Cosmopolitan. FagelHaber recorded a mechanic's lien in the amount of $3,146,200 against 6 North Michigan on October 6, 2003, but the lien likewise failed to include Cosmopolitan as an interested party and Cosmopolitan was not included on the service list.

[¶8] On December 19, 2003, FagelHaber performed a second tract index search and the results of that search disclosed Cosmopolitan as an interested party. On January 14, 2004, Cosmopolitan filed an appearance in Pinnacle Waste Services, Inc. v. North Star Trust Company, No. 02-CH-09958 (Cir. Ct. Cook Co.) (hereinafter, Pinnacle litigation), litigation involving various mechanics' liens, including Construction Systems' lien. FagelHaber represented Construction Systems in the Pinnacle litigation, an action Construction Systems joined but did not initiate. In late 2004, FBOP Corporation (FBOP) acquired Cosmopolitan and filed an appearance in the Pinnacle litigation.

[¶9] Construction Systems became dissatisfied with FagelHaber's representation. Due to a lack of progress and the amount of fees charged by FagelHaber, Construction Systems retained Karen Berres as substitute counsel in the case. Berres had previously represented Construction Systems in connection with the construction project but had not been involved with either the filing of the mechanic's lien or the Pinnacle litigation. On August 28, 2004, FagelHaber was allowed to withdraw as counsel for Construction Systems. The court ordered FagelHaber to turn over the client file in seven days. Berres received some documentation from FagelHaber but later learned she had not received the entire file. FagelHaber withheld the complete file until the issue of unpaid legal fees was resolved. As far as the record shows, FagelHaber never disclosed to Construction Systems its failure to serve Cosmopolitan with the notice of lien or include Cosmopolitan as an interested party on the recorded lien between the date it performed the updated tract index search in December 2003 and August 2004 when FagelHaber withdrew as Construction Systems' counsel.

[¶10] In November 2004, Construction Systems and FagelHaber executed a general release as part of a settlement of the fee dispute. The release stated that Construction Systems engaged FagelHaber to perform legal services and had an outstanding balance due the firm in the amount of $81,566.80, defined as " the Indebtedness." The release further stated: " Disputes and disagreements have arisen between FagelHaber and [Construction Systems], including, without limitation, with regard to the Indebtedness. Fagel Haber and [Construction Systems] desire to compromise and settle all disputes and disagreements between them, including, without limitation, the payment and satisfaction of the Indebtedness ***." The release then provided details of the settlement with dates and amounts of the payments agreed to by the parties, and noted that upon receipt of the first payment, FagelHaber would release all remaining documents in the case file. Finally, the release provided:

" [Construction Systems] *** does hereby fully remise, release and forever discharge FagelHaber *** of and from any and all claims, demands, actions, causes of action, suits, *** existing at the date hereof or hereafter arising, both known and unknown, foreseeable and unforeseeable, *** arising from or in connection with any matter, *** including, without limitation, any Claims in connection with the legal services provided by FagelHaber to [Construction Systems] or the Indebtedness."

[¶11] In the meantime, Construction Systems and FBOP (as successor to Cosmopolitan) filed cross-motions for summary judgment in the Pinnacle litigation. In its motion for summary judgment, Construction Systems sought to determine the priority of its mechanic's lien with respect to the mortgage of FBOP and determine the validity of its lien. Construction Systems argued that it was not subject to the notice requirement in section 24 of the Act (770 ILCS 60/24 (West 2012)) (" Sub-contractors *** furnishing labor, materials, fixtures, apparatus, machinery, or services *** shall, within 90 days after the completion thereof, *** cause a written notice of his or her claim and the amount due or to become due thereunder, to be sent by registered or certified mail *** or personally served on the owner of record *** and to the lending agency ***." ). See Parkway Bank & Trust Co. v. Meseljevic, 406 Ill.App.3d 435, 447, 940 N.E.2d 215, 346 Ill.Dec. 215 (2010) (" If the subcontractor does not provide a known lender with the mandated section 24 notice, the lien is unenforceable against the lender." ). Construction Systems argued that the notice requirement did not apply because it was an original contractor rather than a subcontractor. In the alternative, Construction Systems argued that even if it was a subcontractor, it was not subject to the notice requirement because Cosmopolitan had notice of its work on the project.

[¶12] FBOP argued that Construction Systems was a subcontractor and therefore subject to section 24's notice requirement. On August 29, 2007, the trial court denied both motions for summary judgment and FBOP and Construction Systems entered into settlement negotiations. In December 2007, Construction Systems settled its claim with FBOP in exchange for the payment of $1,825,000.

[¶13] On January 27, 2009, Construction Systems filed the underlying legal malpractice action against FagelHaber, alleging that as a result of FagelHaber's failure to perfect its lien, Construction Systems' lien was subordinate to Cosmopolitan's lien and it suffered a loss of $1,321,200. FagelHaber filed a motion to dismiss, claiming that the general release signed by the parties as ...

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