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Lake County Grading Co., LLC v. Forever Construction, Inc.

Court of Appeals of Illinois, Second District

May 19, 2017

LAKE COUNTY GRADING COMPANY, LLC, Plaintiff-Appellant,
v.
FOREVER CONSTRUCTION, INC., FIRST MIDWEST BANK, As Successor In Interest to Waukegan Savings Bank, THE CITY OF WAUKEGAN, JORGE TORREZ, UNKNOWN OWNERS, and NONRECORD CLAIMANTS, Defendants First Midwest Bank, Defendant-Appellee.

         Appeal from the Circuit Court of Lake County. No. 12-CH-885 Honorable Luis A. Berrones, Judge, Presiding.

          JUSTICE BURKE delivered the judgment of the court, with opinion. Justices Hutchinson and Spence concurred in the judgment and opinion.

          OPINION

          BURKE JUSTICE.

         ¶ 1 Waukegan Savings Bank (Waukegan Savings) obtained a judgment of foreclosure on the property at 133 S. Genesee St. in Waukegan, which contained a Salvation Army warehouse (the property). Waukegan Savings was the successful bidder at the sheriff's sale and filed a motion to confirm the sale. Before confirmation, the warehouse was destroyed by fire. On behalf of Waukegan Savings, the City of Waukegan (City) hired plaintiff, Lake County Grading Company, LLC (LCG), to demolish the remains of the warehouse, and LCG recorded a mechanic's lien upon completion of the work.

         ¶ 2 While Waukegan Savings' motion to confirm the sale was pending in the mortgage foreclosure action, LCG filed this separate action against Waukegan Savings, asserting claims to foreclose on the mechanic's lien and for breach of an oral or implied contract, unjust enrichment, and quantum meruit. While this action was pending, the sale was confirmed in the mortgage foreclosure action and Waukegan Savings received a judicial deed to the property. As a result of a takeover by the Federal Deposit Insurance Corporation (FDIC), defendant, First Midwest Bank (First Midwest), acquired all of Waukegan Savings' assets and liabilities, including the property. LCG added First Midwest as a defendant as the successor-in-interest to Waukegan Savings.

         ¶ 3 The trial court dismissed the mechanic's-lien claim, concluding that Waukegan Savings' foreclosure notice required LCG to intervene in the mortgage foreclosure action before confirmation of the sale and that therefore LCG could not pursue this separate action. Because LCG failed to intervene and challenge the confirmation, the court concluded that the lis pendens doctrine extinguished the claims.

         ¶ 4 LCG appeals from the dismissal of the mechanic's-lien claim and the denial of leave to amend to raise a claim for an equitable lien. LCG argues that it was not required to intervene in the mortgage foreclosure action, because (1) Waukegan Savings was not a bona fide innocent third-party purchaser entitled to protection under the lis pendens doctrine; (2) LCG had no right to intervene, because it lacked standing to challenge the sale confirmation; and (3) LCG is entitled to an equitable lien if it cannot recover under the Mechanics Lien Act (Act) (770 ILCS 60/0.01 et seq. (West 2012)).

         ¶ 5 First Midwest responds that (1) we lack jurisdiction; (2) LCG's arguments are forfeited; (3) the lis pendens doctrine bars the mechanic's-lien claim, because LCG had a right to intervene in the mortgage foreclosure action; (4) the mechanic's lien is technically defective; and (5) an equitable lien is inappropriate because LCG could have, but failed to, perfect its statutory mechanic's lien.

         ¶ 6 We hold that (1) we have jurisdiction over the appeal and LCG has not forfeited its arguments; (2) Waukegan Savings was not a bona fide innocent third-party purchaser, because, through its conduct, it induced LCG to perform the work and file this separate action; (3) LCG alternatively had a right to intervene in the mortgage foreclosure action but was not required to do so; and (4) the legal remedy of a statutory mechanic's lien precluded an equitable lien as a potentially viable alternative claim for LCG. Accordingly, we reverse and remand.

         ¶ 7 I. BACKGROUND

         ¶ 8 A. Mortgage Foreclosure

         ¶ 9 As this is an appeal from the dismissal of the mechanic's-lien claim and the denial of leave to file a claim for an equitable lien, the relevant facts are taken from the pleadings. On November 1, 2006, Forever Construction, Inc., the owner of the property, was the guarantor on a real estate loan extended by Waukegan Savings. The Salvation Army warehouse on the property had fallen into disrepair and was abandoned. Forever Construction defaulted on the loan.

         ¶ 10 Waukegan Savings filed a mortgage foreclosure action on August 14, 2008. On September 2, 2008, Waukegan Savings recorded an amended notice of foreclosure (lis pendens) with the Lake County recorder of deeds. Under the lis pendens doctrine, codified in section 2-1901 of the Code of Civil Procedure (Code) (735 ILCS 5/2-1901 (West 2012)), one who obtains an interest in property during the pendency of a suit affecting it, and who has constructive notice of the suit, is bound by the result of that litigation as if he or she had been a party from the outset. Waukegan Savings' amended notice of foreclosure provided such constructive notice.

         ¶ 11 On December 10, 2010, Waukegan Savings obtained a judgment of foreclosure and became a mortgagee in possession. The judgment stated that the mortgage constituted a "valid, prior and paramount lien(s) upon the indicated interest(s) in the mortgaged real estate, which lien(s) is prior and superior to the right, title, interest, claim or lien of all parties and nonrecord claimants whose interests in the mortgaged real estate are terminated by this foreclosure."

         ¶ 12 The redemption rights of Forever Construction expired on March 11, 2011. On March 15, 2011, Waukegan Savings was the successful bidder at the sheriff's sale. On April 5, 2011, Waukegan Savings filed a motion to confirm the sale but did not request a hearing.

         ¶ 13 On May 4, 2011, the warehouse was destroyed by fire. The City informed Waukegan Savings that the damaged structure must be removed immediately because it violated safety and building regulations. A mortgage provision authorized Waukegan Savings to eliminate code violations on the property, and the foreclosure judgment required Waukegan Savings to insure the property and make reasonably necessary repairs.

         ¶ 14 Representatives of Waukegan Savings allegedly assured the City's building commissioner that Waukegan Savings would pay for the demolition and asked the commissioner to select a demolition contractor. The City had a longstanding business arrangement with LCG for demolition and debris removal. The City hired LCG on behalf of Waukegan Savings. LCG worked at the site from May 4, 2011, to June 3, 2011, resulting in a balance due of $112, 098. On August 24, 2011, LCG recorded a mechanic's lien against the property and served Waukegan Savings.

         ¶ 15 B. Mechanic's Lien Foreclosure

         ¶ 16 On February 14, 2012, Waukegan Savings served LCG with a demand under section 34(a) of the Act (section 34 demand) (770 ILCS 60/34(a) (West 2012)) to foreclose on the lien or risk abandoning it, and LCG timely filed a complaint to initiate this action on February 22, 2012. Soon thereafter, Waukegan Savings requested a hearing on the motion to confirm the sale in the mortgage foreclosure action. On March 15, 2012, less than a month after LCG filed its mechanic's-lien action as demanded by Waukegan Savings, the trial court in the mortgage foreclosure action confirmed the sale and Waukegan Savings received a judicial deed.

         ¶ 17 On October 11, 2012, after receiving the judicial deed, Waukegan Savings was seized by the FDIC and sold to First Midwest. The takeover is evidenced by an August 3, 2012, agreement between the FDIC and First Midwest to purchase virtually all of the assets, including the property.

         ¶ 18 1. Motion to Dismiss

         ¶ 19 On February 27, 2013, LCG filed its second amended complaint, naming First Midwest as a defendant, as the successor in interest to Waukegan Savings. The claims against First Midwest included foreclosure on the mechanic's lien, breach of an oral or implied contract, unjust enrichment, and quantum meruit. On July 19, 2013, on First Midwest's motion, the trial court dismissed the mechanic's-lien, unjust-enrichment, and quantum meruit claims but did not dismiss the contract claim. The court concluded that the lis pendens doctrine had required LCG to seek intervention in the mortgage foreclosure action, and, because a final judgment had been entered in that case, the mechanic's lien was invalid.

         ¶ 20 2. Motion to Reconsider

         ¶ 21 The matter proceeded for 19 months, during which LCG subpoenaed the file of First Midwest's former attorneys. In it, LCG discovered Waukegan Savings' section 34 demand.

         ¶ 22 On February 24, 2015, LCG filed a motion to reconsider the dismissal of the mechanic's-lien, unjust-enrichment, and quantum meruit claims, arguing that the section 34 demand constituted newly discovered evidence and that the recent decision in Wells Fargo Bank, N.A. v. McCluskey, 2013 IL 115469, had changed the law. Specifically, LCG contended that McCluskey requires a party seeking to vacate a foreclosure judgment after a judicial sale to also seek to set aside the judicial sale, but that, because Waukegan Savings already had moved to confirm the sale, LCG's only remedy in the mortgage foreclosure action was to object under section 15-1508(b) of the Illinois Mortgage Foreclosure Law (Foreclosure Law) (735 ILCS 5/15-1508(b) (West 2012)), which was "unavailable" to LCG because the statute relates merely to matters involving the sale. LCG concluded that (1) the doctrine of lis pendens did not require LCG to intervene in the mortgage foreclosure action and (2) LCG perfected its mechanic's lien by complying with Waukegan Savings' section 34 demand. The trial court concluded that McCluskey did not apply and denied the motion to reconsider on June 5, 2015.

         ¶ 23 3. Motion to Amend Complaint

         ¶ 24 On July 24, 2015, the court granted in part and denied in part LCG's motion for leave to file a third amended complaint. The court allowed amendment of the contract claim, which LCG said was based on "an implied-in-fact oral contract." The court denied leave to file a new claim for an equitable lien and to amend the mechanic's-lien claim to add a reference to the section 34 demand.

         ¶ 25 4. Cross-Motions for Summary Judgment

         ¶ 26 On December 14, 2015, LCG moved for summary judgment on the contract claim, and on March 7, 2016, First Midwest filed a cross-motion for summary judgment. The trial court entered summary judgment for First Midwest on April 15, ...


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