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James McHugh Construction Co. v. International Fidelity Insurance Co.

United States District Court, N.D. Illinois, Eastern Division

January 2, 2018

JAMES McHUGH CONSTRUCTION CO., Plaintiff,
v.
INTERNATIONAL FIDELITY INSURANCE CO., Defendant.

          MEMORANDUM OPINION AND ORDER

          John Robert Blakey, United States District Judge

         This case concerns a single claim for breach of contract asserted by Plaintiff James McHugh Construction Company against Defendant International Fidelity Insurance Company. [1-1]. At the settlement conference held on November 3, 2017, the parties agreed to a bench trial on the issue of IFIC's statute of limitations defense, and requested a ruling addressing whether McHugh may recover attorney fees arising from this action as part of any potential damages. [170, 172]. That issue has now been fully briefed. [177, 178, 181, 182]. This Court finds that the terms of the performance bond and subcontract upon which McHugh sues authorize the recovery of attorney fees incurred in this action.

         This Court incorporates by reference its opinion denying the parties' previous motions for summary judgment [81, 164], as well as the findings of fact issuing from the bench trial. No additional findings of fact are necessary for the resolution of this purely legal question of contract construction, but the Court provides the attorney fee provisions of the subcontract and performance bond at issue.[1]

         Article 23 of the subcontract between McHugh and Builders Architectural Products (BAP) provides in relevant part:

Any dispute between Subcontractor and Contractor shall, at Contractor's sole option, be decided (1) by arbitration . . . or (2) by litigation in any appropriate court located in Chicago, Illinois. . . . In the event of any dispute, whether decided by arbitration or litigation, the prevailing party shall be entitled to recover its reasonable attorney's fees and other costs from the non-prevailing party. In any dispute for monetary damages, the party seeking the monetary damages shall be deemed the non-prevailing party unless it recovers 75% or more of the original amount sought.

[61-9] at 11.

         The performance bond issued by IFIC, naming BAP as the principal and McHugh as obligee, states in relevant part:

[If] the above bounded Principal shall well and truly perform all of the undertakings, covenants, terms, conditions, and agreements of said Subcontract . . . and during the life of any guaranty required under said Subcontract, and shall also well and truly perform all the undertakings, covenants, terms, conditions, and agreements of any and all duly authorized modifications of said Subcontract that may hereafter be made, and shall indemnify and save harmless said Obligee of and from any and all loss, damage, and expense, including costs and attorney's fees, which the said Obligee may sustain by reason of and failure to do so, then this obligation shall be null and void; otherwise it shall remain in full force and effect.

[61-10] at 3.

         The question before this Court is whether McHugh may recover attorney fees incurred in this litigation as part of its potential damages. See [177, 178, 181, 182]. The disagreement stems largely from the differing provisions in BAP's subcontract and IFIC's performance bond. McHugh argues that the broad language of the bond entitles it to recover attorney fees, [177] at 1, 8, while IFIC argues that neither document entitles McHugh to attorney fees arising from this suit, [178] at 2, 5-6.

         In Illinois, performance bonds are contracts subject to principles of contract interpretation. Solai & Cameron, Inc. v. Plainfield Cmty. Consol. Sch. Dist. No. 22, 871 N.E.2d 944, 953 (Ill.App.Ct. 2007). Surety contracts are to be “strictly construed, ” and Illinois courts place great weight on the plain meaning of their text. People ex rel. Ryan v. Envtl. Waste Res., Inc., 782 N.E.2d 291, 296 (Ill.App.Ct. 2002); Solai & Cameron, 871 N.E.2d at 953. A performance bond that-like the bonds at issue here-conditions the surety's obligation “on its principal's failure” to fulfill the terms of the underlying agreement incorporates that agreement by reference. Fisher v. Fidelity & Deposit Co. of Md., 466 N.E.2d 332, 338 (Ill.App.Ct. 1984). When the bond “incorporates by reference the construction contract, the provisions of the contract are provisions of the bond.” Id. Thus, both the performance bond and the underlying contract apply to the surety and this Court reads the two together.

         When courts determine whether contracts authorize the recovery of attorney fees, the rule requiring strict construction becomes even more demanding. In Illinois, attorney fees are ordinarily not recoverable “absent a statute or a contractual agreement” stating otherwise. Kerns v. Engelke, 390 N.E.2d 859, 865 (Ill. 1979). Illinois courts apply this standard exactingly, so that attorney fees must be “specifically authorized” by a contract. State of Ill. Capital Dev. Bd. v. G.A. Rafel & Co., 493 N.E.2d 348, 354 (Ill.App.Ct. 1986). References to “costs” or “expenses” are not specific enough to permit recovery of attorney fees. See Prudential Ins. Co. of Am. v. Curt Bullock Builders, Inc., 626 F.Supp. 159, 170 (N.D. Ill. 1985) (citing Singleton v. County of Cook, 369 N.E.2d 227, 229 (Ill.App.Ct. 1977) (“loss, damage, or expense” does not cover attorney fees); Reese v. Chi., Burlington & Quincy R.R., 283 N.E.2d 517, 522 (“costs” does not cover attorney fees)).

         Here, the performance bond issued by IFIC and the underlying subcontract both reference attorney fees expressly. [61-9] at 11; [61-10] at 3. They therefore do not run afoul of the rule barring recovery when contracts lack the phrase “attorney fees.” See Capital Dev. Bd., 493 N.E.2d at 354; cf. Prudential Ins. Co., 626 F.Supp. at 170. Rather, this Court's task is to read the bond and the subcontract together to determine the extent of IFIC's liability for any of McHugh's attorney fees.

         The performance bond provides that McHugh will be indemnified and held harmless “of and from any and all loss, damage, and expense, including costs and attorney's fees” that McHugh may sustain by reason of BAP's failure to perform its obligations under the subcontract. [61-10] at 3. In ...


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