James McHugh Construction Co., v. International Fidelity Insurance Company
Filing
81
MEMORANDUM Opinion and Order Signed by the Honorable John Robert Blakey on 9/29/2016. Mailed notice(gel, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
James McHugh Construction Co.,
Plaintiff,
Case No. 1:14-cv-02399
v.
Judge John Robert Blakey
International Fidelity Insurance Co.,
Defendant.
MEMORANDUM OPINION AND ORDER
Plaintiff James McHugh Construction Company (“McHugh”) initiated this
breach of contract action against Defendant International Fidelity Insurance
Company (“IFIC”) in the Circuit Court of Cook County on March 21, 2014. Compl.
[1-1] at 6.
IFIC removed the case to this Court on April 3, 2014 [1], and fact
discovery was completed by July 8, 2015 [52].
The parties have filed cross-motions for summary judgment [59, 62] on the
limited question of whether McHugh’s claim against IFIC is time-barred.
As
explained below, disputed factual issues remain regarding the date the applicable
claims accrued; accordingly, both motions are denied.
I.
Background 1
This case arises out of the construction of two condominiums at 600 North
Lake Shore Drive in Chicago, Illinois.
PSOF ¶ 1.
McHugh was the general
The facts are taken from the parties’ Local Rule 56.1 statements. “DSOF” refers to the IFIC’s
statement of undisputed facts [61], with McHugh’s responses [72] cited as “R. DSOF.” “PSOF” refers
to McHugh’s statement of undisputed facts [64], with IFIC’s responses [71] cited as “R. PSOF.”
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contractor charged with supervising the construction of both condominiums. Id. In
that capacity, McHugh subcontracted with Builders Architectural Products (“BAP”).
Id. ¶ 2. BAP was obligated to install windows, doors and related elements at the
condominiums. Id. The subcontract included a one year warranty on BAP’s work,
gave McHugh the right to complete BAP’s work in the event of a default, and
provided for indemnification.
Id. ¶¶ 3-6.
In connection with the subcontract
between McHugh and BAP, IFIC issued two performance bonds on October 12, 2006
and June 13, 2007, respectively. Id. ¶ 7. The bonds identify IFIC as the surety,
BAP as the bond principal, and McHugh as the obligee. DSOF ¶ 6.
Throughout the construction process, BAP failed to meet expectations
regarding both the timing and substance of its work.
PSOF ¶ 11.
BAP’s two
principle shortcomings pertained to problems with window components and balcony
doors. DSOF ¶¶ 8, 13, 26. On August 25, 2007, McHugh provided IFIC with a
quality control report outlining problems with BAP’s work. PSOF ¶ 20. In that
letter, McHugh advised IFIC that BAP was in default “due to their failure to meet
the project schedule and their failure to properly complete installation of the
subcontract work.” Id. On August 31, 2007, IFIC expressed its expectation “that
[McHugh] and our Principal [BAP] will work together to resolve any outstanding
issues.” Id. ¶ 21; Ex. 6.
Despite IFIC’s assurances, McHugh’s concerns regarding BAP’s performance
continued. On April 3, 2008, McHugh again advised IFIC that BAP was failing to
meet completion dates or fix its defective work. PSOF ¶ 22. McHugh also informed
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IFIC that if BAP did not take corrective action McHugh would retain another
company in its stead.
Id.
On April 7, 2008, IFIC asked McHugh for more
information in order to investigate the matter, reserved its rights, and instructed
McHugh to not act without its consent. Id. ¶ 23.
As part of IFIC’s investigation, on March 16, 2009, IFIC requested
information concerning BAP’s work on the project. Id. ¶ 24. On April 2, 2009,
McHugh outlined BAP’s various issues and advised IFIC that BAP’s performance
had been untimely throughout the entire project. Id. ¶ 25. Specifically, McHugh
informed IFIC that BAP was thirteen months behind the contractually stipulated
date for substantial completion of work on the north condominium tower and eight
months behind the contractually stipulated date for substantial completion of work
on the south condominium tower. Id.
On December 31, 2009, McHugh notified BAP that unless BAP completed
their work within seven days, McHugh would be forced to retain another contractor
to finish the job. Id. ¶ 26. McHugh copied IFIC on this correspondence. Id.
On January 5, 2010, McHugh notified IFIC that BAP was in default of their
contractual obligations. Id. ¶ 27. McHugh also advised IFIC that, if BAP did not
quickly fix the work, McHugh would have to complete the work and deduct the costs
from any remaining amounts owed to BAP. Id. McHugh also noted that if the
remaining amounts owed to BAP were insufficient to cover the costs of completing
BAP’s work, McHugh would make a claim under the bonds. Id. On January 7,
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2010, IFIC once again expressed its expectation “that [McHugh] and our Principal
[BAP] will work together to resolve any outstanding issues.” Id. ¶ 28; Ex. 7.
On January 13, 2010, 600 LSD LLC, the properties’ developer, provided
McHugh with an inspection list detailing the balcony and window issues. Id. ¶ 22.
On January 27, 2010, the developer sent another email to McHugh enumerating
additional issues with multiple units throughout the project. Id. ¶ 24. In early
February of 2010, McHugh was notified that the issues identified in the developer’s
email would be addressed through the project’s window and door supplier, Traco.
Id. ¶ 25.
On February 12, 2010, McHugh informed BAP’s counsel of defects
remaining in BAP’s work and stated that these defects possibly reflected either
negligence or work left purposefully incomplete. Id. ¶ 26. On February 15, 2010,
the developer sent yet another list outlining BAP’s defects to McHugh. Id. ¶ 27.
The developer eventually retained a consultant (Curtainwall Design
Consultants, Inc. or “CDC”) to inspect BAP’s work on the project.
PSOF ¶ 29.
According to a field report issued by CDC, defects still existed on March 4, 2010,
despite BAP’s attempts to address the balcony and window issues. DSOF ¶¶ 31-32.
In April of 2010, CDC advised McHugh of additional defects in BAP’s work.
PSOF ¶¶ 33-43. The parties dispute whether these problems were “new” or related
to the overarching BAP issues from 2007-2010. R. PSOF ¶¶ 33-43.
On July 1, 2010, McHugh notified IFIC that if BAP did not commence
corrective work by July 9, 2010, McHugh would seek to recover costs from IFIC to
complete the remaining work. PSOF ¶ 44. On July 2, 2010, IFIC reserved its rights
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and asked McHugh for more information to investigate the claim. Id. ¶ 45. On July
12, 2010, after BAP failed to begin corrective work, McHugh advised IFIC that
arrangements were being made for another contractor to perform the work and that
a claim would be made by McHugh under the bonds. Id. ¶ 46. On July 13, 2010,
McHugh sent IFIC an estimate of the repair costs for the defective work, which
totaled $329,728.92. PSOF ¶ 47. In this letter, McHugh reiterated that it would
proceed with the corrective work and make a claim under the bonds. Id. On July
22, 2010, IFIC responded to McHugh by reserving its rights, questioning the
decision to incur repair costs, and disputing McHugh’s “currently unliquidated
claim” against IFIC. DSOF ¶¶ 36-39; Ex. CC. The parties dispute whether this
correspondence in July of 2010 constituted a formal claim by McHugh against IFIC
under the bonds. See, e.g., R. PSOF ¶ 47.
BAP continued to work on the project until they walked off the job in October
2010. PSOF ¶¶ 50-51, 54. BAP eventually filed for bankruptcy on March 2, 2011.
Id. ¶ 54. McHugh completed the process of finishing BAP’s work in late 2012. Id. ¶
55. On April 12, 2013, McHugh submitted a claim to IFIC for the cost of completing
BAP’s work, which totaled $966,338.41. Id.
On May 7, 2013, IFIC reserved its rights and asked McHugh for more
information in order to investigate the claim. Id. ¶ 56. On September 26, 2013,
McHugh responded to IFIC’s request. Id. ¶ 57. In that letter, McHugh stated that
IFIC had possessed notice of McHugh’s claim since 2007 and that McHugh had
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previously provided much of the requested documentation to IFIC in March 2009
and July 2010. Id.
On January 17, 2014, IFIC denied McHugh’s claim, invoking a statute of
limitations defense.
DSOF ¶ 42.
On March 20, 2014, McHugh responded by
initiating this lawsuit against IFIC in the Circuit Court of Cook County, alleging
that it was entitled to recovery of $966,338.41 under the bonds plus costs, prejudgment interest, and attorneys’ fees. Id. ¶ 44.
II.
Legal Standard
Summary judgment is appropriate if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law. Spurling v. C & M Fine Pack, Inc., 739 F.3d 1055, 1060 (7th Cir.
2014). The party seeking summary judgment has the burden of establishing that
there is no genuine dispute as to any material fact. See Celotex Corp. v. Catrett, 477
U.S. 317, 323 (1986). Further, summary judgment is not appropriate if the evidence
is such that a reasonable jury could return a verdict for the non-moving party, and
the Court must construe all facts and reasonable inferences in the light most
favorable to the nonmoving party. See Carter v. City of Milwaukee, 743 F.3d 540,
543 (7th Cir. 2014).
III.
Analysis
The parties’ motions for summary judgment essentially dispute which statute
of limitations governs McHugh’s claim, when McHugh’s claim accrued, and whether
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any equitable doctrines trump the foregoing legal analysis. The Court will address
each issue in turn.
A.
A Four-Year Limitations Period Governs McHugh’s Claim
McHugh contends that its claim is subject to a ten-year limitations period
pursuant to 735 Ill. Comp. Stat. 5/13-206, which provides that “actions on bonds . . .
shall be commenced within 10 years.” 735 Ill. Comp. Stat. 5/13-206 (“§ 5/13-206”).
Conversely, IFIC argues that McHugh’s claim is subject to a four-year
limitations period pursuant to 735 Ill. Comp. Stat. Ann. 5/13-214(a), which provides
that:
Actions based upon tort, contract or otherwise against any
person for an act or omission of such person in the design,
planning, supervision, observation or management of
construction, or construction of an improvement to real
property shall be commenced within 4 years from the time
the person bringing an action, or his or her privity, knew
or should reasonably have known of such act or omission.
Notwithstanding any other provision of law, contract
actions against a surety on a payment or performance
bond shall be commenced, if at all, within the same time
limitation applicable to the bond principal.
735 Ill. Comp. Stat. Ann. 5/13-214(a) (“§ 5/13-214(a)”) (emphasis added).
For the reasons discussed below, the Court concludes that IFIC’s position
best comports with both controlling canons of statutory interpretation and the
intent of the Illinois Legislature.
1.
The Specific Governs The General
Since McHugh’s claim is made pursuant to two performance bonds, this
Court must consider two distinct limitation periods. Compare § 5/13-206 (governing
actions on “bonds”) with § 5/13-214(a) (governing actions “against a surety on a . . .
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performance bond”). Illinois courts confronted with similarly overlapping statutes
of limitation have long held that “when two limitations periods [facially] apply to an
action, the more specific statute is generally effective.” DeMarco v. Ecklund, 792
N.E.2d 404, 406 (Ill. App. Ct. 2003).
Here, § 5/13-214(a) is the more specific statute. Not only does it govern the
particular industry at issue, it explicitly tracks the factual scenario in this case – a
contract action “against a surety on a payment or performance bond.” § 5/13-214(a).
This specificity trumps the generalized discussion of “bonds” in § 5/13-206.
Privileging the specificity of § 5/13-214(a) over the generalized language of §
5/13-206 also remains consistent with Illinois legislative history. In fact, § 5/13214(a) was specifically modified in response to rulings from Illinois state courts
which followed McHugh’s reasoning here. In 1986, the Supreme Court of Illinois
determined in People ex rel. Skinner v. Hellmuth, Obata & Kassabaum, Inc. that a
general contractor’s surety was subject to the ten-year statute of limitations since
“issuance of a performance bond cannot be deemed to be engaging in the design,
planning, supervision, observation or management of construction, or construction.”
500 N.E.2d 34, 39 (Ill. 1986) (internal quotation omitted). The Court reasoned that
because “statutes of limitation are wholly legislative creations . . . the court will not
include sureties under the protection of section 13–214(a) in the absence of
statutory language to that effect.” Id.
Shortly after Hellmuth was decided, the Illinois legislature responded by
implementing specific statutory language “to that effect”: “Notwithstanding any
8
other provision of law, contract actions against a surety on a payment or
performance bond shall be commenced, if at all, within the same time limitation
applicable to the bond principal.”
See P.A. 85-887, § 1, eff. Nov. 6, 1987. 2 By
applying the specific language of § 5/13-214(a) to this case, this Court ensures that
the statute of limitations applicable to the surety (IFIC) is coterminous with the
statute of limitations which would have been applicable to the subcontracting
construction company (BAP).
Our conclusion also remains consistent with Travelers Casualty & Surety
Company v. Bowman, 893 N.E.2d 583 (Ill. 2008). In Travelers, a surety incurred
losses under performance bonds after the defendant contractor failed to meet its
contractual obligations. Id. After paying on the performance bonds, the surety sued
the defendant contractor pursuant to a separate indemnification agreement. Id.
The Illinois Supreme Court determined that § 5/13-214(a) did not govern the
surety’s claims under the indemnification agreement, because such claims
emanated not “from construction-related activity but, rather, from the breach of a
contractual obligation to indemnify.” Id. at 589.
Travelers presents the factual inverse of this case. The claims in Travelers
were made by a surety, pursuant to an indemnification agreement. Id. McHugh’s
claim here is against a surety, pursuant to performance bonds. See supra at *4-6.
Unlike the indemnification agreements in Travelers, these same performance bonds
During discussion of the operative bill, State Senator Barkhausen specifically noted that the
amendment to § 5/13-214(a) was implemented to prevent situations where “the Statute of
Limitations is longer for sureties than it is for construction companies.” Def.’s Resp. Pl.’s Mot.
Summ. J., Ex. A [70-1].
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explicitly concern themselves with “construction-related activity.” DSOF, Ex. I, Ex.
J.
Indeed, the obligations under the bonds are only implicated if BAP fails to
perform its “construction-related” tasks. Id.
In sum, McHugh brought a breach of contract claim against a surety,
pursuant
to
two
performance
bonds,
and
Illinois
law
provides
that
“[n]otwithstanding any other provision of law, contract actions against a surety on a
payment or performance bond shall be commenced, if at all, within the same time
limitation applicable to the bond principal.” § 5/13-214(a) (emphasis added). This
provision governs here.
2.
The Limitations Period
Principal Is Four Years
Applicable
To
The
Bond
Having decided that § 5/13-214(a) provides the operative rule, this Court
turns to the question of what “time limitation” was “applicable” to McHugh’s claims
against the “bond principal” (here, BAP).
BAP possessed a contractual obligation to McHugh to, inter alia, install
windows and balcony doors at the project condominiums.
See supra at *2-4.
Therefore, the contract between BAP and McHugh ostensibly concerned the
“construction of an improvement to real property” within the meaning of § 5/13214(a). See Fireman’s Fund Ins. Co. v. Rockford Heating & Air Conditioning, Inc., 9
N.E.3d 1154, 1160 (Ill. App. Ct.), appeal denied, 20 N.E.3d 1253 (Ill. 2014)
(explaining that installation of even a temporary ventilation system constituted a
“construction of an improvement to real property,” as “the determining factor is the
totality of the construction” and governing a subcontractor’s work under a different
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rule would achieve a “incongruous result”); see also Gomez v. Arkema, Inc., No. 09cv-5353, 2014 WL 983198, at *5 (N.D. Ill. Mar. 12, 2014) (“An improvement to real
property is an addition to real property amounting to more than mere repair or
replacement, and which substantially enhances the value of the property.”)
(internal citation omitted).
Accordingly, any claims “based upon [the] contract” between McHugh and
BAP regarding the “construction of an improvement to real property” should have
been “commenced within 4 years from the time [McHugh] knew or should
reasonably have known of” BAP’s “act or omission.” § 5/13-214(a).
B.
The Accrual Date For McHugh’s Claims Against BAP Cannot be
Resolved At Summary Judgment
McHugh argues that even if its claim against IFIC remains subject to a fouryear limitations period, which began to run when its claims against BAP accrued,
“that accrual date is still a question of fact, requiring denial of IFIC’s motion for
summary judgment.” Pl.’s Resp. to Def.’s Mot. for Summ. J. [69] 10. Conversely,
IFIC insists that McHugh “knew or reasonably should have known that it had a
cause of action against Builder’s Architectural [and therefore the cause of action
had accrued] by 2008.”
Def.’s Reply in Supp. of its Mot. for Summ. J. [76] 4.
McHugh’s position is consonant with Illinois case law and the record before the
Court.
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1.
A Factfinder Must Determine Whether McHugh Should
Have Known That BAP Had “Wrongfully” Caused It Harm
In March 2010
To reiterate, § 5/13-214(a) mandates that actions “based upon tort, contract
or otherwise against any person for an act or omission of such person . . . shall be
commenced within 4 years from the time the person bringing an action, or his or her
privity, knew or should reasonably have known of such act or omission.” § 5/13214(a). This provision embodies a discovery rule which “delays the commencement
of the relevant statute of limitations until the plaintiff knows or reasonably should
know that he has been injured and that his injury was wrongfully caused.”
Cincinnati Ins. Co v. Tri-State Fire Prot., Inc., No. 3:14-cv-86, 2016 WL 492653, at
*3 (S.D. Ill. Feb. 9, 2016) (internal quotation omitted). When a party “knows or
reasonably should know both that an injury has occurred and that it was wrongfully
caused, the statute begins to run and the party is under an obligation to inquire
further to determine whether an actionable wrong was committed.” Id. (internal
citation omitted). As the Illinois Appellate Court so crisply explained:
What may or may not be wrongfully caused [under the
discovery rule] is rooted in common sense. If a roof
collapses half way through construction, a court can fix
the date, as a matter of law, when the injury is known to
be wrongfully caused. Some construction defects lend
themselves to such a precise finding, as a matter of law.
Many do not. For these, fixing a date an injury is known
to be wrongfully caused is a question of fact.
LaSalle Nat. Bank v. Skidmore, Owings & Merrill, 635 N.E.2d 564, 567 (Ill. App.
Ct. 1994).
Under the foregoing standard, summary judgment for IFIC is only
appropriate if McHugh possessed enough information before March 21, 2010, to
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alert a reasonable person to the fact that BAP had “wrongfully” caused McHugh an
injury. Id.
The record before the Court is not definitive as to what McHugh knew
regarding BAP’s performance and when.
For example, the parties acknowledge
that McHugh was at least aware of problems with BAP’s performance before March
21, 2010. See PSOF, Ex. 14 (McHugh writes to IFIC in April of 2009 regarding
BAP’s “untimely”
performance
and “several
items of work that
require
remediation”), Ex. 15 (McHugh writes to BAP in December of 2009 regarding their
“continuing failure to correct the defective” work on the project).
It is also
undisputed, however, that “BAP remained on the Project until October 2010
performing some remedial work.” R. PSOF ¶ 50; see also id. ¶ 51 (“BAP was in the
process of correcting its defective work when it walked off the job.”). In addition to
remaining on the job until October of 2010, both parties acknowledge that BAP was
contractually obligated at that time to “make good” any “fault or defect” in its work
after receiving notice of the same from McHugh. See PSOF, Ex. 1 at 8.
Upon these undisputed facts, this Court cannot conclude that, as a matter of
law, McHugh possessed sufficient knowledge on March 21, 2010, to determine that
any harm caused by BAP was “wrongful” within this context. To help explain why,
this Court turns to “the nature of the contract and the nature of the breaches.” HiLite Products Co. v. Am. Home Products Corp., 11 F.3d 1402, 1408 (7th Cir. 1993).
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2.
Construction Contracts Envision A “Single Endeavor”
Illinois courts have long recognized that in construction contracts, like the
subcontract between McHugh and BAP, the undertaking of a contractor is “a single
endeavor and the statute of limitations does not begin to run until the completion of
that endeavor.” Berg & Associates, Inc. v. Nelsen Steel & Wire Co., 580 N.E.2d 1198,
1201 (Ill. App. Ct. 1991); see also Belleville Toyota, Inc. v. Toyota Motor Sales,
U.S.A., Inc., 770 N.E.2d 177, 196 (Ill. 2002) (“Berg, however, stands only for the
proposition that construction contracts are typically considered a ‘single endeavor’
and that the statute of limitations for claims under the contract does not begin to
run until the endeavor is complete.”). This common-sense acknowledgment of the
iterative nature of construction projects has also been embraced in other
jurisdictions. See, e.g., Hubble v. Lone Star Contracting Corp., 883 S.W.2d 379, 38182 (Tex. App. Ct. 1994) (“[A] construction contract continues until the work is
completed by the contractor . . . Limitations begin to run on a continuing
[construction] contract at the earlier of the following:
(1) when the work is
completed; (2) when the contract is terminated in accordance with its terms; or (3)
when the contract is anticipatorily repudiated by one party and this repudiation is
adopted by the other party.”).
Here, the undisputed facts show that in March of 2010, BAP was still
working with McHugh pursuant to its contractual obligations.
R. PSOF ¶ 50
(undisputed that BAP remained on the job until October 2010).
Indeed, the
subcontract explicitly contemplated a procedure whereby McHugh would notify
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BAP of defects in its work and BAP would return to the project to fix the same.
PSOF, Ex. 1.
The parties were proceeding according to this procedure (or
attempting to) in March of 2010. See supra at *2-5. Thus, any injury experienced
by McHugh before March of 2010, far from being “wrongful” as a matter of law, was
arguably not even a breach of the subcontract at that time. Here, as in LaSalle
National Bank, the “trier of fact should decide if the information available to
[McHugh] before [March 21, 2010], was enough to meet the knowledge requirement”
embodied in § 5/13-214(a)’s discovery rule.
The primary case relied upon by IFIC is not to the contrary. In Johnston v.
Tri-City Blacktop, Inc., the plaintiff contracted with the defendants to provide
paving services at the plaintiff’s shopping center. 577 N.E.2d 529, 532 (Ill. App. Ct.
1991). In 1979, the defendants repaired deteriorated pavement they had previously
installed pursuant to their contractual obligations, but they walked off the job in
1980. Id. at 530. In 1983, the plaintiff complained to the project’s architect, who
advised the plaintiff that because the parking lot had been in place for so long, it
would be difficult to determine the deterioration’s cause. Id. The owner finally
retained an engineer in 1986, who provided a report on the parking lot’s
deterioration.
Id. at 532.
The trial court ultimately held that “the statute of
limitations began to run in April 1983 [more than two years after defendants
walked off the job] when plaintiff knew or should have known the deterioration of
the pavement was unusual and likely actionable.”
appellate court affirmed this result. Id.
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Id. (emphasis added).
The
Contrary to IFIC’s suggestion, Johnston confirms our conclusion that the
trier of fact should determine whether McHugh had enough information in March
2010 to determine that BAP’s conduct was wrongful. Indeed, the court in Johnston
held that the statute of limitations period did not begin to run until at least two
years after the subcontracting defendant had walked off the job. Id. As such, this
Court concludes that, based upon the record at this point in the proceedings, the
general contractor did not necessarily know, as a matter of law, that its
subcontractor had “wrongfully caused” an injury when the subcontractor was still
performing work pursuant to the “single endeavor” contemplated in the contract.
Any alternative ruling could lead to unreasonable consequences.
In fact,
under IFIC’s proposed approach, a general contractor would be forced to rush to the
courthouse every time a subcontractor’s work exhibited limited defects, even as the
subcontractor worked to remedy the same. Far from treating construction contracts
as a “single endeavor,” under IFIC’s approach every “prudent businessman involved
in complex, multi-year construction [would] keep a lawyer at his elbow from the day
ground is broken. That may be, in fact, what prudent businessmen do in this era.
But the law is not so stern an arbiter.” LaSalle Nat. Bank, 262 Ill. App. 3d at 900.
C.
McHugh’s Claim Is Not Barred By The Doctrine Of Laches
IFIC argues that even if McHugh’s claim is not technically barred by the
governing statute of limitations, it is entitled to summary judgment pursuant to the
equitable doctrine of laches.
To successfully establish a claim of laches, “a
defendant must show both that the plaintiff lacked diligence in presenting its claim
16
and the defendant was prejudiced as a result of the delay.” Osler Inst., Inc. v.
Miller, 24 N.E.3d 1272, 1278 (Ill. App. Ct. 2015), appeal denied, 31 N.E.3d 769 (Ill.
2015). IFIC bears the burden of establishing its laches defense by “a preponderance
of the evidence.” United City of Yorkville v. Ocean Atl. Serv. Corp., No. 11-cv-1984,
2013 WL 5433429, at *7 (N.D. Ill. Sept. 30, 2013).
The Court addresses the
elements of laches in reverse order, because it is clear that IFIC was prejudiced by
the timing of this lawsuit.
1.
IFIC Was Prejudiced By McHugh’s Delay
The best evidence of IFIC’s prejudice comes in correspondence authored by
McHugh. In July of 2010, McHugh sent IFIC an estimate for the repair cost of
BAP’s defective work, which totaled $329,728.92.
PSOF ¶ 47.
In its next
correspondence to IFIC (almost three years later), McHugh submitted a claim under
the performance bonds for the cost of completing BAP’s work, this time in the
amount of $966,338.41. Id. ¶ 55. This $636,609.49 difference represents prejudice
suffered by IFIC as a result of McHugh’s delay in bringing the present action.
IFIC also faces the additional (albeit less quantifiable) prejudice of being
forced to litigate factual issues which are between six and nine years old.
As
discussed supra, resolution of the statute of limitations analysis requires a
factfinder to determine when McHugh should have known that it had been
“wrongfully” harmed by BAP. Adducing evidence on this question will be difficult
for IFIC, insofar as BAP was judicially dissolved over five years ago and IFIC was
merely the surety on the project. See supra at *2-5.
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2.
McHugh Did Not Lack Diligence In Bringing This
Lawsuit
Nevertheless, IFIC has not established, by a preponderance of the evidence,
that McHugh lacked diligence in bringing the present action.
To be sure, McHugh allowed a substantial amount of time to pass between its
first letter to IFIC in August of 2007 (PSOF ¶ 20) and the initiation of this lawsuit
on March 21, 2014. McHugh, however, was not “sitting on its hands” during this
intervening period.
McHugh followed the August 2007 correspondence with
additional letters regarding BAP’s subpar performance in April 2008, April 2009,
December 2009, January 2010, and July 2010. PSOF ¶¶ 22, 25-27, 47. The Court
credits McHugh’s argument that IFIC’s responses to these letters “strung McHugh
along” insofar as IFIC (1) continually encouraged McHugh to “work with” BAP and
(2) repeatedly asked McHugh for more information regarding BAP’s performance.
PSOF ¶ 21, 23-24, 28, 45, 48, 57. Laches is an equitable defense, and it would not
serve equity to allow IFIC to stick its head in the sand at the eleventh hour, after
continually exhorting McHugh to work with BAP.
This Court’s conclusion is bolstered by the “presumption against the use of
laches to shorten the statute of limitations.” Teamsters & Employers Welfare Tr. of
Ill. v. Gorman Bros. Ready Mix, 283 F.3d 877, 881 (7th Cir. 2002); see also Petrella
v. Metro-Goldwyn-Mayer, Inc., –U.S.–, 134 S. Ct. 1962, 1965 (2014) (“[T]his Court
has cautioned against invoking laches to bar legal relief.”); W. Bend Mut. Ins. Co. v.
Procaccio Painting & Drywall Co., 794 F.3d 666, 678 (7th Cir. 2015) (“[W]e have yet
to find a case in which an Illinois court has applied laches to bar a breach-of18
contract suit seeking only monetary damages.”). Here, this Court is considering a
state-law statute of limitations which explicitly governs state-law causes of action.
See supra at *2-5.
Based upon the record here, allowing IFIC to undercut the
statute of limitations pursuant to an equitable doctrine would undermine both
principles of federalism and the separation of powers.
IV.
Conclusion
McHugh’s claim against IFIC is governed by the limitations period applicable
to any claims McHugh might have had against the bonds’ principal, BAP. The
limitations period applicable to McHugh’s claims against BAP is four years from the
time McHugh knew or should have known of BAP’s wrongful act or omission. This
Court concludes that whether McHugh knew or should have known that BAP’s
conduct was “wrongful” in March of 2010 is a fact question unamenable to
resolution via summary judgment. Furthermore, the equities here do not support
the application of the doctrine of laches.
Accordingly, both parties’ motions for
summary judgment [59, 62] are denied.
IT IS SO ORDERED
Dated: September 29, 2016
Entered:
___________________________________
John Robert Blakey
United States District Judge
19
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