Illinois Appellate Court Ruling on Section 30 of MLA (August 2015)

On July 27, 2015, the First District Appellate Court in the case of GX Chicago, LLC et al. v. Galaxy Environmental Inc. et al., No.1-13-3624, held that the term “contractor” under Section 30 of the Illinois Mechanics Lien Act (“MLA”), was limited only to a lower tier subcontractor’s immediate upstream contractor and not the general contractor. Section 30 of the MLA provides in part: “If there are several liens *** upon the same premises, and the owner or any person having such a lien shall fear that there is not a sufficient amount coming to the contractor to pay all such liens”, the owner may file a complaint for the court to determine “the amount due from the owner to the contractor, and the amount due to each of the persons having liens”. (770 ILCS 60/30).

We represented both the owner and the general contractor in their filing of a Sec. 30 complaint, seeking a determination as to the remaining amount due by the general contractor to its immediate downstream subcontractor (Galaxy), the amounts due to Galaxy’s lower tier subcontractors, the remaining amount due by owner to the general contractor with respect to its subcontract with Galaxy and to deposit that amount with the court. The complaint was filed after numerous claims for lien were recorded upon the owner’s property by Galaxy’s lower tier subcontractors for amounts substantially higher than the remaining contract balance due Galaxy.

The First District, in affirming the trial court, found that for purposes of Section 30, the term “contractor” was limited to a subcontractor’s immediate upstream contractor and not the general contractor and that the owner and general contractor did not owe more than the remaining contract amount due Galaxy. In addition, the First District accepted and affirmed each of the trial court’s other rulings and specifically finding that:The trial court properly exercised its equitable powers in extinguishing the various lower tier liens in exchange for the deposit of the remaining Galaxy contract amount with the Clerk of the Circuit Court, and found no abuse of discretion in extinguishing these liens upon the deposit of said amount with the Clerk;

  1. Under Section 27 of the MLA, an owner is not liable to any lower tier subcontractor that is not identified in the general contractor’s sworn statement and that an owner shall not be liable to pay a greater sum than the price stipulated in the original contract unless payment be made to the contractor in violation of the rights of any party intended to be benefitted by the MLA;
  2. There was no denial of due process, finding that there was no triable issue of fact since the only factual issue raised by the lower tiers was the amount owed by the general contractor to Galaxy, and since the general contractor and Galaxy had agreed to the remaining amount due under said subcontract, there was therefore no need for an evidentiary hearing;
  3. The trial court properly exercised its equitable powers in extinguishing the various lower tier liens in exchange for the deposit of the remaining Galaxy contract amount with the Clerk of the Circuit Court, and found no abuse of discretion in extinguishing these liens upon the deposit of said amount with the Clerk;
  4. The trial court properly rejected the lower tier subcontractors’ Prompt Payment Act affirmative defenses since their work had not been accepted or approved by either the owner or general contractor;
  5. The trial court properly rejected the lower tier subcontractors’ additional affirmative defenses that the contract amount was the remaining contract amount due the general contractor from owner for all remaining work finding that the owner had complied with the MLA by properly withholding any future payments to Galaxy after it received notice from the lower tiers;
  6. Finally, the trial court had properly found that the amount due these lower tiers from the owner and general contractor was limited only to the amounts remaining due to Galaxy as their immediate upstream contractor, they could nonetheless continue to maintain their breach of contract claims directly against Galaxy seeking payment of said amounts.

The significance of this opinion is that this is the first time that an Illinois appellate court has construed Section 30 and in holding that the phrase “the amount due from owner to contractor” is limited to the immediate upstream contractor when liens are asserted by lower tier subcontractors lacking privity with either the owner or owner’s general contractor.

Should you have any further questions regarding mechanic liens or contractor litigation, please contact Dave Kabat, the author of this update, or Jim Dash at Carlson Dash, LLC.

This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

dave

David L. Kabat | Employment, Complex Commercial Litigation, Real Estate Litigation and Bankruptcy Litigation

Dave concentrates his practice in commercial real estate law, construction law, financing and creditors’ rights. If you need assistance with a related matter, contact Dave.

jimJames M. Dash | Real Estate Litigation, including Title Defense, Construction and Mechanic’s Liens

Jim concentrates his practice in real estate-related litigation, with an emphasis on construction (including mechanics lien claims), as well as title insurance defense work. If you need assistance with a related matter, contact Jim.