GX Chi., LLC v. Galaxy Envtl., Inc.

38 N.E.3d 60

GX CHICAGO, LLC, an Illinois Limited Liability Company, and Ledcor Construction, Inc., a Washington Corporation, Plaintiffs and Counterdefendants–Appellees

v.GALAXY ENVIRONMENTAL, INC., Sherwin–Williams Company, an Ohio Corporation, Jesus People, U.S.A. Full Gospel Ministries d/b/a Lakefront Supply, an Illinois Corporation, Unknown Owners, Non–Record Claimants, and the City of Chicago, a Municipal Corporation, Defendants and Counterdefendants (Creative Vistas, Inc., Decmen Construction Inc., Greenwerks Recycling, Inc., Highlander Builders, Inc. and Householder Accounting Services, Inc., each an Illinois Corporation, Defendants and Counterplaintiffs–Appellants).

No. 1–13–3624.

Appellate Court of Illinois, First District, First Division.

July 27, 2015.

Brian J. McCollam & Associates, P.C., Chicago (Brian J. McCollam, of counsel), for appellants.

Tressler, LLP, Chicago (David L. Kabat, of counsel), for appellees.

OPINION

Justice CUNNINGHAM delivered the judgment of the court, with opinion.

¶ 1 This dispute concerns mechanics liens arising from a construction project to develop certain real property owned by plaintiff-appellee GX Chicago, LLC (the owner).

¶ 2 BACKGROUND

¶ 3 On or about September 2, 2010, the owner contracted with plaintiff-appellee Ledcor Construction Inc. (Ledcor) to serve as the general contractor for the project. Ledcor contracted with various subcontractors for the project. One such subcontractor was Galaxy Environmental, Inc. (Galaxy), who entered into a contract with Ledcor in March 2011 to perform masonry work on the project. Galaxy, in turn, entered into subcontracts with various other parties to provide materials and labor on the project. Those subcontractors included the five defendants-appellants herein: Creative Vistas, Inc.; Decmen Construction, Inc.; Greenwerks Recycling, Inc.; Highlander Builders, Inc.; and Householder Accounting Services, Inc. (together, the Galaxy subcontractors).

¶ 4 Through a series of “change order” requests submitted from Galaxy to Ledcor, the amount of the Ledcor–Galaxy contract was steadily increased from an original amount of $199,500 to an adjusted contract price of $518,185.75. Over the course of its work, Galaxy submitted periodic applications for payment to Ledcor between April and June 2011. Galaxy's last application for payment, dated June 30, 2011, claimed a “current payment due” to Galaxy of $117,201.06. That submission by Galaxy did not inform Ledcor that there were any outstanding amounts owed to the Galaxy subcontractors.

¶ 5 On July 15, 2011, Ledcor made a corresponding payment to Galaxy in the amount of $117,201.06. Sometime after that July 2011 payment, the owner and Ledcor became aware that certain of Galaxy's subcontractors had not received payment from Galaxy for the work they performed on the construction project. After that time, Ledcor made no further disbursements to Galaxy.

¶ 6 In October and November 2011, the Galaxy subcontractors served the owner and Ledcor with various notices of mechanics liens, for claims totaling $267,989.98. The amounts claimed by the Galaxy subcontractors far exceeded the amount that Ledcor believed was remaining to be paid on its contract with Galaxy; specifically, Ledcor asserted that only $126,178.30 remained to be paid out of the total Ledcor–Galaxy contract amount of $518,185.75. Ledcor took the position that it could not be liable to Galaxy's subcontractors for any amount exceeding that $126,178.30 sum.

¶ 7 In December 2011, counsel for Ledcor advised Galaxy and the Galaxy subcontractors of “Ledcor's position that neither Ledcor nor owner owe more than $126,178.37 to Galaxy and its second tier subcontractors.” Ledcor indicated that it was prepared to pay out that amount, but that if agreement could not be reached, Ledcor would seek relief from the circuit court for “a determination and ruling that neither Ledcor nor owner owe Galaxy or its [subcontractors] an amount greater than $126,178.37.” Shortly thereafter, Galaxy responded that an agreement could not be reached with the Galaxy subcontractors.

¶ 8 Accordingly, on January 9, 2012, the owner and Ledcor filed a complaint pursuant to section 30 of the Mechanics Lien Act (the Act), which states: “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 (West 2012).

¶ 9 The owner and Ledcor's section 30 complaint pleaded that the Galaxy subcontractors had claims totaling $267,989.98, but that “there remains to be paid out to Galaxy under its contract with Ledcor, * * * the sum of $126,178.19.” The section 30 complaint sought an accounting to determine: the amount due to Galaxy under the Ledcor–Galaxy contract; the amounts due to Galaxy's subcontractors; and “the amount due from the [owner] to [Ledcor] under their contract with respect to the amounts due and payable to Galaxy and its sub-subcontractors.”

¶ 10 On July 2, 2012, the Galaxy subcontractors filed their answer and three affirmative defenses to the owner and Ledcor's complaint. In the first affirmative defense, they asserted that full payment for their work was past due under the Contractor Prompt Payment Act. See 815 ILCS 603/1 et seq. (West 2012). Second, the Galaxy subcontractors asserted an “unclean hands” defense, claiming that certain change orders relied upon by Ledcor and Galaxy to support their position that only $126,178.19 remained due on the Ledcor–Galaxy contract were fraudulently created “ex post facto ” “months after the original change orders were generated [and the] work was completed.” The Galaxy subcontractors stated that through such change orders Ledcor had misrepresented that the Ledcor/Galaxy contract totaled $518,185.75 and that there was only $126,178.19 remaining due on the contract. The Galaxy subcontractors asserted that the actual value of the Ledcor/Galaxy contract was higher, “about $610,553.75,” and that the unpaid balance was actually $218,546.19. Thus, the Galaxy subcontractors alleged that Ledcor and Galaxy worked together to mislead the Galaxy subcontractors “into believing the Galaxy/Ledcor Contract, as amended, was smaller in scope and dollar amount, with about $92,368.00 less due and payable available” to the Galaxy subcontractors. As a third affirmative defense, the Galaxy subcontractors claimed that after they notified the owner of their mechanics liens, pursuant to the Act the owner was required to withhold sufficient funds from Ledcor to pay their claims. The Galaxy subcontractors thus argued that their claims “should be paid from the funds [the owner] withheld in accord with the Act, or if it failed to do so, directly by [the owner].”

¶ 11 Also on July 2, 2012, the Galaxy subcontractors filed a counterclaim against the owner, Ledcor, and Galaxy. The first eight counts of the counterclaim sought foreclosure of the Galaxy subcontractors' mechanics liens. Counts 9 through 16 of the counterclaim asserted breach of contract claims against Galaxy, and counts 17 through 24 pleaded quantum meruit claims against the owner and Ledcor, seeking to recover for the value of work performed on the project.

¶ 12 The Galaxy subcontractors subsequently served discovery requests upon the owner and Ledcor concerning the contract between owner and Ledcor, the Ledcor–Galaxy contract, and contracts and payments between Galaxy and its subcontractors. The requests sought, among other information, any outstanding amounts owed from the owner to Ledcor on the entire project (not just the portion performed by Galaxy); all records of payments between Ledcor and Galaxy, lien waivers or contractor's affidavits prepared by Galaxy, and the amount due to Galaxy from Ledcor on the project.

¶ 13 On August 1, 2012, the owner and Ledcor moved to stay the discovery propounded by the Galaxy subcontractors. Their motion argued that discovery was not needed to resolve the Galaxy subcontractors' mechanics lien claims because all documents necessary to decide the section 30 proceeding had been attached to the owner and Ledcor's complaint, specifically: the Ledcor–Galaxy contract and related change orders, copies of Galaxy's submitted payment applications to Ledcor, and Ledcor's sworn statement to the owner reflecting Ledcor's last payment to Galaxy. In response, on August 8, 2012, the Galaxy subcontractors moved to compel the owner and Ledcor to respond to their discovery.

¶ 14 The court heard argument on the discovery motions on November 20, 2012. At the hearing, it became apparent that the discovery dispute stemmed largely from a disagreement as to interpretation of the relevant inquiry under section 30 of the Act. In particular, the parties disputed the meaning of section 30's statement that “the court shall find the amount due from the owner to the contractor” for purposes of determining the amounts available to satisfy the Galaxy subcontractors' mechanics liens. 770 ILCS 60/30 (West 2012).

¶ 15 The owner and Ledcor contended that, since all of the lien holders were subcontractors of Galaxy, the relevant amount under section 30 is the amount that was remaining due to Galaxy. Thus, the owner and Ledcor contended that section 30 limited their liability to Galaxy's subcontractors to the amount still owed to Galaxy—the lien claimants' immediate contractor. As a result, they argued that the Galaxy subcontractors' discovery requests, which largely concerned amounts owed from the owner to Ledcor for the entire construction project, were irrelevant. In other words, they argued that Galaxy was the relevant “contractor” for purposes of section 30's phrase “the amount due from the owner to the contractor.” Moreover, Ledcor and the owner also argued that since “Galaxy is in agreement with...