LB Steel, LLC v. Carlo Steel Corp.

2018 IL App (1st) 153501

122 N.E.3d 274

428 Ill.Dec. 265

LB STEEL, LLC, and The City of Chicago ex rel. LB Steel, LLC, Plaintiffs,

v.CARLO STEEL CORPORATION; Walsh Construction Company; The City of Chicago ; and Travelers Casualty and Surety Company of America, Defendants,

(LB Steel, LLC, Plaintiff and Counterdefendant-Appellant and Cross-Appellee; Carlo Steel Corporation, Defendant, Counterplaintiff, and Counterdefendant-Appellee and Cross-Appellant; Walsh Construction Company, Defendant and Counterplaintiff-Appellee and Cross-Appellant; Travelers Casualty and Surety Company of America, Defendant and Counterplaintiff-Appellee and Cross-Appellant).

The City of Chicago, Plaintiff,

v.Murphy/Jahn, Inc. Architects; Werner Sobek Ingeniuere GmbH & Co. KG; Rubinos & Mesia Engineers, Inc.; Turner Construction-O'Brien, Kreitzberg, LLC; Turner Construction Company; O'Brien-Kreitzberg, Inc.; URS Corporation; McClier Corporation d/b/a O'Hare Partners; AAC Designers Builders, Inc. d/b/a Austin AECOM Company; Cotter Consulting, Inc.; Walsh Construction Company; Bowman, Barrett & Associates, Inc.; and Travelers Casualty and Surety Company of America, Defendants,

(Walsh Construction Company, Defendant, Third-Party Plaintiff, Third-Party Counterdefendant-Appellee and Cross-Appellant; Travelers Casualty and Surety Company of America, Defendant-Appellee and Cross-Appellant; LB Steel, LLC, Third-Party Defendant and Third-Party Counterplaintiff-Appellant and Cross-Appellee; Carlo Steel, Counterdefendant-Appellee and Cross-Appellant).

LB Steel, LLC, Plaintiff,

v.Cal Testing Services, Inc, d/b/a Calumet Testing Services, Defendant.

No. 1-15-3501

Appellate Court of Illinois, First District, FIFTH DIVISION.

Opinion filed: September 28, 2018

Daniel P. Dawson and Joseph A. Ptasinski, of Nisen & Elliott, LLC, of Chicago, for appellant.

E. Bryan Dunigan, of Chicago, for appellee Carlo Steel Corporation.

James R. Figliulo, Michael K. Desmond, and Gregory L. Stelzer, of Figliulo & Silverman P.C., and Patrick J. Enright, Joseph O. Enright, and Colleen B. Cavanaugh, of O’Rourke, Hogan, Fowler & Dwyer, LLC, both of Chicago, for other appellees.

JUSTICE HOFFMAN delivered the judgment of the court, with opinion.

¶ 1 The appellant, LB Steel, LLC (LB Steel), and the cross-appellants, Walsh Construction Company (Walsh), Travelers Casualty and Surety Company of America (Travelers), and Carlo Steel Corporation (Carlo Steel), appeal from orders of the circuit court of Cook County entered in consolidated cases involving a construction project at O'Hare International Airport. On appeal, LB Steel contends that the circuit court erred by (1) setting-off certain judgments entered in its favor against a judgment entered in favor of Walsh, and (2) failing to reduce Walsh's judgment by the value of a payment from its insurer, Zurich American Insurance Company (Zurich). Additionally, LB Steel contends that Walsh's judgment must be reduced by the amount due under its policy with another insurer, St. Paul Guardian Insurance Company (St. Paul). In their respective cross-appeals, Walsh, Travelers, and Carlo Steel fix additional issues for review, which we address infra . For the following reasons, we: dismiss the cross-appeal of Carlo Steel; affirm the circuit court's judgment in part; reverse it in part; enter a judgment in LB Steel's favor against Walsh and Carlo Steel for $4,771,688 on LB Steel's claim for quantum meruit ; and remand.

¶ 2 The procedural history of this case is lengthy. The following factual recitation, taken from the pleadings, exhibits, and evidence adduced at trial, contains only what is necessary for our disposition of the issues. Additional facts will be included as needed throughout this opinion.

¶ 3 In January 2003, Walsh, a general contractor, entered into a contract (Prime Contract) with the City of Chicago (City) to construct a steel canopy above several terminals at O'Hare International Airport (Project). In connection with the Project, Walsh obtained a public construction bond from Travelers (Travelers bond) and an insurance policy from Zurich (Zurich policy). Walsh subcontracted with Carlo Steel, a construction company, to build the steel canopy (Subcontract). The Subcontract stated that, if Carlo Steel commits a "material breach" of the Subcontract, Walsh may "withhold payment" from Carlo Steel "pending corrective action to the extent required by and to the satisfaction of [Walsh] and the Architect/Engineer."

¶ 4 In March 2003, Carlo Steel subcontracted with LB Steel, a steel fabricator, to manufacture the steel canopy and 35 steel support columns (Sub-Subcontract). The Sub-Subcontract provided that, "[t]o the extent terms of the [Prime Contract] * * * apply" to LB Steel's work, Carlo Steel and LB Steel assumed toward each other the same "obligations, rights, duties, and redress" that Walsh and Carlo Steel assumed under the Prime Contract. Additionally, the Sub-Subcontract provided that "Carlo Steel may reject a * * * payment application" from LB Steel "as may be reasonably necessary to protect Carlo Steel from loss or damage caused by" LB Steel's failure to "correct rejected, defective, or nonconforming * * * work." Subsequently, LB Steel retained an engineering firm, R.I. Johnson Associates (R.I. Johnson), to design welding for the canopy and support columns, and entered into a contract with Cal Testing, Inc. (Cal Testing) to analyze the welding (weld-testing contract).

¶ 5 LB Steel delivered the steel support columns to the Project site between December 2003 and March 2004, along with elements of the steel canopy. In December 2004, the City discovered cracks in the canopy's welding; some of the welds were performed by LB Steel and others were performed by another contractor. During the investigation, Walsh withheld payment from Carlo Steel and Carlo Steel, in turn, withheld payment from LB Steel.

¶ 6 On January 21, 2005, LB Steel issued a notice of claim on the Travelers bond, alleging it had not been paid $7,012,856 under the Sub-Subcontract. Subsequently, on February 9, 2005, LB Steel filed an action against the City, Carlo Steel, and Walsh in the circuit court of Cook County (case number 05 CH 2675). LB Steel's complaint was amended on several occasions, with the last iteration being a six-count Third Amended Complaint adding Travelers as a defendant. LB Steel alleged: a lien against public funds, directed against "the City, Walsh and Carlo, and each of them" (Count I); breach of the Sub-Subcontract by Carlo Steel (Count II); quantum meruit against Carlo Steel and Walsh (Count III); declaratory judgment against Carlo Steel (Count IV); a public construction bond claim against Travelers (Count V); and unjust enrichment by Carlo Steel and Walsh (Count VI).

¶ 7 While LB Steel's complaint was pending, the City continued investigating the defective welding in the steel canopy and ultimately faulted its structural engineer and not the contractors. However, in November 2005, the City discovered additional defects in LB Steel's welding for the steel support columns it manufactured. The City's structural engineer concluded that, if other welding was also defective, "the overall structural stability of the canopy structure * * * [could be] endangered." Due to these findings, Walsh, the City, and the City's engineers developed a plan to identify and remediate welds that were critical to the canopy's structural integrity.

¶ 8 While the remediation effort was underway, Walsh and Travelers filed a counterclaim against Carlo Steel, alleging that it breached the Subcontract, and Carlo Steel filed a counterclaim against LB Steel, claiming that it breached the Sub-Subcontract. Later, Walsh and Carlo Steel executed an assignment agreement by which Carlo Steel assigned the Sub-Subcontract to Walsh "together with any and all claims which [Carlo Steel] has, or may hereafter have, against [LB Steel] and the City." Walsh agreed to "defend * * * any and all counter-suits or claims brought by any of the Subcontractors against [Carlo Steel] relating to" the Project, and undertook to "indemnify" Carlo Steel for claims arising from Walsh's "failure to provide payment to [Carlo Steel] which in turn would have been provided to the Subcontractors."

¶ 9 On April 13, 2007, the City filed an action against Walsh and Travelers in the circuit court of Cook County (case number 07 L 3886). In the same proceeding, Walsh filed a Third-Party Complaint against LB Steel and Cal Testing, which was later superseded by a five-count Second Amended Third-Party Complaint. Walsh alleged: breach of the Sub-Subcontract by LB Steel (Count I); professional negligence by Cal Testing and LB Steel (Counts II and III, respectively); fraud by LB Steel (Count IV); and breach of the weld-testing contract by Cal Testing based on Walsh's status as a third-party beneficiary (Count V). LB Steel filed a Counterclaim that raised several claims similar to those contained in its Third Amended Complaint in case number 05 CH 2675. Specifically, LB Steel alleged: breach of the Sub-Subcontract by both Carlo Steel and Walsh (Count I); a lien against public funds, directed against "the City, Walsh and Carlo, and each of them" (Count II); quantum meruit against Carlo Steel and Walsh (Count III); a public construction bond claim against Travelers (Count IV); and unjust enrichment by Carlo Steel and Walsh (Count V). In Count VI of its Counterclaim, LB Steel alleged breach of contract against Cal Testing.

¶ 10 On June 19, 2008, LB Steel filed a complaint against Cal Testing in the circuit court of Cook County, which was later superseded by a Second Amended Complaint alleging one count of breach of contract (case number 08 L 6675). Then, on July 29, 2009, LB Steel filed a Third-Party Complaint in case number 07 L 3886, alleging breach of contract against Carlo Steel. In a series of orders entered in July 2009, the trial court consolidated the proceedings in case numbers 05 CH 2675, 07 L 3886, and 08 L 6675.¹

¶ 11 On April 4,...