Subcontractor Appeals Court’s Dismissal of Claim

April 05, 2016

An Illinois circuit court erred when it summarily dismissed a subcontractor’s mechanic’s lien claim, according to the American Subcontractors Association (ASA), Inc.’s brief filed in the Appellate Court of Illinois, in the case of AUI Construction Group, LLC, vs. Louis J. Vaessen, et al. 

The case involves “the landmark issue of whether subcontractors and suppliers still maintain lien rights for construction work on commercial construction projects … where the improvement is on property that is subject to an easement and title retention agreement,” ASA wrote in its brief. “This court’s decision in the matter will either further the letter and spirit of the mechanic’s lien act to the benefit of subcontractors, suppliers and the public at larger or unduly erode those rights, driving prices up, lowering completion for construction projects on easements and financially stressing—if not bankrupting—future subcontractors.” 

If the decision holds, the circuit court’s “reasoning and rationale will reverberate across Illinois, to the detriment of the state’s economy” ASA added. The association notes that “small construction businesses, in particular, will pay the heaviest price. Most of those small businesses will be subcontractors.”

The ruling denies a remedy to small- and mid-sized businesses that can suffer severe harm from developments outside their control, such as their contracting partner’s insolvency or disputes between the owner and prime contractors or loss of project funding from a bank, ASA said. Allowing the circuit court decision to stand will have severe implications to payment protection in the construction industry and goes against the state law, it wrote.

The facts in the case include the following:

In 2007, the project’s owner, the estate of Louis and Carol Vaessen, and the developer, GSB 7, LLC, entered into a 50-year easement agreement, which authorized the developer to build and operate wind energy systems on the property in exchange for certain benefits, including payments from the revenue generated by the project. The agreement, however, was not recorded until Dec. 22, 2011.

Prior to filing, the developer contracted with Clipper Wind Power to design and build the project; Clipper contracted with Postensa Wind Structures U.S., LLC, for the design and build work for the project; and Postensa subcontracted with appellant AUI Construction Group to perform the construction portion of the project; and AUI started site work.

AUI’s scope of work totaled more than $2 million. The firm exercised its right under Illinois law to perfect and enforce a mechanic’s lien against the improved property. At arbitration over its claims, AUI received a substantial award for its unpaid bills. When its contracting partner, Postensa, then filed for bankruptcy, AUI moved to foreclose its mechanic’s lien and perfect the security interest it had in the improved property.

The developer and owner moved to dismiss the lien claims. Without conducting a trail or evidentiary hearing, the circuit court held as a matter of law that the project was not an improvement to real property under the state’s mechanic’s lien act and was simply a non-lien able trade fixture. And the decision is now being appealed.

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