Korte & Luitjohan Contractors v. Thiems Construction Company ( 2008 )

NO. 5-05-0516
N O T IC E
Decision filed 04/30/08. The text of
IN THE
this dec ision m ay b e changed or
corrected prior to the filing of a
APPELLATE COURT OF ILLINOIS
P e t i ti o n for Re hea ring or the
disposition of the same.
FIFTH DISTRICT
________________________________________________________________________
KORTE & LUITJOHAN CONTRACTORS, INC., ) Appeal from the
) Circuit Court of
Plaintiff-Appellee and Cross-Appellant, ) Montgomery County.
)
v. ) No. 02-CH-34
)
THIEMS CONSTRUCTION COMPANY, INC., )
)
Defendant-Appellant and Cross-Appellee, )
)
and )
)
THE DEPARTMENT OF TRANSPORTATION, ) Honorable
) Mark M. Joy,
Defendant-Appellee and Cross-Appellee. ) Judge, presiding.
________________________________________________________________________
JUSTICE GOLDENHERSH delivered the opinion of the court:
Plaintiff, Korte & Luitjohan Contractors, Inc., filed a three-count complaint against
the Illinois Department of Transportation (IDOT) and Thiems Construction Company, Inc.
(defendant), in the circuit court of Montgomery County. The circuit court dismissed the
claim against IDOT, entered a summary judgment for defendant on plaintiff's claims for
breach of contract, and awarded plaintiff interest for late payment. Defendant appealed and
plaintiff cross-appealed. The appeals raise issues regarding (1) whether IDOT is a proper
party, (2) whether the circuit court erred by entering a summary judgment in favor of
defendant on the claim for breach of contract, and (3) whether the circuit court erred by
awarding interest to plaintiff for an improper retainage. We affirm in part and reverse in
part.
1
FACTS
Defendant, a general contractor, won a bid for the construction of a highway project.
Defendant then subcontracted with plaintiff to excavate a trench, supply trench backfill, and
install a sewer pipe. The parties entered into a contract requiring them to abide by the plans
and specifications set forth in the general contract between defendant and IDOT. The
contract between plaintiff and defendant contained additional terms addressing such issues
as the distribution of payments, which we will discuss.
Plaintiff filed suit against IDOT and defendant. Plaintiff alleged a breach of contract
and a violation of the State Prompt Payment Act (30 ILCS 540/0.01 et seq. (West 2000)) and
sought to foreclose a lien on public funds. Pursuant to a motion to dismiss, the trial court
dismissed IDOT as a party. Plaintiff and defendant each filed a motion for a summary
judgment on the breach-of-contract claim underlying the first two counts of the complaint.
The court found that plaintiff was not entitled to payment for the material delivered and
installed in excess of the contract amount, and the court granted a summary judgment to
defendant on the claim of a breach of contract. Later, the court held a hearing on the
remaining count for late payment. The court found that defendant had improperly retained
payments on amounts due, and the court awarded interest pursuant to the State Prompt
Payment Act. The end result was that the court ruled in favor of defendant on the claim of
a breach of contract but ordered defendant to pay interest to plaintiff for amounts that had
been retained until the completion of the project.
Defendant appealed, and plaintiff cross-appealed, naming IDOT as a party.
ANALYSIS
I. IDOT
The initial issue is whether IDOT was a proper defendant before the circuit court.
In count I of its complaint, plaintiff sought to foreclose a lien on public finds and named
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IDOT as a defendant. Plaintiff requested "that IDOT be ordered and directed to pay to the
plaintiff the amount found due with interest and costs." On appeal, plaintiff contests the
court's dismissal of IDOT as a party. We conclude that the dismissal was appropriate.
The State of Illinois may be named as a defendant in only a few limited
circumstances. The State Lawsuit Immunity Act provides a general bar, with limited
exceptions, to naming the State as a defendant. 745 ILCS 5/1 (West 2004). One of those
exceptions is for claims founded on a contract entered into with the State. 745 ILCS 5/1
(West 2004); see 705 ILCS 505/1 et seq. (West 2004) (the Court of Claims Act). Even for
those contract claims, however, the court of claims has exclusive jurisdiction. 705 ILCS
505/8(b) (West 2004).
Plaintiff erroneously contends that IDOT is a proper party under the Mechanics Lien
Act (Act) (770 ILCS 60/0.01 et seq. (West 2004)). Indeed, section 23(c) of the Act provides
a mechanism for a party to file a lien against public funds. 770 ILCS 60/23(c) (West 2004).
Under the procedure outlined in section 23(c), a lienholder is required to give notice to the
contractor having the contract for public improvement and the director of the State agency
whose duty it is to let the contract. 770 ILCS 60/23(c) (West 2004). The director is required
to withhold a sum sufficient to cover the claim until the matter is adjudicated. 770 ILCS
60/23(c) (West 2004). The lienholder is directed to file suit, but the State is not to be a party
defendant. 770 ILCS 60/23(c) (West 2004); see In re Guerra Construction Co., 142 B.R.
826, 830 (Bankr. N.D. Ill. 1992). At the relevant time, section 23(c) provided as follows:
"The person so claiming a lien shall, within 90 days after giving such notice,
commence proceedings by complaint for an accounting, making the contractor having
a contract with the State and the contractor to whom such material, apparatus,
fixtures, machinery[,] or labor was furnished[] parties defendant[] and shall, within
the same period[,] notify the Director of the commencement of such suit by
3
delivering to him a copy of the complaint filed ***." 770 ILCS 60/23(c) (West
2004).
Plaintiff provides no basis to bring IDOT before the circuit court. The cases cited by
plaintiff concern the liability of municipalities, not the State of Illinois. See Consolidated
Construction Co. v. Malan Construction Corp., 42 Ill. App. 2d 272, 277, 192 N.E.2d 263,
266 (1963); Board of Library Trustees of the Village of Westmont v. Cinco Construction,
Inc., 276 Ill. App. 3d 417, 422, 658 N.E.2d 473, 477 (1995). In contrast, section 23
specifically limits lawsuits against the State, and its officers, to claims of a derogation of an
official duty. Section 23(d) allows the director of the State agency to be named as a party
in circuit court only if he violates the duties outlined in section 23(c)–namely, failing to set
aside sufficient funds to cover the lien. 770 ILCS 60/23(d) (West 2004). Plaintiff made no
such allegation. In the absence of any allegation that the State, or its agent, violated a duty
to set aside funds in accordance with section 23(c), the State was not a proper party.
II. Contract
Plaintiff contends that the trial court erred by granting a summary judgment for
defendant for its performance of the contract. The interpretation of a contract is generally
a matter to be determined by the court as a matter of law. People ex rel. Department of
Public Health v. Wiley, 218 Ill. 2d 207, 223, 843 N.E.2d 259, 268 (2006). The terms and
conditions of a contract are enforced as they appear, and they control the rights of the
parties. Golden Rule Insurance Co. v. Schwartz, 203 Ill. 2d 456, 465, 786 N.E.2d 1010,
1016 (2003).
Plaintiff contends that defendant was obligated to pay for the entire amount of trench
backfill that was delivered. Plaintiff delivered 3,546.28 cubic meters of trench backfill. The
trial court found that defendant was obligated to pay for only 2,554.80 cubic meters.
At issue is the meaning of IDOT's "Standard Specifications for Road and Bridge
4
Construction" (Illinois Department of Transportation, Standard Specifications for Road and
Bridge Construction (1997) (IDOT Standard Specifications)), which were incorporated into
the contract. In particular, the resolution of this matter requires an application of section
208.03(b) of the IDOT Standard Specifications:
"208.03 Method of Measurement.
***
(b) Measured Quantities. Trench backfill shall be furnished for backfilling to
the full width of the trench. It will be measured in cubic meters (cubic yards) in
place, except that the quantity for which payment will be made shall not exceed the
volume of the trench as computed by using the maximum width of trench permitted
by the Specifications and the actual depth of the completed trench backfill above the
center of the pipe, with a deduction for the volume of one-half of the pipe. Any
trench backfill required in excess of the maximum quantity specified shall be
furnished by the Contractor at his/her own expense." IDOT Standard Specifications,
§208.03(b).
Plaintiff contends that the standard specifications for storm sewers did not establish
a maximum width for the trench, and it argues, thus, that the exception described in section
208.03 does not apply and that, therefore, defendant is liable for all the backfill in place.
The standards for the excavation and foundation of storm sewer trenches are set forth in
section 550.04 of the IDOT Standard Specifications. Section 550.04 provides as follows:
"550.04 Excavation and Foundation. The trench shall be excavated to an
elevation 100 mm (4 in.) below the bottom of the pipe and so that the flow line of the
finished sewer will be at the depth or grade specified or established by the Engineer.
For trench depths of less than 1.5 m (5 ft.) and when sheeting or shoring is not
required, the trench shall be excavated 450 mm (18 in.) wider than the external
5
diameter of the pipe to permit thorough tamping of the foundation material under the
haunches and around the pipe. For trench depths of 1.5 m (5 ft.) or more and when
sheeting or shoring is required, the trench width shall be 1 m (3 ft.) wider than the
external diameter of the pipe. The trench shall be excavated so that the vertical faces
are maintained at least to the elevation of the top of pipe." (Emphasis added.) IDOT
Standard Specifications, §550.04.
Plaintiff contends that the use of the auxiliary verb shall in section 550.04 forms an
imperative for a minimum width for trenches for storm sewers, and it asserts that IDOT
would have used different language if it had intended to establish a maximum. For example,
in section 542.04(b) of the IDOT Standard Specifications, IDOT specifies that trenches for
pipe culverts shall be excavated "to a specified width on each side of the pipe *** of not
more than" delineated measurements. IDOT Standard Specifications, §542.04(b). For
support, plaintiff turned to testimony from Brian Petty, an engineering technician on the
project, comparing the language of section 550.04 to other provisions and concluding that
section 550.04 establishes only a minimum.
As the trial court pointed out, however, the absence of the singularly limiting
language found in other IDOT standard specifications does not mean section 550.04 fails
to establish a maximum width. Using an analogy to prove the converse, the trial court
pointed out that IDOT uses different language if it is trying to establish only a minimum.
For example, section 601.03 provides that for pipe drain installation "the trench shall have
a width of not less than the external diameter of the pipe plus 450 mm (18 in.)." IDOT
Standard Specifications, §601.03. We conclude that section 550.04 does more than
prescribe a minimum width.
A comparison to other IDOT specifications makes clear that section 550.04 is not
meant as only a minimum or only a maximum; however, this does not mean that the
6
dimensions provided in section 550.04 are advisory. We are still left with the auxiliary
shall, and we cannot avoid this language. Applying the analysis advised by plaintiff would
lead us to the conclusion that the lack of more concrete language singularly expressing a
minimum or maximum means that section 550.04 provides neither. This would, however,
leave the use of the term shall nugatory, and a fundamental rule of linguistics and contract
law is that every word should be given meaning. Fontana v. TLD Builders, Inc., 362 Ill.
App. 3d 491, 511, 840 N.E.2d 767, 784 (2005). The only other alternative is that the
imperative is for both a minimum and a maximum. This is the result reached by the trial
court. This reading is syntactically correct and does not contradict the forms for establishing
only a minimum or only a maximum found in other provisions of the IDOT Standard
Specifications.
The trial court's interpretation is a cohesive reading of the IDOT Standard
Specifications. Section 208.03 calls for the computation of the "maximum width of trench"
according to the specifications. Plaintiff fails to state what the maximum should be if
section 550.04 is read to provide only a minimum. Reading section 550.04 as establishing
a maximum, as well as a minimum, is consistent with and called for by section 208.03.
The record contains no evidence that section 550.04 is ambiguous in light of the
custom or practice in road construction projects. Although plaintiff points to the testimony
of Petty, the engineering technician, no reason is given to explain why custom or usage
would prevent section 550.04 from being used as both a minimum and a maximum.
Furthermore, Petty's testimony supports defendant in several ways. Petty testified that IDOT
only pays for a maximum width. Petty also testified that, although IDOT does not measure
the dig as it progresses, there were instances where plaintiff dug too wide. On appeal,
plaintiff does not contest the computations relied on by the circuit court, nor does plaintiff
contest the trial court's finding that tamping could be done within the prescribed width. The
7
trial court's finding that defendant was not liable for the excess was proper.
III. Retainage
Defendant contends that the trial court erred by awarding interest on the retainage.
The plain language of the contract called for defendant to immediately forward all sums
received from IDOT, and the contract incorporated the requirements of the federal
regulations. The contract provided as follows:
"In accordance to plans and specifications for IDOT Contract 92758,
[defendant] [a]grees:
(a) To pay [plaintiff] in accordance with the items and prices as set out in
paragraph 3-A.
(b) To immediately remit to [plaintiff] all sums received from the awarding
body as payment for each item.
***************See 3 [sic] & 4 [sic] on this page***************
To make final and complete payment on the above listed items
of work, including retainage, in accordance with the quantities
as determined by the awarding body.
***
(3) [sic] All certified weekly payrolls and Monthly Construction
Employment/Man-hour Report (form SBE-956)[] must be completed correctly and
submitted to [defendant].
(4) [sic] Required Contract Provisions Federal-Aid Construction Contracts
[sic]."
First, the plain language of the contract prevents defendant from setting aside a
retainage. The contract specifically provides that defendant is to "immediately remit to
[plaintiff] all sums received" (emphasis added) from IDOT as the awarding body. The
8
contract implies that IDOT could retain an amount, but defendant was obligated to make a
complete payment to plaintiff of the total amount it received. The payment to plaintiff,
therefore, was based on the retainage by IDOT.
IDOT had indeed retained a part of the payment to defendant, resulting in defendant's
obligation, by the contract cited above, to make a full and complete payment of all sums
received from IDOT. The contract did not require defendant to make up from defendant's
own funds the difference between IDOT's payment and the amount owed plaintiff. The trial
court found that defendant had made a profit on the contract sufficient to cover the
retainage. Because the payment from IDOT was sufficient to cover a complete payment to
plaintiff, defendant was obligated to make an immediate and full payment. This finding
does not comport with the contractual obligations cited above.
The trial court found that a federal regulation barred a retainage in payments to
subcontractors. The regulation provided in part as follows:
"(a) You must establish, as part of your [Disadvantaged Business Enterprise]
program, a contract clause to require prime contractors to pay subcontractors for
satisfactory performance of their contracts no later than a specific number of days
from receipt of each payment you make to the prime contractor. This clause must also
require the prompt return of retainage payments from the prime contractor to the
subcontractor within a specific number of days after the subcontractor's work is
satisfactorily completed.
(1) This clause may provide for appropriate penalties for failure to comply, the
terms and conditions of which you set.
(2) This clause may also provide that any delay or postponement of payment
among the parties may take place only for good cause, with your prior written
approval.
9
(b) You may also establish, as part of your [Disadvantaged Business
Enterprise] program, any of the following additional mechanisms to ensure prompt
payment:
(1) A contract clause that requires prime contractors to include in their
subcontracts language providing that prime contractors and subcontractors will use
appropriate alternative dispute resolution mechanisms to resolve payment disputes.
You may specify the nature of such mechanisms.
(2) A contract clause providing that the prime contractor will not be
reimbursed for work performed by subcontractors unless and until the prime
contractor ensures that the subcontractors are promptly paid for the work they have
performed.
(3) Other mechanisms, consistent with this part and applicable state and local
law, to ensure that [Disadvantaged Business Enterprises] and other contractors are
fully and promptly paid." 49 C.F.R. §26.29 (1999) (eff. March 4, 1999).
Defendant contends that the regulation did not control the obligations of the parties
to the contract, and defendant focuses on the implementation of the regulation. Defendant
contends there is no evidence that the contract was a part of a federal program and that, even
if applicable, the regulation only required IDOT to establish a special provision not
developed until after the parties had entered into the contract. As a general rule, the law in
existence at the time a contract is entered into becomes a part of the understanding of the
parties and thus a part of their agreement. In re Estate of Dierkes, 191 Ill. 2d 326, 337, 730
N.E.2d 1101, 1107 (2000). The regulation was published on February 2, 1999, and became
effective on March 4, 1999. The contract had a letting date of March 5, 1999.
In this case, the incorporation of the federal regulation was not merely through the
application of current law. Plaintiff did not have to offer testimony that the contract was a
10
part of a federal program. The contract specifically provided that the parties must fulfill any
required contract provisions for federal aid construction contracts. The trial court found that
withholding retainage was abolished beginning with the institution of the regulations. The
regulation was addressed to IDOT, but the contract called for the parties to meet the
standards for federal aid construction contracts. IDOT nevertheless retained funds, while
defendant discharged its contractual obligation by forwarding all IDOT-received monies to
plaintiff. The trial court's ruling would have the effect of penalizing defendant for IDOT's
retainage procedures.
The trial court properly applied the State Prompt Payment Act, which provides for
interest of 2% per month on late payments (30 ILCS 540/7 (West 2000)). The amount of
interest awarded was properly calculated based on the trial court's determination of the
amount defendant had failed to pay under the contract. Since, however, we have determined
defendant paid all that it was obligated to pay, we reverse that part of the order.
CONCLUSION
Accordingly, the order of the circuit court is hereby affirmed in part and reversed in
part.
Affirmed in part and reversed in part.
CHAPMAN and DONOVAN, JJ., concur.
11
NO. 5-05-0516
IN THE
APPELLATE COURT OF ILLINOIS
FIFTH DISTRICT
___________________________________________________________________________________
KORTE & LUITJOHAN CONTRACTORS, INC., ) Appeal from the
) Circuit Court of
Plaintiff-Appellee and Cross-Appellant, ) Montgomery County.
)
v. ) No. 02-CH-34
)
THIEMS CONSTRUCTION COMPANY, INC., )
)
Defendant-Appellant and Cross-Appellee, )
)
and )
)
THE DEPARTMENT OF TRANSPORTATION, ) Honorable
) Mark M. Joy,
Defendant-Appellee and Cross-Appellee. ) Judge, presiding.
___________________________________________________________________________________
Opinion Filed: April 30, 2008
___________________________________________________________________________________
Justices: Honorable Richard P. Goldenhersh, J.
Honorable Melissa A. Chapman, J.
Honorable James K. Donovan, J.
Concur
___________________________________________________________________________________
Attorney Patrick M. Flynn, Flynn & Guymon, 23 Public Square, Suite 440, Belleville,
for IL 62220 (attorney for Thiems Construction Co., Inc.)
Appellant
___________________________________________________________________________________
Attorneys Thomas W. Burkart, Burkart Law Offices, 130 West State Street, P.O. Box 447,
for Hamel, IL 62046 (attorney for Korte & Luitjohan Contractors, Inc.); Lisa Madigan,
Appellees Attorney General, Gary Feinerman, Solicitor General, Erik Light, Assistant
Attorney General, 100 West Randolph Street, 12th Floor, Chicago, IL 60601
(attorneys for The Department of Transportation)
___________________________________________________________________________________