Pierre Condominium Association v. Lincoln Park West Associates

FIRST DIVISION
December 31, 2007
No. 1-05-3567
THE PIERRE CONDOMINIUM ASSOCIATION, ) Appeal from the
an Illinois not-for-profit corporation,) Circuit Court of
) Cook County.
Plaintiff, )
)
v. )
)
LINCOLN PARK WEST ASSOCIATES, LLC., an )
Illinois Limited Liability Company; )
BAKER DEVELOPMENT CORPORATION, an Illinois )
Corporation; McCAULEY CONSTRUCTION )
CORPORATION, an Illinois Corporation; and )
CASE FOUNDATION COMPANY, a Maryland )
Corporation Doing Business in Illinois,)
)
Defendant ) No. 00 L 14319
) 01 M1 015653
) 01 L 01036
)
(Lincoln Park West Associates, LLC., an)
Illinois Limited Liability Company; and)
Baker Development Corporation, an )
Illinois Corporation, )
)
Counterplaintiffs-Appellants; )
)
v. )
) Honorable
Case Foundation Company, a Maryland, ) Allen S. Goldberg.
Corporation Doing Business in Illinois,) Judge Presiding.
)
Counterdefendant-Appellee). )
)
JUSTICE GARCIA delivered the opinion of the court.
Defendants and counterplaintiffs Baker Development
Corporation and Lincoln Park West Associates, LLC (LPWA), appeal
from an order of the trial court finding the settlement agreement
between plaintiff The Pierre Condominium Association and the
counterdefendant, Case Foundation Company, to be in good faith
and dismissing Baker/LPWA's counterclaim against Case. The
No. 1-05-3567
counterclaim and settlement arose out of the plaintiff's suit for
property damage allegedly caused during the construction of a
high-rise condominium building on an adjacent property. We
affirm.
BACKGROUND
The plaintiff owns a building located at 2100 North Lincoln
Park West in Chicago, Illinois (The Pierre). Baker owns the real
property located immediately adjacent to the north side of The
Pierre, at 2120 North Lincoln Park West (Adjacent Property).
Baker was also the developer for the construction project on the
Adjacent Property.
LPWA is an Illinois limited liability company and owner of
the Adjacent Property. Baker formed LPWA to develop the Adjacent
Property.
Baker/LPWA retained McCauley Construction Corporation as the
general contractor for the construction of a high-rise
condominium building on the Adjacent Property.
McCauley subcontracted with Case to perform excavation
services to create an underground foundation for the construction
project on the Adjacent Property. The subcontract between
McCauley and Case, in part, provides:
"4.6.1 To the fullest extent permitted by law,
the Subcontractor [Case] shall indemnify and hold
harmless the Owner, Contractor, Architect, Architect's
consultants, and agents and employees of any of them
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No. 1-05-3567
from and against claims, damages, losses and expenses,
including but not limited to attorney's fees, arising
out of or resulting from performance of the
Subcontractor's Work under this Subcontract, provided
that any such claim, damage, loss or expense is
attributable to bodily injury, sickness, disease or
death, or to injury to or destruction of tangible
property (other than the Work itself), but only to the
extent caused by the negligent acts or omissions of the
Subcontractor, the Subcontractor's Sub-subcontractors,
anyone directly or indirectly employed by them or
anyone for whose acts they may be liable, regardless of
whether or not such claim, damage, loss or expense is
caused in part by a party indemnified hereunder. Such
obligation shall not be construed to negate, abridge,
or otherwise reduce other rights or obligations of
indemnity which would otherwise exist as to a party or
person described in this Paragraph 4.6."
On or about November 12, 1998, during the excavation work on
the Adjacent Property, the north end of The Pierre began to
subside. The subsidence caused cosmetic damage to the building.
In 2000, the plaintiff filed suit against Baker, LPWA,
McCauley, and Case, seeking recovery for property damage to The
Pierre allegedly caused by the construction of the high-rise
condominium building on the Adjacent Property. The plaintiff's
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No. 1-05-3567
complaint alleged theories of strict liability, common law
negligence, and willful and wanton conduct.
On November 12, 2002, Baker/LPWA filed a counterclaim
against Case seeking recovery under the Joint Tortfeasor
Contribution Act (Contribution Act) (740 ILCS 100/1 et seq. (West
2002)) and pursuant to paragraph 4.6.1 of the subcontract between
McCauley and Case.
On March 23, 2005, Case filed a motion for partial summary
judgment on the counterclaim filed by Baker/LPWA. Case argued
that paragraph 4.6.1 of the subcontract required it to indemnify
Baker/LPWA for their own negligence in violation of the
Construction Contract Indemnification for Negligence Act
(Indemnification Act) (740 ILCS 35/1 et seq. (West 2002)) and,
thus, was void against public policy. In the alternate, Case
argued that if paragraph 4.6.1 of the subcontract required
contribution, rather than indemnification, Baker/LPWA's
contractual contribution claim was duplicative of their statutory
contribution counterclaim and, thus, should be stricken.
Based on the subsidence of The Pierre, the plaintiff claimed
damages ranging from $5 million to $6 million. Case estimated
the amount of recoverable damages to be about $3.8 million. The
plaintiff and Case entered into a settlement agreement with the
following relevant terms:
"a. Defendant, Case Foundation Company, will
cause to be paid a sum in the amount of $4,967,350.00
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No. 1-05-3567
to the plaintiff;
b. Plaintiff will release, acquit and forever
discharge Case Foundation Company and its agents,
servants, employees, successors and assigns;
c. The plaintiff will covenant not to further
prosecute or again sue the aforesaid defendant, Case
Foundation Company, its agents, servants, employees,
successors and assigns;
d. The plaintiff will indemnify, hold harmless
and satisfy any and all outstanding liens, from any
source;
e. This agreement is a comprise of a disputed
claim and does not constitute an admission of liability
on the part of Case Foundation Company which expressly
denied any and all such liability; and,
f. This agreement does not constitute a
settlement or release of any claims the plaintiff has
or may assert against any other parties to this
action."
The settlement agreement was contingent upon entry of a court
order approving the settlement and a finding that it was entered
into in good faith. The settlement was also contingent upon the
dismissal of all counterclaims against Case.
On June 7, 2005, Case filed a motion for a good-faith
finding pursuant to the settlement it reached with the plaintiff.
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No. 1-05-3567
On July 22, 2005, after hearing arguments, the trial court
granted Case's motion for partial summary judgment on
Baker/LPWA's counterclaim finding "the relevant case law supports
Case's motion and asserts that contractual contribution is
invalid." The trial court also granted Case's motion for a good-
faith finding, leading to Case's dismissal from the lawsuit. The
court found that "Baker and LPWA *** presented no concrete
evidence to challenge the [good] faith of the settlement" and
thus, "they have not satisfied their burden of demonstrating that
the settlement was made in bad faith." Baker/LPWA filed a timely
notice of appeal.
ANALYSIS
I
At the trial court level, Baker/LPWA and Case disputed the
effect to be given paragraph 4.6.1 in the subcontract.
Baker/LPWA argued the subcontract did not violate the
Indemnification Act because the disputed provision provided Case
would be liable for damages only to the extent of its own
negligence and, thus, the provision must be read as one seeking
contribution, not indemnification. Case responded that the
provision required it to fully indemnify Baker/LPWA for their
negligence if Case were found jointly negligent to any extent
and, thus, was void against public policy.
We agree with Baker/LPWA that "[t]he trial court did not
explicitly rule on *** whether the subject provision violates the
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No. 1-05-3567
Construction Indemnification for Negligence Act, but implicitly
determined that it does not by finding the provision is 'actually
a contractual contribution clause.' " That the provision should
be read as a contribution clause, rather than one requiring
indemnification, is consistent with Illinois case law.
We consider basic tenets of contract law and the purpose of
the Indemnification Act in determining the character of a
disputed contract provision. Braye v. Archer-Daniels-Midland
Co., 175 Ill. 2d 201, 215, 676 N.E.2d 1295 (1997). As general
principles of contract law, we consider that parties are presumed
to contract with the knowledge of existing laws and that
interpretation of a contract that renders the agreement
enforceable is preferable to an interpretation that renders it
void. Braye, 175 Ill. 2d at 217.
The Indemnification Act was enacted to thwart the common
construction industry practice of using indemnity agreements to
avoid liability for negligence and to ensure a continuing
incentive for individuals responsible for construction activities
to protect workers and others from injury. Braye, 175 Ill. 2d at
216. Thus, the Indemnification Act renders construction
contracts with an indemnification clause as to the contractor's
own negligence void against public policy. 740 ILCS 35/1 (West
2002).
It is clear that paragraph 4.6.1 provides that Case is
liable to Baker/LPWA for Case's negligence. However, Case
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No. 1-05-3567
contends that the provision may be read to require it to
indemnify Baker/LPWA for their own negligence, based on the
following language:
"the Subcontractor [Case] shall indemnify and hold
harmless the Owner, Contractor, Architect, Architect's
consultants, and agents and employees of any of them
from and against claims, damages, losses and expenses,
*** but only to the extent caused by the negligent acts
or omissions of the Subcontractor, the Subcontractor's
Sub-subcontractors, anyone directly or indirectly
employed by them or anyone for whose acts they may be
liable, regardless of whether or not such claim,
damage, loss or expense is caused in part by a party
indemnified hereunder." (Emphasis added.)
However, according to Illinois case law, at the time the parties
entered into the subcontract, Baker/LPWA were presumed to know
that a pure indemnification clause is void as a violation of
public policy. See Braye, 175 Ill. 2d at 217. Moreover, "the
literal terms of a contract are not necessarily dispositive on
the issue of whether it is void under the Construction Contract
Indemnification for Negligence Act." Liccardi v. Stolt
Terminals, Inc., 178 Ill. 2d 540, 549-50, 687 N.E.2d 968 (1997).
Thus, while the above language may support Case's contention,
consistent with the supreme court's suggestion, we read the
disputed provision as requiring contribution, not
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No. 1-05-3567
indemnification. See Liccardi, 178 Ill. 2d at 549-50.
Accordingly, the anti-indemnity act is not implicated and the
subject provision is not void as against public policy.
II
Next, Baker/LPWA contend the trial court erred when it
disposed of the contribution issue on summary judgment. Before
the trial court, Baker/LPWA conceded that a proper good-faith
settlement finding would extinguish their statutory contribution
claim under the Contribution Act. See 740 ILCS 100/2(d) (West
2002). On appeal, Baker/LPWA do not refute their earlier
concession; rather, they contend the trial court erred in
granting Case summary judgment because their contribution claim
was not based on a statutory right stemming from the Contribution
Act, but on a contractual right. Case responds that the good-
faith settlement with the plaintiff extinguished any contribution
claim, whether statutory or contractual, that Baker/LPWA may have
had and, thus, summary judgment was proper.
In arguing that Baker/LPWA's cause of action for contractual
contribution was extinguished by the settlement, Case relies on
the decision in Herington v. J.S. Alberici Construction Co., 266
Ill. App. 3d 489, 639 N.E.2d 907 (1994). In Herington, the court
held that construing a contract provision to create a cause of
action for contractual contribution, independent of the
Contribution Act's dismissal provision based on a good-faith
settlement, would contravene the public policy of Illinois
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No. 1-05-3567
favoring settlements. Herington, 266 Ill. App. 3d at 494. As
the Herington court explained, "Such a result would effectively
eliminate settlements by joint tortfeasors under the Contribution
Act." Herington, 266 Ill. App. 3d at 495. That is, no
settlement would be possible because under a contractual
contribution claim as asserted by Baker/LPWA, only a finder of
fact could determine a tortfeasor's pro rata share of liability.
In the face of this explicit rejection of the position they
advocate here, Baker/LPWA contend that the court's statements in
Herington about contractual contribution under the Contribution
Act are no longer the law of Illinois and, thus, the trial
court's reliance on Herington to grant Case's motion for summary
judgment was improper. While recognizing that Herington has not
been overruled, they claim that post-Herington developments make
clear that parties may contract out of the provisions of the
Contribution Act. Baker/LPWA argue that a subcontractor may
relinquish by contract the good-faith settlement dismissal
provision of the Contribution Act. According to Baker/LPWA, a
subcontractor may contract for its full liability for all damages
it proximately causes, relying on their reading of the decisions
of Braye, Liccardi and Willis v. Kiferbaum Construction Corp.,
357 Ill. App. 3d 1002, 830 N.E.2d 636 (2005), and their claim
that the decision in Herington was "an aberrational ruling."
In both Braye and Liccardi, the issue was whether an
employer could enter into a valid and enforceable contractual
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No. 1-05-3567
agreement to waive the workers' compensation liability cap on its
contribution liability. Braye, 175 Ill. 2d at 202; Liccardi, 178
Ill. 2d at 542-43. Preliminarily, this issue hinged on whether
the disputed provision in the construction contract was
interpreted as a promise for indemnity or a promise for
contribution. Braye, 175 Ill. 2d at 202; Liccardi, 178 Ill. 2d
at 542-43. In both cases, our supreme court found that the
respective contractual provisions promised contribution, not
indemnity. The court then considered whether the contract
provisions at issue constituted enforceable provisions for
contribution unrestricted by the workers' compensation liability
cap recognized by Kotecki v. Cyclops Welding Corp., 146 Ill. 2d
155, 585 N.E.2d 1023 (1991). Braye, 175 Ill. 2d at 210;
Liccardi, 178 Ill. 2d at 546. The supreme court ultimately
concluded that the provisions at issue were valid as waivers of
the workers' compensation liability cap. Braye, 175 Ill. 2d at
213-18; Liccardi, 178 Ill. 2d at 546-50.
Baker/LPWA argue that by failing to invalidate the
contractual provisions in Braye and Liccardi, our supreme court
implicitly recognized the viability of a claim for contractual
contribution as they contend exists here. They argue "that a
claim under a contract may be for greater relief than one under
the Contribution Act." This freedom of contract position taken
by Baker/LPWA fails to recognize that the supreme court grounded
its decisions in Braye and Liccardi, regarding "discretionary
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No. 1-05-3567
business decisions made by an employer" that may result in a
decision to relinquish the protections of the Workers'
Compensation Act, on its determination that such decisions do
"not violate the terms or policy of the Act." Braye, 175 Ill. 2d
at 212.
In Braye and Liccardi, our supreme court interpreted the
contractual provisions as evidence of a promise by an employer to
contribute according to "its pro rata share of damages
proximately caused by its negligence, notwithstanding the
employer's ability to avail itself of the Kotecki cap on its
liability." Braye, 175 Ill. 2d at 210. "We continue to adhere
to [the] view [that an employer may relinquish by contract the
liability limitation set forth in Kotecki]." Liccardi, 178 Ill.
2d at 546. The court expressly held "that neither the language
of the Workers' Compensation Act nor public policy prohibits our
determination that an employer may waive the protection of the
Workers' Compensation Act." Braye, 175 Ill. 2d at 210; Liccardi,
178 Ill. 2d at 546. Baker/LPWA, from the recognition that an
employer may waive the damages limitation in Kotecki, leap to the
conclusion that a contracting party may also waive the good-
faith-settlement dismissal provision in the Contribution Act.
Without deciding whether the provision at issue here may be read
as such a waiver, we reject Baker/LPWA's contention that such
relinquishment by contract is not against Illinois public policy
favoring settlements.
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No. 1-05-3567
While in Braye the issue concerned the right of the parties
to contract away any limitation on the damages a negligent party
may owe to another for common liability, the supreme court made
clear in answering the certified questions that the position of
the third party seeking contribution from the employer was
"consistent with the Contribution Act." Braye, 175 Ill. 2d at
214. The court also made clear that "the policies of the
Contribution Act are not offended by [the third party's] prayer
for relief because the goals of achieving comparative fault and
encouraging good-faith settlements remain intact." Braye, 175
Ill. 2d at 217.
Here, however, Baker/LPWA seek relief that is at odds with
the Contribution Act. The supreme court made clear in Braye and
Liccardi that the decision to relinquish the protections of the
Workers' Compensation Act did not violate the terms or policy of
the Act. Baker/LPWA's contention that parties may contract out
of the good-faith-settlement provision tears at the very fabric
of the Contribution Act. The position taken by Baker/LPWA would
in effect preclude a good-faith settlement based on their
contention that the contractual contribution claim trumps the
express policy of the Contribution Act encouraging good-faith
settlements. See 740 ILCS 100/2(d), (e) (West 2002). We cannot
agree. As the court in Herington recognized, to uphold the
validity of such a contract provision would "effectively
eliminate settlements by joint tortfeasors under the Contribution
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No. 1-05-3567
Act." Herington, 266 Ill. App. 3d at 494. We find no support in
the supreme court's decisions of Braye and Liccardi to warrant
such an expansion of a contractual claim.
As further support for their position, Baker/LPWA rely on
our decision in Willis. We, likewise, find no support for
Baker/LPWA's position in Willis, where we cited with approval the
decision in Herington. See Willis, 357 Ill. App. 3d at 1006,
citing Herington, 266 Ill. App. 3d at 494. We read nothing in
Willis to suggest that a construction contract may have a valid
provision waiving the good-faith-settlement dismissal provision
of the Contribution Act.
Our supreme court's decision in BHI Corp. v. Litgen Concrete
Cutting & Coring Corp., 214 Ill. 2d 356, 827 N.E.2d 435 (2005),
provides further reason to adhere to our decision to follow
Herington that certain provisions in a contract, providing for
contribtuion, may violate state policy. In Litgen, our supreme
court rejected an attempt by settling defendants, found not to
have done so in good faith, to proceed against the nonsettling
defendants by way of an assignment from the original plaintiffs.
"An arrangement by which a settling defendant attempts to obtain
indirect contribution from a nonsettling defendant by an
assignment of claims violates the Contribution Act. We cannot
allow the settling defendants to contract an end run around
section 2(e). Accordingly, we hold that the setting defendants
may not pursue the assigned claims." (Emphasis Added.) Litgen,
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No. 1-05-3567
214 Ill. 2d at 366, 365. The freedom to contract did not prevail
over the policy considerations embodied in the Contribution Act
in Litgen, nor can it here.
Accordingly, Baker/LPWA's contractual contribution claim is
rejected as such a claim would contravene Illinois public policy
encouraging settlements. While "an employer may enter into a
valid and enforceable contractual agreement to waive the Kotecki
limitation on the employer's contribution liability" (Braye, 175
Ill. 2d at 218), a contractual agreement that is at odds with the
express policy of the Contribution Act encouraging good-faith
settlements is not valid or enforceable. The trial court
properly granted partial summary judgment on the contribution
issue.
Because we find any claim for contractual contribution
without an accompanying dismissal provision based on a good-faith
settlement to be invalid as against public policy, we see no need
to address whether such a claim is duplicative of a claim under
the Contribution Act.
III
It is the good-faith nature of a settlement that triggers
the discharge of the settling tortfeasor's statutory liability
for contribution to other tortfeasors. 740 ILCS 100/2(d) (West
2002). Thus, in order to determine whether the dismissal of Case
from the lawsuit was proper, we must first determine whether the
trial court properly concluded that the settlement between the
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No. 1-05-3567
plaintiff and Case was made in good faith.
Under the Contribution Act, whether a settlement has been
made in good faith is a matter within the sound discretion of the
trial court and one that must be based upon consideration of the
totality of the circumstances. Johnson v. United Airlines, 203
Ill. 2d 121, 135, 784 N.E.2d 812 (2003). "The amount of a
settlement must be viewed in relation to the probability of
recovery, the defenses raised, and the settling party's potential
legal liability." Johnson, 203 Ill. 2d at 137. In determining
whether the settlement was made in good faith, the trial court
may also consider whether the settlement was supported by
consideration. Wreglesworth v. Arctco, Inc., 317 Ill. App. 3d
628, 633, 740 N.E.2d 444 (2000). Additionally, the trial court
may consider: (1) whether the amount paid by the settling
tortfeasor was reasonable; (2) whether there was a personal
relationship between the settling parties; and (3) whether the
settling parties attempted to conceal the terms of the
settlement. Wreglesworth, 317 Ill. App. 3d at 634.
The settling party initially bears the burden of proof of
showing that the settlement was made in good faith. Johnson, 203
Ill. 2d at 132. The settling party's initial showing of good
faith can be satisfied by showing that the settlement is
reasonable and fair in light of the two policies underlying the
Contribution Act of promoting settlements with a fair
apportionment of damages among tortfeasors. Johnson, 203 Ill. 2d
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at 133.
After the settling party has met its burden to show good
faith, the burden shifts to the party challenging the settlement
to show by a preponderance of the evidence that the settlement
was not made in good faith. Johnson, 203 Ill. 2d at 132. A
settlement is not made in good faith if there is evidence that
the settling parties engaged in "wrongful conduct, collusion, or
fraud" or if the settlement "conflicts with the terms of the Act
or is inconsistent with the policies underlying the Act."
Johnson, 203 Ill. 2d at 134. Upon review, we will overturn the
trial court's determination of good faith only where there has
been an abuse of discretion. Johnson, 203 Ill. 2d at 135.
A review of the circumstances surrounding the settlement
between Case and the plaintiff supports the trial court's finding
that their settlement was entered in good faith. Case's motion
for a good-faith finding set forth the terms of the settlement,
including the valid consideration. The value of the settlement
exceeded Case's estimation of the plaintiff's total recoverable
damages and represented over 80% of the plaintiff's total demand
and therefore, was consistent with the objective of the
Contribution Act of fair apportionment of the damages. See
Johnson, 203 Ill. 2d at 132. The burden then shifted to
Baker/LPWA to show that the settlement was not made in good
faith.
However, as the trial court noted, Baker/LPWA failed to
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No. 1-05-3567
offer any evidence to show that Case and the plaintiff engaged in
"wrongful conduct, collusion, or fraud" nor was the settlement
shown to conflict with the terms of the Act or the Act's
underlying objectives. The trial court properly concluded that
Baker/LPWA failed to satisfy their burden of proof: "Baker and
LPWA fail to show how the settlement was made through wrongful
conduct. *** Since Baker and LPWA have presented no concrete
evidence to challenge the [good] faith of the settlement, they
have not satisfied their burden of demonstrating that the
settlement was made in bad faith." Accordingly, the trial court
properly granted Case's motion for a good-faith finding.
IV
Because we have determined the trial court properly found
the settlement between the plaintiff and Case to be in good
faith, we address the trial court's grant of Case's motion for
dismissal from the lawsuit in short order.
That the settlement between the plaintiff and Case was made
in good faith requires that Baker/LPWA's statutory counterclaim
for contribution against Case be dismissed under the Contribution
Act. 740 ILCS 100/2(d) (West 2002).
V
Lastly, Baker/LPWA contend that the trial court's finding
that the settlement was entered in good faith, premised on the
dismissal of all counterclaims against Case, must be reversed if
the contractual contribution against Case survives. As we affirm
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No. 1-05-3567
the trial court's order granting partial summary judgment to Case
on the contribution claim, we need not address this issue
further.
CONCLUSION
For the foregoing reasons, we affirm the judgment of the
circuit court of Cook County.
Affirmed.
CAHILL, P.J., and WOLFSON, J., concur.
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