Hinch Law

New in 2012 - Illinois' Residential Real Estate Transfer on Death Instrument Act

2012-01-02T21:00:00.000-08:00

Now that the calendar has turned over to 2012, the new Illinois Residential Real Property Transfer on Death Instrument (TODI) Act, 755 ILCS 27/1 et. seq, (the "Act") has taken effect. The Act gives Illinois residential property owners a new and useful estate planning tool.

What is a TODI? A TODI is similar to, but distinctive from a deed; it is recorded with the county in which the property is located while the property owner is alive, but that takes effect only upon the death of the owner, as long as certain statutory conditions are met.

Why the Act Matters - In Illinois, real property personally owned by a decedent requires a probate action, regardless of the value of the estate. The TODI gets the property out of probate. Trust planning can accomplish the same goal but is not typically focused on a specific property. The TODI is a simpler, more cost-effective mechanism, more tailor-made to accomplish the goal of transferring residential real property outside of probate.

What You Need to Know -

Residential real estate under the Act includes any real property improved with 1 - 4 residential dwelling units, condominium units including limited common elements allocated to their exclusive use, and a single tract of agricultural land of 40 acres or less that has a single family residence on the property.
The TODI MUST be created and recorded BEFORE the death of the property owner; I know I mentioned this already, but it's critical.
The TODI needs to be witnessed by two or more witnesses, like a Will, and notarized. The witnesses should be disinterested (not family members and not named in the TODI).
For jointly owned property, a TODI can be made by both owners jointly or severally. This means, for example, that two joint tenants can execute a TODI that will take effect only when both owners die. If only one of the joint owners executed a TODI, the TODI is effective only if that owner is the last to die.
A TODI can be revoked at any time prior to the owner's death by recording an instrument of revocation or another TODI granting the interest to someone else. It cannot be revoked by simply destroying the document or by provision in a Will. For a jointly executed TODI on joint property, all owners who signed the TODI must sign the instrument revoking it.
During the owner's life, the TODI does not affect the rights of the owner to sell or encumber the property, nor affect the rights of any secured creditor, affect the owner's eligibility for public assistance, create a legal or equitable interest for the named beneficiary. If after signing a TODI the owner decides to sell or transfer the property, the TODI, if not revoked, becomes ineffective.
A TODI can be executed by an owner's agent holding her Power of Attorney for Property, ONLY IF the POA explicitly grants her this right. Since the Illinois Statutory Short Form POA for Property does not name a TODI in the list of powers granted in the form, it appears to be necessary to write this additional power into the POA document.
Upon the owner's death, a "Notice of Death Affidavit and Acceptance of Transfer on Death Instrument" form must be recorded by the beneficiary to effectuate the transfer. This form is contained in the Act itself.

The Act contains more, important details; I cannot list them all here. If you believe a TODI may be of value to you and your estate plan, you should read the entire statute and consult an Illinois attorney.

I would like to credit DeKalb, Illinois attorney Charles G. Brown, for his extremely helpful article on this topic "The Transfer on Death Instrument Comes to Illinois," Illinois Bar Journal, December 2011.

Illinois Businesses - Know the Rules Before Running Your Promotional Sweepstakes or Giveaway

2011-12-11T08:37:00.001-08:00

A sweepstakes or giveaway can be an effective promotional tool for a wide variety of businesses. With the hyper-prevalence of social media, it is more feasible than ever for a business to reach a far and wide audience and potential market for its products or services. If you are considering tapping into the power of social media to offer a promotional giveaway, it is important to know the rules first. The rules are governed by 1) the law and 2) the policy terms of the social medium, which you are typically required to follow by their terms of service. In Illinois, the applicable law is the Illinois Prizes and Gifts Act, 815 ILCS 525/1, et. seq (the Act). Check your local jurisdiction elsewhere.

The Act applies to any written promotional offer made to a person in Illinois or used to induce/invite a person to come to Illinois to claim a prize or conduct business in Illinois, or to contact an agent in Illinois. In other words, its reach is very broad. There are some exemptions provided in Section 35 of the Act (sale of books/videos/periodicals, sale through a contract plan, sales by catalog, timeshares, etc.). The Act forbids misrepresentations about winning a prize and requires the award be made no later than 30 days after representing that a person has won a prize. A consumer can bring a civil action for an intentional violation of the Act and recover "the greater of $500 or twice the amount of the pecuniary loss," plus reasonable attorney's fees and court costs.

Of particular interest, the Act requires sweepstakes/giveaway offers to make nine disclosures. In summary, these are:

The true name(s) of the sponsor and principal business address,
The retail value of each prize,
"No purchase necessary,"
A purchase will not enhance odds of winning,
A statement of the odds,
Any requirement that the winner pay shipping or other charges to get or use a prize,
Describe any restrictions to get the prize,
Describe any limits on eligibility,
Additional statements required for multiple round contests, enhanced odds, etc.

For social media contests, the rules of the medium may also pose restrictions. For example, here are Facebook's guidelines. Note in particular here that Facebook prohibits using/requiring Facebook functions to register or improve odds of a sweepstakes promotion. This means, for example and contrary to a practice that seems to be growing, that businesses are not permitted to hold a promotion whereby applicants are asked to "Like" a Facebook page to enter the contest.

If you are considering running a promotional sweepstakes/giveaway for your business, do the research upfront to ensure that you are following the rules of your jurisdiction, and check with your attorney to keep in safe harbor. If you have been burned by a sweepstakes that turned out to be a "bait and switch," you may have a legal claim against the promoter/sponsor under the Act. Ask an Illinois attorney about your particular situation.

I'd like to credit Illinois attorney Erin E. Wright, of DLA Piper, LLP, for her excellent piece on this topic in the Illinois State Bar Association newsletter "Corporation, Securities & Business Law Forum" earlier this year.

Ask a Lawyer - Why Should I Hire a Lawyer to Help Incorporate My Business, Part 3

2011-11-09T19:18:00.000-08:00

Ok, after a brief interlude, I'm back to complete the third and final part of my answer to the latest question in the "Ask a Lawyer" series. The question is, "Why should I hire a lawyer to incorporate my business?" We have broken this question down into three parts, as follows:

How do I know what form of business entity is right for me? Should every business incorporate?
What's the difference between a corporation and a limited liability company? Which is right for me?
Why should I hire a lawyer to help form my corporation/LLC? Why not do it myself?

Having addressed 1 and 2 in previous posts, this post will answer 3 and complete our response to the overall question.

Allow me to call out the elephant in the room implied in question 3 -- lawyers cost money, perhaps a lot of money. That's money that could be spent investing in the business. On the other hand, forming a corporation is "easy." To satisfy the State of Illinois, you simply fill out a form on the Secretary of State's website, pay a fee, and, you have a corporation or LLC. I've even given you hyperlinks to the State's website. Or, maybe you're thinking of using one of the web-based services offering pseudo-legal assistance to form your corporation on the cheap. Why not do that?

I believe the question should not be merely, "Should I hire a lawyer to incorporate my business." The better question is, "Should I retain a lawyer to advise me regarding the legal issues of starting and operating my business?" It is about connecting and forming an ongoing relationship with a trusted legal advisor, not just performing the rote task of filing Articles of Incorporation with the Secretary of State. Talk with your lawyer about the possibility of using a retainer, flat fee or alternative billing arrangement to keep the cost within your budget, and to help determine what your budget should be to suit what is best for your business. It is perfectly appropriate for you to be concerned that every phone call to your attorney may be "on the clock" and to not want to live in fear of a surprise legal bill every month or year. At the same time, good legal advice is valuable; you should expect to pay for it and budget accordingly.

Whether or not you should incorporate your business, what formation documents should you have, what operations issues should you be aware of - these are just a few of the many legal questions that come up with a new business, and there is no "one-size-fits-all" answer. A good attorney will help you consider the options, choose what is best for you, and then help you address the issues that arise on the way. It is best, and most cost-effective in the long run, to have your attorney involved from the beginning, to help you avoid problems, rather than to wait to call an attorney cold when you have a serious (and at that point expensive) problem.

Is A Contractor's "Ignorance of the Law" an Excuse to an Illinois Home Repair and Remodeling Act Violation?

2011-11-03T08:02:00.000-07:00

I am honored to have had an article I wrote published in the October 2011 issue of the newsletter for the Illinois State Bar Association's Construction Law Section, entitled "Must a homeowner establish the contractor's state of mind to state a claim for a violation of the Illinois Home Repair and Remodeling Act?" I have written extensively about the HRRA on this blog (I believe this will be my 20th post carrying the "home repair and remodeling" tag), both because it is directly related to one of my core practice areas, construction law, and also because it is an area of the law that has been a veritable hornet's nest in recent years, and therefore fascinating. The statute was amended last summer and the Illinois Supreme Court released an important case opinion at essentially the same time. Further amendments were enacted this summer and will take effect in January 2012.

Before last summer, the controversial question was essentially this - "If a home repair and remodeling contractor does not comply with the HRRA, does the homeowner still have to pay the contractor for its work?" The focus was on the homeowner's DEFENSIVE legal options. Illinois appellate courts were split on this issue, until the legislature amended the statute and the Illinois Supreme Court held, citing the amendment, that the contractor has a right to be paid for its work, and that the homeowner's recourse under the HRRA, if "actual damages" are suffered, is to sue the contractor under the Consumer Fraud Act. The key question now is this - "What must a homeowner prove to sue the contractor under the CFA via the HRRA, and what impact will that have on the industry?" Thus the focus has shifted to the homeowner's OFFENSIVE legal options. In a case in which the contractor files a mechanics lien and a lawsuit seeking to be paid for its work but the homeowner claims the work was defective or otherwise not completed per contract, as a matter of pleading, the homeowner would now need to allege a "Counterclaim" rather than an "Affirmative Defense" (although there still may be cause for doing both, for various reasons).

To make her legal claim, clearly the homeowner Plaintiff would need to establish 1) a violation of the HRRA (such as contractor failure to provide a written contract, the required consumer rights brochure, etc.), 2) actual damages 3) suffered as a result of the HRRA violation. However the CFA itself also provides a cause of action for violating the HRRA, in Section 2Z, and this provision adds the language "any person who knowingly violates [the HRRA]...." This inconsistency between the two statutory provisions may potentially cause confusion and courts may again disagree. In my opinion based on my read of the relevant caselaw, which is extremely sparse on this issue as of yet, the CFA provision should be interpreted to require only that the contractor "knowingly" caused the homeowner to rely on the underlying act or representation, whether the contractor had ever heard of the HRRA is irrelevant. To cite the familiar maxim, "ignorance of the law is no excuse."

I must close with a testimony to the value of the practice area sections offered by many bar associations, including the ISBA. These groups provide attorneys opportunities to keep abreast of the latest legal developments and cases in their practice area, to form lasting peer relationships, and to engage in productive, civic dialogue about what the law is and what the law should be. All of this benefits not only the attorneys involved, but also our clients and the community at large.

Ask a Lawyer - What's the Difference Between a Corporation and an LLC?

2011-10-26T07:23:00.000-07:00

In our last post, we provided the first in a three part response to the question, "Why Should I Hire a Lawyer to Help Incorporate My Business?" The first part of our answer was to first consider whether every business ought to "incorporate," and what are the options available for small business owners to consider.

This post provides part two of our answer - once a business owner makes the decision to form a limited liability entity, which form of entity should she choose? For the majority of business owners, this comes down to a choice between a corporation, often an "S-corporation", and a limited liability company. What's the difference?

First, note that both State law is essential to understanding how corporations and LLCs are formed, operated, dissolved, etc. Each State is different, and some States are considered to have business statutes and supporting court opinions, that are more favorable to business owners than other States. Delaware is the classic example of a State considered favorable to business owners, such that many businesses from all over the U.S. choose to be incorporated, or form the LLC, in Delaware. Since we are located in Illinois, I will focus on Illinois law for the purpose of this post. If an Illinois business chooses to form the entity in another State (such as Delaware), the business must still register with the Illinois Secretary of State as a "foreign" business entity doing business in Illinois.

The corporation is the traditional limited liability business entity. The corporation is owned by "shareholders," managed by a board of "directors," and operated day-to-day by its "officers." The owners (shareholders) may or may not be directors and/or officers, and may or may not be actively involved in management and operations of the business. The corporation is recognized by State law as a separate and distinct legal entity from its owners. In a sole proprietorship or general partnership, the owners are personally liable for the business' debts and legal claims, but in a corporation, liability is limited to the corporation itself, with a few significant exceptions (one is called the "piercing the corporate veil" legal claim, in which the claimant argues that the corporation is really just a sham and an "alter ego" for the owner(s), such as by failing to separate bank accounts and failing to follow State law for the formalities of operating the corporation; the second exception is where the owners agree to take on personal liability by contract, such as signing a personal guarantee or cosigning a contract for the corporation).

The limited liability company entity was created by State law to allow a form of business entity to have some characteristics of a partnership and some characteristics of a corporation, and still provide limited liability for its owners. The owners of an LLC are called the "members." LLCs are managed either by the members themselves (called "member-managed") or by an appointed Manager (called "manager-managed"). State law provides general rules regarding how LLCs operate, what fiduciary duties are owed by the members and managers to the other members, how and when would an LLC dissolve, etc. These rules are effective by default, but almost all of them are subject to change if the LLC members create an "operating agreement" providing different rules. One of the hallmarks of the LLC is flexibility for the members to stipulate by contract how the business will operate and be managed. Having an well-written operating agreement that meets the specific intent of the members is one of the secrets to avoiding conflict and managing the LLC effectively over the long run.

There is much more I could say on this topic, more than I can do justice to in this short post. If you are a business owner and have decided to form a limited liability entity, either a corporation or an LLC may be a better fit for you. Much depends on your specific circumstances, and it is advisable to seek a personal consultation with an attorney for this. There are also tax and accounting implications to consider, so it is also advisable to meet with an accountant. The Illinois Secretary of State's website also provides a number of helpful publications and guides for the entity creation/registration process. Choosing the right entity, customizing the right documentation for your needs, and ensuring that State law formalities are followed to avoid the temptation to treat the entity as the owner's "alter ego," are the more nuanced, complicated aspects of forming and operating a new business entity. There is a lot more to it (to do it right) than simply filling out and filing the forms. But more on that in part 3 of this series.

Ask a Lawyer - "Why Should I Hire a Lawyer to Help Incorporate My Business?"

2011-10-18T09:21:00.000-07:00

Having just finished a three-part answer to the last question in the "Ask a Lawyer" series, about why to consider hiring a lawyer to help with your will and estate plan, the next question in line also requires a multi-part answer. The question is "why should I hire a lawyer to help incorporate my business?" To help provide a thorough answer, we will break the question down as follows:

How do I know what type of entity is appropriate for me and my business? Should every business incorporate?
What's the difference between a corporation and a limited liability company? Which should I choose?
Why should I hire a lawyer to help form my corporation/limited liability company? Why not do it myself?

I will address question 1. above in this post. To decide which type of entity is best for you, it's important to understand what are your options. I will list the most common choices here with a very brief description of each.

Sole Proprietorship - essentially, you are the only business owner, and you personally stand behind everything you do. The business entity is you. Illinois law does not require sole proprietorships to register with the State (although if you operate with a business name other than your personal name, you are required to register that "assumed name" with your county government).
General Partnership - Similar to 1, except there are two or more business owners, each personally liable for the business.
Limited Partnership - Again two or more business owners, but in this case one partner is required to be the "General Partner" personally liable for the business, while the other partners may be "Limited Partners" who are not personally liable for the business. An LP is required to be registered with the State. A written partnership agreement is required.
Corporation - A corporation is owned by Shareholders, managed by a Board of Directors, and its day-to-day operations are carried out by its Officers. A corporation is formed by registering with the State. The corporation then can either be classified as a "C" corporation or an "S" corporation for tax purposes, depending on how the corporation files with the IRS. When properly formed and managed, the Shareholders of a corporation are not personally liable for the business.
Limited Liability Company - a limited liability company ("LLC") is another option for owners who wish to form a business entity for which they will not be personally liable. The owners of an LLC are its "Members." The LLC can elect to be managed by its Members or to appoint a separate "Manager" for the business. An LLC is formed by registering with the State.

I will be elaborating further on corporations and LLCs in upcoming posts. For now I want to address the second part of the first question in this series, "Should every business incorporate?"

The answer has to be "not necessarily." Certainly every business owner could potentially benefit from having limited liability, but at what cost and what is the business owner's risk exposure? For example, should my kids incorporate their lemonade stand business? Probably not. Are they (and me as a parent) exposed to potential liability risk? Sure. Maybe they serve someone who has an allergic reaction to the lemonade. Maybe some lemonade gets spilled on the sidewalk and someone slips and falls. The business owners (and in this case their parents!) need to weigh the liability risk against the cost of limiting their liability by forming a corporation or LLC.

There is nothing wrong with choosing to being a Sole Proprietor, if you have weighed the risk and cost involved and have made a conscious business decision not to incorporate at this time. Lawyers (myself included) tend to be risk-adverse to this decision, and for good reason. We see clients all the time whose business catastrophe has quickly become a personal catastrophe, due to exposing oneself to business liability risk, often thoughtlessly. I would caution you to make sure you truly do consider all the risk and costs involved carefully, and not simply decide to operate as a Sole Proprietor because it is "cheaper." Consider, for example, whether incorporating would give credibility to your business, thus increasing revenue and perhaps be looked at favorably by your lender. Also consider what kind of business insurance are you carrying and is it appropriate for the risks involved?

Finally, if after weighing the risks and costs/benefits involved you decide to remain a Sole Proprietor for the time being, consider what it would take to change your mind, and consider writing into your Business Plan a commitment to form a limited liability entity appropriate for your business within a defined, fairly short, period of time, or upon reaching an attainable revenue goal. Put it in your budget, and allow sufficient funds to obtain some legal advice to make sure you do it the right way and truly mitigate your risk exposure (more on that later!).

Ask a Lawyer - If I Need a Will, Why Should I Hire an Attorney to Help?

2011-10-03T15:52:00.000-07:00

This is the third and final part of the "Ask a Lawyer" series of posts responding to the initial question, "Why should I hire a lawyer to help with my will or trust." In the first post, we explained why it is important to have an "estate plan," and what that entails. In the second edition, we discussed why everyone should have a will. The third component of the initial question says, assuming that I've convinced you that you need to do some estate planning, why hire a lawyer to help? Why not use one of the many website offering will forms for cheap and simply do it yourself?

First, if you've made it this far and recognize that you need to do some estate planning, I commend you. You have already made a decision to take action to provide for your loved ones and to consider what will happen to your estate when you are gone. You have overcome the first, significant hurdle--you are doing something and not procrastinating!

Having decided to act and considering the importance of the issues you will be considering, doesn't it make sense to seek the advice of real people you know and trust to give you sound advice as to what is in your and your family's best interests? That is not to say that cost is not a valid consideration of this process, obviously it is, but isn't it worth something to have a trusted professional help you ensure that the documents you sign will do what you intend them to do?

Abraham Lincoln said that "a lawyer's time and advice are his stock in trade." When you hire a lawyer to help you with your estate plan, you are not simply "buying a will," you are paying a licensed professional (who should be carrying professional liability insurance) for their advice. You are paying the attorney to advise you as to how to carry out your wishes in the event of your death (or incapacitation), and to help you create legal documents to do that. Obviously, you want such a professional to be qualified to properly assist you. Many people would say that it is also of value to have a personal relationship or at least a personal connection with the attorney, to provide further assurance as to the attorney's trustworthiness and ability to assist your family, if called upon, such as in the event of your untimely passing.

To put it bluntly, you have already faced the fact that you will die one day. If something were to happen to you tomorrow, who would your family turn to for help with how to implement and probate your estate plan? That is not to imply that you have any obligation to your estate planning attorney. The point is simply that having taken the time to create a plan to take effect on your death, shouldn't you do what you can to make sure the plan is thought through to allow your family to actually implement your plan?

Can you hire a lawyer to probate an internet form will? Sure you can. That lawyer will be powerless to correct any errors or deficiencies; it will be too late for that. Since you did not designate or retain an attorney when you were alive, your family will be forced to pick someone in a time of grief. If your family does not know any attorneys, they will have to ask around for a referral or comb the yellow pages. But if you do know an attorney, why wait until that time to ask for help?

Too often lawyers write posts like this one in a defensive manner seeking to justify the quality of their work and trying to shoot holes in internet forms. I've tried to avoid that trap in this post. I realize full well the reason people choose internet form wills over hiring a lawyer - it is simply a cost-saving decision. Internet form wills are getting better; some of the better websites now address State law differences, which is essential (if you use an internet form, absolutely make sure it meets your State's particular requirements!). The documents themselves may or may not be fine, that really is not the issue. The issue is whether the benefits of working with a real person lawyer are worth the cost, compared with an internet form document. The choice is yours.

Ask a Lawyer - Why do I Need a Will?

2011-09-23T15:38:00.000-07:00

This is the second in a ~~long-winded~~ three part answer to the question, "Why Should I Hire a Lawyer to Help with My Estate Planning?" In Part 1, we talked about estate planning generally and why it is important. This post will address the issue of why it is important to have a will, and the tangential question "what happens if I die without a will?" Finally, the last part of this series will answer the question implied in these questions - "Even if I need a Will, why shouldn't I just do it myself, or order one off a website?"

Hopefully most people know that a Will is a legal document that allows one to state their wishes for what happens to their assets when they die (excluding certain non-probate assets, such as life insurance) and who manages their estate. A Will can also designate who will serve as guardian for one's children. Wills are often drafted in conjunction with trusts to provide additional safeguards for management of assets and to avoid paying excess taxes. To be legally enforceable, the Will must meet legal requirements, which vary by State.

To understand the value and importance of having a Will, it is helpful to consider what happens if you die without a Will, and how you might wish to change the "default" rules to benefit your loved ones. The default rules vary by State law, so the following analysis reflects Illinois law.

Default Distribution of Assets - By law, your surviving spouse will get 50% of your estate and your children will equally split the remaining 50%. The vast majority of people I talk with would like the flexibility to change this in some way. For example, you and your spouse may wish to leave the entire estate to each other if your spouse survives you. Or you may wish to leave a gift to your church or favorite charity.
Guardianship - If you are married and your spouse survives you, your spouse will remain "guardian" of your children, that is not the issue. The issue occurs in the event that both spouses pass away, for example in a car accident - who then takes care of the kids? If you have no will, a judge will make that decision for you, based on his/her view of what is the best interest of the children. The judge may or may not get it right, and may or may not pick the same person as you would have designated if you had a Will. Furthermore, without a will, the guardian will be required to report to the judge an accounting of how money in the estate was spent for the children.
Executor - With no Will, you lose the right to choose who you would want to manage your estate.
Trust Planning - With no Will, your children will gain full rights to their shares of your estate when they turn 18. By including a trust in your estate plan, you can ensure that your children's health, maintenance, and education needs are provided for first.
Waiving Surety/Bond - By default, courts require performance bond be posted as security to ensure that the guardian acts in the best interest of the child, even if that person is your spouse. You can save this cost by simply waiving surety in your Will. This value alone will easily more than pay for the cost of the Will.
Tax Planning - You lose the opportunity to consider your options for reducing taxes due on your death.

In short, EVERYONE should have a Will, which should provide for your personal financial and family situation. As an attorney, I believe the cost is easily worth the value and benefit of working with a qualified, licensed attorney. But more on that in the next, third part of this series.

Ask a Lawyer - Why Should I Retain an Attorney to Help with My Will or Trust?

2011-09-14T14:19:00.000-07:00

This is a common question and has multiple layers to it. To give a complete answer, I will break it out into three questions, and answer the latter two parts in future posts:

1. What is "estate planning" and why should I have an estate plan (a/k/a, isn't that just for the "rich")?

2. Why do I need a Will, and what happens if I die without a Will?

3. Even if I need a Will, why shouldn't I just do it myself, or order one off a website?

Appropriately answering number 1 first, an estate plan is really the process of considering what will happen when you die or are incapacitated. This involves financial considerations, such as how your assets will be distributed, via wills, trusts, probate, and other non-probate assets such as life insurance; who will inherit family heirlooms; how taxes, debts, and expenses will be handled; and who will direct your affairs. It also involves personal, family considerations, such as who will take care of your kids (guardianship), how and when will your kids receive their inheritance, and how will your spouse be supported.

If you don't come up with a plan of your own, your state and federal government has a default plan for you. Since you didn't write down your wishes in an estate plan document, the state, via the courts, will have no way of knowing what you would have wanted to happen. I'll elaborate on this in the second post in this series.

If you are incapacitated and do not have Powers of Attorney for Healthcare or Property, a Living Will, or other similar documents, you will lose your opportunity to communicate your wishes for handling that situation, both in terms of providing guidance for what to do, and also for who should act on your behalf. For a statement of Illinois law on "advance directives," such as Powers of Attorney, Living Wills, etc, see this page provided by the Illinois Department of Public Health.

An estate plan is an important consideration for ANYONE, because it is appropriate for EVERYONE to contemplate what will happen when we leave this world behind (as we all will). What will happen to your loved ones when you are gone? What can you do today to help provide for their needs?

I will get to the reasons why you should consider asking a lawyer to help you with your estate plan (and obviously I believe strongly in the value of the estate planning lawyer) in the subsequent posts in this series.

Ask a Lawyer - Non-Compete Agreements in Illinois

2011-09-07T07:25:00.000-07:00

Note: This is the first in a new series of posts entitled "Ask a Lawyer," in which readers may submit questions to be considered for this page. Please note that, as with any posts on this blog, the posts are educational in nature and do not constitute legal advice in the attorney/client sense. Therefore, questions should be general in nature and not include any confidential information.

Question: Please generally explain the enforceability of Non-Compete agreements in Illinois.

This question could justify a treatise, but I will do my best to provide a general, concise, though by necessity perhaps unhelpfully broad, answer. For a more specific review of a particular Non-Compete agreement or provision in an employment contract, consult and retain an attorney. I would be glad to talk with anyone who has specific questions about their situation.

A "Covenant Not to Compete" is a provision commonly used in an employment agreement, that limits the rights of an employee to leave and try to compete with the employer. Illinois law generally disfavors such agreements because they restrict trade; they are carefully scrutinized and won't be enforced just because the parties agreed to it. Nevertheless, Illinois courts recognize the employer's "legitimate proprietary interests," and will enforce a reasonable"Non-Compete." There is a lot of case law on what is enforceable and what is not, much more than I can fairly summarize here. Here are a few high points:

Adequate consideration (or value exchanged) is required. In the employment context, employment for "a substantial period" of time is adequate consideration. Illinois courts have found that employment for seven months was not "a substantial period" but employment for two to three years "clearly suffices." This hurdle could be overcome by the employer paying the employee additional monetary consideration in exchange for the Non-Compete.
The employer must have a "protectable interest." This arises when (1) the customer relationships are near permanent and but for the employment, the employee would not have had contact with the customer; and (2) when the employee acquired trade secrets or other confidential information during employment and later tried to use it for his own benefit.
The restrictions must be reasonable in time, territory, and activities restricted, considering the hardship on the employee and the effect on the general public. These factors can depend on the facts of the particular case. Again, there is extensive case law on this.

What does all this mean in real life? To have an enforceable Non-Compete, employers should be reasonable and not overreach; determining what is reasonable may require a review of the case law for examples similar to your business situation. Overreaching can result in the court refusing to enforce the Non-Compete at all.

Bear in mind that to enforce a Non-Compete typically will involve a request for emergency "injunctive relief," meaning the employer wants the court to order the ex-employee to stop competing right away, not just pay damages at the end of a trial. The costs of such a proceeding will add up quickly. But if the restrictions are reasonable, the Non-Compete can be enforced.

For more information about Illinois Covenants Not to Compete, you may wish to visit the Chicago Executive Lawyer Blog, by my friend and colleague, Attorney Kristen Prinz of The Prinz Law Firm, P.C.

The Value of a Well-Drafted Release or "Hold Harmless" Clause for Non-Profits

2011-08-30T07:20:00.000-07:00

The legal "Release" is a document by which one agrees to "release from" or waive liability from another, potentially even if the liability results from the released party's own negligence. A broader contract will often contain a release provision, sometimes called a "hold harmless" clause. The Release is an essential part of countless contractual documents. In fact, one could argue that a Release should at least be considered as a part of any contract.

Two recent Illinois appellate cases (both out of the First District) provide good examples of how courts analyze a Release, both in the context of personal injury claims involving not-for-profit, charitable activities in which an accident occurred. The cases are sobering reminders that without the proper legal documents, charitable organizations and other parties involved in an event can be held liable for injuries that occur despite the best of intentions or the unquestioned good of the cause supported by the charitable event. Fortunately for the Defendants in these cases, they had prepared and required the proper Release documentation in advance, and thus were not held liable.

Illinois law has found that a Release is a valid and enforceable contract, so long as there is no fraud or willful or wanton negligence, unless (1) there is a substantial disparity in the bargaining position of the parties; (2) upholding the Release would violate public policy; or (3) there is something in the social relationship of the parties that militates against upholding the Release. If enforceable, release of liability provisions are strictly construed against the party they benefit.

In Hellweg v. Special Events Management, __ N.E.2d __, No. 1-10-3604 (Ill. App. 1st Dist. July 8, 2011), the plaintiff was a participant in a charitable bicycle race event, but was injured in a warm-up session when a non-participating bicyclist entered the course (advertised as a "closed course") and collided with the plaintiff. Although the plaintiff acknowledged having signed a Release, he argued that the specific collision was not foreseeable, and therefore the Release was unenforceable. The court cited case law that the specific injury occurrence need not have been precisely contemplated in the Release; it is sufficient if the "injury falls within the scope of possible dangers ordinarily accompanying the activity and, thus, reasonably contemplated by the plaintiff." The court then closely reviewed the language of the Release and found that this injury was reasonably contemplated, and therefore the Release was upheld and the defendants were released from liability.

In Johnson v. The Salvation Army, __ N.E.2d __, No. 1-10-3323 (Ill. App. 1st Dist. August 12, 2011), the plaintiff had voluntarily participated in the defendant's drug and alcohol rehabilitation program, which included a "work therapy" component. Plaintiff was injured when he fell out of a moving vehicle while riding with another to pick up and deliver donations. Although the Plaintiff acknowledged signing an agreement containing a release or "hold harmless" clause after having this agreement read aloud to him, he nevertheless argued that the Release was unenforceable as against public policy and due to a disparity in bargaining position. Regarding the former, Plaintiff argued that he was "akin" to an employee of the Defendant, which is one of the bases for finding the document against public policy. The court rejected these arguments and upheld the Release, finding that the relationship between the parties was that of a "beneficiary and [a] charitable organization," that Plaintiff voluntarily chose to enter the rehabilitation program, and had entered the agreement containing the Release of his own free choice. The court further found that the Release was "clear and unambiguous and reasonably included the occurrence of Plaintiff's injury."

In both of these cases, the Defendants were protected and saved from liability by the legal Release, drafted to fit the circumstances involved and signed by the releasing parties in accordance with the law. What about your organization? Are you protected if the same happened to you?

New Illinois Home Repair and Remodeling Act Requirements Added for Catastrophic Loss Repairs

2011-08-23T06:48:00.000-07:00

Earlier this month Governor Quinn signed into law Public Act 97-235. The Act takes effect on January 1, 2012, and is aimed at protecting consumers faced with a catastrophic loss from contractor abuses at a time when they are most vulnerable. Here's a summary of the changes:

1. The Illinois Roofing Industry Licensing Act, 225 ILCS 335/5, et. seq, is amended by new Section 5.1 to require roofing contractors to post their license number and licensee's name on all commercial vehicles (see previous Section 5(b), a violation for which carries a $250 civil penalty. The section also authorizes local government "code enforcement officials" to enforce this provision.

The Home Repair and Remodeling Act, 815 ILCS 513/1, et. seq, (the "HRRA") is amended as follows:

2. Added new Section 18, "Repairs following damaging weather," providing requirements for contractors offering home repair and remodeling services to consumers who have suffered a "catastrophe" (definition in statute consists of various sudden, "Act of God" occurrences, but interestingly includes "drought", and also requires that the catastrophe "damages or destroys more than one residence"). Here are the requirements contractors need to know from new Section 18:

a. Don't advertise or promise to pay or rebate all or any portion of an insurance deductible as an inducement to get the work. This provision is written broadly and includes "granting any allowance or offering any discount against the fees to be charged or paying the insured directly or indirectly associated with the property any form of compensation."

b. Don't take a payment from another contractor from out of the area to let them use your business name or license.

c. Roofing contractors are required to post their license name and number on all contracts, bids, and advertisements involving roofing work.

d. A homeowner signing a contract for repairs after a catastrophic loss can cancel the contract before midnight of the 5th business day after receiving notice that their insurer will not cover all or a portion of the claim, or the 30th business day after the insurer receives a properly executed "proof of loss" from the insured. The contractor is required to give the homeowner notice of this right in the contract itself; the statute contains the required language.

e. When signing the contract (for repairs following a catastrophic loss), the contractor must give the homeowner a "NOTICE OF CANCELLATION" form in duplicate, which the homeowner wishing to cancel the contract per the previous provision, would fill out, sign, and send to the contractor to effectuate the cancellation.

f. Within 10 days of receipt of the homeowner's notice to cancel the contract, the contractor is required to refund the homeowner any money advanced for work not yet performed. If work has already been performed, the contractor is entitled to retain payment of the reasonable value of such goods and services related to the catastrophe.

g. A contractor in this situation shall not represent, or offer or advertise to represent, a homeowner as a "Public Adjuster," in violation of the Public Adjusters Law, 215 ILCS 5/512.51, et. seq (See our previous post on this blog on this issue). Thus the contractor is not permitted to call in or file a claim to the insurer on the homeowner's behalf, for example. The paragraph also provides that the contractor shall not "climb on a roof or inspect for exterior damage without the insured's express permission."

3. In addition to the changes in new Section 18, Section 20 has been revised to add language to the consumer rights brochure regarding the above. I have not yet seen a revised brochure from the Illinois Attorney General's Office, but one will likely be produced and posted to their website by January.

Updates and Social Media - It's Still All About Real People Interacting

2011-08-03T07:29:00.000-07:00

We have been on a bit of a summer hiatus on this page, while contemplating possible changes to the blog for the future. I recently had the privilege of speaking at the @Midwest social media and business conference in Bloomington, Illinois, on the topic of social media and the law. My presentation was very well received, but beyond that, I have been blessed to meet and get to know many great and down-to-earth people who really know social media. The fact is that for all the technological bells and whistles, social media is still merely a fancy, convenient way for real people to interact. It's all about the people. The lessons and ethical implications of that reality for how social media should be (and should not be) used are huge, and at the same time are perhaps as simple as the Golden Rule.

With regard to the law, the legal issues of social media are perhaps as broad as the law itself, and the ramifications of that are very much still evolving and developing. There are some excellent legal blogs written by attorneys from all over the U.S. with significant experience in the legal implications of social media within a particular area of the law, such as employment law, privacy law, labor law, intellectual property, trade secrets, etc. Just over the last few weeks since @Midwest, I have retweeted several excellent posts by other lawyers on these topics, which can be found on my Twitter feed.

Thank you to all who have taken the time to read this page. As I consider possible changes or improvements to the blog for the future, please feel free to send me any suggestions or requests for topics you would like to see addressed in the future.

Guest Post at Construction Law Musings Blog

2011-04-29T06:19:00.000-07:00

I'm honored today to have the opportunity to write a guest piece at an award-winning, very highly regarded blog, Virginia construction law attorney Christopher G. Hill's Construction Law Musings. Chris does an excellent job at consistently providing thoughtful, useful posts that reach an audience not just within the construction industry, but among other lawyers as well. Among its honors, "Musings" was just recently named to LexisNexis' "Top 50 Environmental Law & Climate Change Community Blogs for 2011". In that vein, my guest post is on "How (Not) to Work with the EPA and Your State Environmental Agency."

If you are not familiar with Musings, I encourage you to check it out.

Guest Post at Construction Law in North Carolina Blog

2011-03-31T11:45:00.000-07:00

I'm honored to have the opportunity to write a guest blog post today for fellow construction law attorney Melissa Brumback's award-winning "Construction Law in North Carolina" blog. The post is about selecting and using form construction contracts.

Construction Law in North Carolina was recently named "2011 Best Construction Law Blog" by Construction Marketing Ideas. I have personally found Ms. Brumback's writing to be an excellent resource for legal issues affecting the construction industry.

Illinois Prevailing Wage Act Part 3 - Contractors Are At Risk

2011-03-02T06:59:00.000-08:00

This is the third in a series of posts about the Illinois Prevailing Wage Act, 820 ILCS 130/0.01, et. seq. First we introduced the Act, then we addressed concerns from the public entity's perspective. Up next - contractors and other private entities awarded contracts for "public works" projects. The Act requires that "prevailing wage" be paid to laborers, mechanics and other workers for "public works" projects. A public works project includes essentially any construction, maintenance, and equipment installation for any "public body" or for any project receiving certain public funding.

Right out of the gate, contractors need to know this: IT IS THE CONTRACTOR'S RESPONSIBILITY TO PAY PREVAILING WAGE FOR ANY PUBLIC WORKS PROJECT, EVEN IF THE PUBLIC BODY DOES NOT TELL YOU TO DO IT! Yes, the public entity is required to notice contractors that prevailing wages must be paid for a project, and the public entity can incur liability for failing to do so. But at the end of the day, even if no one told the contractor (or subcontractor) it was required, when a complaint is filed the contractor WILL be required to pay prevailing wage for the work, including back wages.

Contractors, this means you need to understand this law and be proactive in confirming whether a given project falls within the scope of the Act before you bid on it. It would also be advisable to include in the contract a provision explicitly stating whether prevailing wage is to be paid for this project, and if so defining prevailing wage. If prevailing wage is not to be paid for the project, it is reasonable to require the "owner" (or the general contractor, if you are a subcontractor) to indemnify you against a later determination that prevailing wage should have been required after all. Of course, all this assumes that you have a written contract. If the job does require prevailing wage and you retain subcontractors, you are required to notify in writing each subcontractor (in the contract, specifications, or if neither by a separate written notice) and require the subcontractors to do the same for each lower tiered subcontract. If bonds are required for the project, the Act says that the public body "or other entity" shall require that the contractor and subcontractor bonds include a provision guaranteeing payment of prevailing wages. The contractor or construction manager to whom the contract is awarded is required to post at the job site or provide a written notice to each worker of the prevailing wage rates applicable for each type of worker on the job.

The public body is required to tell you what prevailing rates are for the project location; unless the public body does its own determination and has it approved by the Department of Labor (DOL), the DOL publishes rates for use. Since the Act places the responsibility to pay prevailing wage on the contractor regardless of whether the public body properly determined the correct rates and notified the contractor, prudent contractors would do well to double check the rates provided by the public body against the DOL rates. If there is a discrepancy, it is better to confirm in advance whether the public body has a legitimate reason for the difference or if it was a simple mistake.

Contractors and each subcontractor are also required to maintain certified payroll records, submit them monthly to the public body, and maintain their own copy of the records to be available for inspection by the public body or the DOL upon seven business days' notice.

Penalties for Noncompliance

In addition to paying "back wages," if the contractor was properly notified of the prevailing wage requirement but failed to comply, additional interest, penalties, and fines, can be assessed by the DOL. Any contractor who "neglects to keep" accurate certified payroll records or who refuses to allow the inspection as required is guilty of a Class A misdemeanor. Any laborer paid less than the required prevailing wage, or the DOL itself in such a case, has a right to sue for the difference between what was paid and what should have been paid, plus reasonable attorney's fees, costs, and punitive damages of 2% of the underpayment to the plaintiff and 20% of the underpayment to the DOL. On a second or subsequent offense or action against the same contractor, the punitive damages increase to 5% to the plaintiff and 50% to the DOL. In addition, the DOL is required to publish quarterly a list of contractors (and subcontractors) who have violated the Act. The DOL sends a written notice to contractors who allegedly violated the Act on two separate occasions within the past five years. These contractors then have 10 "working days" to request a hearing on the alleged violations, as to why they should not be included in the list. Once published, the Act provides that no public works contract is to be awarded to anyone on the list, or to any "firm, corporation, partnership, or association in which [a listed contractor] has an interest until 4 years have passed from the date of publication of the list." The Act also provides additional penalties for retaliation against any "whistle blowers."

This is merely a summary of issues in the Act of interest to contractors; it is not comprehensive. For more information, consult the DOL's website (their Frequently Asked Questions page is particularly helpful), or consult a licensed Illinois attorney. If you are a member of a trade association, the association is also a great resource for you to obtain more information and answers to questions you might have.

Illinois Prevailing Wage Act Part 2 - What a Public Entity Needs to Know

2011-02-24T07:57:00.000-08:00

Last week we introduced the Illinois Prevailing Wage Act, 820 ILCS 130/0.01, et. seq, and summarized the broad scope of the Act. This post will elaborate on the Act from the standpoint of the public body. The Act requires that "prevailing wage" be paid to laborers, mechanics and other workers for "public works" projects. A public works project includes essentially any construction, maintenance, and equipment installation for any "public body" or for any project receiving certain public funding.

A public body is defined by the Act to include State agencies, municipalities, public districts (yes, this includes fire protection districts, drainage districts, water and sanitary districts, soil and water conservation districts, etc.), school districts, "and every other political subdivision." A public entity would be well advised to assume that it is required to pay prevailing wage unless it has specific opinion from counsel to the contrary. Illinois has A LOT of small public entities that traditionally may not have followed the Act, and by failing to comply are now at risk of violating the Act.

What must a public body do to comply with the Act?

Assuming that the public body is hiring a private contractor, the contractor must pay its employees/workers prevailing wage. The public body must determine the prevailing wage for the locality where the work is performed. This is to be done each June, and can be requested from the Illinois Department of Labor (DOL). Once the prevailing wage is determined for the locality, the public body is to publicly post or keep available for inspection a copy of the prevailing wage rates, and file a certified copy with the Illinois Secretary of State and the DOL. If the project is publicly bid or contracted pursuant to design plans and specifications, the public body must include a stipulation that the contractor and subcontractors must pay prevailing wage for work on the project. If there are no such documents, the public body must similarly notify the contractor in writing on a purchase order or separate document. If the DOL changes the prevailing wage rates applicable to the project, the public body is required to notify the contractor and subcontractors of the change. The public body must also require that any contractor or subcontractor bonds include a provision to guarantee payment of prevailing wages.

What happens if th public body does not comply with the notice requirements?

If the DOL receives a complaint and determines that the required notice did not occur, the DOL shall order the public body or other entity (such as the owner of a private construction project receiving public funds identified in the Act) to "pay any interest, penalties or fines that would have been owed by the contractor if proper written notice had been provided." The contractor is still responsible to make up the difference and pay the prevailing wage (back wages), however, despite not having received the required notice from the public body. In addition, any officer, agent, or representative of a public body who willfully violates or fails to comply with the Act is guilty of a Class A misdemeanor.

Certified Payroll

The contractor is required to submit monthly certified payroll records to the public body, and the public body is required to maintain these records for three years. These records document wages paid to each worker, using a DOL form. The records are required to include personal information such as each worker's home address, phone number when available, and social security number. NOTE - Certified payroll records may be requested subject to the Freedom of Information Act, 5 ILCS 140/ (FOIA), however certain redaction requirements apply. If you represent a public body and receive a FOIA request seeking certified payroll records, consult a licensed Illinois attorney or the Illinois Attorney General's Office to ensure that you comply with these requirements. It is a situation where a public entity could unknowingly incur liability for failure to redact despite the best of intentions to comply with FOIA.

This is merely a summary of issues in the Act of interest to public bodies; it is not comprehensive. For more information, consult the DOL's website (their Frequently Asked Questions page is particularly helpful), or consult a licensed Illinois attorney. If you are a member of an association of similar public bodies (such as the Illinois Municipal League), the association is also a great resource for you to obtain more information and answers to questions you might have.

Illinois' Prevailing Wage Act Part 1 - What Is It and When Does It Apply?

2011-02-16T06:59:00.000-08:00

Illinois' Prevailing Wage Act, 820 ILCS 130/0.01, et. seq, has been around for a long time but was revamped in the past few years, and the changes are significant. The Act requires that "prevailing wage," as determined for similar work for the county or locality in which the work is to be performed, be paid to all "laborers, mechanics and other workers" employed in any "public works," and includes hourly cash wages plus fringe benefits for training and apprenticeship programs, health and welfare, insurance, vacations, and pensions. "Works" is essentially construction work, but "construction" is defined to include maintenance, repairs, and equipment assembly and disassembly. "Public" works are defined to include any "public body," including State agencies, municipalities, public districts, school districts, "and every other political subdivision...," and also to include work done by a private entity pursuant to a contract with a "public body" or receiving public financing pursuant to various State statutes.

To summarize, the Act requires Public Bodies or businesses/persons performing Public Works pay their employees working on such Public Works at least Prevailing Wage, as determined for the locality in which the work is being performed. The Illinois Department of Labor is the administrative body charged with enforcing the Act, and it maintains prevailing wage rates by county on its website. Here are the posted rates for February 2011. Here are their Frequently Asked Questions about the Act, which presents first a very good summary of the Act, then frequently asked questions separated by public entity, private contractor, and employee questions.

Since Public Works includes Construction done pursuant to any contract with a Public Body and also any Construction funded even in part by public funds, the reach of the Act is very broad, and the Act contains penalties for both Public Bodies and private contractors/businesses who fail to comply with the Act's requirements. In upcoming posts in this series, we will review the Act from the Public Body and the Private Contractor perspectives and highlight key provisions for each. If you have a question about whether particular work or a contract is governed by the Act, you can ask the public body involved, call the Illinois Department of Labor, or consult an Illinois attorney.

Agreements to Arbitrate - Update on Carr v. Gateway

2011-02-04T06:55:00.000-08:00

Last February I wrote about the 5th District Appellate Court's decision in Carr v. Gateway, Inc. here. In this case, the designated arbitration forum stopped accepting consumer disputes. The arbitration agreement was very specific as to the private forum for the arbitration and the rules to be used, and even included a clause to penalize any party seeking to arbitrate the dispute in another forum. Well, the Illinois Supreme Court reviewed the decision and released its opinion this week, affirming the Appellate Court's judgment. Particularly emphasizing the penalty clause, the Court noted that the arbitration forum was integral to this agreement, Section 5 of the federal Arbitration Act did not apply to appoint a substitute arbitrator, and therefore the plaintiff's claims could proceed in court.

Although this was an Illinois case, the Court considered precedent from other jurisdictions, and I believe really made a thorough analysis and wrote a well-reasoned opinion. It would not surprise me to see this opinion cited as persuasive as future courts in other jurisdictions consider the same issue.

Does your business have a mandatory arbitration provision in its form contracts? If so, you may wish to review such provisions with your attorney in light of this decision. This particular case involved a contract for purchase of consumer goods, but the reasoning could readily apply to other contracts, and to jurisdictions outside of Illinois.

Public Insurance Adjuster Contracts and New Licensing Requirements

2011-02-01T11:31:00.000-08:00

Imagine that your home is destroyed in a fire overnight. After family and friends, you would likely next call your insurance company to report the catastrophe and initiate a claim. The person from the insurance company who investigates your claim and calculates the amount to be paid for the loss is called an "adjuster." About this time you also attempt to read through the fine print morass that is your insurance policy, and realize the difficulty of making sense of it all. Now imagine that after you report the claim you receive a letter from a "public adjuster," which helpfully points out to you that the insurance company's adjuster is an employee of the insurance company and therefore tied to the insurer's interests, and that the public adjuster is available to help you negotiate a better settlement with the insurance company, often for a percentage of the settlement proceeds, say for example 10 percent. At that time, in the immediate wake of the loss and faced with the prospect of having to navigate the claims process on your own, the thought of having an adjuster "on your side," working for you, may be attractive. Months later when the house is rebuilt, the public adjuster's work is done, and you realize you have 10 percent less of the proceeds available to put into the house, your perception might change. But like it or not, that contract is still enforceable in Illinois (but see below regarding licensing requirements for public adjusters).

This was the case in Golub and Associates, Inc. v. State Farm Fire and Casualty Company, Case No. 09-AR-281 (5th Dist. 2011). Golub was a public adjuster retained by the homeowner pursuant to a written contract for 10% of the proceeds. Once the contract was signed, the adjuster notified State Farm and requested that all checks issued be made out to both the homeowner and the adjuster. Two months later, the homeowner had a change of heart and sought to terminate the agreement with the adjuster. She notified her insurer and requested further checks be made out solely to her, and the insurer complied. The adjuster then sued the homeowner for breach of contract and the insurance company for failing to retain the funds to which it was contractually entitled, which is a lien under Illinois law.

On appeal, the Fifth District Appellate Court found that the contract was valid and enforceable against the homeowner, and also that the adjuster was correct, and that pursuant to 215 ILCS 5/512.52 of the Illinois Insurance Code, the adjuster had a lien against the insurance proceeds, and therefore the insurer could be held liable for releasing the funds to the homeowner without the adjuster's authorization. The Court noted that the adjuster had performed its work and was entitled to be paid pursuant to the contract, and that the insurer "was wrong to go along with [the homeowner's] plan to deprive the [adjuster] of its rightfully earned fee."

Now, the intent of this post is NOT to advise readers whether or not retain a public insurance adjuster. That is a decision that must be made by each homeowner on a case-by-case basis, depending on the particular situation. But homeowners would be well advised to not rush into such a decision, and to seek counsel from the Illinois Department of Insurance, the Illinois Attorney General's Office, or a licensed attorney before signing any agreement. The Department of Insurance provides free advice to homeowners and can help the homeowner work with the insurance company. I have included below some useful weblinks from these agencies. Homeowners should also note that Illinois' licensing requirements for public insurance adjusters changed effective January 1, 2011, pursuant to the Illinois Public Adjusters Law at 215 ILCS 5/1501, et. seq. Any public insurance adjuster is required to be licensed by the State prior to soliciting business, their contract documents are required to meet Illinois law, and they are required to post a $20,000 surety bond or letter of credit. A public adjuster's failure to comply with licensing requirements can be grounds to void the contract, and can also give rise to criminal proceedings by the Illinois Attorney General. Any agreement for representation regarding a claim for fire damage, made within five days of the fire, is subject to a mandatory 10-day period in which the homeowner can void the agreement. 815 ILCS 625/1 (the "Fire Damage Representation Agreement Act").

IL Dept of Insurance - "When Disaster Strikes"

IL Dept of Insurance - "Disasters - Who Can You Contact?"

IL Dept of Insurance - "Public Adjusters"

IL Dept of Insurance - "Disaster" Brochure

If you wish to consider filing a consumer complaint, see the following, or speak with a licensed Illinois attorney.

IL Dept of Insurance - "Understand the Consumer Complaint Process"

IL Dept of Insurance - "I Want to File a Complaint"

IL Attorney General - "Protecting Consumers"

IL Attorney General - Consumer Complaint Form

Illinois Supreme Court Denies Leave to Appeal in Four Home Repair and Remodeling Act Cases

2010-12-10T08:35:00.000-08:00

I previously noted here that the Illinois Supreme Court's November 2010 Docket included petitions for leave to appeal for four recent cases involving the Illinois Home Repair and Remodeling Act (the "HRRA). Here are the four cases:

Artisan Design Build v. Bilstrom , ILSC No. 109371, discussed here.
Fandel v. Allen, ILSC No. 109887, discussed here.
Roberts v. Adkins, ILSC No. 109909, discussed here.
Universal Structures, LTD. v. Buchman , ILSC No. 110842, discussed here.

On November 24, the Court denied leave to appeal to all four. For Artisan Design Build, Fandel, and Universal Structures, this means that the decision of the appellate court is final (although these cases are not necessarily over, depending on the disposition of each case at the respective trial courts). For the Roberts case, however, the Supreme Court directed the Third District Appellate Court to vacate and to reconsider its judgment in light of its recent holding in K. Miller Construction Co. v. McGinnis, ILSC No. 109156, discussed here.

The common thread is that, consistent with the Court's holding in McGinnis and the HRRA revisions enacted earlier this year, homeowners can no longer argue that they don't have to pay a remodeling contractor merely for violating the HRRA. Instead, the homeowner will have to pursue a claim (or a counterclaim if the contractor files suit) under the Consumer Fraud and Deceptive Business Practices Act, and will have to show that the contractor's violation of the HRRA caused the homeowner to sustain actual damages.

In Roberts, the Appellate Court found that the homeowners had not shown actual damages, and thus did not have a Consumer Fraud claim.

Overhanging Tree Limbs - If You Own the Tree, You Own the Limbs

2010-12-09T08:03:00.000-08:00

Lawyers are often asked about liability issues regarding trees along neighboring properties. Depending on which neighbor is asking, the question goes like this:

A. I own a tree that has branches extending over my neighbor's property. My neighbor wants me to cut it down or trim it back. Do I have to do so? If the branches break and fall, am I responsible for damage caused to my neighbor's property (or injuries)?

or

B. My neighbor's tree has branches that extend over my property. I have asked them to cut it down or trim it back, but they refuse to do so. What recourse do I have?

The general rule is if you own the tree, you own the limbs, and if the tree limbs extend off your property onto your neighbor's property, your neighbor has a right to remove those limbs up to the property line. Secondly, if a tree is on your property and a limb falls from that tree and damages your neighbor's property or injures someone, yes, you may be liable.

In the recent case of Ortiz v. Jesus People, U.S.A, Case No. 1-09-3255 (Ill. App. 1st Dist. November 12, 2010), the plaintiff was injured when a large tree branch, that extended over a public sidewalk from a tree on the defendant's property, broke and fell on plaintiff. The branch was apparently 19 feet long and about 14 inches in diameter. The Appellate Court in this case provided a good summary of the law on the subject. A landowner in an urban area has a duty of reasonable care, which can include a duty to inspect or prune the trees to make sure the trees are safe. To determine whether there was such a duty in a specific case, courts weigh the reasonable foreseeability of the injury, the reasonable likelihood of the injury, the magnitude of the burden of guarding against it, and the consequences of placing that burden on the defendant.

In the Ortiz case, the Court found that the fact that defendants admitted having owned the property for years and having known that this tree had a large limb overhanging a public walkway created a duty for the defendant to act (for example, cutting the branch back so it did not hang over the sidewalk), and that the defendant's failure to act breached that duty. The Court further held that the City of Chicago did not owe a duty to cut the limbs back so they did not overhang the sidewalk, because the tree itself was located on the defendant's property. In Ortiz, the trial jury returned a verdict finding the defendant liable, and the Appellate Court affirmed that judgment.

If you have trees on your property, you are much better off taking care of overhanging limbs BEFORE an accident occurs, even if it means having to spend some money to have a professional take care of it.

Four More Home Repair and Remodeling Act Cases Petition Illinois Supreme Court for Leave to Appeal

2010-11-03T11:36:00.000-07:00

In the wake of the Illinois Supreme Court's recent decision in K. Miller Construction Co. v. McGinnis, ILSC Case No. 109156, the Court's November Docket book includes four more Home Repair and Remodeling Act cases in the Leave to Appeal Docket. This means a party in each of these cases has sought to appeal the decision of the Illinois Appellate Court, but the Illinois Supreme Court has not yet determined whether or not it will grant the appeal and hear the case. The four cases have all been discussed on this blog previously, as follows:

Artisan Design Build v. Bilstrom , ILSC No. 109371, discussed here.
Fandel v. Allen, ILSC No. 109887, discussed here.
Roberts v. Adkins, ILSC No. 109909, discussed here.
Universal Structures, LTD. v. Buchman , ILSC No. 110842, discussed here.

The Court will likely announce by the end of the month whether or not it will hear appeal of these cases. Stay tuned.

Illinois Supreme Court Weighs In on Home Repair and Remodeling Act

2010-09-23T14:55:00.000-07:00

The Illinois Supreme Court issued an opinion today in K. Miller Construction Co. v. McGinnis, Case No. 109156, holding that a contractor who violated the Illinois Home Repair and Remodeling Act (HRRA), 815 ILCS 513/1 et. seq, by not working under a written contract and failing to give the homeowner the consumer rights brochure required by the HRRA, still had a right to be paid for its work under both legal and equitable theories. The First District Appellate Court had held last year that the contract was void as against public policy, but that the contractor still had a right to be paid for its work under the equitable theory of quantum meruit (literally, "as much as he has deserved").

In July the HRRA was amended to clarify that a homeowner who suffers actual damages as a result of an HRRA violation has recourse under the Consumer Fraud and Deceptive Business Practices Act (CFDBPA), 815 ILCS 505/1 et. seq. However, as previously discussed on this blog, exactly how courts would interpret the new HRRA language remained to be seen. The Second District, for example, noted in Fleissner v. Fitzgerald, Case No. 2-09-0805, its view that the legislative intent in changing the HRRA was to confirm the First District's holding in McGinnis. Today the Illinois Supreme Court has instead confirmed that the new HRRA confirms that the legislative intent was not to require oral contracts in violation of the HRRA to be void as against public policy.

This opinion will be viewed as a victory for contractors, and it should help to alleviate the risk of a homeowner using the HRRA as an excuse to not have to pay for a contractor's non-defective work, completed on time and pursuant to the parties' agreement, even if oral. However, contractors would do well to take note of the caveats in that last sentence - if it's an oral agreement, it will be much more difficult to prove these issues.

HRRA ASIDE, IT IS IN BOTH PARTIES' BEST INTEREST TO MEMORIALIZE THE AGREEMENT IN WRITING! Here's an excellent article from North Carolina construction law attorney Melissa Brumback, via Virginia construction law attorney Christopher G. Hill's blog "Construction Law Musings," on why it's important to get it in writing--two outstanding sources for construction law information and advice.

Home Repair and Remodeling Insurance - If You Are Liable Under the HRRA, Your HRRA-required Insurance May Not Cover You

2010-09-16T06:43:00.000-07:00

If you are familiar with the Illinois Home Repair and Remodeling Act (the HRRA), you know that the law requires home repair and remodeling contractors to carry certain minimum insurance, including the following:

"...public liability and property damage insurance in the amount of $10,000 per occurrence for home repair or remodeling not in conformance with applicable State, county, or municipal codes, unless the person has a net worth of not less than $1,000,000 as determined on the basis of the person's most recent financial statement, prepared within 13 months."

(emphasis added).

There is a long line of cases analyzing what is and is not an "occurrence" in the context of a contractor's commercial general liability (CGL) insurance policy. That issue is beyond the scope of this post, but suffice it to say that it is a complicated and hotly contested area of the law, perhaps especially so in Illinois. Throw the HRRA into the mix, and you have the recent case of West Bend Insurance Company v. The People of the State of Illinois, Case Number 1-08-1693 (Ill. App. 1st District, May 27, 2010).

West Bend is actually a consolidated opinion of four lawsuits against a contractor, Father and Sons Contractors, Inc, by the Illinois Attorney General and three private homeowners under the HRRA and the Illinois Consumer Fraud and Deceptive Business Practices Act, among other claims. The contractor tendered defense to its insurer, West Bend. West Bend filed suit in all four cases seeking a declaratory judgment that it had no duty to defend or indemnify the contractor. The trial court granted West Bend's motion for summary judgment and the contractor appealed.

The contractor in this case had an endorsement in its CGL policy that covered "improper home repair and remodeling," limited liability to "'property damage' arising out of 'improper home repair and remodeling' - $10,000 per 'occurrence,'" and excluded "'improper home repair and remodeling' knowingly performed by the insured." (emphasis added).

The Appellate Court held that the complaints against the contractor did not allege any occurrences, but instead alleged "deliberate fraud and intentional acts of faulty workmanship;" and did not allege any "property damage," because that term in this context refers to damage to the property of others, not mere economic losses of the insured. Finally the Court held that the exclusion in the policy of "improper home repair and remodeling knowingly performed by the insured" bars coverage, since the complaints did not allege mere negligence by the contractor. For these reasons, the insurance company had no duty to defend or indemnify the contractor.

In other words, the contractor had the home repair and remodeling insurance required by the HRRA, but still was not covered. Contractors, check with your insurer and your attorney so you understand what your CGL policy does and does not cover in advance, so you are not hit with a surprise.

New Illinois Home Repair and Remodeling Act Case - Fleissner v. Fitzgerald

2010-08-17T09:20:00.000-07:00

The Appellate Court of Illinois, Second District issued an opinion on August 6, 2010 in another Illinois Home Repair and Remodeling Act (HRRA) case, Fleissner v. Fitzgerald, Case Number 2-09-0805. In Fleissner, a home repair contractor sued a homeowner to enforce an oral contract, by asserting four counts - I. Mechanics Lien Foreclosure; II. Breach of Contract; III. Unjust Enrichment; and IV. Quantum Meruit. The homeowner moved to dismiss the suit under Code of Civil Procedure Section 2-619(a)(9) because the contractor failed to provide and have the homeowner sign a written agreement, and failed to give the homeowners the consumer rights brochure required under the HRRA. The trial court granted the homeowners' motion and the contractor appealed.

On appeal the contractor argued that the trial court erred in dismissing the equitable remedy counts (Unjust Enrichment and Quantum Meruit) but the Appellate Court determined that the contractor did not contest the dismissal of the Mechanics Lien and Breach of Contract counts. The Court reviewed the HRRA case law and noted the modified language in Section 30 of the HRRA, which had been passed by the legislature but was not yet signed into law at the time the Court wrote its opinion. The Court agreed with the First District decision in McGinnis, and held that the HRRA did not affect a contractor's ability to recover in equity (Unjust Enrichment and Quantum Meruit) for work it had performed pursuant to an oral agreement.

Because the Court found the contractor failed to contest the Mechanics Lien and Breach of Contract counts, the Court noted that it was not required to consider these in its opinion. However, the Court did take issue with the Third District Appellate Court's opinion in Fandel v. Allen, in which the Third District held that the HRRA did not preclude a contractor from enforcing a mechanics lien where the contractor failed to have the homeowner sign a written contract, specifically disagreeing with the Fandel Court's interpretation of Central Illinois Electrical Services, L.L.C. v. Slepian.

The Court then noted the changes made by the Illinois legislature to Section 30 of the HRRA (now law). The Court notes that the legislative purpose here appears to have been to clarify, rather than change, the law, so that there is no question that equitable remedies remain available to the contractor and that the homeowner has a right of action under the Consumer Fraud and Deceptive Business Practices Act (see my earlier post about that).

The Second District's interpretation of new HRRA Section 30 is extremely significant. The Court appears to be saying that the new Section 30 merely reinforces the interpretation of the law expressed in McGinnis. The logical conclusion, which is left unsaid in the opinion, is that even under new Section 30 a contractor who does not comply with the HRRA may be left with equitable remedies only - in other words NO MECHANICS LIEN RIGHTS!

Thus although new Section 30 helps to clarify the HRRA, the statute is still subject to judicial interpretation. Contractors should still get home repair/remodeling contracts in writing, and otherwise comply with the HRRA, to protect their rights.

The Illinois Home Repair and Remodeling Act - Now What?

2010-08-04T19:22:00.000-07:00

I have written several posts to this page, most recently here, about the Illinois Home Repair and Remodeling Act (the HRRA) because I consider it to be an important law for contractors and consumers, and because of the variety of interpretations of the law provided by Illinois appellate courts. Well, Governor Quinn signed a bill into law in July that changed Section 30 of the HRRA. The new Section 30 reads as follows:

Sec. 30. Action for actual damages.

Any person who suffers actual damage as a result of a violation of this Act may bring an action pursuant to Section 10a of the Consumer Fraud and Deceptive Business Practices Act.

Attorney Garrett Kern at the Illinois Construction Law Blog has noted that the First District Appellate Court is the first appellate court to reference the new law (the bill was not yet enacted at the time the opinion was written), in Universal Structures, LTD. v. Buchman. The court, after holding that a contractor's failure to strictly comply with the HRRA did not invalidate an otherwise enforceable agreement, noted that this holding was consistent with the bill, and that homeowners suffering actual damages have a cause of action under Section 10a of the Illinois Consumer Fraud and Deceptive Business Practices Act (the Act).

To my knowledge, no Illinois appellate court has yet held a contractor liable under the Act for a violation of the HRRA. In most HRRA cases, the action was brought by the contractor seeking payment for its work, and the homeowner simply alleges a violation of the HRRA as a defense to having to pay the contractor. In Kunkel v. P.K. Dependable Construction, LLC, one of the rare cases in which the homeowner was the plaintiff and more fully discussed here, the Fifth District Appellate Court addressed the homeowner's claim under the Act. In Kunkel, the homeowner alleged the contractor violated Sections 2Z and 2Q(c) of the Act. Section 2Z provides that any person who knowingly violates the HRRA commits an unlawful practice under the Act. The Kunkel court held that since the homeowner had not presented any evidence of the contractor's state of mind, there was no evidence to prove the violation was "knowing" and therefore the homeowner's claim under Section 2Z of the Act could not stand.

Contrast the language of Section 2Z of the Act with the new HRRA Section 30. HRRA Section 30 makes no reference to 2Z, but merely states that a person damaged by a violation of the HRRA can sue under Section 10a of the Act. Section 10a is the portion of the Act that provides a private cause of action for anyone damaged as a result of a violation of the Act; it does not mention Section 2Z either.

So the question is, does a contractor's violation of the HRRA need to be "knowing" for a homeowner damaged by such violation to have a cause of action under Section 30 of the HRRA and through Section 10a of the Act, as would be required for an action under Section 2Z of the Act?

Lead Paint RRP Rule - EPA Grants More Time for Remodelers to Get Certified

2010-06-22T07:00:00.000-07:00

The US EPA has announced that it will not take enforcement action against home repair and remodeling contractor firms for failure to get certified until after October 1, 2010. EPA will not enforce individual worker certifications so long as the individual has applied for a certification program by September 30, 2010, and completes the training by December 31, 2010. In granting this extension, EPA noted concerns raised about the limited availability of qualified certification firms. This decision allows contractors more time to find a qualified certification firm and complete the training.

NOTE: The substantive requirements of the Lead Paint "Renovate, Repair, Paint" (RRP) rule remain in effect and subject to compliance enforcement (such as the requirement to give the homeowner EPA's RRP pamphlet "Renovate Right," and to follow lead safe work practices, described here).

Thanks to the National Association of Home Builders for their efforts in working with EPA to help remodeling contractors get this much needed extension of time to get certified. NAHB has issued a press release on the topic here, and has helpfully provided a link to the full EPA memorandum here.

Illinois FOIA - June 30th FOIA Officer Training Deadline Approaching

2010-06-11T20:18:00.000-07:00

Illinois' newly revised Freedom of Information Act (FOIA) took effect on January 1. The law is designed to help foster transparency and accountability in government, and numerous changes were made to that end. One such change was the requirement that every Illinois public body appoint one or more "Freedom of Information Officers" (FOIA Officers) who are to receive, process, and respond to FOIA requests submitted to the public body. FOIA Section 3.5. The law requires that all FOIA Officers complete a mandatory initial training program with the Attorney General's Office by June 30, 2010. The Attorney General's Office has provided an online registration portal for FOIA Officers, from which the FOIA Officers can complete the required training online. Interested members of the public can also access FOIA training at this site. After the initial program, FOIA officers are required to complete additional training annually.

There are numerous small public entities in Illinois, and many may not be aware of this requirement. If you work with such an entity, please make sure they are aware of the deadline so they can comply with the requirement.

Environmental Consulting / Permitting Work For Real Estate Option Holders May not be Lienable in Illinois

2010-06-02T07:49:00.000-07:00

In Mostardi-Platt Associates, Inc. v. Czerniejewski, the Fifth District Illinois Appellate Court affirmed the trial court's dismissal of the plaintiff's mechanics lien claim, where the plaintiff completed "air quality construction permitting and disperson modeling services" for Power Holdings of Illinois, LLC, who had an option to purchase the property at issue. Case No. 5-09-0339 (May 11, 2010). The Appellate Court held that plaintiff had not contracted with the "owner" of the land under the Mechanics Lien Act; that the contract between Power Holdings and the owners (Power Holdings was actually assigned this contract from another entity) only authorized feasibility studies, not improvements to the land; and that the services provided by the plaintiff did not result in any improvement to the land or benefit to the owner.

The court analogized the case to L.J. Keefe Co v. Chicago & Northwester Transportation Co, in which a plaintiff subcontractor sought a mechanics lien for its work done under contract to Commonwealth Edison Company, pursuant to a license granted by the owner. 287 Ill. App. 3d 119 (1997). In that case, the court found that the subcontractor's work was for the sole benefit of Commonwealth Edison Company and did not benefit the land or the landowner, and therefore the subcontractor had no mechanics lien rights against the owner. Similarly, the Appellate Court in Czerniejewski reasoned that the plaintiff's work benefited the option holder, Power Holdings, not the owner, and did not improve and were not for the purpose of improving the land.

For environmental consultants or engineers facing similar situations, consider the following:

1. Is my contract with the owner of the property or a mere option holder?

2. If my contract is with an option holder, does the owner know about my work and has it authorized my work in writing? Does the written authorization classify appropriately the nature of my work?

3. If the project is not built, is my work "for the purpose of improving property" or for some other purpose?

4. What is my risk exposure if I'm not eligible for a mechanics lien for this work? Should I require more up-front payment as a result?

Update on EPA's New Lead Paint Rules for Remodeling Contractors

2010-05-03T11:03:00.000-07:00

EPA's new renovation, repair, or painting (RRP) rules for remodeling contractors went into effect on April 22nd. I wrote about this new rule on this page previously. The Chicago Tribune ran an article over the weekend about the new rule and compliance issues. The article does a good job at summarizing the issue - only about 200 out of 1,000 companies doing remodeling work in Illinois were RRP certified two days before the rule took effect, according to the EPA.

In the past months I have had the opportunity to discuss this rule with several chapters of the Home Builders Association of Illinois. These groups have been very proactive in getting the word out to member contractors and scheduling training classes to help contractors get certified and comply with the new rule. Also, the Illinois Department of Public Health's Lead Program has led a series of informational meetings around the State to inform contractors and answer questions about the rule. I had the opportunity to attend one of these meetings in Peoria last month, and it was very well attended and well received.

Compliance with the new rule will bear a cost, which will inevitably be passed on to the homeowners/consumers. Therefore consumers need to be educated about this program, so they understand why they should hire a certified firm to do a project, and pay more, rather than an uncertified firm.

The article also indicates that the EPA is mostly relying on the industry to police itself and on consumer complaints to enforce the new rule. This may present a temptation for contractors to not comply and take their chances to not get caught. Beware! Non-compliant contractors may be liable for civil and/or criminal penalties of up to $37,500 per violation per day. All it takes is one dissatisfied client, competitor, employee, etc. to question your compliance record, rightly or wrongly, and EPA may well then come and inspect your records.

EPA has issued a memo regarding implementation of the RRP rule and a corresponding Frequently Asked Questions guide, to help address some of the concerns with the transition to this new rule.

We're Moving!

2010-03-19T14:42:00.000-07:00

If you're wondering where I've been for the past several weeks, have no fear! I am alive and well. In fact, I am pleased to announce that I have joined the legal practice of Mueller and Reece, LLC in Bloomington, Illinois. I am excited to be a part of the Mueller and Reece team. Please bear with me on this page for a while as I complete this transition.

Arbitration and Illinois Mechanics Lien Act Section 34 Demands - A Choice for Owners

2010-02-25T12:18:00.000-08:00

The Second District Appellate Court of Illinois recently held that an owner by filing a demand under Section 34 of the Mechanics Lien Act (the Act) can be deemed to have waived a contractual right to compel arbitration. The case is Illinois Concrete-I.C.I, Inc. v. Storefitters, Inc, No. 2-09-0854 (2nd Dist. 2010). In Storefitters, the plaintiff contractor filed a mechanics lien claim alleging that the defendants had failed to pay it for its work. The Defendants then served notice on the plaintiff pursuant to Section 34 of the Act, requiring the contractor to file suit to commence an action to enforce the lien within 30 days, or else forfeit the lien claim (the "Section 34 Demand"). The contractor filed suit as required, at which point the defendants filed a motion to compel arbitration pursuant to a mandatory arbitration clause in the parties' contract (it appears from the opinion that the contract language actually called for mediation followed by arbitration). The trial court denied the motion, finding that the defendant had waived the right to compel arbitration by issuing the Section 34 Demand.

On appeal, the Second District Appellate court affirmed the trial court's decision. The court noted that the mere filing of a mechanics lien claim (a "claim for lien") is not inconsistent with an arbitration requirement. The defendants could have submitted the dispute to arbitration at that point. By issuing the Section 34 Demand, the defendants were demanding that a suit be filed, and therefore "expressly chose a method outside the scope of the arbitration agreement."

In Storefitters, the defendants correctly pointed out that a Section 34 Demand may sometimes result in invalidating the lien and avoiding litigation if the lien claimant does not file suit within the required time. The court did not disagree with this statement but found it unpersuasive as a reason to compel arbitration.

The result is that the owner, faced with a filed lien claim and having an arbitration agreement, must choose between enforcing the alternative dispute resolution procedures in the contract, or using its right to a Section 34 Demand under the Act to force the lien holder to file suit quickly to maintain the claim.

NOTE: This does NOT mean that the CONTRACTOR in this situation could not have compelled arbitration if it wanted to. For that situation, see La Hood v. Central Illinois Construction, Inc, 335 Ill. App. 3d 363 (2002), which was referenced in the Storefitters opinion.

Agreements to Arbitrate - What If the Designated Arbitrator or Forum Goes Out Of Business?

2010-02-23T12:03:00.000-08:00

This question came up recently as I was reviewing a construction contract. The contract, as is common in the construction industry, contained an agreement to submit any disputes to binding arbitration, and specified the organization to manage the arbitration. The problem was that by the time the dispute arose the designated arbitration organization was no longer in business. What now? This issue was addressed in the recent Illinois case Carr v. Gateway, Inc, No. 5-07-0711 (5th Dist. 2009).

Carr is a class action case in which the plaintiffs alleged that Gateway and Intel Corp. had violated consumer protection laws in Illinois and elsewhere in the U.S. by engaging in deceptive advertising regarding the capabilities of various computer processors. Gateway moved to dismiss the case or alternatively to stay the proceedings and compel arbitration pursuant to an arbitration agreement included when the Carrs (the named plaintiffs seeking to represent the class) purchased their computer. This arbitration agreement stated that any dispute would be resolved "exclusively and finally" by arbitration administered by the National Arbitration Forum (NAF). The agreement further included a statement that the purchaser "expressly and knowingly waived" the right to litigate a dispute in court, and that if either party should bring a dispute in any forum other than the NAF, the arbitrator may award attorneys' fees, costs and expenses for enforcing this provision. During the course of the appeal proceedings however, the NAF announced that it would cease administering all consumer arbitrations.

Gateway argued that NAF's unavailability constituted a "lapse in the naming of an arbitrator" under Section 5 of the Federal Arbitration Act, and that therefore the court must designate an alternative arbitrator who would have the same powers and authority as the NAF would have had under the arbitration agreement. The appellate court noted that courts are split as to whether Section 5 applies in this type of case, but that courts that have found Section 5 applicable have required that the chosen arbitration forum be merely an "ancillary logistical concern" in the agreement. If the forum selection is an integral part of the agreement to arbitrate, then the failure of the chosen forum will preclude the court from enforcing arbitration. In this case, the Fifth District found the language of the agreement specifically and exclusively requiring that the NAF be the sole forum to be an integral part of the agreement. Therefore Section 5 of the Federal Arbitration Act could not be used to modify the arbitration agreement by selecting an alternate forum, and the appellate court affirmed the circuit court's denial of Gateway's motion to compel arbitration.

Now, this was a non-construction industry, consumer goods contract at issue in the Carr case. The contractual language was very strict, to the point of penalizing a party for seeking an alternative forum, but I have seen similar language in construction contracts. It would be wise to take another look at your contract forms, even if you are using an industry standard document, and make sure the arbitration and/or mediation clauses address the question of what happens if the designated forum organization is not available to hear your dispute.

The Illinois Home Repair and Remodeling Act - Where Do We Go From Here?

2010-02-19T07:45:00.000-08:00

This is the ninth and final part in a series of posts on the Illinois Home Repair and Remodeling Act (HRRA). We have now discussed the law and its interpretation in each of the five Illinois Appellate Districts. The key question at issue is this - does the HRRA act as a "shield" for the homeowner to prevent a contractor from collecting payment for work completed if the contractor did not comply with the HRRA? Three of the five appellate districts (the First, Third, and Fourth) have held that the HRRA does shield the homeowner from at least some claims by a non-compliant contractor. The Second and Fifth Districts have not disagreed. But the appellate courts have disagreed as to what extent the homeowner is shielded. The Illinois Supreme Court (IL SC) is scheduled to hear an appeal in at least one HRRA case later this year, which may result in a clearer, statewide interpretation of the HRRA.

A bill (SB 2540) has also been introduced at the Illinois Senate to amend the HRRA by replacing Section 30 (which describes certain violations of the HRRA as "unlawful" but does not elaborate on the legal implications of this assessment) in its entirety, with the following, proposed language:

Sec. 30. Violation of the Act. The remedy under this Act for any person who suffers actual damage as a result of a violation of this Act is that such person may bring an action pursuant to 815 ILCS 505/10a of the Consumer Fraud and Deceptive Business Practices Act. (815 ILCS 513/30)

Attorney Adam Whiteman notes in his recent article on the HRRA in the Illinois State Bar Association's "Real Property" newsletter, that the proposed revision came about after meetings between members of the ISBA and the Illinois Attorney General's Office. Mr. Whiteman's article also provides an excellent summary of the HRRA and the appellate cases interpreting it. The Chicago Daily Law Bulletin has also recently written about the HRRA bill.

It is good to see efforts being made in both the IL SC and the General Assembly to clarify the HRRA. If you have an opinion about the proposed amendment to the statute, you may wish to contact your elected representatives in the General Assembly and let them know. This is a law that was enacted with the best of intentions to protect homeowners from contractor fraud and to encourage communication clear expectations between homeowners and contractors. Unfortunately, the law as it stands, pending action by either the IL SC or the legislature, is uncertain and confusing, which prevents the HRRA from accomplishing its purpose. It has also become clear that there are innocent contractors as well as innocent homeowners, and that some measure of fairness would be appropriate to prevent the HRRA from being used in a draconian fashion, punishing contractors unfairly for minor, harmless violations.

The Illinois Home Repair and Remodeling Act - The 3rd District

2010-02-18T08:17:00.000-08:00

This is part eight in a series of posts on the Illinois Home Repair and Remodeling Act (HRRA), and the final post looking at the law in each of the Illinois appellate districts. The previous posts:

1) Introduction
2) Statute
3) Illinois Supreme Court opinion
4) The 5th District
5) The 4th District
6) The 1st District
7) The 2nd District

Once again, here's the map of the Illinois Appellate Districts. The Third District extends across the north central part of the state, and includes Will County, Kankakee County, Peoria County, and Rock Island County, among others. I saved the Third District for last in this series because this district has issued the last two HRRA appellate opinions, both in January 2010. The Third District also was the first district to issue an HRRA opinion, so I'll start there.

In the 2005 case of Central Illinois Electrical Services, LLC v. Slepian,1 the Third District became the first appellate court in Illinois to consider the HRRA. In Slepian the contractor sued the homeowner to foreclose on a mechanics lien pursuant to an oral contract for electrical work. The homeowners asserted that the contractor had violated the HRRA by not providing a written contract, and that therefore the oral contract was void and could not form the basis of a mechanics lien claim. The contractor argued that, since it was the second electrical contractor on the job, it did not "initiate" the work, and therefore the HRRA did not apply. It also argued that because the homeowner kept changing the scope of work it would be impossible to have provided an estimate of the total costs. The court held that the HRRA did apply to this contractor and that there was no exception under the HRRA for time and materials contracts, but that the HRRA did not preclude the contractor from providing an updated estimate or work order as warranted.

Fast forward now to 2010. The Fourth District issued the Smith v. Bogard opinion in 2007.2 The First District recently chose not to follow Bogard in K. Miller Construction Co, Inc. v. McGinnis,3 a case that the Illinois Supreme Court has granted leave to appeal. The Third District issued two opinions within a week of each other - Roberts v. Adkins filed on January 7, 2010; and Fandel v. Allen filed on January 14, 2010 - reaching very different conclusions, and not referencing the other case in either opinion.4,5

In Roberts, the contractor sued the homeowners to foreclose on a mechanics lien for work painting a fence and refinishing a deck, and the homeowners raised the HRRA as an affirmative defense. It was undisputed that the contractor did not provide any written agreement or work order, nor did he give the homeowners the HRRA-required consumer rights brochure. The original estimate (verbal) for the work was $750, but with changes the total cost exceeded $1,000; the contractor's lien claim was for approximately $2,000. The deck exhibited problems and the homeowner hired a different contractor to fix it. The trial court granted a judgment for the contractor, specifically finding that the HRRA did not apply. The Third District Appellate Court found that the contractor was required to obtain a written contract in compliance with the HRRA "when [he] became aware that the anticipated costs would exceed $1,000." As a result, the court further found that since the contract did not comply with the HRRA it was invalid and could not form the basis of a breach of contract or mechanics lien foreclosure claim. Finally, the court found that the homeowners had established a potential claim for breach of contract by the contractor, but had not established a Consumer Fraud and Deceptive Business Practices Act (CFDBPA) claim, since they did not show that the contractor's failure to supply a written agreement and the consumer rights brochure caused them damages.

In Fandel, similar to Roberts, the contractor performed repair and remodeling work (a roof replacement) for the homeowner without obtaining a signed contract and without giving the homeowner the HRRA consumer rights brochure. The difference is that the contractor in Fandel did prepare a written, itemized work order, gave it to the homeowner, and the homeowner verbally authorized the contractor to proceed (as opposed to the Roberts contractor, where there was nothing in writing to document the oral contract). As in Roberts, the contractor sued to foreclose its mechanics lien, and the homeowner sought to dismiss the case due to the contractor's noncompliance with the HRRA. The trial court granted the homeowner's motion and the contractor appealed. The Third District Appellate Court held that the contractors violations of the HRRA did not invalidate the agreement between the parties and thus did not bar the contractor from recovering on its mechanics lien claim. The court rejected the Fourth District's holding from Bogard and also disagreed with the First District holding in McGinnis, and noted that the homeowner's private remedy in the HRRA is to pursue an action under the CFDBPA.

As noted above, the facts in the Roberts and Fandel cases differ to an extent, but unfortunately in neither case does the court refer to the other case. Therefore, it is not clear where exactly is the line between a contractor's valid contract and thus no HRRA defense for the homeowner pursuant to Fandel and a contractor's invalid contract and thus an HRRA defense for the homeowner pursuant to Roberts. I believe the fact that the contractor in Fandel at least had a written, "reasonably particular" work order, while the contractor in Roberts had nothing in writing, is an important differentiating factor, but the court does not explicitly say this in either opinion. It is interesting to note that Justice Lytton, who wrote the majority opinion in Roberts, wrote a dissenting opinion in Fandel, which appears consistent with Roberts (but again, the Fandel opinion contains no reference to Roberts, so it is not clear).

1. Central Ill. Elect. Srvcs, LLC v. Slepian, 831 N.E.2d 1169 (3rd Dist. 2005).
2. Smith v. Bogard, 879 N.E.2d 543 (4th Dist. 2007).
3. K. Miller Constr. Co, Inc. v. McGinnis, 913 N.E.2d 1147 (1st Dist. 2009).
4. Roberts v. Adkins, No. 3-09-0187, __ N.E.2d __, 2010 WL _____ (3rd Dist. 2010).
5. Fandel v. Allen, No. 3-08-0237, __ N.E.2d __, 2010 WL ____ (3rd Dist. 2010).

The Illinois Home Repair and Remodeling Act - The 2nd District

2010-02-17T08:00:00.000-08:00

We're up to part seven in a series of posts on the Illinois Home Repair and Remodeling Act (HRRA). Here are some quick links to the previous posts for reference:

1) Introduction
2) Statute
3) Illinois Supreme Court opinion
4) The 5th District
5) The 4th District
6) The 1st District

Next we look at the Second District. Here's the map of the Illinois Appellate Districts. The Second District is the northernmost district in Illinois, extending from Lake County to Jo Daviess and Carol counties. The court meets in Elgin in Kane County.

The Second District has issued two opinions involving the HRRA. We have already discussed one of these cases - MD Electrical Contractors, Inc. v. Abrams, which is the only HRRA case to date to have been heard by the Illinois Supreme Court.1 The other Second District HRRA opinion was published in September 2009, Artisan Design Build, Inc. v. Bilstrom.2

In Artisan, the following facts were alleged by the plaintiff contractor. The contractor and the homeowners had entered into a written home remodeling contract for approximately $500,000. As the work progressed, the parties subsequently agreed to eight change orders. After paying on six draws, the homeowners failed to pay the seventh draw. The contractor alleged that it had substantially completed the project, at which time the homeowners locked the contractor out of the project and advised it that they had hired another contractor to finish the work. The contractor sued the homeowners for breach of contract, mechanics lien foreclosure, and unjust enrichment, claiming an amount owed under the contract of approximately $200,000. The homeowners sought to have the case dismissed because the contractor had violated the HRRA, primarily by not providing the required consumer rights brochure, and the trial court granted their motion to dismiss. In addition, the contract contained a mandatory arbitration clause. After filing the complaint, the contractor also submitted a claim to the arbitration organization named in the agreement. The trial court ruled that the contractor had waived the arbitration clause by first filing the lawsuit.

On appeal, the Second District Appellate Court considered the issue of whether a contractor's failure to provide the brochure was alone a complete defense for the homeowner to all legal and equitable claims brought by the contractor. The court noted that Section 20 of the HRRA, which is the paragraph requiring the contractor to distribute the brochure, does not indicate that failure to comply constitutes an "unlawful act" as is indicated for certain other violations of the HRRA. Instead, the brochure itself merely advises homeowners to consult the State's Attorney or Attorney General if they feel they have been defrauded. The court also noted that under Section 35(b) of the HRRA, any violation of the HRRA, including the contractor's failure to provide the required brochure, could give rise to a consumer claim under the Consumer Fraud and Deceptive Business Practices Act (CFDBPA). The court held that a contractor's failure to provide the HRRA consumer rights brochure to the homeowner does not vitiate the contractor's right to recover in equity or law.

Regarding the arbitration clause, the court noted that the contractor had failed to have the homeowners sign in the margin next to the clause and indicate "accept" or "reject," thus rendering the clause invalid under the HRRA. It appears likely that the contract in question was based on an American Institute of Architects (AIA) industry standard form (I believe it was AIA form A191-1996, Owner-Design/Builder).

1. MD Elect. Contractors, Inc. v. Abrams, 228 Ill.2d 281 (2008).
2. Artisan Design Build, Inc. v. Bilstrom, No. 2-08-0855, __ N.E.2d __, 2009 WL 3052362 (2009).

The Illinois Home Repair and Remodeling Act - The 1st District

2010-02-16T08:00:00.000-08:00

This is part six in a series of posts on the Illinois Home Repair and Remodeling Act (HRRA), and the third post in the series looking at the rulings of each of the appellate district courts. After starting with the fifth and fourth districts, I'm now going to jump to the First District and then proceed to the second and third districts in the next few days. Why? Because of the importance of the First District's August 2009 ruling in K. Miller Construction Company, Inc. v. McGinnis.1 McGinnis is the only HRRA case to come out of the First District Appellate Court (specifically, the First Division), and the McGinnis court disagreed with the Fourth District's decision in Smith v. Bogard.2

Again, here's a map of the Illinois Appellate Districts. The First District is the smallest district geographically, but for good reason -- it "only" covers Cook County. In 2008 the First District reported a total pending caseload of 5,738. That's more than the other four districts reported combined (total of 4,073 cases). For that reason, the First District Appellate Court is actually divided into six divisions.

In McGinnis, the contractor had previously done work for the homeowners on another property. The parties initially reached an oral agreement for remodeling work amounting to $187,000. After paying an initial $65,000, the homeowners refused to pay a $58,000 progress payment and indicated that they would not make further payments until the work was complete. The contractor then obtained a $150,000 line of credit to pay for materials and subcontractor to complete the work. Meanwhile, due to changes in the scope of work, the ultimate cost of the project allegedly exceeded $500,000. After allegedly approving all the work but for a $300 credit for some minor floor damage, the homeowners refused to pay more than $177,580.33. The contractor filed a mechanics lien claim and then sued to foreclose on its lien, as well as for damages in law for breach of contract and quantum meruit. The homeowners sought to dismiss the suit due to the contractor's failure to comply with the HRRA. The trial court granted the motion and the contractor appealed.

Regarding the breach of contract and mechanics lien foreclosure claims, the First District Appellate Court affirmed the trial court, holding that without a written contract or work order a contractor's "time and materials" contract was unenforceable under the HRRA. The court then analyzed the quantum meruit claim in the context of the HRRA, and found that the language of Section 30 of the HRRA (specifically the use of the word "unlawful") did not clearly express an intention by the state legislature to bar the common law equitable remedy of quantum meruit, a holding which the court noted to be at odds with the Fourth District's ruling in Bogard.

The Illinois Supreme Court has granted a petition for leave to appeal in the McGinnis case, and will hopefully issue an opinion in the case later this year.

1 K. Miller Constr. Co, Inc. v. McGinnis, 913 N.E.2d 1147 (1st Dist. 2009), appeal allowed by __ N.E.2d __ (Ill. Nov. 25, 2009) (Table, No. 109156).
2 Smith v. Bogard, 879 N.E.2d 543 (4th Dist. 2007).

Illinois Home Repair and Remodeling Act - the 4th District

2010-02-15T09:43:00.000-08:00

This is part five in a series of posts on the Illinois Home Repair and Remodeling Act (HRRA). The first three parts were 1) the introduction, 2) the statute itself, 3) statewide law. The fourth part kicked off a district by district analysis of the law, starting with the Fifth Appellate District. With this post we move to the Fourth District.

Here's a map of the Illinois Appellate Districts. The Fourth District cuts across the center of the state, from east to west, and includes Springfield, Champaign/Urbana, and Bloomington/Normal. The Fourth District Appellate Court has ruled on three HRRA cases to-date--two at the end of 2009 and one in 2007. The 2007 case, Smith v. Bogard,1 was the second Illinois appellate case interpreting the HRRA. The Bogard opinion is an important one because it is the first case in which an Illinois appellate court explicitly held that a contractor, by not complying with the HRRA, had lost its right to recover payment for its work (the 2005 Third District case Central Ill. Electrical Services, LLC v. Slepian came close but, after ruling that the HRRA applied to the contractor, remanded the case to the trial court for further proceedings).2

In Bogard, the contractor (Smith) gave the homeowners an oral estimate of "$20,000 or less" as the cost of labor and materials to complete a living room addition. Nothing was put in writing, and the final cost turned out to exceed $25,000. The contractor did not give the homeowners the consumer rights pamphlet required by the HRRA. The contractor sued the homeowners for breach of contract, unjust enrichment, and quantum meruit. The homeowners responded that the contractor violated the HRRA and therefore they did not have to pay. The trial court agreed and dismissed the case. On appeal the Fourth District Appellate Court held that 1) Smith was not a "subcontractor" and thus was required to comply with the HRRA; 2) Smith failed to comply with the HRRA; 3) therefore he was precluded from recovering "any amounts he claims due for work performed." The court specifically agreed with the trial court that the contractor was not entitled to recover payment under equitable theories (unjust enrichment and quantum meruit).

The Fourth District did not issue any subsequent opinions involving the HRRA until the last quarter of 2009, when it ruled on two more cases.

In Tom Geise Plumbing, Inc. v. Taylor,3 the Fourth District held that the HRRA did not apply where the defendant and alleged "homeowner" slept in unfinished spaces on the second and third floors of a commercial building and intended to partially convert the building to residential space, finding that this building was not a "residence" under the HRRA.

In Behl v. Gingerich,4 the court held that where the contractor provided a written work order with "reasonable particularity" but failed to execute a signed contract with the homeowner and failed to provide the HRRA consumer rights brochure, the contractor was not barred from recovering payment under legal and equitable claims, because the contractor had substantially complied with the HRRA and the homeowner was not prejudiced by the items of noncompliance. The court noted that in this case, although the work order was not signed, there was evidence that it had been negotiated and accepted by the parties; the court also found it significant that the homeowner was the party that initially sought out the contractor to perform the work, and not the other way around. In addition, the court held that the contractor was not entitled to payment for extra work performed since there had been no written change order or other notification until after the lawsuit was filed.

1 Smith v. Bogard, 879 N.E.2d 543 (4th Dist. 2007).
2 Central Ill. Elect. Svcs, LLC v. Slepian, 831 N.E.2d 1169 (3rd Dist. 2005).
3 Tom Geise Plumbing, Inc. v. Taylor, No. 4-08-0799, __ N.E.2d __, 2009 WL 3838984 (4th Dist. November 10, 2009).
4 Behl v. Gingerich, No. 4-08-0974, __ N.E.2d __, 2009 WL 5112480 (4th Dist. December 21, 2009).

The Illinois Home Repair and Remodeling Act - The 5th District

2010-02-12T07:57:00.000-08:00

Previously in this series I introduced the Illinois Home Repair and Remodeling Act (HRRA), summarized the statute, and noted what the Illinois Supreme Court (IL SC) has done to interpret the law statewide. At this point, Illinois Appellate Courts disagree on what the law means. So the next five posts in this series will evaluate the HRRA law in each appellate district, starting with the Fifth District. There are five appellate districts in Illinois, as shown in this map. The Fifth District is the southernmost district in the state, and the appellate court meets in Mt. Vernon.

A note on precedent - Illinois Supreme Court decisions and legal interpretations are binding throughout the state. Appellate Court decisions and legal interpretations are binding on trial courts throughout the state, unless there is a conflict among the appellate court districts. In that event, an individual circuit (trial) court is bound by the decision in the most recent decision of the appellate court for its own district. If there is no controlling decision from its own district, the trial court can choose between the decisions of the other districts.* To date there have only been ten Illinois Appellate Court cases interpreting the HRRA. One of these was heard by the IL SC.¹ Of the remaining nine HRRA appellate court decisions, only one case was heard by the Fifth District - Kunkel v. P.K. Dependable Construction, LLC, a February 2009 decision.²

Kunkel is an interesting case because it is one of the few HRRA appellate cases were the homeowner sued the contractor, not the other way around. After signing a written contract with the defendant to replace their roof and paying in full, the Kunkels claimed that the contractor's roof replacement work was defective; the roof leaked. For three years, they sought to have the defendant fix the roof pursuant to a warranty. The contractor apparently came back out and tried to fix the leaks some 20 - 25 times, but the leaks continued. Finally the Kunkels sued the contractor for breach of contract, breach of warranty, and for violating the Illinois Consumer Fraud and Deceptive Business Practices Act (CFDBPA).³The CFDBPA claim was based on language in the law indicating that a violation of the HRRA could amount to a CFDBPA claim. The HRRA violation was that the contractor had failed to give the homeowner the required consumer rights brochure.
The trial court found that the contractor did breach its contract and warranty, and also found for the plaintiff on the CFDBPA claim (which was important because the CFDBPA provides for the winning plaintiff to recover its attorney fees and legal costs). The Fifth District Appellate Court affirmed the trial court's ruling as to the breach of contract and warranty claims. It overruled the trial court on the CFDBPA claim though and vacated the award of attorney fees and costs, because the Kunkels failed to show that they were actually damaged by the contractor's failure to give them the brochure, failed to provide evidence that the contractor "knowingly" violated the HRRA per CDFDBPA Section 2Z, and failed to send the contractor a written demand by certified mail for a refund as required by the CFDBPA Section 2Q(c). The court noted but did not resolve an inconsistency between the HRRA, which says that "any violation of this Act shall constitute a violation of the [CFDBPA]," and the CFDBPA Section 2Z, which requires a knowing violation of the HRRA to be actionable.

1  M.D. Elect. Contractors, Inc. v. Abrams, 228 Ill.2d 281 (2008).
2  Kunkel v. P.K. Dependable Construction, LLC, 902 N.E.2d 769 (5th Dist. 2009).
3  The CFDBPA claim was for alleged violations Sections 2Q(c) and 2Z of the CFDBPA.

* Corrected on 2/12/2010 from original post. See Garcia v. Hynes & Howes Real Estate, Inc, 331 N.E.2d 634 (3d Dist. 1975) and State Farm Fire & Casualty Co. v. Yapejian, 605 N.E.2d 539 (1992). I would like to thank Naperville attorney Bryan Sims of the Sims Law Firm, Ltd. for bringing to my attention the error in the original post.

Illinois Home Repair and Remodeling Act - What Do We Know For Sure?

2010-02-11T08:00:00.000-08:00

So far in this series I've introduced you to the Illinois Home Repair and Remodeling Act (HRRA) and we've discussed the statute itself. I've also mentioned that Illinois Appellate Courts disagree as to the interpretation of the HRRA. I will break that down, appellate district by appellate district, in upcoming posts. Before we get to that step, however, it is worthwhile to take one last look at the HRRA statewide and pose the question - "what do we know for sure?"

The answer? Well, we know the statute is the law everywhere in Illinois, but that only takes us so far when faced with appellate disagreement as to what the law means. In addition to the HRRA itself, we also know that statewide the HRRA means what the Illinois Supreme Court (the IL SC) says it means. So far the IL SC has only issued one opinion intrepreting the HRRA - MD Electrical Contractors, Inc. v. Abrams.¹ The IL SC has also granted leave to appeal in one other recent case,² and may well agree to hear additional cases in 2010. For now though, Abrams is the sole case of IL SC precedent intrepreting the HRRA.

In Abrams, the plaintiff subcontractor sued the homeowners in quantum meruit. (acknowledging that there was no contract between the parties but still wanting to be paid for its work). The homeowners sought to dismiss the suit by alleging that the HRRA applied, the subcontractor had failed to comply with the HRRA, and therefore the subcontractor was not entitled to recover any payment from the homeowners. The subcontractor argued that the HRRA does not apply to subcontractors.

The IL SC agreed with the plaintiff, and ruled that the HRRA does NOT apply to subcontractors. The court chose to go no further in its ruling, which is one reason two of the justices joined in a dissenting opinion in this case.

So, what do we know for sure about the HRRA statewide? We know it does not apply to subcontractors. And...that's it. To go beyond that, the interpretation of the law depends on where you are in the state, and in which appellate district you are located. We'll take a look at each district in turn next.

Case Citations:

MD Elect. Contractors, Inc. v. Abrams, 228 Ill. 2d 281 (2008).
K. Miller Constr. Co. v. McGinnis, 913 N.E. 2d 1152 (1st Dist. August 10, 2008). Appeal allowed by __ N.E.2d __ (Ill. November 25, 2009) (Table, No. 109156).

Illinois Home Repair and Remodeling Act - the Statute

2010-02-10T09:12:00.000-08:00

When researching the law, any good lawyer will tell you to always "read the statute." That is wise advise in the realm of construction law, and certainly applies to the Home Repair and Remodeling Act (HRRA) (don't even get me started on the Illinois Mechanics Lien Act, we'll get to that in future posts). So before we get into the various recent court interpretations, let's look at the HRRA itself - 815 ILCS 513/1 et. seq.

What's the Point? Section 5.

The HRRA was intended to "increase consumer confidence, reduce the likelihood of disputes, and promote fair and honest practices" by improving communications and fostering accurate representations between home repair and remodeling contractors and consumers. Insert sarcastic comment here. Seriously, I think it is fair to say that the HRRA is not living up to these aspirations due to the varied appellate court interpretations, but hopefully the Illinois Supreme Court will help clear that up in 2010.

Who Must Comply? Section 10.

Anyone "engaged in the business of home repair and remodeling." Home repair and remodeling is defined broadly and the statute provides a list of examples of qualifying work. Some examples are not intuitive. For example, besides work on the house itself, garages, driveways, swimming pools and even fences are included. Fallout shelters are also specifically included (I'm still waiting to see the first case where fallout shelter repairs are the basis for a dispute). The HRRA also notes some specific exclusions. Maintenance, service, or repairs under $500 are not included. Nor are carpet installations or repairs, installation or repair of any appliance when installed by the merchant (for example, if Sears includes installation with your purchase). Landscaping is also excluded, though not defined. The HRRA also defines "residence" such that multi-family dwellings containing six or fewer units (apartments, condominiums, town houses, etc.) are included.

What Must a Qualifying Contractor Do? Sections 15, 15.1, 20, and 25

For work of $1,000 or more, the contractor must "furnish to the customer for signature a written contract or work order that states the total cost, including parts and materials listed with reasonable particularity and any charge for an estimate." The contract/work order also must include the name and street address of the person doing the work (a P.O. Box will not suffice).
If the contract contains a mandatory arbitration or waiver of trial by jury clause, the contractor must have the consumer sign his or her name and write "accept" or "reject" in the margin next to each of these clauses, or such a clause will not be enforceable.
The contractor must give the consumer a pamphlet entitled "Home Repair: Know Your Consumer Rights" available from the Illinois Attorney General's office. The pamphlet contains two copies of an acknowledgement form. If the work is for $1,000 or more, the contractor is required to retain one copy of this form.
Unless the contractor has a net worth of $1,000,000 or more based on its most recent financial statement, prepared within the last 13 months, the contractor is required to carry minimum insurance and maintain it in full force and effect during the operation of the business, as follows: business public liability and property damage insurance - $100,000 per person and $300,000 per occurrence of bodily injury, and $50,000 per occurrence for property damage; $10,000 per occurrence for home repair and remodeling not in conformance with applicable State, county, or municipal codes.

What if You Don't Comply? Sections 30 and 35

The HRRA says that performing home repairs and remodeling work for $1,000 or more before obtaining a signed contract, before providing the consumer rights pamphlet and obtaining the signed acknowledgement form, and before notifying the consumer and getting a signed acceptance or rejection of any arbitration or jury trial waiver clause is "unlawful." The use of the word "unlawful" without elaboration is essentially the cause of the confusion in Illinois courts. The HRRA says that the Illinois Attorney General or a State's Attorney can sue anyone violating the HRRA "to restrain and prevent any pattern or practice violation." The law also says that any violation of the HRRA shall be a violation of the Consumer Fraud and Deceptive Business Practices Act (CFDPA). The CFDPA contains a private cause of action, which exposes contractors violating the HRRA to litigation by consumers (homeowners).

What's the Issue? The issue is what effect, if any, a contractor's noncompliance with the HRRA, has on the contractor's right to be paid for its work. If there is a contract, whether oral or written, is the contract still valid? Can the contractor still file a mechanics lien to enforce its contractual right to be paid for its work? What about equity - even if there's no contract, isn't the contractor still entitled to be paid for its work as a matter of fairness (quantum meruit theory, in legal-speak)? Can the homeowner use the HRRA as a "shield" against a lawsuit by the contractor seeking to be paid for its work? These questions have been the basis for most of the disagreement between the Illinois Appellate Districts, and thus will form the basis for my upcoming posts on the HRRA.

Illinois Home Repair and Remodeling Act - Why is it Important for Contractors and Homeowners?

2010-02-09T08:13:00.000-08:00

I wrote an article for the Northern Illinois Home Builders Association newsletter "Northern Lights" this month (not yet available online) on the Illinois Home Repair and Remodeling Act (HRRA) and the flurry of recent court decisions involving the HRRA. The HRRA was enacted in 2000 and had very few cases litigated to the appellate level - until last year. In the past six months there has been on average an appellate opinion interpreting the HRRA per month, and the Illinois appellate courts do not all agree on the interpretation of the Act. In an attempt to clarify these murky waters, in the next few weeks I will be writing a series of posts on the HRRA and its interpretation in each of the five Illinois appellate districts.

I am not alone in writing on this topic. Before proceeding further with my own comments, I would like to acknowledge and recommend the following sources from my colleagues and fellow Illinois construction law attorneys. Michael Huseman has written extensively about the HRRA at the Northern Law Blog. Joshua Glazov of Construction Law Today and Garrett Kern of the Illinois Construction Law Blog have also posted on it. Finally, as a non-blog source, my fellow Dupage County Bar Association members James Ryan and Matt Caruso have contributed several articles on the HRRA for the DCBA Brief magazine, most recently in the January 2010 issue.

April Deadline Fast Approaching for EPA-Required Lead Paint Remediation Certification

2010-02-06T18:57:00.000-08:00

April 22, 2010. Why is this date important? If you are a home repair or remodeling contractor, as of April 22 you must be certified as having completed an EPA-accredited training program prior to performing any renovation, repair, or painting (RRP) in a home built before 1978, or in any child-occupied facility (typically child care facilities and schools). This requirement is part of EPA's RRP regulations, which actually first became law in March 2008. The RRP rules already require remodeling contractors working on pre-1978 homes to give homeowners a pamphlet entitled "Renovate Right" prior to starting work, and to keep a copy of a receipt signed by the homeowner confirming that you gave it to them.

Penalties for non-compliance with the RRP rule include civil and criminal penalties, up to $25,000 per violation per day and one year's imprisonment, or both. Lead-based paint is assumed to be present at renovations covered by the regulation (pre-1978 houses and child-occupied facilities). It is up to the contractor to keep good records of documentation to prove that the RRP rule was complied with. The rules require that these records be kept for three years following the work.

For more information about the rule, visit EPA's RRP website. If you have questions about the rule or how to become certified, contact your EPA regional office. Also check with your local builder or contractor associations to see if any EPA-approved training is scheduled. For example, for contractors in the Chicago area, the Northern Illinois Home Builders Association has several upcoming training dates scheduled. My fellow construction law attorney Andrea Goldman, author of the blog "Home Repair Contractor vs Homeowner," has also posted about the RRP rule and Massachusetts builder/remodeler associations planning training on her Facebook page.

2nd District: Snow Plowing Contractor, Condo Association and Manager NOT Immune for Slip and Fall Accident on Driveway

2010-02-04T07:54:00.000-08:00

In a January 27, 2010 opinion the Second District Appellate Court of Illinois held that the immunity granted to associations, building owners, and their agents under the Snow and Ice Removal Act (the Act) (745 ILCS 75/1 et. seq) for negligent removal of snow or ice on SIDEWALKS does NOT make them immune or negligent snow or ice removal on DRIVEWAYS.

In this case the snow plowing contractor apparently plowed single, narrow path up the middle of the plaintiff's driveway to the garage, such that snow was mounded on each side of the path and also in front of the garage, and allegedly creating a sheer packed ice surface in area plowed. As a result, the plaintiff could not drive his car into the garage, and instead parked on the street and walked up the plowed path to inspect the snow in front of his garage. He slipped and fell on the plowed driveway and sustained right distal tibia and fibula fractures.

The condominium unit owner then sued the association, the management company, and the snow plowing contractor for negligence in creating the unnatural snow and ice condition that caused his injuries, and for failing to spread sand or salt to alleviate the risk, to warn him of the risk, or to create an alternative, safe route to access his garage. On motion from the snow plowing contractor, the trial court dismissed the lawsuit as to all claims and all parties based on the Act.

On appeal the Second District found that the word "sidewalk" in the Act means a pedestrian walkway and cannot be construed to extend to a driveway. Therefore the defendants were not immune from suit under the Act and the defendants could be liable for negligence, and the appellate court reversed the decision of the trial court.

If you are on a condo association board, manage condos, or are a snow plowing/removal contractor, this case has significant implications. Although not specifically addressed by the court, the Second District's reasoning that immunity does not extend to driveways because they are paved surfaces for motor vehicles rather than pedestrian use, could logically be applied to parking lots as well. In many associations, with or without garages, pedestrians must walk on or across a driveway or parking lot to reach their vehicles. Such a situation poses a liability risk to associations, managers, and contractors that should be addressed by contract. Associations, managers, and contractors may wish to review their condominium or homeowners association documents and contracts for indemnification and limitations of liability terms and conditions in light of this decision.

The case is Gallagher v. Union Square Condo. Homeowner's Assoc, No. 2-09-0271, __ Ill. App. 3d __ (2nd Dist. 2010).