An Illinois circuit court erred as a matter of Illinois law, undermining the strong public policy behind the Mechanic’s Lien Act, when it summarily dismissed the mechanic’s lien claim of a subcontractor, the American Subcontractors Association (ASA) wrote in an amicus curiae brief filed on April 1 in the Appellate Court of Illinois, Second Judicial District, in the case of AUI Construction Group, LLC, vs. Louis J. Vaessen, et al.
The circuit court’s ruling, ASA said in a news release, unduly erodes mechanic’s lien rights to the detriment of the greater public. “Small construction businesses, in particular, will pay the heaviest price. Most of those small businesses will be subcontractors,” ASA wrote. “Make no mistake, if the circuit court’s ruling goes undisturbed the reasoning and rationale of that case will reverberate across Illinois, to the detriment of this state’s economy.”
ASA told the appeals court that the lower court’s ruling will have devastating effects upon small to mid-sized businesses and it denies a remedy to small- and mid-sized businesses who provide credit (in their labor and materials) to projects of great private and public importance but who can suffer severe harm from developments (an insolvency of their contracting partner or owner/disputes between the owner and prime contractor/loss of project funding from a bank) that they could not control.
“There needs to be a ‘safety valve’ for courts to use to give contractors security in payment for their labor and materials,” ASA wrote. “And there is. The Illinois Mechanic’s Lien Act … is a legislatively created safety valve that provides broad payment security to contractors of all tiers to secure their right to payment for labor and materials provided in furtherance of a construction improvement.”
ASA has extensive knowledge and experience with the interpretation and enforcement of mechanic’s lien laws throughout the United States, ASA told the court. “The opinion of the circuit court in this matter in denying mechanic’s lien rights to the Appellant is not consistent with the intent of the Illinois Legislature as revealed in the plain language of the mechanic’s lien law,” ASA wrote. “ASA is deeply concerned that allowing the circuit court decision to stand will have severe implications to payment protection in the construction industry and is contrary to the intent of the Illinois Legislature in enacting the Mechanic’s Lien law to provide security for payment to all who improve real property in this State.”
ASA urged the appeals court to correct the circuit court’s reasoning, which “deprives the Appellant (and thousands of similarly situated contractors and suppliers) of mechanic’s lien rights under the plain meaning and intent of the Mechanic’s Lien Act.”
In the underlying case, AUI Construction Group, the appellant in this case, was hired in 2011 by a now financially insolvent design-builder, Postensa Wind Structures U.S., LLC, to construct and erect a 507-ft. tall cast-in-place post-tensioned concrete tower and foundation as part of a larger (multi-million dollar) wind energy conversion system project.
GSG 7, LLC, the developer, was hired to build the project on land owned by the estate of Louis and Carol Vaessen, the owner, in Sublette, IL. In 2007, the owner and developer entered into a 50-year easement agreement, which authorized the developer to build and operate wind energy systems on the property in exchange for certain benefits, including payments from the revenue generated by the project.
The easement agreement was not recorded until Dec. 22, 2011. Before the easement was recorded in the Lee County, IL Recorder’s Office, a number of things happened: (1) the developer contracted with Clipper Wind Power to design and build the project; (2) Clipper contracted with Postensa for the design and build work for the project; and (3) Postensa subcontracted with AUI to perform the construction portion of the project work, including building the energy system’s massive foundation and 507-ft. tall tower, and AUI actually started its work on site.
AUI Construction’s scope of work included not just building the massive exterior, but an interior with exterior doors, multiple electrical cabinets, electrical outlets, a lighting system, a power supply system, an elevator, 11 work platforms, a hoist and ladders that extend from the base to the top of the structure’s tower. The structure was connected to the utility power grid and a nearby transformer through a series of conduits.
After completing its subcontract work, AUI was owed over $2 million. To protect its ability to collect its unpaid billings for the improvements to the land, AUI exercised its right under Illinois law to perfect and enforce a mechanic’s lien against the improved property. At an arbitration over its claims, AUI received a substantial award for its unpaid bills. When its contracting partner, Postensa, then filed for bankruptcy, AUI moved to foreclose its mechanic’s lien and perfect the security interest it had in the improved property.
The developer and owner, however, moved to dismiss the lien claims. Without conducting a trial or evidentiary hearing, the circuit court held as a matter of law that the project was not an improvement to real property under the Mechanic’s Lien Act and was simply a non-lienable trade fixture.
“This case represents not just a fight for payment by AUI, but a fight for the public good and the financial survival of numerous Illinois small businesses and construction companies,” ASA wrote. “It also involves the landmark issue of whether subcontractors and suppliers still maintain lien rights for construction work on commercial construction projects that improve property where the improvement is on property that is subject to an easement and title retention agreement. This court’s decision in the matter will either: (a) further the letter and spirit of the Mechanic’s Lien Act, to the benefit of subcontractors, suppliers, and the public at large; or (b) unduly erode those rights, driving prices up, lowering competition for construction projects on easements, and financially stressing—if not bankrupting—future subcontractors.”
