Equity Applies in Fashioning Mechanics Lien Remedies in Illinois
 
December 21, 2001
 
James Carr- Chicago

Rules of equity, though irrelevant to determining the existence of lien rights, can be applied in fashioning a remedy once the lien right is established. Although the Illinois Mechanics Lien Act is to be construed liberally, in keeping with its remedial purpose, few cases have considered the judicial standards for fashioning appropriate remedies. A recent Illinois appellate court decision, however, provides guidance in applying equitable principles under the Act. Westcon/Dillingham Microtunneling v. Walsh Const., 747 N.E. 2d 410 (Ill. App. 2nd Dist. 2001).

A subcontractor, Westcon/Dillingham Microtunneling (Westcon), brought a mechanics lien action against public funds on a county sewer project. Westcon alleged it encountered differing site conditions during the sewer installation. Westcon sought payment of its subcontract retention as well as costs attributed to adverse subsurface conditions. After retention funds were released to Westcon, another subcontractor, Glenbrook Excavating, Inc. (Glenbrook), filed a competing lien claim against the same funds. Glenbrook sought the immediate release of its own subcontract retention, but Westcon objected. Westcon claimed the trial court lacked authority to release any funds to a rival lien claimant under the Act prior to a final adjudication of all claims.

The Act allows a subcontractor on a public project to assert a lien against payments due or becoming due the general contractor. The public body must then withhold funds in the amount of the lien claim "until the final adjudication of the suit is had."

The Act also gives the public body the option of depositing the funds with the clerk of the court to be "distributed according to the judgment rendered or other court order." Lake County, Illinois, the owner of the sewer project (represented in this dispute by Holland & Knight LLP) chose this option. It deposited the balance of funds payable to the general contractor with the clerk of the court. The trial court then granted Glenbrook’s request for the release of its subcontract retention over Westcon’s objection. Enforcement of the "turnover" order was stayed to allow Westcon additional time to return the retention funds to the clerk of the court to be distributed proportionally. Westcon declined to return the funds, and the appeal followed.

The Illinois Appellate Court held that the trial court had the authority to release the funds to Glenbrook prior to final judgment. The appellate court construed the phrase, "according to the judgment or other court order," in the Act to authorize payment to Glenbrook prior to a resolution of Westcon’s differing site conditions claim. The appellate court rejected Westcon’s assertion that the provision of the Act allowing disbursement by "other court order" applies only when there is but one lienholder.

Importantly, the appellate court found no abuse of discretion in the trial court’s application of equitable principles in crafting a remedy. The trial court had several bases for its decision to release funds to Glenbrook. The trial court found that Westcon had received all subcontract retention, and that the amount Westcon was now claiming was for the additional cost of performing the subcontract work (not part of its retention). It also noted that Westcon had received the last money it was due on the original contract through a motion to release funds, the same motion advanced by Glenbrook that was at issue on the appeal. Glenbrook, conversely, had not been paid for all of its work under the original contract and was not claiming compensation for additional work. Finally, the trial court was persuaded that Westcon’s recovery on its subcontract would not be limited to the funds held by the clerk of the court. The appellate court found no reason to require Glenbrook to wait to receive what it was due while Westcon litigated its claim for additional compensation.

Westcon/Dillingham Microtunneling sets a significant precedent in Illinois regarding mechanics lien remedies. Equitable principles, such as what is fair and workable, whether any prejudice would occur, and the benefits and hardships to the parties, do matter.

For more information, contact James Carr via e-mail or at 1-888-688-8500.