Sub-subs Bear the Risk

of Subcontractor’s False Statements

--------------------------------------------

No Timely Notice to Owner

of Monies Due therefore

no Duty on Owner to Withhold 

            A developer (Campus Investors) invested in a high-rise near the U of I campus in Champaign, hiring Broeren Russo as general contractor.  The GC subbed work to JMC, which in turn subbed work to two concrete constructors, Ahal and Blager . Over time the GC paid over $9,500,000 to JMC.  In October 2008 JMC submitted partial waivers to date indicating it owed its sub-subcontractors more than previous sworn statements had shown.  Its October 2008 waivers showed over $700,000 due to them, but the GC calculated a balance due of a little under $500,000.  Broeren Russo froze all payments until the disparity was straightened out.

             Ahal and Blager liened the job. Meanwhile a rebar supplier, Gerdau, filed and then foreclosed on its mechanics lien. Ahal and various other subcontractors joined Gerdau’s case and sought foreclosure. JMC liened the job.  Gerdau and the GC settled with the owner, leaving Ahal, Blager, and others to pursue their claims.  The litigation generated over 3,600 pages in nineteen volumes. 

            The owner and the GC filed a motion for summary judgment as to Ahal and Blager, stating that the owner and the GC had settled their disputes with JMC, in exchange for the release of JMC’s recorded lien. No additional dollars were paid in this settlement.  Therefore Ahal and Blager, they argued, were limited to a pro rata share of any settlement by Campus with JMC. Specifically, a pro rata share of the unpaid funds owed to JMC.  The trial court denied this motion and instead entered summary judgment for Ahal and Berger.  The trial court reasoned that under Section 24 of the Mechanics Lien Act Campus was required to set aside funds to cover the amounts due for subcontractors’ work, based on the sworn affidavit required under Section 5.  

            The court of appeals reversed, stating that up until the October 2008 submission by JMC its pay requests were accompanied by sworn statements that did not mention Ahal and Blager as sub-subcontractors.  The court of appeals held that the sworn statements complied with Section 5, noting that the Act does not specify a form for such statements.  The court also noted that the regular presence of subcontractors such as Abel and Blager on the job, that must have been evident to the GC, did not put it and the owner on notice for purposes of Section 5 and Section 24.

             Accordingly Abel and Blager were entitled to the pro rata shares of the funds owing to JMC on its contract with the GC.

Gerdau Ameristeel v. Broeren Russon Construction, Inc.

 

 

8/6/13