1324 W. Pratt Condominium Association v. Platt Construction Group (IL)

Summary: Plaintiff condominium association can pursue an action for breach of implied warranty of habitability against a subcontractor because the general contractor was insolvent on the date of the amended complaint that alleged the general contractor's insolvency.

 

1324 W. Pratt Condominium Association v. Platt Construction Group, Inc., 2013 IL App (1st) 130744.

 

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Facts: Developer 6801 N. Wayne LLC (Wayne) constructed a residential condominium building, hiring Platt as its general contractor. Platt hired several subcontractors, including EZ Masonry. Wayne sold the condominium units after the building was completed in March 2005. On November 28, 2005, Wayne was involuntarily dissolved.

After Wayne dissolved, the unit owners discovered water leaks in their units and the common areas of the building. The owners formed a plaintiff condominium association to represent their collective interests. Starting in 2008, the condominium association filed a series of complaints against several defendants, attempting to recover damages caused by the construction defects. The first complaint was filed against Wayne, Platt and the roofing subcontractor. A second amended complaint was filed, naming EZ Masonry as a defendant. Platt and EZ Masonry were primarily cited as breaching an implied warranty of habitability.

On June 9, 2009, Platt filed a motion to dismiss, arguing that it could not be held liable under an implied warranty of habitability theory because that warranty applied only to builders who constructed a residential building and were are also involved in its sale to purchasers. The circuit court agreed, and granted Platt's motion to dismiss. The condominium association appealed, and the Court of Appeals reversed the circuit court’s order. The Court of Appeals ruled, “the warranty applies to builders of residential homes regardless of whether they are involved in the sale of the home.”

On December 20, 2010, the condominium association filed a third amended complaint alleging a breach of the implied warranty of habitability against Wayne, Platt and EZ Masonry. In January 2011, Platt and EZ Masonry both filed motions to dismiss. EZ Masonry, citing Minton v. Richards Group of Chicago, 116 Ill.App.3d 852 (1983), argued that Platt’s solvency as general contractor barred claims for the breach of the implied warranty of habitability against EZ Masonry as a subcontractor. Platt argued the individual condominium owners could not avail themselves of the implied warranty of habitability because they explicitly waived that warranty in their condominium purchase agreements. EZ Masonry orally joined in Platt's argument regarding waiver.

On May 19, 2011, the circuit court granted Platt's and EZ Masonry's motions to dismiss based upon the waiver of the implied warranty of habitability, but denied EZ Masonry's claim that while Platt was solvent, the condominium association could not move forward with its claim against EZ Masonry. The case was appealed again, and the Court of Appeals reversed, holding that so long as Platt remained solvent, the condominium association could not proceed against EZ Masonry.

On remand, the condominium association filed its fourth amended complaint against Platt and EZ Masonry. The allegations in the fourth amended complaint were identical to the third amended complaint except for adding an assertion that Platt was insolvent. After limited discovery, the circuit court held that “Platt is insolvent, but remains a corporation in good standing with limited assets.” The circuit court also held that the relevant date for determining the insolvency of a general contractor, such as Platt, is the date on which a complaint is filed against the general contractor. The circuit court certified two questions of law for interlocutory appeal: (1) “whether the relevant date for determining the insolvency of a general contractor for purposes of the exception set forth in Minton…is the date that a[c]omplaint (or latest amended complaint) is filed against the general contractor, or when the construction is completed; and (2) whether [the condominium association] may pursue [its] claims against EZ Masonry in this cause when Platt…is insolvent, but is in good standing with limited assets.”

 

Holding: Remanded. On appeal, the court first addressed the issue concerning the relevant date for determining a general contractor’s insolvency. Under Minton, the court determined that public policy considerations had long extended the scope of liability. The court disagreed with EZ Masonry's position that insolvency of the general contractor should be determined on the date of filing of the initial complaint, because it went against the public policy of protecting “innocent purchasers” from latent defects that may be discovered years later. Further, because a general contractor may become insolvent after the filing of an initial lawsuit or because of it, recourse against the subcontractor was provided as a means by which the purchaser might recover.

Next the court addressed the issue concerning whether the condominium association could pursue its claims against EZ Masonry when Platt still possessed limited assets. The court summarily held that, “an innocent purchaser may proceed on a claim for the breach of the implied warranty of habitability against a subcontractor where the builder-vendor is insolvent.” However, the burden rests on the purchaser to establish that the general contractor is insolvent before the purchaser can proceed against the subcontractor. When the purchaser becomes aware that the general contractor is insolvent, it must file an amended complaint, alleging the insolvency and seeking to proceed against the subcontractor. The court determined that ‘insolvency’ means that, “a party's liabilities exceed the value of its assets, and that it has stopped paying debts in the ordinary course of business.” Because the trial court found Platt insolvent, the condominium association was permitted to pursue its breach of the implied warranty of habitability claim against EZ Masonry.

 

Opinion Year: 
2013
Jurisdiction: 
Illinois
By: ATG Underwriting Department | Posted on: Mon, 03/16/2015 - 2:57pm