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No. 3-03-0602

IN THE

APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

A.D., 2004

JUSTICE McDADE delivered the opinion of the court:

Plaintiff, Paschen Contractors, Inc. (Paschen), appeals froman order striking portions of its complaint, denying its motionto file a third amended complaint, and a grant of summaryjudgment in favor of defendants, City of Kankakee (Kankakee) andDonohue & Associates, Inc. (Donohue). For the following reasons,we reverse.

In 1984, Kankakee advertised for bids to build a wastewatertreatment facility (the project) which would permit expansion ofsanitary sewers in the city. Kankakee hired Paschen in April1986, pursuant to a general contract, as the general contractorfor the project. The general contract designated Donohue as theproject engineer and the authorized representative of Kankakee. The general contract provided as follows:

"6.9 **** Nothing in the Contract Documents shallcreate any contractual relationship between [Kankakee]or [Donohue] and any Subcontractor or other person ororganization having a direct contract with [Paschen],nor shall it create any obligation on the part of[Kankakee] or [Donohue] to pay or see to the payment ofany moneys due any Subcontractor or other person ororganization, except as may otherwise be required bylaw." In July 1986 Paschen hired Modern Electric Company (Modern)to perform the electrical work on the project for $1.5 million. Modern was bound to Paschen under the terms of its subcontract byall the terms and conditions of the general contract. Section 8of the subcontract states:

"No charges by [Modern] for extras shall be bindingupon [Paschen] unless accepted or approved by[Kankakee], and [Paschen] shall not be liable to[Modern] on account of such changes unless and until[Paschen] shall receive payment from [Kankakee]."

After executing the subcontract, Paschen began construction. Because Kankakee had obtained federal funding for the project,Paschen's contract was subject to certain EnvironmentalProtection Agency regulations, which, among other things,provided an orderly process for changes in the work. The generalcontract required that a "change order" be issued to effectuatesuch changes. Donohue, under Kankakee's direction, wasresponsible for reviewing and approving these change orders. Anyclaim for an increase in the contract price, according to thegeneral contract, "shall be based on written notice delivered to[Kankakee] and [Donohue] within 10-days of the occurrence of theevent giving rise to the claim."

While the project was ongoing, Paschen negotiated withKankakee and Donohue for certain changes in the "constructionsequence" of the project, changes which would result, as Paschenclaimed, in a cost savings for Kankakee. In May 1987, Kankakeedirected Donohue to accept the sequence changes suggested byPaschen. This change order did not increase the originalcontract price.

During the course of Paschen's performance, there were morethan twenty change orders requested as provided in the contractthat increased the contract price. Five of these change orderrequests remained unresolved near the end of the construction.They were:

(1) Secondary Clarifier Slab Damage. Paschen requested a changeorder in the amount of $108,711 to compensate it for the repairof the secondary clarifier No. 1 slab which was damaged duringconstruction by uplift forces caused by site flooding.

(2) Sludge Storage Tank Foundation Reinforcing Steel. Paschenrequested a change order in the amount of $40,240 for additionalreinforcing steel required for the four sludge storage tankfoundations.

(3) Sludge Storage Tank Seal Replacement. Paschen requested achange order in the amount of $103,500 to pay for the replacementof caulked seal with a combiflex seal in the joint between thewall and slab in each of four sludge storage tanks.

(4) Construction Sequence Constraints. Paschen requested achange order to pay for costs for temporary facilities requiredto implement its revised construction sequence.

(5) Top Soil. Paschen requested $54,288 for additional costs ofpurchase of top soil.

In each instance, Paschen requested additional compensationby way of a written letter to Kankakee, as required by thegeneral contract's provision governing claims for extra work. The amount of these proposed change orders totaled $1,940,130.00. Paschen also claimed that it regularly discussed with Kankakeeits continuing problems, of which everyone was aware. Donohuereviewed Paschen's claims for additional compensation anddetermined that the work was within the scope of the generalcontract. On April 16, 1987, Donohue notified Paschen that "norequest *** for additional compensation will be accepted ***." In a written letter dated on January 27, 1989, Donohue once againdenied Paschen's requests for additional compensation.

The net effect of the denial was that Paschen failed to payModern for all the work Modern had finished. Modern filed amechanic's lien against Kankakee on February 14, 1989, totaling$1.6 million.

On May 12, 1989, Modern filed a complaint against Kankakee,Paschen, and Donohue. Modern's complaint included (1) a claimfor accounting against Paschen and Kankakee (count I), (2) afraud claim against Kankakee and Donohue (count II), and (3) abreach of contract claim against Paschen as general contractor(count III). The project finally drew to a close in June 1989.

On August 20, 1991, Paschen entered into a writtensettlement agreement with Modern under which Modern received$100,000 in exchange for a full and complete release of Paschenfrom all liability. The parties also agreed to jointly prosecutetheir claims against Kankakee. The agreement states:

"10. Modern Electric and Paschen agree that they willcooperate in analyzing, preparing, presenting andprosecuting the Consolidated Claim against [Kankakee]." On February 14, 1992, Modern voluntarily dismissed its May1989 claim. On the same day, Paschen and Modern brought breachof contract and fraud claims against Kankakee and Donohue. Paschen and Modern later amended the complaint (second amendedcomplaint) to include a breach of contract claim by Paschen(count I), Modern's claim as an alleged third-party beneficiaryof the contract between Paschen and Kankakee (count II), Modern'squantum meruit claim against Kankakee (count III), a claim byPaschen and Modern for intentional fraud against Kankakee andDonohue (count IV), and a negligent misrepresentation claim byPaschen and Modern against Donohue (count V).

On September 7, 1993, Donohue filed its motion to dismisscounts I, II, IV and V. On September 21, 1993, Kankakee filed amotion to strike Count I and to dismiss counts II, III and IVpursuant to sections 2-615 (735 ILCS 5/2-615 (West 2002)) and 2-619 (735 ILCS 5/2-619 (West 2002)) of the Code of Civil Procedure(Code).

On March 15, 1994, the trial court dismissed counts IIthrough V of the second amended complaint with prejudice. Italso struck paragraphs 35 to 43 of count I, citing the wellestablished rule that subcontractors may not recover against theland owner in the absence of a contractual relationship. Thejudgment of dismissal entered by the trial court contains thefollowing finding pursuant to Supreme Court Rule 304(a) (155 Ill.2d R. 304 (a)): "There is no just reason for delaying enforcementor appeal of this [o]rder of dismissing, with prejudice, countsII, III, IV and V of [p]laintiffs' [s]econd [a]mended[c]omplaint."

On this first appeal, this court affirmed the trial court'sdismissal of counts II, III, IV and V. However, with regard tocount I, this court held that it lacked jurisdiction overPaschen's arguments. Thus, it expressed "no opinion regardingthe merits of the trial court's decision" as to that count. Thismatter was then remanded.

On March 4, 1999, Paschen motioned for leave to file itsthird amended complaint. Approximately one-half of the two-countcomplaint references work performed by Modern. Defendantsobjected to this motion on the ground that it was improper forPaschen, a general contractor, to plead the claim of Modern, asubcontractor, since there is no contractual relationship betweenModern and defendants.

On September 24, 1999, after considering the parties'additional authorities and arguments, the time elapsed since thedismissal of the first complaint, and the lack of a legitimatereason for that delay, the court denied Paschen leave to file itsthird amended complaint.

Defendants then filed a motion for summary judgment withrespect to the breach of contract count in the second amendedcomplaint. That count alleged Paschen had performed extra worknot covered by the general contract. The extra or additionalwork Paschen allegedly performed included reinforcing four sludgestorage tank foundations, installing a joint sealant for thesludge storage tanks, constructing joint water stops for thesludge storage tanks, placing additional topsoil around thewastewater facility, and correcting an uplift problem for thesecondary clarifier tank.

Defendants claimed that these claims, with the exception ofthe sludge tank foundations claim, were time barred under section13-214(a) of the Code, the four-year statute of limitations forconstruction of improvements to real property (735 ILCS 5/13-214(a) (West 2000)). Paschen responded that the trial courtshould apply section 13-206 of the Code, the 10-year statute oflimitations for written contracts (735 ILCS 5/13-206 (West2000)). The trial court found section 13-214(a) applicable andgranted defendants' motion for summary judgment on that basis.The court then granted Paschen's motion to dismiss voluntarilythe remainder of the cause pursuant to section 2-1009 of the Code(735 ILCS 5/2-1009 (West 2002)).

This appeal followed.

ANALYSIS

On appeal, Paschen argues the trial court erred (1) ingranting summary judgment for defendants, (2) in strikingparagraphs 35 through 43 of count I, and (3) denying it leave toamend. The trial court has broad discretion in determiningwhether to permit an amendment to the pleadings and its ruling onthe matter will not be disturbed on review absent an abuse ofdiscretion. Loyola Academy v. S & S Roof Maintenance, Inc., 146Ill. 2d 263, 273-74, 586 N.E.2d 1211, 1216 (1992). In appealsfrom summary judgment rulings, we conduct a de novo review. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90, 102, 607 N.E.2d 1204, 1209 (1992). Summary judgment isgoverned by the provisions of section 2-1005 of the Code. 735ILCS 5/2-1005 (West 2000). Under section 2-1005(c), a party isentitled to summary judgment "if the pleadings, depositions, andadmissions on file, together with the affidavits, if any, showthat there is no genuine issue as to any material fact and thatthe moving party is entitled to judgment as a matter of law." 735 ILCS 5/2-1005(c) (West 2000). Because summary judgment is adrastic method of terminating litigation, the movant'sentitlement must be free from doubt. Logan v. Old EnterpriseFarms, Ltd., 139 Ill. 2d 229, 233, 564 N.E.2d 778, 780 (1990). Accordingly, the reviewing court must construe the evidencestrictly against the movant and liberally in favor of thenonmoving party. Logan, 139 Ill. 2d at 233, 564 N.E.2d at 780. Where reasonable persons could draw divergent inferences fromundisputed facts, summary judgment should be denied. LoyolaAcademy, 146 Ill. 2d at 272, 586 N.E.2d at 1215.

A. Summary Judgment and the
Applicable Statute of Limitations

Paschen asserts that the trial court erred when it grantedsummary judgment in favor of defendants. Paschen argues that thecontrolling limitations period is ten years, based upon section13-206 of the Code. Kankakee maintains that the grant of summaryjudgment was proper because Paschen's original complaint failedto comply with the four-year limitations period found in section13-214(a) of the Code. Section 13-206 provides, in pertinentpart, as follows:

"Ten year limitation. Except as provided in Section 2-725 of the "Uniform Commercial Code", actions on bonds,promissory notes, bills of exchange, written leases,written contracts, or other evidences of indebtednessin writing, shall be commenced within 10 years nextafter the cause of action accrued" 735 ILCS 5/13-206(West 2002).

Section 13-214 (a) of the Code reads, in pertinent part, asfollows:

"Construction--Design management and supervision. Asused in this Section 'person' means any individual, anybusiness or legal entity, or any body politic.

(a) Actions based upon tort, contract or otherwiseagainst any person for an act or omission of suchperson in the design, planning, supervision,observation or management of construction, orconstruction of an improvement to real property shallbe commenced within 4 years from the time the personbringing an action, or his or her privity, knew orshould reasonably have known of such act or omission."735 ILCS 5/13-214 (a) (West 2002).

To determine whether Paschen's original complaint was timebarred, we must first address the issue of whether thecontrolling limitations period is the ten years designated insection 13-206 or the four years designated in section 13-214 ofthe Code. When deciding which of two statutes of limitations isapplicable to a plaintiff's case, courts should consider thenature of the claims and the type of injuries sustained. Greb v.Forest Preserve District of Cook County, 323 Ill. App. 3d 461,463, 752 N.E.2d 519, 520-21 (2001).

We are aided by Lombard Co. v. Chicago Housing Authority,221 Ill. App. 3d 730, 587 N.E.2d 485 (1991). Lombard involved asuit for monies due to a building contractor for work which heperformed. In that case, the plaintiff, a building contractor,was hired by the defendant housing authority to erect anapartment building. The plaintiff incurred costs well beyondthose contemplated in the contract and sued the defendant torecover them. The plaintiff alleged that it incurred the costsbecause the defendant failed to make the site available on time,failed to obtain zoning and building permits in a timely mannerand failed to approve "shop drawings" within the allocated timeperiod. Lombard, 221 Ill. App. 3d at 732, 587 N.E.2d at 486-87.

The Lombard court held that the allegation that thedefendant failed to approve the shop drawings within theallocated time brought the defendant within the purview ofsection 13-214(a). The court stated:"[A]lthough one of the main purposes of section 13-214is to prevent liability in perpetuity against personsinvolved in the design and construction of buildings,such as architects, contractors and engineers[citation], it also governs a landowner in a breach ofcontract action who is being sued for an act oromission of one of the specified construction relatedactivities or for actual construction." Lombard, 221Ill. App. 3d at 735, 587 N.E.2d at 489.

The court thus held that the plaintiff's lawsuit was barred bysection 13-214(a).

We also find Blinderman Construction Co. v. MetropolitanWater Reclamation District of Greater Chicago, 325 Ill. App. 3d362, 757 N.E.2d 931 (2001), instructive. In Blinderman, theplaintiff, a general contractor, sued the defendant for itsfailure to pay for extra work he performed. Count I of the firstamended verified complaint alleged that the defendant breachedthe contract by failing to pay for extra work and changeproposals. Pursuant to the terms of the contract, theengenderment of extra work and changes are within the purview ofthe defendant's engineer. The defendant also "prepared allcontract plans, specifications and drawings, including thedetailed drawings for the project's process design, structuraldesign, electrical design and electrical design-power andelectrical design-lighting." Blinderman, 325 Ill. App. 3d at363-65, 757 N.E.2d at 932-34.

The defendant moved for summary judgment on count I of thecomplaint on the ground that it was time barred under section 13-214 of the Code. The plaintiff argued that its action wasgoverned by the ten-year statute of limitations for writtencontracts pursuant to section 13-206. The trial court found infavor of the defendant and granted its motion for summaryjudgment. Blinderman, 325 Ill. App. 3d at 364-66, 757 N.E.2d at933-34. The First District affirmed the trial court's ruling onappeal. Relying on Lombard, the reviewing court found that theplaintiff's cause of action was predicated on activitiesperformed by the defendant which were encompassed within theenumerated construction activities of section 13-214(a). Blinderman, 325 Ill. App. 3d at 370, 757 N.E.2d at 937. Thecourt stated as follows:

"Under its plain language, the provisions of section13-214(a) extend to acts or omissions in thesupervision or management of construction. Thus, underthese provision [sic], section 13-214(a) becomesapplicable to actions for recovery of payments dueunder the contract for work engendered by the[defendant] in its capacity as supervisor and/ormanager of construction." Blinderman, 325 Ill. App. 3dat 366-67, 757 N.E.2d at 935.

In the instant case, unlike Lombard and Blinderman,defendants are not "being sued for an act or omission of one ofthe specified construction related activities." Althoughplaintiffs alleged that defendants' project plans andspecifications were incomplete, and because of those"construction sequencing deficiencies, Paschen *** would incursubstantial additional costs," Paschen alleged they performedadditional work beyond that "engendered by [Donohue] in itscapacity as supervisor and/or manager of construction." Specifically, after enumerating the additional electrical workrequired "[b]ecause the [p]roject [p]lans and [s]pecificationswere incomplete," in paragraph 40 the complaint states asfollows:

"In addition to the foregoing, throughout the durationof the construction project, Paschen *** requestedModern *** to provide additional necessary labor,services, and material for the project, which *** wereclearly beyond *** the subcontract." (Emphasis added.)

Further, paragraph 44 of count I in plaintiffs' second amendedcomplaint states as follows:

"Throughout construction of the project, and inaddition to the extra services Paschen and itssubcontractors were required to provide as a result ofthe incomplete and unclear project plans andspecifications and resequencing of the constructionwork ***, the City and Donohue ordered Paschen and/orits subcontractors to provide further services, laborand material to the project over and above theservices, labor, and material Paschen was required toprovide pursuant to the general contract." (Emphasisadded.)

Count I of Paschen's complaint alleges defendants breached theircontract by wrongfully failing to pay the requested additionalcompensation as provided in the general contract. Accordingly,this claim is an action on a written contract and section 13-206of the Code controls that portion of the second amended complaintrelated to additional work beyond that "engendered by [Donohue]in its capacity as supervisor and/or manager of construction."

Turning to the remainder of the complaint, Paschen is notbarred by the four-year limitations period in section 13-214. Alimitations period begins when facts exist which authorize oneparty to maintain an action against another. Kozasa v. GuardianElectric Manufacturing Co., 99 Ill. App. 3d 669, 673, 425 N.E.2d1137, 1141 (1981); see also Brehm v. Sargent & Lundy, 66 Ill.App. 3d 472, 384 N.E.2d 55 (1978) (the statute of limitationsbegan to run when the plaintiff first had the power to assert thelegal claim). Paschen demanded additional compensation for theextra work between July 1986 and November 1987. If defendantspaid for the additional work caused by the planning deficiencies,plaintiffs would not have had a cause of action. On February 14,1989, Paschen received written notification that its request foradditional compensation was denied. Paschen filed the originalcomplaint three years later, on February 14, 1992, before theapplicable statute of limitation had expired. Accordingly, wehold that the trial court erred when it granted defendants'motion for summary judgment on count I of Paschen's secondamended complaint.

B. Paragraphs 35 through 43

Paschen argues the order striking paragraphs 35 through 43was error because Paschen had the right to assert claims for allextras it provided "regardless of whether such costs wereincurred or such services were performed personally or through asubcontractor." See United States v. Blair, 321 U.S. 730, 737-38, 88 L. Ed. 2d 1039, 1045, 64 S. Ct. 820, 824 (1944). Paschencites Blair for the proposition that, although "[c]learly thesubcontractor could not recover [where] there was no express orimplied contract between [it and Kankakee] *** it does not followthat [Paschen] is barred from suing for this amount." See Blair,321 U.S. at 737-38, 88 L. Ed. 2d at 1044-45, 64 S. Ct. at 824. Paschen further notes that it brought count I, not Modern.

We agree. Paschen argues defendants required Paschen toperform extra work beyond the terms of the contract. ThatPaschen subsequently engaged Modern to perform some of that workis irrelevant. Paschen has the right to recover. See Blair, 321U.S. 730, 738, 88 L. Ed. 2d at 1045, 64 S. Ct. 820, 824 ("[thegeneral contractor's] contract *** is thus sufficient to sustainan action for extra costs wrongfully demanded under thecontract"). Kankakee argues Blair should not be followed becausehere, it "has the effect of ignoring the plain language of thegeneral contract providing that [Kankakee] is under no obligationto 'pay or see to the payment of any moneys due any[s]ubcontractor.'" Blair, however, is not offensive to thelanguage of the parties' contract, because its application wouldnot require Kankakee to "see to the payment" of Modern. Blairstands only for the proposition that a general contractor cansustain a cause of action for work done under a contract when itsolicits a subcontractor to actually perform the work. The trialcourt erred when it struck paragraphs 35 through 43 of count I.

C. Paschen's Third Amended Complaint

Paschen contends that the trial court abused its discretionin denying it leave to amend its complaint. In response,defendants contend that the trial court properly denied leave toamend the complaint because the motion was untimely. Section 2-616 of the Code provides, in pertinent part:

"(a) At any time before final judgment amendments maybe allowed on just and reasonable terms, introducingany party who ought to have been joined as plaintiff ordefendant, dismissing any party, changing the cause ofaction or defense or adding new causes of action ordefenses, and in any matter, either of form orsubstance, in any process, pleading, bill of particulars or proceedings, which may enable theplaintiff to sustain the claim for which it wasintended to be brought or the defendant to make adefense or assert a cross claim.

* * *

(c) A pleading may be amended at any time, before orafter judgment, to conform the pleadings to the proofs,upon terms as to costs and continuance that may bejust." 735 ILCS 5/2-616(a), 2-616(c) (West 2000).

Our Supreme Court set out four factors that a trial courtshould examine in determining whether a party should be grantedleave to file an amended complaint. They are: (1) whether theproposed amendment would cure the defective pleading, (2) whetherother parties would sustain prejudice or surprise by virtue ofthe proposed amendment, (3) whether the proposed amendment istimely, and (4) whether previous opportunities to amend thepleading could be identified. Loyola Academy, 146 Ill. 2d at273, 586 N.E.2d at 1215-16. The most important of the Loyolafactors is the prejudice to the opposing party, and substantiallatitude to amend will be granted when there is no prejudice orsurprise to the nonmovant. Miller v. Pinnacle Door Co., Inc.,301 Ill. App. 3d 257, 261, 703 N.E.2d 628, 631 (1998). "Prejudice may be shown where delay before seeking an amendmentleaves a party unprepared to respond to a new theory at trial."Miller, 301 Ill. App. 3d at 261, 703 N.E.2d at 631.

Paschen's third amended complaint sought to amend count Iand add a second count styled "Alternative Claim By Paschen OnBehalf of Modern Electric." Paschen argues the amendment tocount I was "intended to and did, in fact, clarify that Paschenwas seeking damages for all extras in its name and not in thename of or for the benefit of any subcontractor." In count II,Paschen stated count II was brought "by Paschen on behalf of ***Modern *** pursuant to a 'pass through' and/or 'liquidating'agreement entered into between Paschen and Modern Electric." Under their agreement Paschen is to bring the claim againstKankakee, Paschen admits the work was actually performed byModern and Paschen is liable to Modern for the work, and anyrecovery by Paschen for the work will be paid to Modern.

As a result of this court's ruling, further proceedings willbe required on, inter alia, the matters at the heart of Paschen'sproposed amendments, i.e., recovery for extras where the work wasactually performed by the subcontractor. Paschen's claim forthese extras has always been known to Kankakee. Therefore, thiscourt finds Kankakee will not be prejudiced by Paschen's proposedamendments. However, based on this court's reversal of the trialcourt's striking of paragraphs 35 through 43, Paschen is notrequired to allege, as it does in its proposed count II, that thework was actually performed by Modern and that any sums recoveredwill be turned over to Modern. As previously noted, Paschen maymaintain a cause of action in its own name for work required ofit by Kankakee under the contract between them, and the fact thatPaschen then contracted with another (Modern) to actually performthe work for Paschen is not a bar to Paschen's cause of action. Accordingly, the trial court's order denying Paschen's motion forleave to file a third amended complaint is reversed as to count Iof the proposed third amended complaint.

CONCLUSION

For these reasons, we reverse the court's order grantingdefendants summary judgment, reverse the trial court's orderstriking paragraphs 35 through 43 of count I, reverse the trialcourt's order denying Paschen leave to file a third amendedcomplaint as to count I, and remand for further proceedingsconsistent with this order.

Reversed and remanded.

BARRY and LYTTON, J.J., concur.