Breach of Contract

The Illinois Home Repair and Remodeling Act does not apply to subcontractors, the state Supreme Court ruled April 3. The court’s decision in MD Electrical Contractors, Inc. v. Abrams, (Il. Sup. Ct. 2008; Doc. No. 104000) resurrected an electrical subcontractor’s breach of implied contract lawsuit against a Napierville family.

The dispute started in 2004, when Abrams family contracted with Apex Builders, Inc. for improvements to their home. MD Electrical Contractors, Inc., did just under $15,000 worth of electrical work on the project as a subcontractor. It was not paid for that work, and in 2005, it sued the family for payment. In its complaint, MD stipulated that it had no contract with them. The Home Repair and Remodeling Act (HRRA) requires repair and remodeling contractors that work with individual homeowners to provide a written contract and a consumers’ rights brochure to customers. Because MD had not provided a contract or a brochure to the defendants, as required by the HRRA, defendants argued that there could be no implied contract, under the plaintiffs’ theory of quantum meruit. They successfully moved to dismiss at the trial court level, but were reversed by the appellate court, which ruled that the HRRA does not apply to subcontractors. The Illinois Supreme Court agreed.

In its review, the court noted that the common understanding in home repair work is that subcontractors work directly for contractors, who in turn work for homeowners. That understanding is critical for interpreting the HRRA, said the court. Relying on the plain language of the law and the accompanying brochure, definitions of terms, other laws and legislative intent, it found that the HRRA does not apply to subcontractors:

The Seventh U.S. Circuit Court of Appeals issued a ruling May 13 in United Stars Industries, Inc. v. Plastech Engineered Products, Inc., 07-2919 (7th Cir. 2008), a business contract dispute in which Plastech alleged that its tubing supplier, United Stars, overcharged it by about $1.6 million. The case is also notable because the appellate court upheld $30,000 in sanctions against the law firm Jones Day for “frivolous claims.”

The underlying dispute started when United Stars notified Plastech, its customer, that it had been charging Plastech surcharges for the cost of raw materials, even though about 9% of those materials were lost during processing. Plastech contends that it did not agree to pay the full amount of those surcharges; thus, it believed United Stars owed it about $900,000, and Plastech refused to pay another $700,000 bill, for a total of $1.6 million in dispute. Plastech stopped paying United Stars, even after reaching a purported compromise in 2005, then found another vendor. In the ensuing lawsuit, in U.S. District Court for the Western District of Wisconsin, the judge awarded $1.3 million to United Stars, sending Plastech into bankruptcy.

On appeal, Plastech contended that the trial judge erred in deciding that the companies reached a compromise in 2005. However, the Seventh said, Plastech’s claim fails regardless of whether there was a compromise, because it did not present “a scrap of evidence” to support its interpretation of the companies’ contract. Furthermore, the language of the contract itself favored United Stars.

Articles Posted in Breach of Contract

Illinois Supreme Court Rules Subcontractors Are Not Subject to Consumer Protection Law

Contract Counterclaim Fails and Sanctions Upheld, Seventh Circuit Rules