While many construction projects are managed smoothly from start to finish, some present their fair share of complications. Disputes can sometimes arise, especially in scenarios where unanticipated events cause costs to escalate, and funding can become inadequate before construction is complete. An owner may know that money is owed to at least some contractors or subcontractors but may nevertheless elect to withhold payment until all disputes are resolved. Might as well wait until the dust settles, right?
Not so fast. In Illinois, an owner who withholds payment from a contractor or subcontractor without justification runs the risk of paying the claimant’s attorney’s fees in addition to the amount due on contract.
The Illinois Mechanics Lien Act provides that if a court specifically finds that an owner who contracted for improvements has failed to pay any lien claimant “without just cause or right,” the court may, in addition to other amounts awarded, assess reasonable attorney’s fees against the owner. 770 ILCS 60/17 (1995).
Historically, Illinois trial courts have been loath to award attorney’s fees under this section. The reason is not entirely clear, but the phrase “without just cause or right” seems to have been interpreted as the equivalent of bad faith and the award of fees in the nature of a sanction. See, for example, Central Illinois Electrical Services, LLC v. Slepian, 358 Ill.App.3d 545 (3d Dist. 2005).
In its most recent decision on the subject, however, the Illinois appellate court made an abrupt about-face, holding that the trial court’s failure to award attorney’s fees was abuse of discretion. O’Connor Construction Co, Inc. v. Belmont Harbor Home Development, LLC, 391 Ill.App.3d 533 (1st Dist. 2009).
In O’Connor, the plaintiff was a subcontractor engaged to do rough carpentry work on a residential condominium development. The agreed-upon price and original scope of work increased substantially with the addition of 58 change orders. When the project encountered trouble and the money stopped flowing, O’Connor had been paid $175,000, or about half the amount it claimed it was due. O’Connor timely perfected its claim for lien and wasted no time filing suit. The owner disputed the claim but admitted owing O’Connor at least $47,562.19.
After a bench trial, the circuit court awarded damages, interest and costs. The court made no award of attorney’s fees, however, reasoning that the owner had a good faith (although erroneous) basis for failing to pay O’Connor in full on the contract. O’Connor raised the issue on appeal, arguing that the circuit court abused its discretion. The appellate court agreed with O’Connor, finding that where the owner admitted owing a portion of the amount claimed, but withheld payment of the undisputed sum, the owner was liable to pay O’Connor’s attorney’s fees under the Mechanics Lien Act.
The outcome in O’Connor may not occur in every case. Key factors included that the owner was a party to the prime contract, acknowledged a sum certain that was due the claimant and refused to pay the undisputed amount without explanation. However, the trial court’s power to award attorney’s fees is inherent in all mechanics lien cases and is consistent with Illinois public policy: to ensure that payment is made to those persons who provide labor and services to improve property for the owner’s benefit. The prospect of paying a claimant’s attorney’s fees should operate as a strong deterrent to an owner who considers withholding payments in the absence of a bona fide dispute.