Cordeck Sales v. Construction Systems

• Decision Date: 31 March 2008
• Docket Number: No. 1-06-3702.,1-06-3702.
• Citation: 887 N.E.2d 474
• Parties: CORDECK SALES, INC., Plaintiff, v. CONSTRUCTION SYSTEMS, INC., et al., Defendants. (A.L.L. Masonry Construction Company, Inc., Just Rite Acoustics, Inc., Reinke Gypsum Supply Co., Stair One, Inc., AMEC Construction Management, Inc., and Inland Electric Corporation, Plaintiffs-Appellees; First Midwest Bank, Defendant-Appellant).
• Court: United States Appellate Court of Illinois

887 N.E.2d 474

CORDECK SALES, INC., Plaintiff, v. CONSTRUCTION SYSTEMS, INC., et al., Defendants (A.L.L. Masonry Construction Company, Inc., Just Rite Acoustics, Inc., Reinke Gypsum Supply Co., Stair One, Inc., AMEC Construction Management, Inc., and Inland Electric Corporation, Plaintiffs-Appellees; First Midwest Bank, Defendant-Appellant).

No. 1-06-3702.

Appellate Court of Illinois, First District, Third Division.

March 31, 2008.

Stephen P. Kikoler, James M. Dash, John H. Ward, Much Shelist Denenberg Ament & Rubenstein, P.C., Chicago, for Appellant.

Daniel G. Lauer, of Nicholas C. Bax, Daniel G. Lauer & Assoc., P.C., Chicago, for A.L.L. Masonry Construction Company, Inc.

Mark J. Rose, Law Offices of Mark J. Rose, Chicago, for Just Rite Acoustics, Inc. and Reinke Gypsum Supply Co.

Michael T. Nigro of Nigro & Westfall, P.C., Glendale Heights, for Stair One, Inc.

Steven G.M. Stein, Peter J. Bedard, Lizabeth A. Munitz, of Stein, Ray & Harris, LLP, Chicago, for AMEC Construction Management, Inc.

Justin L. Weisberg, W. Matthew Bryant, Terrence J. Madden, of Bryce-Downey, LLC, Chicago, for Inland Electric Corp.

Justice GREIMAN delivered the opinion of the court:

Five subcontractors and one construction manager (collectively appellees) filed claims seeking foreclosure of their mechanic's liens pursuant to the Mechanics Lien Act (770 ILCS 60/1 et seq. (West 2006)). First Midwest Bank (First Midwest), the holder of a valid mortgage lien on the property, also filed a claim to foreclose its lien. The parties then engaged in discovery and Bassam Hajyousif, the owner of two companies involved in the project, invoked his fifth amendment privilege against self-incrimination. The trial court denied First Midwest's motion to compel Hajyousif to testify as well as its motion to continue the proceedings until Hajyousif could testify. Thereafter, the trial court found that each of the appellees' mechanic's liens had priority over First Midwest's mortgage lien. The appellees and First Midwest then filed cross-motions for summary judgment, wherein the parties disputed the validity and amounts of each of the appellees' mechanic's liens. The trial court granted each of the appellees' motions for summary judgement and denied each of First Midwest's motions. First Midwest has appealed and is seeking reversal of each of the trial court's summary judgment orders. Specifically, First Midwest asserts that reversal is warranted because the trial court erred when it: (1) permitted Hajyousif to invoke his fifth amendment privilege against self-incrimination on a blanket basis with respect to the project instead of on a question-by-question basis and compounded its error when it denied First Midwest's motion to continue the proceedings until Hajyousif was available to testify; and (2) found the defenses First Midwest asserted against each of the appellees to be meritless. We affirm as modified.

This appeal stems from a dispute among various parties involved in a construction project (Montreville Project or Project). The property at issue is a condominium building located at 520 N. Halsted Street in Chicago that contains 89 individual condominium units. At all relevant times, Northstar Trust Company (Northstar), as trustee, held the property in trust, with Savannah, Inc. (Savannah), named as the beneficiary of the trust. On February 4, 2000, Savannah contracted with AMEC Construction Management, Inc. (AMEC), to serve in the capacity of the "construction manager" on the Montreville Project.

Thereafter, on June 10, 2000, Savannah retained Construction Services International, Inc. (CSI), to perform general contracting services on the Montreville Project. Savannah and CSI had the same principals: Bassam Hajyousif and Romel Esmail. After being named the general contractor, CSI then entered into contracts with various second-tier contractors to provide subcontracting services on the Montreville Project. Specifically, CSI retained A.L.L. Masonry Construction Co., Inc. (ALL), to provide masonry services, Inland Electric Corp. (Inland) to provide electrical services, Chicago Drywall & Acoustical, Inc. (Chicago Drywall), to provide drywall and acoustic services, and Stair One, Inc. (Stair One), to provide steel services. Chicago Drywall, in turn, contracted with Just Rite Acoustics, Inc. (Just Rite), to install a suspension system for the drywall ceilings that were to be installed in the building and Reinke Gypsum Supply Co. (Reinke) to provide drywall and other interior building materials for use in the Project.

On April 30, 2001, Northstar, as trustee, obtained a $16,736,960 mortgage on the property through CoVest Banc, National Association (CoVest), First Midwest's predecessor-in-interest. The mortgage contract was subsequently modified and the loan amount increased to $23,145,981. The mortgage was recorded on May 11, 2001.

On or near the date the mortgage contract was executed, CoVest also obtained a loan policy of title insurance from Ticor Title Insurance Company (Ticor). The policy provided that Ticor would defend and indemnify CoVest for losses to the extent they were caused by title encumbrances. Coverage was provided by virtue of an escrow agreement entered into by Ticor, Savannah, and CoVest. The agreement provided that "[t]here will be MONTHLY disbursements, which are to be made in accordance with the terms and conditions of this escrow as hereunder set forth." The terms of the escrow agreement required Ticor, the escrowee, to be furnished with various documents prior to disbursing funds from the construction escrow account including: a sworn general contractor's statement, a current dated sworn owner's affidavit, a certificate of inspection by the lender's inspector, as well as "[s]tatements, waivers, affidavits, supporting waivers and release of lien (if necessary), satisfactory to Ticor." After collecting the various documents and disbursing funds, the agreement also required Ticor to provide CoVest, the lender, with an endorsement, reflecting the validity and priority of CoVest's mortgage lien.

AMEC, Inland, Reinke, Just Rite, ALL, and Stair One each performed under their respective contracts. Initially, the appellees each received timely payments in exchange for the labor and services they provided on the Montreville Project. Ultimately, however, payments stopped. As a result, the appellees recorded mechanic's liens with the Cook County recorder of deeds and filed claims to foreclose their liens in the circuit court, the details of which will be set forth below.

On February 6, 2004, after the appellees recorded their lien claims and filed counterclaims to foreclose their mechanic's liens in the circuit court, CoVest filed a counterclaim to foreclose its mortgage lien totaling $23,808,829.19. Thereafter, First Midwest, "successor by merger to Co-Vest," entered into the litigation and filed responses to the appellees' counterclaims and asserted various affirmative defenses against them.

On February 26, 2004, the circuit court appointed a Receiver for the completion of the Project and sale of the completed condominium units. On March 26, 2004, the circuit court entered an order providing that the existing mechanic's liens would attach to the proceeds of the sale of the condominium units upon their sale by the Receiver.

On October 14, 2004, the trial court entered default judgment in favor of the appellees and against Northstar, Savannah, and CSI due to their failure to comply with discovery. Thereafter, Inland, Reinke, Just Rite, and ALL moved for partial summary judgment against First Midwest on the issue of priority, asserting that their mechanic's liens had priority over First Midwest's mortgage lien because the underlying construction contract between Savannah and CSI predated the date of the recording of the mortgage. On March 24, 2005, the trial court entered an order finding that Inland, Reinke, Just Rite, and ALL's mechanic's' liens had priority over First Midwest's mortgage lien. AMEC also moved for partial summary judgment against First Midwest on the issue or priority, arguing its mechanic's lien had priority over First Midwest's mortgage lien because AMEC's contract with Savannah predated the date the mortgage was recorded. The trial court granted summary judgment in favor of AMEC on the issue of priority on October 24, 2005.

While the parties were disputing the issue of priority, they were also engaging in extensive discovery. Esmail and Hajyousif, the principal owners of Savannah and CSI, were both deposed. Representatives from First Midwest, AMEC, Inland, Reinke, and Just Rite were present for Hajyousif's June 7, 2005, deposition, and First Midwest was the first party to question Hajyousif. Initially, Hajyousif provided details about his educational and professional background as well as his introduction to the Montreville Project. Counsel for First Midwest then began to ask specific questions concerning the Montreville Project and Hajyousif's knowledge of the entities involved in the Project. Specifically, counsel questioned Hajyousif as to his role in Savannah, the identity of the person who kept Savannah's corporate records, the date CSI was formed, and the process by which Hajyousif purchased the property. In response to each question, Hajyousif cited the fifth amendment and refused to answer. Counsel then asked Hajyousif whether he intended to invoke the fifth amendment on a blanket basis in response to questions concerning the Montreville Project. Specifically counsel queried: "Is it your intention to assert the Fifth Amendment on all questions relating to the structure or acts of Savannah, Inc.?" and "Is it your intention to assert the Fifth Amendment with respect to all matters involving yourself and the 520 North Halsted Street project?" and "Is it also your intention to assert the Fifth Amendment with respect to [CSI's] contracts for improvement to the property on both ends, both in...