Default Judgment by Owner Against Contractor Bars all Defenses by Owner to Subcontractor’s Lien Claims: Anekom, Inc. v. Estate of Demith, 2018 IL App (3d) 160554
A recent decision from the Third District Appellate Court addressed the danger of an owner entering judgment against a contractor while the claims of subcontractors are pending. In the Anekom case, an estate hired a contractor to demolish a home and rebuild another on the same lot. The project proceeded slowly, and for that reason the owner fired the contractor. Before the contractor was terminated, at least two subcontractors completed significant work including demolition and framing.
The contractor foreclosed its lien, claiming damages for the work completed. The unpaid subcontractors were also joined to the suit, as they had recorded liens against the home to protect their interest. Subcontractors then also filed to foreclose their liens. For whatever reason (insolvency?), the contractor failed to prosecute its lien claim, and the initial contractor’s case was dismissed for lack of action. The owner filed a counter-claim against the contractor and obtained a default judgment for $144,834.20. The owner’s judgment included damages for the amounts claimed by the sub-contractors in their lien claim. That fact ultimately doomed the owner in its contest with the sub-contractors.
Both sub-contractors filed motions for summary judgment on their claims to foreclose which were granted. That was the decision appealed by the Owner. In an unusual twist, the appellate court stated that while the judgment against the contractor was not initially the issue raised on appeal by the parties, it would be determinative in the case. The appellate court appears to have examined the record and raised the issue during oral argument, instructing the parties to file supplemental briefs.
Essentially, the court argued (and of course concluded) that because the owner obtained a judgment against the contractor which included the subcontractor’s demand, it could not contest the subcontractor’s liens. The court opted to not address the other issues raised by the owner on appeal. Their decision was based upon two different theories: claim preclusion and the election of remedies doctrine.
Even though the corporate contractor abandoned its claim and dissolved in 2014, the court found that allowing the owner to defend against the sub-contractor’s claims would impermissibly allow double recovery. If successful in fending off the sub-contractors, the owner could still collect the judgment. Where double recovery is implicated, a litigant will be bound by there decision to pursue their remedy of choice. Without direct evidence of insolvency, the court would not entertain the claim of the estate that the judgment could not be collected, even where the issue was first raised at oral argument.
The court further found that judicial estoppel precluded the estate from defending against the lien claim. Quite simply, the court held that because the owner acknowledged the amounts were owed when it entered judgment against the contractor, it would not be permitted to mount any defense to the sub-contractor’s lien claims. The substance of those defenses was not mentioned in the opinion, as the merits of the claims initially raised on appeal were not addressed by the court.
Given this holding, parties should be extremely careful when moving to enter judgment in any case where the source of damages could be used as an admission by opposing parties.
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