Archon Construction Co. v. U.S. Shelter, LLC, 2017 Ill. App. LEXIS 197 (March 31, 2017)

U.S. Shelter, LLC, a developer, undertook to develop a new residential subdivision in Elgin, Illinois. As part of that project, U.S. Shelter retained Archon Construction Company, Inc. (“Archon”) to install the sanitary sewer system for $890,955.29.

Archon’s contract provided that after the system was completed, Archon would videotape the interior of the piping, to allow the City of Elgin (“City”) to inspect and determine the acceptability of the system as installed.

Archon completed its work in August of 2005. In early 2007, the City requested that Archon perform the required videotaping. Archon complied.

After viewing the videotapes, the City announced that the system, as installed, was not acceptable and that certain repairs were necessary. In particular, the City specified that one of the lines running through the system needed to be replaced because of cracking, the existence of gravel in the lines, and other issues. While the entire sewer system had been constructed with PVC pipe, the City directed that this line be replaced with ductile iron pipe.

Archon performed the work and sent an invoice to U.S. Shelter for $247,432.41 for time and materials incurred in replacing that portion of the system with ductile iron pipe. According to Archon, the use of ductile iron piping was outside the scope of its contract, and it was therefore entitled to additional compensation.

U.S. Shelter refused to pay, taking the position that the replacement work, including the installation of ductile iron pipe, was within the scope of Archon’s contract, and the work was therefore not compensable. Thereafter, Archon brought this action, asserting claims for breach of contract and quantum meruit arising out of the ductile iron pipe replacement work.

For reasons not relevant here, Archon voluntarily dismissed its breach of contract claims and proceeded to trial solely on its quantum meruit claim. After a bench trial, the court ruled in favor of U.S. Shelter, holding that it could not be liable to Archon for quasi-contractual relief for costs it incurred in the performance of an express contract.

On appeal, the Appellate Court affirmed. The Court began by explaining the required elements of a quantum meruit claim. Under Illinois law, a plaintiff that seeks recovery under a quantum meruit theory must prove (1) that it performed services that provide a benefit to the defendant; (2) that the service was not performed gratuitously; (3) that the defendant accepted the service; and (4) that no contract existed governing payment for that service. Because of the undisputed existence of a contract between Archon and U.S. Shelter, the Court went on to analyze whether or not that express contract governed the work at issue in the litigation.

According to the Court, the first step of the analysis required it “to draw some boundaries around two different but closely related legal theories, each of which has reared its head in this case.” Specifically, it was required to draw the line between “extra work” that is “outside the scope of a contract” but nonetheless governed by the contractual change order process, and work that is not governed by the contract at all. The distinction was crucial, the Court reasoned, because “[t]hey would seem to cover a lot of the same territory, but as a matter of law, they cannot; as we have already noted, the case law has made clear that a contractual claim and a quantum meruit claim are mutually exclusive – they cannot coexist.”

After discussing at length the relevant Illinois authority governing issues of contractual extra work and quantum meruit, the Court concluded that “the operative question is not simply whether an express contract existed, or whether the challenged work was beyond the scope of the parties’ contract. Rather, the operative question is whether an express contract governed the same general subject matter as the challenged work.” (emphasis in original). For example, the Court cited to Stark Excavating, Inc. v. Carter Construction Servs., Inc., 2012 IL App (4th) 110357, ¶38, where quasi-contract relief was available to the contractor because the disputed “winter protection” work was expressly excluded by the contract, and thus could not be within the contract’s general scope.

Having thus determined the relevant question, the Court found that the resolution of Archon’s appeal was “rather straightforward.” This was so because:

The work that Archon performed, for which it now seeks money damages from U.S. Shelter, was part and parcel of the contract between the parties. Archon contracted to install a sanitary sewer system acceptable to the city. Its quantum meruit claim seeks to recover for repairing and reinstalling that very same sewer system. That work unquestionably involved the same “general subject matter” as the contract.

While Archon took the position that it was entitled to quantum meruit recovery because its contract required the installation of PVC pipe, and did not say anything about ductile iron pipe, the Court stated “that does not change the fact that the subject matter of the contract between the parties was the installation of an acceptable sanitary sewer system[.]”

Accordingly, the Appellate Court affirmed the judgment of the trial court, holding that, as a matter of law, the only claim available to Archon was one for contractual relief.

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