C. Szabo Contracting, Inc. v. Lorig Construction Co., 2014 IL App (2d) 131328; 2014 Ill. App. LEXIS 699 (Sept. 29, 2014)

In May of 2006, the Illinois State Toll Highway Authority (“Highway Authority”) retained Defendant Lorig Construction Company (“Lorig”) as general contractor on a construction project for improvements to Interstate 355. The Highway Authority required that Lorig subcontract a portion of its work to a “Disadvantaged Business Enterprise” (“DBE”), and that the project be performed with union labor.

Lorig subcontracted with JLA Construction, Inc. (“JLA”) for the installation of storm sewers and for the performance certain other work at a price of approximately $2.8 million. The subcontract was later amended to allow JLA to perform pipe-jacking, a tunneling method that enabled JLA to complete the sewer installation without open excavation.

After the subcontract was executed, Lorig learned that JLA was not a DBE and thus directed JLA to assign its work to JLA & Sons, Inc., a subsidiary of JLA that was qualified as a DBE. The pipe-jacking work was exempted from this requirement by Lorig, and thus JLA was able to retain that portion of the work. However, Lorig expressed concern over JLA’s ability to provide the requisite union labor. Accordingly, Lorig informed JLA that it would take over the pipe-jacking work unless JLA provided union labor within five days.

Within two days, JLA subcontracted the pipe-jacking work to Plaintiff, C. Szabo Contracting, Inc. (“Szabo”), another JLA subsidiary with a union contract. After executing the subcontract, Szabo sent a fax to Lorig communicating that it had union workers, as required, and was thus ready to proceed with the work. It received no response from Lorig but nonetheless proceeded with the pipe-jacking work.

After Szabo completed its work, both it and JLA sent numerous communications to Lorig requesting payment, but received no response. Ultimately, Szabo and JLA filed an action against Lorig seeking damages under a number of theories, including breach of contract and unjust enrichment.

With respect to Szabo’s unjust enrichment claim, Lorig defended on the grounds that it was unaware of Szabo’s role on the project and in fact believed that JLA & Sons had performed the pipe-jacking work. In support of its position, Lorig established that a number of JLA personnel, including its president, were simultaneously employed by JLA, JLA & Sons and Szabo, and were on the job site during the entire course of the project. According to Lorig, it had paid JLA & Sons all sums for which JLA & Sons had invoiced, and thus did not believe it owed any further payment for work on the project.

In the face of conflicting evidence, the trial court found that Lorig had not paid Szabo, JLA or JLA & Sons for the pipe-jacking work. The court further found that, based upon communications between the parties during the project, Lorig was aware that Szabo had performed work and held for Szabo on its unjust enrichment claim. In particular, the court found that Lorig was aware that Szabo was working on the project and “encouraged” Szabo to perform the pipe-jacking work, and, consequently, that it would be unjust under the circumstances to allow Lorig to retain the benefit of the work without paying.

On Appeal, the Appellate Court of Illinois affirmed the trial court’s judgment, but concluded that it could not affirm the trial court’s rationale. It therefore undertook a thorough examination of the law of unjust enrichment in Illinois and other jurisdictions to clarify the circumstances under which damages are available in Illinois under an unjust enrichment theory. The Court noted that no prior Illinois case had yet addressed “whether a party to a contract may pursue quasi-contractual relief against a nonparty to the contract on the basis that the nonparty requested and received a benefit but has paid no one for it.”

Ultimately, it held that quasi-contractual relief was available under those circumstances. In reaching its holding, the Court found that it is not enough that a defendant was merely aware that a plaintiff has performed work that might benefit the defendant. Rather, unless the defendant specifically requested that the work be performed, liability under the circumstances would constitute a “forced exchange” of payment for which the defendant did not bargain – a result that is explicitly discouraged by the Restatement (Third) of Restitution and Unjust Enrichment. The Court further clarified that unjust enrichment would not be available to a plaintiff where a defendant had paid some party for the work, as such a scenario would raise concerns about double liability. Accordingly, if Lorig had paid JLA or JLA & Sons for the work, relief would not be available to Szabo.

Turning back to the case before it, the Court found that liability under an unjust enrichment theory was available under the circumstances. Indeed, “Lorig received the exact performance that it requested and agreed to pay for, and it does not dispute that it paid no one for the work.” Thus, even though there was no contract between Lorig and Szabo, the circumstances did not raise concerns of a “forced exchange” because “Lorig is paying for the exact service it requested at the price it agreed to pay.” Moreover, there was no risk of double liability because JLA had dismissed its claims against Lorig and would therefore be unable to obtain a judgment against it. Accordingly, the Court held that, under the circumstances, recovery was available to Szabo under an unjust enrichment theory because it requested that the work be performed but did not pay for it, and because there was no risk of incurring double liability.