The Illinois Appellate Court has held that those who serve a litigation notice under Section 34 of the Illinois Mechanic’s Lien Act (the “Act”) waive any contractual right to compel arbitration. Illinois Concrete I.C.I., Inc. v. Storefitters, Inc., 2010 Ill. LEXIS 46 (Ill. App. 2010).
In Illinois Concrete, the plaintiff concrete supplier asserted a mechanic’s lien in connection with claims for unpaid amounts owed. The parties’ supply contract contained a broad arbitration provision. The lien defendants, however, did not seek to compel arbitration. Instead, they served a litigation notice on the supplier pursuant to Section 34 of the Act, which states as follows:
Upon written demand of the owner, lienor, or any other person interested in the real estate, or their agent or attorney, served on the person claiming the lien, or his agent or attorney, requiring suit to be commenced to enforce the lien or answer to be filed in pending suit, suit shall be commenced or answer filed within 30 days thereafter, or the lien shall be forfeited.770 ILCS 60/34.
The plaintiff supplier then filed suit to foreclose upon its lien, at which time the defendants sought to compel arbitration. The trial court denied the motion to compel arbitration, and the Illinois Appellate Court affirmed.
The appellate court concluded that the defendants waived their arbitration rights by serving a Section 34 notice demanding the lien claimant to file suit. In reaching this conclusion, the court discussed and distinguished LaHood v. Central Illinois Construction, Inc., 781 N.E. 2d 585 (Ill. App. 2002), a case relied upon heavily by both the plaintiff and defendants. In LaHood, a contractor filed suit to enforce a mechanics lien after the owner served a Section 34 notice. The contractor also immediately sought to stay the litigation and compel arbitration. The LaHood court found that the contractor did not waive its arbitration rights because the contractor was required to respond to the Section 34 notice and to file suit in order to preserve its lien claim.
The Illinois Concrete court found the facts in the case before it to be the opposite of the situation presented in LaHood. Unlike the contractor in LaHood, the defendants in Illinois Concrete took action inconsistent with their right to seek arbitration. They did not have to file a Section 34 notice compelling the lien claimant to commence a foreclosure suit. Instead, they could have served an arbitration demand and sought to defeat the plaintiff’s lien claim through arbitration proceedings.
The appellate court also observed that defendants’ Section 34 notice was not served in response to any action taken by the lien claimant, and the court rejected the defendants’ argument that Section 34 creates a statutory remedy that can only be obtained in court, and not in arbitration. The court held that Section 34 does not provide a remedy, but instead provides a means to secure a remedy. For all of these reasons, the appellate court held that the defendants’ service of a Section 34 notice waived their contractual right to arbitration.