In January 2015, the Third District Appellate Court of Illinois issued a ruling that effectively eviscerated the lien rights of design professionals throughout the State of Illinois. The appellate court in Christopher B. Burke Engineering, Ltd. v. Heritage Bank of Central Illinois (2015 IL App (3d) 140064) held that if the services of an engineer do not result in the construction of a physical improvement to real property, those services are not lienable under Section 1 of the Illinois Mechanics Lien Act (the Act).  

Recognizing the tremendous negative impact on Illinois design professionals if this ruling were allowed to stand, lawyers filed a petition for leave to appeal to the Illinois Supreme Court. The petition was granted and the appeal was argued before the Supreme Court on September 23, 2015. On November 19, 2015, the Supreme Court issued a unanimous decision, authored by Chief Justice Rita Garman, reversing the appellate court. The Supreme Court’s decision reinforced longstanding Illinois law and provided Illinois courts with a clear road map to use when Illinois design professionals go unpaid on projects that are never constructed.

The facts of the underlying case were not that unusual. Burke had been hired to perform engineering services for a proposed real estate development. At the time Burke was hired, its client, a developer, was not the owner of the property; rather, the property was owned by Carol Schenck. A few months after Burke began performing its services, Burke’s client purchased the property from Schenck. As part of its engineering services, Burke prepared a final plat, conducted a wetlands survey, and provided services for planning roads, utilities and sewers. Subsequently, the client ran out of money and filed for bankruptcy (without having paid Burke anything for the services it had provided). As a result, Burke recorded its mechanics lien and filed suit.  

The trial court granted summary judgment in favor of Heritage Bank. (Heritage had held a mortgage interest in the property and ultimately took title through a deed in lieu of foreclosure.) According to the trial court, because Burke’s services did not result in a physical improvement to the property, Burke’s services were non-lienable. The court further found that because Burke’s contract predated its client’s purchase of the property, Burke’s lien did not “attach” to the property. The court reasoned that because Schenck did not encourage or induce Burke to perform the engineering services, Schenck did not “knowingly permit” Burke to provide its engineering services.   

The Third District Appellate Court affirmed. But Justice Lytton issued a vigorous dissent, pointing out that the majority’s opinion contradicted century-old Illinois Supreme Court precedent. The appellate court’s opinion was antithetical to not only longstanding Supreme Court authority, but also went against established public policy. In a unanimous decision, the Supreme Court reversed, agreeing with Burke on every facet of its argument.  

In support of its finding that Burke’s engineering services were lienable, the Supreme Court pointed to its prior decisions in Freeman v. Rinaker and Crowen v. Meyer, cases that allowed architects to maintain a lien for the preparation of plans even though the projects were never built. The Court’s statutory analysis focused on the various amendments to Section 1 of the Act dating back to 1919 and found, contrary to Heritage’s argument that Section 1 had been amended to narrow the lien rights of design professionals, an “overarching intent to expand the availability of mechanics liens.” Lastly, the Court recognized that it would be contrary to public policy to require a design professional to show that its services resulted in a physical improvement in order to obtain a mechanics lien. According to the Court, such a requirement “would be subject to the whims of the parties with whom they contract, who may decide to complete the project or not. Such an outcome is contrary to the protective purpose of the Act.”

With regard to whether Schenck “knowingly permitted” Burke to perform services on Schenck’s property before Burke’s client became the owner, the Supreme Court found that, contrary to the trial court’s ruling, it was not necessary for Burke to show that Schenck received a benefit from Burke’s services or that Schenke induced Burke to perform its services. Rather, the Supreme Court found that Burke need only show that Schenck knew of the contract with Burke and failed to object. As the Supreme Court observed:

“If acceptance of a benefit were the only way to show an owner knowingly permitted someone to contract, contractors would again be needlessly at the mercy of the parties with whom they contract — a contracting party could abandon its project and claim any lien was invalid because the owner had not received a benefit. The amount of work done by the architect or engineer is likely the same up until that point, regardless of whether any physical manifestations of the work are evident. Thus, engineers, and other similarly situated professionals, must be able to demonstrate that a property owner knowingly permitted a third party to contract regarding the owner’s property without having to demonstrate that the owner accepted a benefit.”

The matter has now been remanded back to the trial court for a determination of whether Schenck knew that the engineering services were commenced before the sale of the property.

In an interesting twist, the Supreme Court left open the possibility that Burke could still obtain a lien even if Schenck did not knowingly permit Burke’s performance of the engineering services. Under that scenario, according to the Court, the lien would not attach until Burke’s client became the property owner. The Court did not, however, address directly the question of whether Burke’s lien would still have priority over Heritage’s mortgage interest. That, apparently, is a dispute for another day.