When the Illinois General Assembly passed the Home Repair and Remodeling Act ("Home Repair Act"), it intended to protect consumers. However, it has been our experience that the Home Repair Act has had the effect of preventing contractors from getting paid for an honest day’s work. Because many home repair and remodeling contractors are simply unaware of a section in the Home Repair Act that requires them to give homeowners a copy of a consumer rights brochure prior to starting work, the Home Repair Act has had significant unintended consequences.
In September of this year, we had the privilege of presenting this topic at a meeting of the Business Law Committee of the DuPage County Bar Association. During our presentation, we noticed many flabbergasted looks from those who discovered for the first time that a homeowner could stiff a contractor, who otherwise performed quality work, merely because the contractor failed to give the homeowner a brochure printed by the Illinois Attorney General. At the heart of that discussion was a Fourth District case, Smith v. Bogard, which held that a violation of the Home Repair and Remodeling Act (such as not giving a homeowner a brochure) constituted an "unlawful act" and barred the contractor from seeking any legal or equitable relief with the courts. Many of those in attendance expressed opinions that the ruling in Smith was far too harsh, especially considering that the Smith decision did not even consider that the contractor may not have been aware that such a brochure even existed.
As predicted by those in attendance at the September meeting, the holding in Smith may be on its way out. Since the September meeting, the Second District has ruled that a contractor’s failure to give a homeowner a copy of the brochure does not bar a contractor’s claims against a homeowner, and the Illinois Supreme Court has accepted a petition for leave to appeal a First District decision holding that the failure to give the brochure bars legal but not equitable claims. Given the rapidly changing state of law, those who represent homeowners and contractors must pay extra attention to Home Repair Act issues and tread carefully when advising clients on Home Repair Act issues. This article is intended to provide you with an update on the law since our previous article on the Home Repair Act was published in June, 2009.
I. What must a contractor do to comply with the Home Repair Act?
The Home Repair Act sets forth four specific requirements for home repair and remodeling contractors. First, they must maintain public liability and property damage insurance or have a net worth of at least $1,000,000.1 Second, if the work exceeds $1,000, the home repair and remodeling contractor must provide the homeowner with a written contract or work order before starting work.2 Third, if the contract includes a provision that requires binding arbitration or waives a trial by jury, then the contractor is required to give the homeowner special notice of these provisions and requires the contractor to give the homeowner the option of accepting or rejecting the provisions.3 Fourth, the contractor is required to provide a homeowner with a consumer rights brochure prepared by the Illinois Attorney General.4 If a contractor violates one of these provisions, the ability of the contractor to bring claims against a homeowner may very well depend on the where in Illinois the homeowner lives. Each appellate court having addressed the effect of Home Repair Act violations on a contractor’s claims has reached different conclusions on whether a violating contractor can even bring a claim against a homeowner.
II. Smith v. Bogard – All Legal and Equitable Claims Barred if Contractor Violates Home Repair Act.
In Smith, Dan Smith met with the Bogards to discuss the construction of an addition to the Bogards’ living room. According to the Bogards, Smith gave them an oral estimate of "$20,000 or less" but completed the project for a total cost of $25,515.85.5 The Bogards paid Smith $15,000 but refused to pay the remaining balance of $10,515.85. Smith filed a complaint against the Bogards for breach of contract, unjust enrichment and quantum meruit.
The Bogards moved to dismiss, claimed Smith violated the Home Repair Act by not securing a written contract prior to initiating construction and by failing to provide them with the consumer rights brochure. The Bogards argued that these violations precluded Smith’s recovery. The trial court agreed and dismissed Smith’s claims in their entirety. The trial court reasoned that because Smith had failed to comply with the Home Repair Act, he committed an "unlawful act" and was precluded from recovery on his breach-of-contract claim. The trial court reasoned that because Smith was precluded from pursuing his breach of contract claim, he was also precluded from recovery under equitable theories because an equitable recovery would "defeat the entire purpose of the Home Repair Act and the public policy behind it."6 Thus, the trial court dismissed Smith’s case in its entirety.
The Fourth District appellate court affirmed the dismissal. The appellate court found that "allowing a contractor a method of recovery when he has breached certain provisions of the [Home Repair] Act would run afoul of the legislature’s intent of protecting consumers, would reward deceptive practices, and would be violative of public policy."7
III. The Smith aftermath.
The Smith decision got the attention of the home repair and remodeling industry. Within a month after the Illinois Supreme Court denied Smith’s Petition for Leave to Appeal8, the Home Builders Association of Illinois issued a report to its members about the Smith decision, encouraged its members to give the consumer rights brochure to its members, and warned its members that they could get stiffed if they did not provide their customers with the brochure.9
The Smith decision also created a unique opportunity for the knowledgeable homeowner to take advantage of an unwitting contractor who did not know of the requirement to give the homeowner a consumer rights brochure prior to starting work. Such a homeowner could allow a contractor to work on their home remodeling project, significantly expand the scope of the project with one extra after another, pay as little as possible to the contractor to keep him or her working on the project, and then, when it came time to pay the remaining balance, use the lack of a consumer rights brochure as a way of preventing the contractor from ever getting paid for the work performed improving the customer’s home.
IV. K.Miller Constr. Co. v. McGinnis – Legal But Not Equitable Claims Barred by Violations of the Home Repair and Remodeling Act.
In K.Miller Constr. Co. v. McGinnis, the First District confronted the nightmare scenario described above. When the McGinnises decided to remodel their Chicago property, they contacted a "friend" who had performed remodeling work for them on other property prior to the passage of the Home Repair Act.10 The parties reached an oral agreement for the work, but never reduced it to writing. The McGinnises (one of whom was an attorney practicing real estate law for over 30 years) initially agreed to pay $187,000 for the remodeling work, consistent with a written proposal from another construction company the McGinnises gave to Miller. Later, the McGinnisses decided to expand the scope of the project significantly, reaching more than $500,000 in construction costs.11
The McGinnises paid Miller’s initial invoices totaling $ 65,000 but refused to pay subsequent invoices, and stated they would not make any further payments until the project was completed. Because Miller could not complete the project without additional capital, Miller obtained a $150,000 line of credit to pay for materials and subcontractors. Miller completed the project in accordance with the expanded plans. The McGinnises approved of all Miller’s construction work, made some further payments to Miller, but refused to exceed payments above $177,580.33, leaving an unpaid balance of over $300,000. Miller’s complaint against the McGinnises sought to foreclose on a mechanics’ lien it had placed on the property, and sought recovery for breach of an oral contract and quantum meruit.
Like the Bogards, the McGinnises moved to dismiss, arguing that Miller’s Home Repair Act violations precluded it from recovery. The trial court agreed and granted the motion to dismiss all counts as barred by the Home Repair Act.12 The appellate court partially reversed the trial court, holding that Miller’s equitable claim, but not its two legal claims, could proceed regardless of the fact that Miller violated the Home Repair Act.
In its analysis, the appellate court reasoned that "the limited recovery available under quantum meruit, which also prevents an unjust enrichment to a consumer, as a means of providing a contractor the ability to recover the reasonable value of the services he rendered, [is] consistent with the stated purpose of the [Home Repair] Act of promoting fairness between the contractor and the consumer."13 The Court held that the Home Repair Act’s use of the word "unlawful" did not manifest an intention of the legislature to repeal the common law remedy of quantum meruit in home repair and remodeling cases.14 Thus, a contractor who failed to provide the consumer rights brochure would be entitled to recover only the value of the services rendered, not the agreed upon contract price.
V. Artisan Design Build, Inc. v. Bilstrom – Legal and Equitable claims allowed despite violations of the Home Repair Act.
One month after the First District decided K.Miller, the Second District decided Artisan Design Build, Inc. v. Bilstrom, and adopted a different way of evaluating the effect of inadvertent Home Repair Act violations. In Artisan, the Bilstroms entered into a written contract with Artisan to make improvements to the Bilstroms’ home for the sum of $534,970.15 The parties agreed to eight change orders, which significantly increased the contract price. Artisan submitted six draws to the Bilstroms, which they paid. Bilstroms failed to pay the seventh draw and locked Artisan out of the project owing it in excess of $208,695. Artisan filed a three count complaint seeking to foreclose on a mechanics’ lien it had placed on the property, and seeking recovery for breach of an oral contract and for unjust enrichment.
Like the homeowners in Smith and K.Miller, the Bilstrom’s moved to dismiss the contractor’s complaint arguing that the contractor’s failure to provide them the consumer rights brochure were violations of the Home Repair Act and precluded Artisan’s recovery under its legal and equitable claims.16 The trial court agreed and dismissed Artisan’s case.17
On appeal, the Second District appellate court reversed and held that a contractor’s failure to provide the consumer with the brochure does not vitiate the contractor’s right to recover either in equity or in law.18 Instead, the Second District appellate court found that, if the consumer could prove that it suffered damages that were proximately caused by the failure to furnish the brochure and that the contractor "knowingly" failed to provide the consumer with the brochure, then the consumer could bring a cause of action under the Consumer Fraud and Deceptive Business Practices Act against the contractor.19
Importantly, the Artisan court did not specifically decline to follow the holdings in Smith and K.Miller but rather distinguished them on factual grounds.20 The Artisan court found it significant that in Smith and K.Miller cases, the court had to address two Home Repair Act violations—a failure to give a written contract and a failure to give a consumer rights brochure. In the Artisan case, however, the Home Repair Act violation was only a failure to give a consumer rights brochure. Looking only at the failure to give a consumer rights brochure, the Court reasoned that using the failure to give a brochure to a homeowner as a means to deny the contractor from being paid would "lead to mischief" that was not intended by the legislature.21 The court went on to describe an absolute bar on legal and equitable claims for the failure to provide a consumer with a brochure as an "arbitrary restraint".22 Thus, even if the legislature intended to create an absolute bar against legal and equitable remedies for the contractor, the Artisan court suggested that it would have found the prohibition unconstitutional.
VI. What happens next?
The Smith, K.Miller, and Artisan decisions provide three different rules as to the effect of a Home Repair violation has on contractors’ claims against homeowners. Thus, in the event a contractor finds itself in precarious position of defending against a homeowner’s motion to dismiss based on violations of the Home Repair Act, the disposition of the motion may very well turn on the venue in which the contractor brings its claim.
On November 25, 2009, the Illinois Supreme Court granted a petition for leave to appeal the decision in K.Miller and opened the possibility of a definitive state-wide rule on what happens to a contractor’s claims against a homeowner if the contractor fails to give the homeowner a consumer rights brochure. However, Illinois contractors could find themselves a year away from such a definitive ruling from the Illinois Supreme Court. In the interim, it is projected that over $1 billion will change hands between Illinois homeowners and Illinois contractors.23
Accordingly, contractors must familiarize themselves with the Home Repair Act requirements or risk doing a lot of work for free.
The advice of those who regularly counsel home repair and remodeling contractors should remain the same—give your customer a copy of the brochure at your first meeting, without exception. As long as the Smith decision remains good law, a sophisticated consumer has the potential to abuse his status as a consumer in order to obtain free services from unwary contractors. While the legislature designed the Home Repair Act as a consumer protection statute, the Smith decision’s absolute bar on legal and equitable claims for non-complaint contractors effectively turned the Home Repair Act into a law from which contractors need protection.
1 815 ILCS 513/25.
2 815 ILCS 513/15.
3 815 ILCS 513/15.1.
4 815 ILCS 513/20.
5 Smith, 377 Ill. App. 3d at 843-44. (4th Dist. 2007).
6 Id. at 844.
7 Id. at 848.
8 228 Ill. 2d 553 (2008).
9 Nicholas W. Fitzgerald, Home Builders Association of Illinois, The Home Repair and Remodeling Act: How it Affects Builders and Remodelers (June 9, 2008).
10 913 N.E.2d at 1150.
12 Id. at 1151.
13 Id. at 1157.
14 Id. at 1158.
15 2009 Ill. App. LEXIS 920, at *2. (Docket
No. No. 2-08-0855).
16 Id. at *3.
17 Id. at *4.
18 Id. at *22.
20 Id. at *17-18.
21 Id. at *25.
22 Id. at *28.
23 See Joint Center for Housing Studies at Harvard University, The Remodeling Market in Transition: Improving America’s Housing 2009, p. 5 available at:http://www.jchs.harvard.edu/publications/remodeling/remodeling2009/r09-1.pdf (noting that Chicagoland homeowners spend an average of $3,000 per year on home improvements).
James L. Ryan is an associate at the law firm of Roberts & Caruso. He con-centrates in com-mercial litigation, probate and con-struction law. He has represented both homeowners and contractors in cases involving the application of the Home Repair and Remodeling Act.
Matthew T. Caruso is a partner at the law firm of Roberts & Caruso. He is the Chairman of the DuPage County Bar Association’s Business Law Committee. He has represented homeowners and contractors in construction disputes for over 20 years.