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Foster Wheeler Energy Corp. v. LSP Equipment, LLC
State: Illinois
Court: 2nd District Appellate
Docket No: 2-03-0963 Rel
Case Date: 02/25/2004

No. 2--03--0963


IN THE
 

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT

FOSTER WHEELER ENERGY
CORPORATION,

          Plaintiff,

v.

LSP EQUIPMENT, LLC; LSP-KENDALL
ENERGY, LLC; DICK CORPORATION
and HITACHI ZOSEN CORPORATION,

          Defendants

(Dick Corporation, Crossplaintiff-Appellant;
LSP-Kendall Energy, LLC, and LSP
Equipment, LLC, Crossdefendants-
Appellees).

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Appeal from the Circuit
Court of Kendall County.



No. 02--L--25








Honorable
Leonard J. Wojtecki
Judge, Presiding.



JUSTICE BYRNE delivered the opinion of the court:

This appeal arose from two contracts for the construction of a power plant located inMinooka, Illinois. The construction contracts contain forum-selection and choice-of-law provisions,which purport to require that disputes between the parties to the contracts be litigated in New York. Plaintiff, Foster Wheeler Energy Corporation, which is not a party to this appeal, initiated theunderlying Illinois action, alleging a mechanic's lien foreclosure against defendants, LSP-KendallEnergy and LSP Equipment (collectively, LSP defendants), Dick Corporation, and Hitachi ZosenCorporation, which also is not a party to this appeal. Dick crossclaimed against LSP defendants toforeclose on Dick's own mechanic's lien claim. Pursuant to the forum-selection and choice-of-lawprovisions of the construction contracts, LSP defendants filed a complaint in New York federal courtagainst Dick for breach of contract and then moved to stay Dick's mechanic's lien foreclosurecrossclaim in the Illinois litigation, pending resolution of the New York claim. LSP defendantsargued that the forum-selection and choice-of-law provisions in the construction contracts requiredthat the disputes between the parties, including the claim underlying Dick's mechanic's lien foreclosurecrossclaim, be litigated in New York. Dick argued that section 10 of the Building and ConstructionContract Act (Act) (815 ILCS 665/10 (West 2002)), although enacted in July 2002 after the partiesentered into the construction contracts, invalidated any Illinois construction contract provision thatpurported to choose the law or forum of another state for purposes of resolving disputes under thecontracts. Dick also argued that because this is a procedural statute, it should be applied retroactivelyto void the parties' contractual forum-selection and choice-of-law provisions. The trial courtdisagreed and granted the motion to stay. Dick appeals the trial court's order. We affirm.

The following facts are not disputed. Kendall owns the Minooka property upon which apower plant was to be constructed, and it served as the project's owner. LSP Equipment served asKendall's captive retailer. On or about November 11, 1999, Kendall contracted individually with boththe National Energy Production Company (NEPCO) and Dick to provide engineering, procurement,and construction for the project (EPC Agreement). In the EPC Agreement, Dick and Kendall agreedto litigate all disputes in New York. The EPC Agreement's forum-selection clause provides:

"The Parties hereby submit themselves to the exclusive jurisdiction of the state andfederal courts located in the state of New York for the purpose of litigating a Dispute underthis Section 18.2 for the purpose of obtaining any preliminary relief related thereto."

Dick, together with LSP defendants and NEPCO, also entered into an interfacing agreementon or about November 12, 1999. The interfacing agreement sets forth certain understandings relatedto the interfacing among the parties in the exercise of their rights and performance of their obligationsunder the EPC Agreement with respect to the procurement of equipment for the project. In thisagreement, Dick and LSP defendants agreed to submit to the jurisdiction of the New York statecourts or the United States District Court for the Southern District of New York and also agreed tobe governed by New York law. Section 3.2(b) of the interfacing agreement provides:

"Any legal action or proceeding with respect to this Agreement and any action forenforcement of any judgment in respect thereof may be brought in the courts of the State ofNew York, in and for the County of New York, or of the United States of America for theSouthern District of New York, and, by execution and delivery of this Agreement, theContracting Party hereby accepts for itself and in respect of its property, generally andunconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courtsfrom any appeal thereof."

On or about March 20, 2000, LSP Equipment and Foster Wheeler entered into a purchaseorder agreement in which Foster Wheeler agreed to provide four heat recovery steam boilers for theconstruction of the project. Foster Wheeler initiated this lawsuit against defendants, seeking paymentfor the heat recovery boilers and other relief. In particular, Foster Wheeler alleged a mechanic's lienforeclosure action against Kendall; a breach of contract action against LSP Equipment for allegedfailure to pay Foster Wheeler under the terms of the purchase order agreement; a breach of contractaction against its subcontractor, Hitachi Zosen; an action against Dick for tortious interference withthe Foster Wheeler-Hitachi subcontract; a declaratory judgment action concerning its warrantyobligations to LSP Equipment; and a declaratory judgment action against LSP Equipment concerningbackcharge procedures under the Foster Wheeler purchase order agreement.

Dick filed to foreclose its mechanic's lien on the real estate. This foreclosure action came inthe form of a crossclaim as a response to the allegations made in the foreclosure action filed by FosterWheeler. Dick alleged that Kendall failed to pay Dick for work allegedly performed pursuant to theEPC Agreement. Dick alleged that it had performed under the EPC Agreement but that Kendall hadbreached the EPC Agreement and the interfacing agreement by failing to fully pay Dick and that, asa consequence, it was entitled to foreclose its mechanic's lien.

On April 21, 2003, pursuant to the forum-selection and choice-of-law provisions of the EPCAgreement and the interfacing agreement, LSP defendants filed a complaint against Dick in theUnited States District Court for the Southern District of New York, seeking resolution of the contractdisputes and other claims alleged to be underlying Dick's foreclosure action. On the same date, LSPdefendants filed a motion to stay Dick's mechanic's lien foreclosure action in the Illinois trial court,pending resolution of the New York federal district court's proceeding. LSP defendants based theirmotion to stay on their belief that the resolution of the disputes between the parties, including allclaims underlying Dick's mechanic's lien foreclosure action, must be litigated in a New York forumpursuant to the forum-selection provisions of their contracts.

In response, Dick argued that section 10 of the Act (815 ILCS 665/10 (West 2002)) voidedthe forum-selection clauses in the parties' agreements and, therefore, the motion to stay should bedenied. Section 10 voids any Illinois construction contract provision that purports to choose the lawor forum of another state for purposes of resolving disputes under the contract.

On July 31, 2003, the trial court held that section 10, enacted on July 16, 2002, was not thelaw at the time the parties entered into the agreements, in 1999, and it could not be appliedretroactively to invalidate the parties' agreements to litigate all disputes in New York. Accordingly,the trial court granted the motion to stay. Dick timely filed its notice of interlocutory appeal of thetrial court's ruling staying its crossclaim.

The question of first impression before this court on appeal is whether section 10 of the Actis retroactive or merely prospective. Section 10 provides:

"A provision contained in or executed in connection with a building and constructioncontract to be performed in Illinois that makes the contract subject to the laws of anotherstate or that requires any litigation, arbitration, or dispute resolution to take place in anotherstate is against public policy. Such a provision is void and unenforceable." 815 ILCS 665/10(West 2002).

Because this presents a question of statutory interpretation, our review is de novo. See Weathermanv. Gary-Wheaton Bank of Fox Valley, N.A., 186 Ill. 2d 472, 480 (1999).

In Commonwealth Edison Co. v. Will County Collector, 196 Ill. 2d 27, 38 (2001), thesupreme court adopted the retroactivity test developed by the United States Supreme Court inLandgraf v. USI Film Products, 511 U.S. 244, 280, 128 L. Ed. 2d 229, 261-62, 114 S. Ct. 1483,1505 (1994). Under Landgraf, the first step in undertaking the retroactivity analysis is to determinewhether the legislature has clearly indicated the temporal reach of an amended statute. Commonwealth Edison, 196 Ill. 2d at 38. If so, then, absent a constitutional prohibition, thatexpression of legislative intent must be given effect. Commonwealth Edison, 196 Ill. 2d at 38. If not,the court must next determine whether applying the statute would have a retroactive effect, i.e.,whether it would impair rights that a party possessed when he acted, increase a party's liability forpast conduct, or impose new duties with respect to transactions already completed. CommonwealthEdison, 196 Ill. 2d at 38. If the statute would have a retroactive impact, then the court must presumethat the legislature did not intend that it be so applied. Commonwealth Edison, 196 Ill. 2d at 38.

Although the parties do not cite this case, the supreme court in Caveney v. Bower, 207 Ill.2d 82, 92 (2003), recently held that application of the Landgraf approach should prove "uneventful." This is so because, as the supreme court recently acknowledged in People v. Glisson, 202 Ill. 2d 499(2002), "the legislature has clearly indicated the 'temporal reach' of every amended statute."(Emphasis in original.) Caveney, 207 Ill. 2d at 92. The legislature does so either expressly in the newstatute or by default in section 4 of the Statute on Statutes (5 ILCS 70/4 (West 2000)). Section 4provides, in relevant part:

"No new law shall be construed to repeal a former law, whether such former law isexpressly repealed or not, as to any offense committed against the former law, or as to anyact done, any penalty, forfeiture or punishment incurred, or any right accrued, or claim arisingunder the former law, or in any way whatever to affect any such offense or act so committedor done, or any penalty, forfeiture or punishment so incurred, or any right accrued, or claimarising before the new law takes effect, save only that the proceedings thereafter shallconform, so far as practicable, to the laws in force at the time of such proceeding." 5 ILCS70/4 (West 2000).

The court explained that the Glisson court construed section 4 as authorizing the retroactiveapplication of amendments or repeals only if such changes are procedural. Caveney, 207 Ill. 2d at92. Conversely, section 4 "forbids retroactive application of substantive changes to statutes." Glisson, 202 Ill. 2d at 507. The Caveney court therefore concluded that section 4 of the Statute onStatutes "represents a clear legislative directive as to the temporal reach of statutory amendments andrepeals: those that are procedural in nature may be applied retroactively, while those that aresubstantive may not." Caveney, 207 Ill. 2d at 92. The court further concluded that "it is virtuallyinconceivable that an Illinois court will ever go beyond step one of the Landgraf approach." Caveney,207 Ill. 2d at 94. In this way, "for purposes of Landgraf's first step, the legislature always will haveclearly indicated the temporal reach of an amended statute, either expressly in the new legislativeenactment or by default in section 4 of the Statute on Statutes." (Emphasis in original.) Caveney,207 Ill. 2d at 95.

We find it of no consequence that Commonwealth Edison and Caveney involved statutoryamendments that evolved from prior versions of statutes, whereas the present case speaks only of anewly enacted statute that did not emanate from a prior legislative enactment. Before the enactmentof section 10 of the Act, Illinois, consistent with the Supreme Court's holding in M/S Bremen v.Zapata Off-Shore Co., 407 U.S. 1, 11-12, 32 L. Ed. 2d 513, 521, 92 S. Ct. 1907, 1914 (1972),readily enforced forum-selection clauses, unless enforcement contravened the strong public policyof the state in which the case was brought. See, e.g., English Co. v. Northwest Envirocon, Inc., 278Ill. App. 3d 406, 410-12 (1996). The common law, where it has not been expressly abrogated bystatute, is as much a part of the law of the state as the statutes themselves. People ex rel. Board ofTrustees of the University of Illinois v. Barrett, 382 Ill. 321, 346 (1943). Thus, we find that the "pre-amended" version of section 10 manifested itself in the common law, and the enactment of section10 abrogated prior case law just as the statutory amendments in Commonwealth Edison and itsprogeny overturned or amended prior versions of the statutes.

Moreover, we see nothing on the face of section 4 of the Statute on Statutes that confines itsapplication only to statutory amendments or repeals of statutes. Section 4 speaks of "new law" and"former law," not statutes. Section 4 begins: "No new law shall be construed to repeal a former law,whether such former law is expressly repealed or not." (Emphasis added.) 5 ILCS 70/4 (West 2002). Accepting that the common law is a part of the law of the state and that words of a statute should begiven their ordinary meaning, we find that section 4 is equally applicable in the present case, wherea newly enacted statute overturned former case law, as it was in those cases like Caveney, where anamendment overturned a prior version of a statute. Both manifested the legislative intent to changethe law, either substantively or procedurally.

Turning back to the issue, then, we must decide whether section 10 of the Act may be appliedretroactively to void the parties' contract provisions. Therefore, we must ascertain whether thelegislature has clearly indicated the temporal reach of the statute. See Caveney, 207 Ill. 2d at 95;Commonwealth Edison, 196 Ill. 2d at 38. To do so, we first examine the language of the new law. Clearly, the legislature did not indicate the temporal reach in section 10.

Dick argues that the use of present tense verbs in section 10 demonstrates an intent to applythe statute retroactively. This argument fails the test adopted by the supreme court in CommonwealthEdison and Caveney as well. The legislature must clearly express its intent that the statute be appliedretroactively. Commonwealth Edison, 196 Ill. 2d at 38. For example, in Commonwealth Edison, thestatutory amendment at issue stated that it " 'applies to all cases pending on or after the effective dateof this amendatory Act of 1994,' " and expressly validated tax levies adopted " 'either before, on orafter the effective date of [the amendatory Act].' " Commonwealth Edison, 196 Ill. 2d at 42, quotingPub. Act 88--545, eff. January 1, 1995. The court found this language to be an "unequivocalexpression of legislative intent" to apply the amendment retroactively and sufficient to meet the firstprong of the Landgraf test. Commonwealth Edison, 196 Ill. 2d at 42. Statutes that merely providethat they are to "take[] effect upon becoming law," as section 99 of the Act does (see 815 ILCS665/99 (West 2002)), do not contain a clear expression of legislative intent that they are to be appliedretroactively. See Jones v. Industrial Commission, 335 Ill. App. 3d 340, 345 (2002). Accordingly,we reject Dick's argument and hold that section 10 of the Act applies prospectively.

Because the legislature's clear pronouncement is not found in the statute itself, Caveneyteaches that we must look to the legislature's clear pronouncement in section 4 of the Statute onStatutes, which " 'forbids retroactive application of substantive changes to statutes.' " Caveney, 207Ill. 2d at 95, quoting Glisson, 202 Ill. 2d at 506-07. Dick characterizes section 10 as proceduralbecause it deals specifically with forum selection. We disagree. Clearly, the enactment of section 10represents a substantive change in the law, not because it establishes whose law governs constructioncontracts in Illinois, but because it interferes with the parties' right to freely contract that issue, a rightthat previously existed. Because we assume that section 10 was framed in view of the provisions ofsection 4, and that the legislature intended that the Act should have prospective operation only, wefind that the trial court correctly granted LSP defendants' motion to stay.

Dick argues that, under the second prong of Landgraf, section 10 cannot have a retroactiveimpact. While we need not reach the second prong of the Landgraf test, we note that this argumentnevertheless is inaccurate and misconstrues the true impact of section 10 on a party's vestedcontractual right. "[I]t is well settled that a party's rights under a contract become 'vested' for thepurposes of the retroactive application of a statute when the contract is entered into rather than whenthe rights thereunder are asserted." Prudential Property & Casualty Insurance Co. v. Scott, 161 Ill.App. 3d 372, 381-82 (1987). The Supreme Court's opinion in Landgraf did not alter these principles,but reaffirmed the protection against retroactive application of a new statute to vested contract rights. The Court stated:

"The largest category of cases in which we have applied the presumption againststatutory retroactivity has involved new provisions affecting contractual or property rights,matters in which predictability and stability are of prime importance." Landgraf, 511 U.S. at271, 128 L. Ed. 2d at 256, 114 S. Ct. at 1500.

In Weisberg v. Royal Insurance Co. of America, 124 Ill. App. 3d 864 (1984), the defendant-insurer sought to enforce its policy's one-year limitation period to commence suit. The plaintiff-insured attempted to rely on a statute, enacted subsequent to the issuance of the insurance policy, thattolled any contractual limitation period while a claim was pending. Despite the procedural nature ofthe tolling statute, the court declined to apply it retroactively because to do so would violate "thegeneral constitutional principle that the legislature may not enact laws which impair the obligation ofcontracts." Weisberg, 124 Ill. App. 3d at 869. The court stated that "where a statute affects acontractual rather than a statutory limitation period, it has the effect of altering a mutually agreedupon term of the contract, and cannot be considered a mere change in statutory remedy orprocedure." Weisberg, 124 Ill. App. 3d at 870; see also Boyd v. Madison Mutual Insurance Co., 116Ill. 2d 305, 309-10 (1987) (statute could not be applied retroactively because it would deprive insurerof its vested contractual right of subrogation).

None of the cases relied upon by Dick offer support. Neither Ogdon v. Gianakos, 415 Ill. 591(1953), nor Ores v. Kennedy, 218 Ill. App. 3d 866 (1991), involved the retroactive application of astatute to void a party's contractual rights, as Dick is proposing here. Ogdon involved the retroactiveapplication of a statute setting forth a means to serve process on a nonresident, and Ores involvedchanges to the Illinois long-arm statute. The retroactive application of those procedural rule changesdid not impact any preexisting contract rights as section 10 would here.

McGee v. International Life Insurance Co., 355 U.S. 220, 2 L. Ed. 2d 223, 78 S. Ct. 199(1957), also offers no assistance. The Court in McGee, which enforced a new statue subjecting aTexas-based insurance company to jurisdiction in California, did not void or invalidate a contractprovision that fixed venue elsewhere. The Court merely determined that a statute extendingjurisdiction over insurance companies that issued policies to residents of California could be appliedretroactively. Similar to Ores and Ogden, the statute did not impact any contractual rights as section10 would.

We also reject Kerr Construction, Inc. v. Peters Contracting, Inc., 767 So. 2d 610 (Fla. App.5th Dist. 2000), and Sawicki v. K/S Stavanger Prince, 802 So. 2d 598 (La. 2001), relied on by Dickfor the proposition that statutes invalidating forum-selection clauses can be applied retroactively. Both cases regarded their statutes as procedural rather than substantive. The court in Kerrconsidered the Florida statute procedural because it rendered void only a choice-of-forum clause anddid not alter a choice-of-law provision. Kerr Construction, 767 So. 2d at 613. Moreover, in Sawicki,the court determined that the retroactive application of its statute did not implicate any preexistingcontractual rights. Sawicki, 802 So. 2d at 604. In any event, Kerr and Sawicki were decided in otherstates and are not binding on Illinois courts. See, e.g., Mount Vernon Fire Insurance Co. v. Heaven'sLittle Hands Day Care, 343 Ill. App. 3d 309, 320 (2003).

In sum, section 10 of the Act, enacted subsequent to the parties' agreements, does not containthe requisite expression of legislative intent that it be applied retroactively. According to Caveney,we must look to section 4 of the Statute on Statutes, which forbids retroactive application when thereare substantive changes to a statute. Because section 10 substantively changed the law, retroactiveapplication is prohibited. Moreover, applying section 10 to the parties' agreements would voidcontractual rights that are protected from the retroactive application of new legislation. Therefore,the trial court correctly found that section 10 could not be applied retroactively to void the parties'forum-selection and choice-of-law provisions. Accordingly, the trial court correctly granted LSPdefendants' motion to stay.

For the foregoing reasons, the judgment of the circuit court of Kendall County is affirmed.

Affirmed.

McLAREN and KAPALA, JJ., concur.

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