ILLINOIS CASELAW UPDATE (Selected 2013 Decisions) by Michael C. Kim MICHAEL C. KIM & ASSOCIATES January 31, 2014

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1 ILLINOIS CASELAW UPDATE (Selected 2013 Decisions) by Michael C. Kim MICHAEL C. KIM & ASSOCIATES January 31, 2014 The law develops in many ways: by statutes, ordinances, governmental codes and regulations, administrative rulings and judicial opinions (or caselaw). Below are summaries of notable Illinois cases decided in 2013 which should be of particular interest to condominium and common interest community associations. Note this article does not address various unpublished Appellate Court opinions because, among other reasons, they cannot be cited as binding precedent under Illinois Supreme Court Rules. Palm v Lake Shore Drive Condominium Association (Illinois Supreme Court, 2013). The Illinois Supreme Court issued its opinion in which a majority (5 of 7) of the justices ruled to uphold the Chicago Condominium Ordinance provision as to a condominium unit owner s right to inspect (note that the Ordinance does not refer to copying) the financial books and records of the association, within 10 business days (the prior version was 3 business days) after request, and if improperly denied such request, the owner s right to recover his/her attorneys fees incurred in enforcing the Ordinance. There was a lengthy and vigorous dissent filed by 2 of the justices. The majority opinion upheld the Chicago Condominium Ordinance because the Illinois Legislature did not expressly state that the City could not regulate the inspection of association financial books and records, and the majority did not find any other applicable legal theories requiring rejection of the home rule authority of City. Note that under Illinois law, municipalities having over a certain number in population are entitled to adopt their own ordinances which may in fact be contradictory to state law; this issue is a politically sensitive one, apart from the condominium arena. As for legal fees, even though the owner had agreed to pay his lawyer $200/hour, the trial court awarded him $300/hour (based on that higher rate being acceptable for that kind of work) and the majority affirmed that trial court s approach, which was also criticized by the dissenting justices as giving the owner and/or his attorney a windfall. COMMENT: Note that only the financial books and records and NOT all documents are subject to the Ordinance requirements. Importantly, the opinion did not define financial books and records since that specific issue was not the subject of this appeal. The majority opinion expressly stated that it was not dealing with any issues on the construction of the ordinance or whether the documents requested by Palm were subject to production under the ordinance. Importantly, in 2014 the Chicago City Council has adopted an amendment to the Ordinance to essentially change the timeframe for response to 30 business days and to limit the period covered to the current and 10 immediately preceding fiscal years, which is essentially the same as Section 19(a)(9) of the Illinois Condominium Property Act. 19 S. LaSalle St., Suite 303, Chicago, IL Phone (312) Website

2 Poris v. Lake Holiday Property Owners Association (Illinois Supreme Court, 2013). In this case, a homeowner/member sued his homeowners (property owners) association for having been stopped and ticketed by the association s public safety officer (who was not a licensed private security guard) for driving on a private road owned by the association at a speed in excess of the speed limit established by the association s rules. The Illinois Appellate Court had ruled that the public safety officer did not have the legal authority ( police power ) to make the traffic stop or issue a violation ticket. The association only ticketed its members for violation of its rules occurring on its property (non-members were not ticketed or disciplined). The Illinois Supreme Court overruled the Appellate Court, declaring that the association was a voluntary association which was legally entitled to enact and enforce its rules against its own members on its own property, absent mistake, fraud, collusion or arbitrariness. The Supreme Court also determined that a private security vehicle (such as the association s) could be equipped with amber oscillating lights. Finally, the Supreme Court rejected the homeowner s claim for false imprisonment, determining that the public safety officer had probable cause to believe that there was a violation of association rules and therefore, to detain the homeowner. COMMENT: Well reasoned decision upholding an association s power to regulate its own affairs and its own members. Spanish Court Two Condominium Association v. Carlson (Illinois Appellate Court, Second District). This opinion modifies a previously issued ruling on the case. The condominium association brought an eviction (forcible entry and detainer) action against a unit owner for unpaid assessments, late charges and attorney s fees and court costs. The owner countersued, alleging that the association failed to properly maintain the building and thereby caused property damage; she also restated those claims as affirmative defenses and offset in the eviction action. Based on landlord-tenant law, the Appellate Court affirmed the trial court s action in severing her counterclaim and assigning it to another division of the circuit court, but also ruled that the affirmative defenses should have stayed in the eviction case (that is, the unit owner would be allowed to raise the defense that the association was negligent in maintaining the condominium property). The Appellate Court compared the landlord-tenant provisions of the Code of Civil Procedure with the condominium provisions of that Code, and reasoned that if liability for assessments underlies a claim for a money judgment or even a claim seeking possession only, the unit owner must be allowed to raise defenses against the amount of assessments claimed, including a failure to properly maintain the property (relying on Section 18.4 of the Illinois Condominium Property Act for the board of managers statutory duty to maintain the property). Essentially, the Appellate Court put the association s power to collect assessments on par with its duty to maintain the property, as mutually dependent obligations (specifically stating that the unit owner s promise to pay assessments is in exchange for the board of managers promise to use those assessments for repair and maintenance and, under contract law principles, a unit owner can claim, as justification for nonpayment of assessments, that the board of managers breached its duty of repair and maintenance. The Appellate Court noted that the breach must be material (that is, whether or not the matter... is of such a nature and of such importance that the contract would not have been made without it ); and that issue of materiality is a question based on the facts of the situation. The Appellate Court noted that overgrown bushes and unrepaired sidewalk cracks may rarely constitute a material breach but, having a sound roof and exterior walls would be material. Ultimately, the unit owner s claim of neglect of the common elements could be an offset to, or even nullification of, [the association s] claim for assessments. The Appellate Court emphasized that the neglect or 2

3 damage must relate to the common elements and not the owner s unit or personal property. In sum, the Appellate Court rejected the argument that the association has an absolute right to collect assessments. Finally, the Appellate Court acknowledged that our decision places us in the small minority of jurisdictions recognizing that a condominium unit owner may claim an offset to assessments based on the association s material breach of its mandated duty to repair and maintain the common elements. (Emphasis added) The Illinois Supreme Court accepted an appeal from this Appellate Court ruling. COMMENT: We are anxiously awaiting the issuance of the Illinois Supreme Court opinion W. Pratt Condominium Association v. Platt Construction Group, Inc. (Illinois Appellate Court, First District). This construction defect case (based upon the implied warranty of habitability) has generated three separate Appellate Court decisions, and this latest opinion deals with the relevant date on which the insolvency of the general contractor is to be determined. The association had sued the general contractor (used by the developer to construct the condominium) and the masonry subcontractor. In order for the association to make a claim against the subcontractor, the general contractor must be insolvent. This case involves a limited exception created by the case of Minton v. Richards Group of Chicago (which allowed a suit against a subcontractor when the general contractor was dissolved). In this case, the Appellate Court ruled that the determination of insolvency is to be made on the date that the complaint (or latest amended complaint) alleging the general contractor s insolvency was filed by the association, and not the date on which construction was completed or an earlier complaint being filed; and that even if the general contractor was in good standing with limited assets, the key factor is insolvency (that is, a party s liabilities exceed the value of its assets, and that it has stopped paying its debts in the ordinary course of business ). COMMENT: Good decision with a review of the expanding implied warranty protection afforded to homeowners. Wolinsky v. Kadison (Illinois Appellate Court, First District). This case originated in 1983 and is the original Illinois case which recognized the condominium board of directors fiduciary duty to follow its by-laws. By way of background, the board of directors exercised the right of first refusal (without the necessary vote of the unit owners) to purchase Unit 21F (which Ms. Wolinsky sought to purchase) and resold it to a competing buyer for a slight ($2,000) profit. Ms. Wolinsky appears to have had a scandalous past (she was a unit owner whose unit was purchased for her by her married paramour with whom she had 3 children). She subsequently purchased Unit 7B in the condominium without interference from the board. After a complicated procedural history, the case was tried by a judge (no jury), who awarded her $56,992 in damages (based on the financial differences between Units 7B and 21F. The Appellate Court rejected Ms. Wolinsky s claim of discrimination (unmarried female with children) under the Chicago Condominium Ordinance because she had purchased Unit 7B without interference by the board/association; rejected the board of directors assertion of the business judgment defense; upheld the trial judge s award of damages as being proximately caused by the board s breach of fiduciary duty; affirmed the dismissal of Ms. Wolinsky s claim for punitive damages because the board s breach of duty was not outrageous conduct akin to a criminal act or that it was intentional or malicious ; upheld the trial court s striking Ms. Wolinsky s demand for a jury trial (since a claim for breach of fiduciary duty is not subject to a 3

4 jury trial); but sent the matter back to the trial judge to determine whether prejudgment interest should be awarded to Ms. Wolinsky. COMMENT: Long opinion covering numerous issues but ultimately a good lesson on breach of fiduciary duty and its consequences. Pembrook Condominium Association One v. North Shore Trust and Savings (Illinois Appellate Court, Second District). In this case, the condominium association argued that it was entitled to collect assessments from a foreclosing lender for the period prior to the lender s taking title or possession of the unit. The Appellate Court ruled in favor of the lender stating that the lender s payment (or attempted payment) of post-foreclosure sale assessments extinguished the association s lien and that even though the association was not named as a defendant in the lender s foreclosure case, the association was not a necessary party to that case because it had recorded its assessment lien after that case had been filed. COMMENT: Result not surprising, although the association has a statutory lien and should be (and typically is) named in the foreclosure suit even if no recorded lien is on file. 100 Roberts Road Business Condominium Association v. Khalaf (Illinois Appellate Court, First District). In an eviction action for unpaid assessments, the trial judge initially entered judgment in favor of the association but then reduced it based on the association s failure to mitigate damages (by failing to rent out the unit), and then later dismissed the case entirely based on a finding that the association had brought the lawsuit for an improper purpose other than the collection of assessments (bad feelings between former co-investors/members of a law firm). On appeal, the Appellate Court ruled that, since the unit was vacant for years, possession was not an issue, but rather only payment of the delinquent assessments, and thus motive was not germane (that is, closely related or connected to ) the case and, thus, any alleged improper motive (such as retaliatory eviction) on the part of the association should not be considered. Furthermore, as for failure by the association to mitigate its damages, the Appellate Court distinguished the condominium situation from the typical landlord-tenant situation, stating that the association has the right, but not the obligation, to rent out the unit upon an entry of judgment in its favor and that the association had no duty to mitigate damages in this case. COMMENT: There s nothing like a 3 unit condominium, all owned by lawyers. Ripsch v. Goose Lake Association (Illinois Appellate Court, Third District). A homeowner in a common interest community challenged the association s authority to adopt a rule prohibiting boats having more than two pontoons on a lake, whereas he wanted to use a boat with three pontoons. Although title to the lake was never established by the parties at trial, both the trial court and Appellate Court assumed that the association owned or had apparent authority over the lake. The homeowner argued that since the recorded covenants (which were very barebones ) did not expressly confer authority on the association to make rules governing the use of the lake, it had no authority to do so. Affirming the trial court s ruling, the Appellate Court stated that the association had the implied authority to promulgate reasonable regulations to control the use of common property, and that the homeowner s assertion to the contrary would be an absurdity. The Appellate Court adopted the reasoning that since the association had the responsibility of administering common property for the common good, it must have the implicit power to make reasonable regulations regarding the use of the common property. 4

5 COMMENT: The Appellate Court repeatedly noted that the homeowner was not challenging restrictions on his own property but rather the common property (or at least, property that he did not own). Also, the Appellate Court noted that he was not challenging the reasonableness of the rule (why only two pontoons vs. three?) but instead the association s fundamental authority to regulate. * * * * * * * * * The foregoing summaries cover a wide range of topics (governance, liability for construction defects, collection actions, fiduciary duty/business judgment rule, and books and records), which reflects the many areas of potential controversy in an association. Whether you agree or disagree with the court decisions, that s the law unless and until a decision is subsequently overruled by a higher court or by legislative action. Copyright Michael C. Kim & Associates. All Rights Reserved. This article is being provided for general information and does not constitute legal advice. For a specific problem, you should consult an attorney. 5