Bd. of Managers of Park Point at Wheeling Condo. Ass'n v. Park Point at Wheeling, LLC

• Decision Date: 31 December 2015
• Docket Number: No. 1–12–3452.,1–12–3452.
• Citation: 48 N.E.3d 1250
• Parties: BOARD OF MANAGERS OF PARK POINT AT WHEELING CONDOMINIUM ASSOCIATION, Plaintiff–Appellant, v. PARK POINT AT WHEELING, LLC, S.M. Smith and Sons, Inc. d/b/a Smith and Sons, Inc., Smith Family Construction, Inc., Hirsch and Associates, LLC, Midwest Masonry, Inc., G.W. Thiel, Inc., Vivian J. Smith, Silverline Building Products Corporation, and Thermolock Manufacturing, LLC, Defendants–Appellees.
• Court: United States Appellate Court of Illinois

48 N.E.3d 1250

BOARD OF MANAGERS OF PARK POINT AT WHEELING CONDOMINIUM ASSOCIATION, Plaintiff–Appellant

v.PARK POINT AT WHEELING, LLC, S.M. Smith and Sons, Inc. d/b/a Smith and Sons, Inc., Smith Family Construction, Inc., Hirsch and Associates, LLC, Midwest Masonry, Inc., G.W. Thiel, Inc., Vivian J. Smith, Silverline Building Products Corporation, and Thermolock Manufacturing, LLC, Defendants–Appellees.

No. 1–12–3452.

Appellate Court of Illinois, First District, Fourth Division.

Dec. 31, 2015.

Rehearing Denied Jan. 14, 2016.

Jeffrey S. Youngerman, Stephen D. Sharp, and Christopher L. Gallinari, all of Flaherty & Youngerman PC, of Chicago, for appellant.

Stuart N. Rappaport, David S. Osborne, and Justin K. Seigler, all of Lindsay, Rappaport & Postel LLC, of Chicago, for appellee G.W. Thiel, Inc. Thomas S. Flanigon, of Adler Murphy & McQuillen LLP, of Chicago, for appellee Hirsch & Associates, LLC.

Lawrence C. Jaynes, of Lawrence C. Jaynes & Associates, of Hoffman Estates, for appellee Midwest Masonry, Inc.

Paul A. Greco and Derek D. Samz, both of DiMonte & Lizak LLC, of Park Ridge, for appellees S.M. Smith and Sons, Inc., and Smith Family Construction, Inc.

Steven N. Malitz and W. Matthew Bryant, both of Arnstein & Lehr LLP, of Chicago, for appellee Park Point at Wheeling, LLC.

OPINION

Presiding JUSTICE McBRIDE delivered the judgment of the court, with opinion.

¶ 1 This interlocutory appeal concerns the dismissal of claims that various parties involved in the design, construction, and sale of a condominium complex that was completed in 2004 breached the implied warranty of habitability by incorporating latent defects into the units and common elements. The implied warranty regarding latent defects in new construction is generally imposed against builders or builder-sellers only and the trial court found that the homeowners' group, Board of Managers of Park Point at Wheeling Condominium Association, failed to state a claim against the project architect, Hirsch and Associates, LLC (Hirsch). The condominium association asks us to recognize a claim against the architect by extending Minton v. The Richards Group of Chicago, 116 Ill.App.3d 852, 72 Ill.Dec. 582, 452 N.E.2d 835 (1983), in which the court extended the implied warranty to a subcontractor because the builder-seller was judgment-proof and the solvent subcontractor was the cause of a latent defect. The second issue on appeal is whether warranty disclaimer language in each condominium purchase contract was conspicuous and protected not only the developer-seller, but also its original and successor general contractors and subcontractors. The condominium association also asks us to reverse the denial of a motion for reconsideration.

¶ 2 The condominium project at issue is known as Park Point at Wheeling and consists of three midrise buildings and 128 units situated on almost six acres of land at 620, 640, and 660 McHenry Road. The architect's plans for the condominium complex were completed in approximately 2000 and construction of the buildings was completed between 2001 and 2004. The architect is not alleged to have taken part in the construction or sale of the units.

¶ 3 The condominium association filed suit in 2008 and after a series of amendments culminating in a sixth amended complaint filed in 2011, asserted a total of eight claims against architect Hirsch; the project's developer-seller, Park Point at Wheeling, LLC; the original and successor general contractors, S.M. Smith & Sons, Inc., d/b/a Smith & Sons and Smith Family Construction, Inc. (collectively Smith); the carpentry subcontractor, G.W. Thiel, Inc. (G.W. Thiel); the masonry subcontractor, Midwest Masonry, Inc. (Midwest); the window and patio door manufacturers; and their agents. Parties that we have not identified by name were either dismissed by court order or settlement agreement and are not participating in this interlocutory appeal. Counts II and III are the implied warranty of habitability claims and are the only counts at issue here. Count II was directed at the developer-seller. Count III concerned the architect and the other defendants.

¶ 4 The condominium association complained that water and air infiltration was damaging interior flooring and finishes.

The association attributed the infiltration to latent defects in the design, material, and construction of the common elements and limited common elements, including masonry walls which lacked intermediate support, windows and patio doors that leaked, and flashing, caps, and dams that were insufficient to divert water. These alleged defects did not become apparent until 2007. The estimated cost of repairs exceeded $4 million. The association also alleged, on information and belief, that the developer-seller was insolvent and incapable of satisfying a $4 million award. The association further alleged, on information and belief, that it had no recourse against the original general contractor, because that entity was insolvent and no longer doing business, and had no recourse against the successor general contractor, because, on information and belief, that entity had either no assets or insufficient assets to satisfy a $4 million award.

¶ 5 The trial court orders dismissing the implied warranty of habitability claims pursuant to sections 2–615 and 2–619(a) of the Code of Civil Procedure (Code) allow for this interlocutory appeal pursuant to Supreme Court Rule 304(a). 735 ILCS 5/2–615, 2–619(a) (West 2012); Ill. S.Ct. R. 304(a) (eff. Feb. 26, 2010).

¶ 6 Turning first to the dismissal of the claim against the architect, we offer the following overview of the law. We note that the theory of implied warranty of habitability in construction arose because the application of the common law principles of caveat emptor and merger meant that a disappointed new home buyer had little or no recourse against a builder that erected a defective residence. Petersen v. Hubschman Construction Co., 76 Ill.2d 31, 38, 27 Ill.Dec. 746, 389 N.E.2d 1154, 1179 (1979). Historically, a new home buyer took the property at his own risk and if he failed to discover defects before the transfer, caveat emptor prevented him from maintaining a suit against the builder. Petersen, 76 Ill.2d at 38, 27 Ill.Dec. 769, 389 N.E.2d at 1179. Similarly, under the merger doctrine, all agreements between a new home seller and buyer merged in the deed and if the document did not include reservations, once the buyer received the document, he had no right to complain about the quality of his new property. Petersen, 76 Ill.2d at 38, 27 Ill.Dec. 769, 389 N.E.2d at 1179.

¶ 7 The doctrine of caveat emptor, however, is based on an expectation that buyer and seller possess comparable skill and experience and engage in an arm's length transaction. Tuck v. Downing, 76 Ill. 71, 93 (1875) (“The parties were dealing at arm's length and on equal grounds, and their own judgments were to be their guide in coming to a conclusion.”). Implying a warranty of habitability into the contract for the sale of a new residence was a judicial response to the fact that in the twentieth century, new home buyers and sellers were no longer in an equal bargaining position. Caveat emptor fell out of favor as home building methods and governmental regulations became more complex, builders grew in scale and became specialized, and the ordinary home buyer no longer had the skill or training to make a meaningful inspection and discover latent defects. Tavares v. Horstman, 542 P.2d 1275 (Wyo.1975).

¶ 8 Our supreme court has cited three public policy reasons for adopting the implied warranty of habitability doctrine in this jurisdiction: (1) the modern home buyer is unusually dependent upon the competency and honesty of the builder rather than on the buyer's own ability to discern latent defects, (2) the buyer is making the largest single investment of his or her life, and, (3) in fairness, the repair costs of defective construction should be borne by the builder-seller who created the latent defects. 1324 W. Pratt Condominium Ass'n v. Platt Construction Group, Inc., 404 Ill.App.3d 611, 616–17, 344 Ill.Dec. 336, 936 N.E.2d 1093, 1098 (2010) (Pratt I ).

¶ 9 To avoid the merger doctrine, the implied warranty has been treated as an independent undertaking to the covenant to convey and one that survives the delivery of the deed. Redarowicz v. Ohlendorf, 92 Ill.2d 171, 182, 65 Ill.Dec. 411, 441 N.E.2d 324, 329 (1982) ; Petersen, 76 Ill.2d at 41, 27 Ill.Dec. 746, 389 N.E.2d at 1158.

¶ 10 By the mid 1970s, about half of the United States had abandoned caveat emptor in the context of new home sales. Redarowicz, 92 Ill.2d at 182, 65 Ill.Dec. 411, 441 N.E.2d at 329. In Illinois, the state supreme court first adopted the implied warranty of habitability doctrine in 1972 in a landlord-tenant case and in 1979 in Petersen the court expanded it to contract for the sale of a new home by the builder-seller. Pratt I, 404 Ill.App.3d at 616, 344 Ill.Dec. 336, 936 N.E.2d at 1098–98 (citing Jack Spring, Inc. v. Little, 50 Ill.2d 351, 280 N.E.2d 208 (1972),¹ Petersen, 76 Ill.2d 31, 27 Ill.Dec. 746, 389 N.E.2d 1154 ). In Petersen, the buyers found defects in the home during the construction phase and attempted to negotiate a compromise with the builder-seller, but, numerous problems persisted. When the buyers refused to close on the purchase, the builder-seller declared a forfeiture, and then the buyers sued for return of their earnest money and for the value of labor and materials they contributed to the project. Petersen, 76 Ill.2d at 35–36, 27 Ill.Dec. 746, 389 N.E.2d at 1155–56. The home's problems included a defective front door, bay window, basement floor, and problems with the interior drywall and the exterior siding. Petersen, 76 Ill.2d at 36, 27 Ill.Dec. 746, 389 N.E.2d at 1156. In defining the warranty of habitability of construction, the supreme court characterized the use of the term of “habitability” as “unfortunate” because that term is easily...