Henderson Square Condo. Ass'n v. Lab Townhomes, L.L.C.

• Citation: 16 N.E.3d 197
• Decision Date: 18 July 2014
• Docket Number: No. 1–13–0764.,1–13–0764.
• Parties: The HENDERSON SQUARE CONDOMINIUM ASSOCIATION, an Illinois Not–For–Profit Corporation, and The Board of Managers of the Henderson Square Condominium Association, as Representative and on Behalf of The Henderson Square Condominium Association, Plaintiffs–Appellants, v. LAB TOWNHOMES, L.L.C.; Lab Lofts, L.L.C.; Lincoln Ashland and Belmont, L.L.C.; Enterprise Development Company, Inc. ; Ronald Shipka, Sr.; Ronald Shipka, Jr.; and John Shipka, Defendants–Appellees.
• Court: United States Appellate Court of Illinois

16 N.E.3d 197

The HENDERSON SQUARE CONDOMINIUM ASSOCIATION, an Illinois Not–For–Profit Corporation, and The Board of Managers of the Henderson Square Condominium Association, as Representative and on Behalf of The Henderson Square Condominium Association, Plaintiffs–Appellants

v.LAB TOWNHOMES, L.L.C.; Lab Lofts, L.L.C.; Lincoln Ashland and Belmont, L.L.C.; Enterprise Development Company, Inc. ; Ronald Shipka, Sr.; Ronald Shipka, Jr.; and John Shipka, Defendants–Appellees.

No. 1–13–0764.

Appellate Court of Illinois, First District, Fifth Division.

July 18, 2014.

Geoffrey A. Bryce and Tina M. Paries, both of Bryce Downey & Lenkov, LLC, of Chicago, for appellants.

Shorge Sato, of Brown Udell Pomerantz Delrahim, Ltd., of Chicago, for appellees.

OPINION

Presiding Justice GORDON delivered the judgment of the court, with opinion.

¶ 1 Plaintiffs Henderson Square Condominium Association (Henderson) and Henderson's board of managers (the Board) filed a five-count complaint, arising from the sale of condominium units to plaintiffs by defendant developers. Plaintiffs allege the following causes of action: (1) breach of the implied warranty of habitability; (2) fraud; (3) negligence; (4) breach of the Chicago Municipal Code's prohibition against misrepresenting material facts in the course of marketing and selling real estate (Chicago Municipal Code § 13–72–030)¹ ; and (5) breach of a fiduciary duty.

¶ 2 Defendants' first motion to dismiss was pursuant to section 2–619 of the Code of Civil Procedure (735 ILCS 5/2–619 (West 2010) ), and addressed only the causes of action for breach of implied warranty of habitability, fraud, and negligence, which were counts I, II, and III of plaintiffs' complaint. Defendants argued that these causes of action were time-barred pursuant to section 13–214 of the Code of Civil Procedure (735 ILCS 5/13–214 (West 1996)² (providing a 4–year statute of limitations for construction-based claims and a 10–year statute of repose for construction-based claims)). The trial court granted defendants' motion and dismissed the first three counts with prejudice, but also granted plaintiffs leave to replead only counts IV and V,³ which were for breach of the Chicago Municipal Code and breach of a fiduciary duty.

¶ 3 Plaintiffs filed an amended complaint, which included all five of the original counts, but noted that they were repleading the first three counts solely to preserve them for appeal. Defendants then filed a second motion to dismiss pursuant to both sections 2–615 and 2–619 of the Code of Civil Procedure (735 ILCS 5/2–615, 2–619 (West 2010)), arguing that count IV failed to plead a cause of action for breach of the Chicago Municipal Code and that all of plaintiffs' causes of action were time-barred pursuant to section 13–214 of the Code of Civil Procedure (735 ILCS 5/13–214 (West 1996) ). On October 31, 2011, when plaintiffs filed the lawsuit, the Chicago Municipal Code had recently been amended, and the parties disagree as to which version of the Chicago Municipal Code applies. The parties also disagree about when construction was completed, with defendants arguing that it was complete in 1996 and plaintiffs arguing that the date occurred much later.

¶ 4 The trial court granted defendants' second motion to dismiss with prejudice, finding that plaintiffs failed to plead counts IV and V adequately and that these counts were time-barred. Although defendants moved to dismiss only count IV as failing to allege a cause of action, the trial court also found that count V failed to allege a cause of action. In their amended notice of appeal, plaintiffs appeal both the trial court's order on May 10, 2012, dismissing counts I, II, and III, and its order of February 8, 2012, dismissing counts IV and V. However, in its brief before this court, plaintiff is only appealing the dismissal of counts IV and V. For the following reasons, we reverse.

¶ 5 BACKGROUND

¶ 6 I. Original Complaint

¶ 7 A. Factual Allegations

¶ 8 Plaintiffs Henderson and Henderson's Board filed their initial complaint on October 31, 2011, in which they allege the following. Henderson is an Illinois not-for-profit corporation with its principal place of business located in Chicago. Henderson is the governing body of a property of townhomes located in Chicago, and Henderson is controlled by its Board, which is comprised of elected managers.

¶ 9 Defendants can be divided into three groups that we refer to as (1) the development companies, (2) Enterprise, and (3) the Shipkas. The development companies are defendants LAB Townhomes, LAB Lofts, and Lincoln, Ashland, & Belmont, which are limited liability companies incorporated in Delaware. Defendant Enterprise Development Company (Enterprise) is an Illinois corporation with its principal place of business in Chicago. The Shipkas are defendants Ronald Shipka, Sr., Ronald Shipka, Jr., and John Shipka, who are individuals residing in Cook County.

¶ 10 Plaintiffs' original complaint alleges that the Shipkas are in the business of developing residential property, and they own, manage, and operate Enterprise. Plaintiffs further allege that Enterprise represented on its website that it is the “largest and most respected developer” in the Chicago area due to, among other things, its “commitment to rigid quality standards.” The Shipkas were chosen by the City of Chicago to be the developers for a project known as the “Lincoln–Belmont–Ashland Redevelopment Project Area.” “On information and belief,” the Shipkas then formed the development companies. The development companies entered into a contract with the City of Chicago to construct a mixed use project,⁴ which included retail space, a parking structure, loft condominiums, and townhouses for $7.5 million. “On information and belief,” the development companies entered into an agreement with Enterprise, under which Enterprise would “perform general contracting services to construct the Project or perform other services to assist with the development of the Project.”

¶ 11 Prior to the completion of the project, Henderson was established as a condominium association pursuant to the Condominium Property Act (765 ILCS 605/1 et seq. (West 1996)) and its creation was recorded with the Cook County recorder of deeds. On June 20, 1996, Henderson was incorporated with the Illinois Secretary of State. The Shipkas designated themselves as Henderson's first board of managers, and during their time as managers, the Shipkas controlled all of Henderson's funds. The Shipkas turned over control to the first elected Board sometime in 1996.

¶ 12 Plaintiffs allege that defendants began to market and sell individual units of the project in 1996, and, in doing so, they “ represented and impliedly warranted that the Property and the Units would be habitable and free from defects.” Plaintiffs further allege that the development companies sold the units with a form sales contract, which included a provision stating that the common elements of the project and the units would be “constructed substantially in accordance with the plans and specifications.” After the project was completed and owners began to occupy the units, certain units began to experience water seepage and resulting damage.

¶ 13 The Board retained Warton, Inc. (Warton), an exterior restoration consultant and engineer, to investigate the water problem.⁵ Warton prepared a report of its findings in which it concluded that “significant” amounts of water were entering into certain units at various locations, including various exterior wall components. Warton further concluded that the “overall quality of construction detailing and workmanship at the specific areas that were investigated was very poor” and that the water penetration problems would be “very difficult, if not impossible,” to mitigate unless there was substantial reconstruction of the units.

¶ 14 After the Board reviewed the Warton report, it retained a contractor to solve the problem.⁶ In the course of his work, the contractor confirmed that there were “a significant number of deficiencies with the original construction.” The contractor reported that the coping⁷ leaked, the masonry lacked mortar, there was no flashing or drainage system, the lintels⁸ and sills were not sealed, and the roofing systems were defective. Plaintiffs allege that the defects identified by Warton and the contractor could not have been discovered without performing extensive testing of the units or opening up the walls of the common areas and units; “[t]he defects were concealed and, as such, they were not reasonably discoverable to the Unit owners who did not possess special knowledge or skill in the field of construction.”

¶ 15 Plaintiffs allege that defendants did not construct the units in a “workmanlike manner or in accordance with the plans and specifications as required.” Plaintiffs allege that, “on information and belief,” the development companies and Enterprise “knowingly failed” to comply with the plans and specifications, cutting costs for the purpose of realizing greater profits from the city contract.

¶ 16 B. Count I—Breach of Implied Warranty of Habitability

¶ 17 Plaintiffs first allege a cause of action for breach of implied warranty of habitability against Enterprise and the development companies, but not against the Shipkas. Plaintiffs allege that, in selling the project and the units, defendants impliedly warranted that the units and common areas were “suitable for the use and purpose for which they were intended, namely, as a residence.” Defendants breached the implied warranty by “ knowingly developing, constructing, and selling the Property with defects in design, workmanship, and materials.” These defects caused the units to be unfit and not reasonably suitable for their intended residential use. Plaintiffs allege that these defects were latent defects at the time of sale and were not reasonably discoverable by the unit owners. Plaintiffs were required to make substantial repair...