Henderson Square Condo. Ass'n v. Lab Townhomes, LLC

• Citation: 46 N.E.3d 706
• Decision Date: 04 November 2015
• Docket Number: No. 118139.,118139.
• Parties: HENDERSON SQUARE CONDOMINIUM ASSOCIATION et al., Appellees, v. LAB TOWNHOMES, LLC, et al., Appellants.
• Court: Illinois Supreme Court

46 N.E.3d 706

HENDERSON SQUARE CONDOMINIUM ASSOCIATION et al., Appellees
v.
LAB TOWNHOMES, LLC, et al., Appellants.

No. 118139.

Supreme Court of Illinois.

Nov. 4, 2015.
Modified Upon Denial of Rehearing Jan. 28, 2016.

46 N.E.3d 710

Shorge K. Sato, Brown Udell Pomerantz Delrahim, Ltd., Chicago, for appellants.

Tina M. Paries, Bryce Downey & Lenkov, LLC, Chicago, for appellees.

Aaron H. Stanton and Susan M. Horner, Burke, Warren, MacKay & Serritella, P.C., Chicago, for amicus curiae At World Properties, LLC.

OPINION

Justice THOMAS delivered the judgment of the court, with opinion.

¶ 1 Plaintiffs, Henderson Square Condominium Association (Henderson) and Henderson's board of managers (Board), filed suit against defendants, alleging five separate counts: breach of the implied warranty of habitability, fraud, negligence, breach of the Chicago Municipal Code's prohibition against misrepresenting material facts in the course of marketing and selling real estate (see Chicago Municipal Code § 13–72–030) and breach of a fiduciary duty. Relevant to this appeal, the circuit court of Cook County granted defendant's second motion to dismiss with prejudice, finding that plaintiffs failed to adequately plead counts IV (Chicago Municipal Code violation) and V (breach of fiduciary duty) and that these counts were time-barred under section 13–214 of the Code of Civil Procedure (735 ILCS 5/ 13–214 (West 1996) ). Plaintiffs appealed, and the appellate court reversed the dismissal of counts IV and V, and remanded for further proceedings on those counts. 2014 IL App (1st) 130764, 384 Ill.Dec. 101, 16 N.E.3d 197. We allowed defendants' petition for leave to appeal, and for the reasons that follow, we affirm the judgment of the appellate court.

¶ 2 BACKGROUND

¶ 3 Plaintiffs filed their initial complaint on October 31, 2011. Plaintiff Henderson is a 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.

¶ 4 Defendants can be divided into three groups, which we will 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 persons residing in Cook County.

¶ 5 Plaintiffs' original complaint alleged that the Shipkas are in the business of developing residential property, and they own, manage and operate Enterprise.

46 N.E.3d 711

The plaintiffs further alleged that Enterprise represented on its website that it was 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. The Shipkas formed the development companies, which entered into a contract with the City of Chicago to construct a mixed use project. The project included retail space, a parking structure, loft condominiums, and townhouses. 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.”

¶ 6 Prior to the completion of the project, Henderson was established as a condominium association in accordance with 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 late 1996.

¶ 7 Plaintiffs alleged 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 also alleged 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 the owners began to occupy the units, certain units began to experience water seepage and resulting damage.

¶ 8 The Board retained Warton, Inc. (Warton), an exterior restoration consultant and engineer, to investigate the water problem. On May 18, 2009, Warton issued a report of its findings, concluding 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.

¶ 9 After the Board reviewed the Warton report, it retained a contractor to solve the problem. The contractor began its work and confirmed that there were “a significant number of deficiencies with the original construction.” The contractor reported that the coping leaked, the masonry lacked mortar, there was no flashing or drainage system, the lintels and sills were not sealed, and the roofing systems were defective.

¶ 10 Plaintiffs alleged 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 or common areas and units. The defects were concealed and were therefore not reasonably discoverable by the unit owners who did not possess special knowledge or skill in the field of construction. Plaintiffs alleged that defendants did not construct the units in a workmanlike manner or in accordance with the plans and specifications as required

46 N.E.3d 712

Moreover, plaintiffs alleged on information and belief that 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.

¶ 11 On January 3, 2012, defendants filed their first motion to dismiss, brought pursuant to section 2–619 of the Code of Civil Procedure (735 ILCS 5/2–619 (West 2010) ). In their motion, defendants addressed counts I, II, and III, but did not address counts IV and V. Defendants maintained that under section 13–214(a) and (b) of the Code (735 ILCS 5/13–214(a), (b) (West 1996)), plaintiffs' claims were time-barred, having been filed more than 14 years after defendants turned over control of Henderson to the Board in 1996.

¶ 12 The trial court granted defendants' section 2–619 motion to dismiss counts I, II and III without prejudice. The court also granted plaintiffs leave to file an amended complaint concerning counts IV and V.

¶ 13 Plaintiffs filed an amended complaint on July 2, 2012. Plaintiff repleaded the allegations of counts I, II, and III for the purpose of preserving them for appeal. With respect to count IV of that complaint, plaintiffs allege that defendants Enterprise and the development companies, but not the Shipkas, breached section 13–72–030 of the Chicago Municipal Code (Municipal Code), which states that “[n]o person shall with the intent that a prospective purchaser rely on such act or omission, advertise, sell or offer for sale any condominium unit by (a) employing any statement or pictorial representation which is false or (b) omitting any material statement or pictorial representation.” Chicago Municipal Code § 13–72–030. In the course of selling the units, Enterprise and the development companies represented that the project and the units would be constructed in accordance with the plans and specifications, and would be free from defects. Section 13–72–100 of the Municipal Code states that “any prospective purchaser, purchaser or owner of a unit” may bring an action to enforce section 13–72–030. Chicago Municipal Code § 13–72–100 (amended Nov. 16, 2011).

¶ 14 Plaintiffs' amended complaint further alleges that when defendants began marketing the units for sale, defendants provided prospective purchasers with an information packet (information packet) that included details about the project, including building specifications. The information packet, which plaintiffs attached to their amended complaint, stated that “[a]ll insulation shall be soundbatt fiberglass with the following R values: Exterior walls—R11; Third floor ceiling—R30 with integral vapor barrier.”

¶ 15 The amended complaint also alleges that Enterprise and the development companies, in the course...