Seven Bridges Courts Ass'n v. SEVEN BRIDGES DEV., INC.

• Decision Date: 23 July 1999
• Docket Number: No. 2-98-0729.,2-98-0729.
• Citation: 714 N.E.2d 601,239 Ill.Dec. 682,306 Ill. App.3d 697
• Parties: SEVEN BRIDGES COURTS ASSOCIATION, Plaintiff-Appellee, v. SEVEN BRIDGES DEVELOPMENT, INC., Defendant-Appellant.
• Court: United States Appellate Court of Illinois

714 N.E.2d 601

306 Ill. App.3d 697

239 Ill.Dec. 682

SEVEN BRIDGES COURTS ASSOCIATION, Plaintiff-Appellee, v. SEVEN BRIDGES DEVELOPMENT, INC., Defendant-Appellant.

No. 2-98-0729.

Appellate Court of Illinois, Second District.

July 23, 1999.

Scott M. Day, Rachel K. Robert, Day & Robert, P.C., Robert G. Black, Naperville, for Seven Bridges Development, Inc.

Jeffry J. Knuckles, Nicolette L. Keough, Knuckles & Jagel, Naperville, for Seven Bridges Courts Association.

Justice GALASSO delivered the opinion of the court:

Plaintiff, Seven Bridges Courts Association, a townhome owners association, filed a one-count complaint against defendant, Seven Bridges Development, Inc. The complaint alleged the following. Plaintiff was an Illinois not-for-profit corporation, organized pursuant to the subject 28-page "Declaration of Covenants, Conditions, Restrictions, Easements, and Party Wall Rights for Seven Bridges Courts Association" (Declaration) recorded on December 16, 1993. Defendant was the developer of the subject development, which consisted of individual townhome units, individual garage units and common areas. Plaintiff's board of directors was responsible for the collection of assessments and the maintenance of the common areas and facilities. From December 16, 1993, to October 31, 1995, plaintiff's board of directors was controlled by defendant. On October 31, 1995, the unit owners took control of the board. The complaint also alleged that, during the December 16, 1993, to October 31, 1995, period, defendant's officers, in their capacity as board members, owed a fiduciary duty to the unit owners. During this period, defendant breached this duty by under funding or not funding a reserve account; misapplying reserve funds, if any; failing to properly adopt an operating budget; failing to properly invoice monthly assessments; failing to pay its proportionate share of the common expenses in the form of monthly assessments; and/or improperly dispersing funds. The complaint further alleged that, as a result of these acts or omissions, plaintiff suffered damages of "not less than $108,804.57."

In its motion to dismiss, defendant argued that it had neither a statutory nor a common-law duty to fund a reserve account. Thus, it maintained that the case should be dismissed pursuant to section 2-615 of the Code of Civil Procedure (Code) (735 ILCS 5/2-615 (West 1996)). Defendant further maintained that the recorded Declaration clearly disclosed that it would not undertake such obligations. Specifically, defendant pointed to section 4.3(d) of the Declaration, which provides in pertinent part:

"(d) Assessments on Dwelling Units Under Construction. With regard to any portions of the Premises upon which Dwelling Units are being constructed or have been completed and title has not been conveyed by Declarant, the assessment respecting any such portion of the Premises shall be limited to the aggregate amount of actual operating expenses from time to time required to be paid with respect to such portion of the Premises provided, however, that in the event Declarant enters into a lease or installment contract for any Dwelling Unit, then Declarant shall be responsible for the payment of assessments on such Dwelling Units on the same basis as any other Owner as provided in section 4.6 hereof. Actual operating expenses shall mean those ordinary expenses attributable only to the period in question covering the maintenance and operation of the Premises and shall not include capital expenditures, amounts to be set aside as a reserve for contingencies or replacements, repair items or inventory items to the extent attributable to subsequent periods."

Defendant based its section 2-619 motion to dismiss (735 ILCS 5/2-619 (West 1996)) on this language.

In denying the section 2-615 motion to dismiss, the trial court relied principally on this court's decision in Maercker Point Villas Condominium Ass'n v. Szymski, 275 Ill. App.3d 481, 211 Ill.Dec. 809, 655 N.E.2d 1192 (1995). Regarding the section 2-619 motion, the trial court denied it, finding that the exculpatory and indemnification provisions in the Declaration did not protect defendant from liability, if plaintiff could prove a breach of fiduciary duty. Defendant moved the trial court to reconsider its decision and, further, to clarify its ruling, i.e., whether defendant could modify its common-law obligations as to funding reserves and paying monthly assessments by the terms of the Declaration.

In its letter of decision regarding the motion to reconsider and clarify, the trial court denied the motion to reconsider without comment. As to the motion for clarification, the trial court wrote, inter alia, "It was implicit in the last order that the common law fiduciary duty was not, based on these pleadings, abrogated by the Declaration. We deal with the unilateral conduct of the Developer in the first instance, and the attempt to draft away the common law duties is part and parcel of the breach which is alleged."

Subsequently, the trial court granted defendant's request for a certified interlocutory appeal pursuant to Supreme Court Rule 308 (155 Ill.2d R. 308). However, the trial court certified the question as composed by plaintiff, rather than the question proposed by defendant. Plaintiff's question read:

"May the Developer of a Townhome Association modify or abrogate its fiduciary duty to pay a proportionate share of common expenses for units which it owns by including the following language in the recorded Declaration for the townhome development: With regard to any portions of the Premises upon which Dwelling Units are being constructed or have been completed and title has not yet been conveyed by Declarant, the assessment respecting any such portion of the Premises shall be limited to the aggregate amount of actual operating expenses from time to time required to be paid with respect to such portion of the Premises * * *."

We note that the certified question, which we find to be awkwardly written, does not expressly deal with the funding of a capital reserve account. However, it is clear from the record, the briefs, and the oral arguments that the parties view the funding of a reserve account as a principal bone of contention. Accordingly, we will proceed as if the funding of a capital reserve account had been expressly stated in the certified question.

Defendant then filed its application for leave to appeal pursuant to Rule 308, and this court denied the application. Defendant then filed its petition for leave to appeal with the supreme court, which denied the petition but, in a supervisory order, directed this court to allow the appeal filed pursuant to Rule 308. In accordance with this supervisory order, this court permitted defendant's interlocutory appeal.

Initially, the parties argue over the parameters of this court's inquiry into the appeal at bar. Plaintiff maintains that we must address only the certified question on appeal, while defendant contends that an appellate court is not limited to addressing only the certified question but may make any order or grant relief as the case may require. Defendant is essentially correct in asserting that a court of review may go beyond the certified question before it. See, e.g., First of America Bank-Illinois, N.A v. Drum, 295 Ill.App.3d 205, 211, 229 Ill.Dec. 714, 692 N.E.2d 703 (1998). However, whether to do so is a matter of the reviewing court's discretion. In the instant appeal, we find it unnecessary to review the issues raised in the section 2-615 motion or the section 2-619 motion.

Initially, we address the issue of whether Maercker Point Villas Condominium Ass'n v. Szymski, 275 Ill.App.3d 481, 211 Ill.Dec. 809, 655 N.E.2d 1192 (1995), supports plaintiff's assertion that there is a fiduciary relationship between plaintiff and defendant.

Defendant maintains that Maercker is not on point because (1) it deals with condominiums, which are creatures of statute, while the instant case involves townhomes, which are not such "creatures"; (2) Maercker involved declarations which expressly required the establishment of a capital reserve fund; and (3) Maercker found a fiduciary relationship under facts which do not exist here. In response, plaintiff argues that the Maercker court's determination of a fiduciary relationship was not dependent on the fact that a condominium association rather than a townhome association was involved. Instead, plaintiff maintains that the Maercker court's finding of a fiduciary relationship was based on the type of relationship that generally exists between a developer and an association. We agree with plaintiff's assessment of Maercker.

In Maercker, this court wrote in relevant part:

"We are convinced by the application of a simple, straightforward definition of a fiduciary relationship to the facts in this case that defendant stood in such a relationship to plaintiff. `A fiduciary or confidential relationship exists where, by reason of friendship, agency, or business association and experience, trust and confidence are reposed by one person in another who, as a result, gains an influence and superiority over him.' [Citation.] Once such a relationship exists in a corporate setting, a fiduciary has the duty `to act with utmost good faith and loyalty in managing the corporation' and is prohibited from enhancing his or her `own personal interests at the expense of corporate interests.' [Citation.] Furthermore, a fiduciary `may not hinder or defeat the ability of the corporation to continue the business for which it was developed.' [Citation.] The trial court properly found that defendant had a fiduciary relationship with plaintiff." Maercker, 275 Ill.App.3d at 484, 211 Ill. Dec. 809, 655 N.E.2d 1192.

We find nothing in this language that limits it solely to situations involving condominiums. The language employed is general in nature and is apparently intended to relate to a variety of business...