Siena at Old Orchard Condo. Ass'n v. Siena at Old Orchard, L.L.C.

• Decision Date: 24 March 2017
• Docket Number: No. 1-15-1846,1-15-1846
• Citation: 75 N.E.3d 420,2017 IL App (1st) 151846
• Parties: SIENA AT OLD ORCHARD CONDOMINIUM ASSOCIATION, an Illinois Not-for-Profit Corporation, and the Board of Directors of the Siena at Old Orchard Condominium Association, Plaintiffs-Appellants and Cross-Appellees, v. SIENA AT OLD ORCHARD, L.L.C., an Illinois Limited Liability Company; Lennar Chicago, Inc., an Illinois Corporation; and Larry Keer, Individually, Defendants-Appellees (Siena at Old Orchard, L.L.C. ; and Lennar Chicago, Inc., Cross-Appellants).
• Court: United States Appellate Court of Illinois

2017 IL App (1st) 151846

75 N.E.3d 420

SIENA AT OLD ORCHARD CONDOMINIUM ASSOCIATION, an Illinois Not-for-Profit Corporation, and the Board of Directors of the Siena at Old Orchard Condominium Association, Plaintiffs-Appellants and Cross-Appellees,

v. SIENA AT OLD ORCHARD, L.L.C., an Illinois Limited Liability Company; Lennar Chicago, Inc., an Illinois Corporation; and Larry Keer, Individually, Defendants-Appellees(Siena at Old Orchard, L.L.C. ; and Lennar Chicago, Inc., Cross-Appellants).

No. 1-15-1846

Appellate Court of Illinois, First District, Fifth Division.

March 24, 2017

Rehearing denied April 24, 2017

Diane J. Silverberg and Jason E. Orth, of Kovitz Shifrin Nesbit, of Mundelein, for appellants.

E. Michael Ciesla, of Ciesla & Ciesla, P.C., of Northbrook, for appellee Larry Keer.

OPINION

PRESIDING JUSTICE GORDON delivered the judgment of the court, with opinion.

¶ 1 The instant appeal arises from a dispute over construction defects discovered at a condominium complex in Skokie, Illinois. Plaintiffs, Siena at Old Orchard Condominium Association and its board of directors (collectively, the Association), filed suit against the developer, Siena at Old Orchard, L.L.C.; the developer's management company, Lennar Chicago, Inc. (collectively, the developers); and Larry Keer, the president of the Association's initial board of directors. Defendants filed a motion to dismiss the complaint, claiming that the Association had failed to follow the mandatory arbitration requirements contained in the Association's declaration, resulting in waiver of their claims. The trial court granted the motion to dismiss, finding that the Association had waived all claims by failing to abide by the declaration's requirements. The Association appeals the trial court's dismissal of its complaint. The developers cross-appeal, claiming that the trial court did not award them all of the attorney fees and costs to which they were entitled. For the reasons that follow, we reverse.

¶ 2 BACKGROUND

¶ 3 I. Complaint

¶ 4 A. Allegations

¶ 5 On July 17, 2013, the Association filed an eight-count complaint against defendants. The complaint alleges that Siena at Old Orchard, L.L.C., was the developer of Siena at Old Orchard Condominium, a residential condominium complex located in Skokie, and that Lennar Chicago, Inc., was the developer's manager. The Association was established on July 24, 2006, and from its formation until March 2007, it was governed by a board of directors appointed by the developer. In March 2007, control of the Association was transferred from the initial developer-appointed board to a board of directors elected from the unit owner membership. Larry Keer was the president of the Association's board of directors on July 18, 2008.

¶ 6 The complaint alleges that "the common elements of the building are experiencing numerous latent defects in the construction of the common areas for the Association, namely water leaks are entering the interior of the building." The complaint further alleges that the exterior walls were constructed "without the required flashing and weeps" and were also "undergoing severe cracking and deterioration." Finally, the complaint alleges that "an improper water proofing system was utilized."

¶ 7 The complaint alleges that after the turnover, some of the unit owners retained a consultant to investigate the cause of water infiltration problems that were being experienced. During the course of his investigation, "the consultant performed several tests and made exploratory investigations into the common elements of the building to determine the causes of the leaks." The consultant issued a report to the Association in May 2010, identifying "defective" portions of the property, including the asphalt paving, the exterior masonry walls, the masonry expansion joints, and balcony deck membranes. The complaint further alleges that "[t]his is the first time that the post developer Board became aware that there [were] defects at the Association that were attributable to the developer's defective development of the Association." These construction defects were "affecting the structural integrity of the building and its common elements." Furthermore, the complaint alleges, "the manner in which several portions of the building were installed and constructed is contrary to the architectural drawings and specifications prepared for the Association building."

¶ 8 The complaint alleges that prior to the turnover, the developer and the initial board had actual knowledge of the construction defects in the common elements, but that "[t]he unit owner controlled board did not have knowledge of these construction defects until after" the May 2010 report by the Association's consultant. However, despite having knowledge of the construction defects, the developer and the initial board "failed to inform the post developer Board of the fact that the defective conditions at the Association were caused by the defective development, design and construction of the Condominium."

¶ 9 The complaint set forth eight counts. Counts I through IV were applicable to the developers, while counts V through VIII were aimed at Keer. Count I was for breach of fiduciary duty and alleged that the initial developer-appointed board breached its fiduciary duty to the unit owners by failing to properly investigate the complex, failing to ask the developer to remedy the defects, and "otherwise fail[ing] to protect the interests of the Association's members," which the complaint alleged were intentional acts done "for the purpose of increasing and maximizing the Developer's profits in the development and sale of the Complex and units in the Association and to avoid its share of assessment responsibility for reserves and repairs, all to the detriment of the owners in the Association."

¶ 10 Count II was for breach of contract and alleged that the developer failed to construct the condominium complex according to the terms set forth in the purchase agreement. Count III was for breach of the implied warranty of habitability and count IV was for breach of the implied warranty of good workmanship and materials. All of the counts directed at the developers sought damages "in an amount equal to the total cost of repair or replacement of the aforesaid defects," which the complaint alleged "is believed to be in excess of $500,000.00."

¶ 11 Counts V through VIII were directed at Keer, who was the president of the Association on July 18, 2008, when he executed a release¹ "that indicated that the Association was releasing its claims against the developer purportedly on behalf of the Association." However, the complaint alleged that Keer did not have the authority to sign documents on behalf of the Association without the approval of the majority of the board, which he did not have at the time of the signing of the release. Accordingly, the complaint set forth two counts for breach of fiduciary duty and two counts of constructive fraud.

¶ 12 B. Declaration of Condominium Ownership

¶ 13 Attached to the complaint was the declaration of condominium ownership for Siena at Old Orchard Condominium, recorded on July 24, 2006. Article 12 of the declaration was entitled "Dispute Resolution," and contained five sections. Section 12.01 was entitled "Consensus for Action by the Condominium Association" and provided that, "[e]xcept as provided in this Section, the Condominium Association may not commence a legal proceeding or an action under this Article without the affirmative vote of at least seventy-five percent (75%) of the Voting Members." Section 12.01 further provided that "[p]rior to the Condominium Association or any member commencing any proceeding to which Declarant ^{[2 ]} is a Party, including but not limited to an alleged defect of any improvement, Declarant shall have the right to be heard by the members, or the particular member, and to access, inspect, correct the condition of, or redesign any portion of any improvement as to which a defect is alleged or otherwise correct the alleged dispute."

¶ 14 Section 12.02 was entitled "Alternative Method for Resolving Disputes" and provided, in full:

"Declarant, its officers, directors[,] employees and agents; the Condominium Association, its officers, directors and committee members; all Persons subject to this Declaration; and any Person not otherwise subject to this Declaration who agrees to submit to this Article (each such entity being referred to as a ‘Bound Party’) agree to encourage the amicable resolution of disputes, without the emotional and financial costs of litigation. Accordingly, each Bound Party covenants and agrees to submit those Claims, grievances or disputes described in Section 12.03 (collectively, ‘Claims') to the procedures set forth in Section 12.04."

¶ 15 The "Claims" referred to in section 12.02 of the declaration were set forth in section 12.03, which was entitled "Claims." Section 12.03 provided, in relevant part:

"[A]ll claims between any of the Bound Parties regardless of how the same might have arisen or on what it might be based, including but not limited to Claims (a) arising out of or relating to the interpretation, application or enforcement of the provisions of the Act, this Declaration, the By-Laws and reasonable rules and regulations adopted by the Board or the rights, obligations and duties of any bound Party under the provisions of the Act, this Declaration, the By-Laws and reasonable rules and regulations adopted by the Board, (b) relating to the design or construction of improvements; or (c) based upon any statements, representations, promises, warranties, or other communications made by or on behalf of any bound Party shall be subject to the provisions of Section 12.04."

¶ 16 Section 12.04, which was entitled "Mandatory Procedures," set forth the procedure the parties agreed to follow in the event a claim arose. Specifically, section 12.04(a) was entitled "Notice" and provided:

"As a condition precedent to

...