Sienna Court Condo. Ass'n v. Champion Aluminum Corp.

• Decision Date: 28 December 2018
• Docket Number: Docket No. 122022
• Citation: 2018 IL 122022,432 Ill.Dec. 569,129 N.E.3d 1112
• Parties: SIENNA COURT CONDOMINIUM ASSOCIATION, Appellee, v. CHAMPION ALUMINUM CORPORATION et al. (BV & Associates, Inc., et al., Appellants).
• Court: Illinois Supreme Court

2018 IL 122022

129 N.E.3d 1112

432 Ill.Dec. 569

SIENNA COURT CONDOMINIUM ASSOCIATION, Appellee,

v.CHAMPION ALUMINUM CORPORATION et al. (BV & Associates, Inc., et al., Appellants).

Docket No. 122022

Supreme Court of Illinois.

Opinion filed December 28, 2018

¶ 1 In this case, we must determine whether the purchaser of a newly constructed home may assert a claim for breach of an implied warranty of habitability against a subcontractor who took part in the construction of the home, where the subcontractor had no contractual relationship with the purchaser. For the following reasons, we hold that the purchaser may not.

¶ 2 Background

¶ 3 The plaintiff, Sienna Court Condominium Association, is a condominium association governing the Sienna Court Condominiums, a two-building, 111-residential-unit property located in Evanston, Illinois. In 2013, plaintiff filed a verified complaint in the circuit court of Cook County on behalf of the individual unit owners in the condominium buildings. In its complaint, plaintiff alleged that Sienna Court Condominiums was a newly constructed property developed by TR Sienna Partners, LLC (TR Sienna), and that TR Sienna had marketed and sold the buildings' condominium units to individual purchasers. Plaintiff further alleged that, at the time the units were sold by TR Sienna to their purchasers, the condominium buildings contained a number of latent defects that resulted in water infiltration and other conditions that rendered both the individual units and common areas of the buildings unfit for their intended purpose of habitation.

¶ 4 As ultimately amended, plaintiff's complaint contained 10 counts. Count I of the complaint alleged breach of an express warranty against TR Sienna. The remaining nine counts of the complaint asserted claims for breach of an implied warranty of habitability against (1) TR Sienna; (2) the general contractor; (3) the architect and engineering design firms; (4) material suppliers and (5) several subcontractors, including the defendants in this case, Don Stoltzner Mason Contractor, Inc.; BV and Associates, Inc., d/b/a Clearvisions, Inc.; Lichtenwald-Johnston Ironworks Company; and Metalmaster Roofmaster, Inc. Relevant to the issues in this case, the complaint alleged that each condominium unit and the common elements of the buildings were subject to an implied warranty of habitability extending from "each and every subcontractor" and that the subcontractors had therefore warranted that the buildings, or the portions constructed by them, would be suitable and fit for their intended purpose of habitation.

¶ 5 Prior to the filing of plaintiff's complaint, both TR Sienna and the general contractor were declared bankrupt by order of the United States Bankruptcy Court for the Northern District of Illinois. Plaintiff sought and was granted relief from the automatic bankruptcy stay so that it could pursue its claims against TR Sienna and the general contractor to the extent of their available insurance. See 215 ILCS 5/388 (West 2010) (the bankruptcy or insolvency of an insured shall not relieve the insurer from its liabilities in case of any loss occasioned during the term of the policy). Subsequent discovery revealed that TR Sienna and the general contractor both had two separate insurance policies, each providing coverage of $1 million per occurrence with $2 million aggregate limits. Discovery further revealed that plaintiff had recovered approximately $308,000 from TR Sienna through a warranty escrow fund that TR Sienna had been required to establish under a City of Evanston ordinance.

¶ 6 Defendants and the material suppliers filed a joint motion to dismiss counts III through VI and count IX of plaintiff's complaint (the counts that were directed against them), asserting that they were not subject to an implied warranty of habitabililty. At subsequent hearings on this motion, the parties' discussion centered largely on the appellate court's decision in Minton v. The Richards Group of Chicago , 116 Ill. App. 3d 852, 72 Ill.Dec. 582, 452 N.E.2d 835 (1983). In Minton , the appellate court held that, where the purchaser of a newly constructed home "has no recourse to the builder-vendor and has sustained loss due to the faulty and latent defect in their new home caused by the subcontractor, the warranty of habitability applies to such subcontractor." Id. at 855, 72 Ill.Dec. 582, 452 N.E.2d 835. Focusing on the word "recourse," defendants argued that the plaintiff in this case had recourse from TR Sienna in the form of insurance policies and the warranty escrow fund and, therefore, under Minton , no implied warranty of habitability could exist. Plaintiff, in contrast, contended that the existence of potential or actual recourse from the developer-vendor was not the determinative factor in establishing an implied warranty of habitability with a subcontractor. Rather, according to plaintiff, the only relevant factor was whether the developer-vendor had been declared legally insolvent. Because that had occurred here, plaintiff maintained that an implied warranty of habitability existed with defendants.

¶ 7 The circuit court denied defendants' motion to dismiss. Thereafter, defendants moved for the circuit court to certify that its order denying the motion merited discretionary appeal under Illinois Supreme Court Rule 308 (eff. Feb. 26, 2010), because it involved questions of law to which there was a substantial dispute and the resolution of the questions would materially advance the litigation. The circuit court granted that request and, as required under the rule, identified the pertinent questions of law as follows:

"a) Does the existence of an insolvent developer's and/or insolvent general contractor's liability insurance policy(ies) bar a property owner from maintaining a cause of action for breach of implied warranty of habitability against subcontractors and/or material suppliers, which are not in privity with the property owner, under Minton v. Richards , 116 Ill. App. 3d 852 [72 Ill.Dec. 582, 452 N.E.2d 835] (1st Dist. 1983) or its progeny?

b) Does the potential recovery against an insolvent developer's and/or, insolvent general contractor's liability insurance policy(ies) constitute ‘any recourse’ under Minton v. Richards , 116 Ill. App. 3d 852 [72 Ill.Dec. 582, 452 N.E.2d 835] (1st Dist. 1983) or its progeny, thereby barring a property owner's cause of action for breach of implied warranty of habitability against subcontractors and/or material suppliers, which are not in privity with the property owner? c) Does the actual recovery of any proceeds from an insolvent developer's ‘warranty fund,’ which was funded by the now insolvent developer with a percentage of the sales proceeds from the sale of the property, bar a property owner from maintaining a cause of action for breach of implied warranty of habitability against subcontractors and/or material suppliers, which are not in privity with the property owner, under * * * Minton v. Richards , 116 Ill. App. 3d 852 [72 Ill.Dec. 582, 452 N.E.2d 835] (1st Dist. 1983) or its progeny?

d) Does the actual recovery of any proceeds from an insolvent developer's ‘warranty fund’ constitute ‘any recourse’ under Minton v. Richards , 116 Ill. App. 3d 852 [72 Ill.Dec. 582, 452 N.E.2d 835] (1st Dist. 1983) or its progeny, thereby barring a property owner's cause of action for breach of implied warranty of habitability against subcontractors and/or material suppliers, which are not in privity with the property owner?"

¶ 8 The appellate court granted leave to appeal. The Rule 308 appeal was consolidated with two additional appeals: (1) an appeal by the plaintiff of an order dismissing its claims for breach of an implied warranty of habitability against the architect, engineering design firms, and material suppliers and (2) an appeal from the general contractor of an order dismissing its counterclaims against the subcontractors and material suppliers. 2017 IL App (1st) 143364, 412 Ill.Dec. 280, 75 N.E.3d 260.¹

¶ 9 With respect to defendants' Rule 308 appeal, the appellate court held that legal insolvency, rather than an inquiry into the availability of recourse, determines whether a claim for breach of an implied warranty of habitability may be asserted against a subcontractor. Id. ¶¶ 75-99. The appellate court also rejected defendants' alternative argument that where a homeowner has no contractual relationship with a subcontractor there can be no implied warranty of habitability and, thus, Minton was wrongly decided. Id. ¶¶ 96-98.

¶ 10 We granted defendants' petition for leave to appeal. Ill. S.Ct. R. 315 (eff. Mar. 15, 2016).

¶ 11 Analysis

¶ 12 This appeal is brought pursuant to Illinois Supreme Court Rule 308 (eff. Feb. 26, 2010). Rule 308 permits the discretionary appeal of an otherwise unappealable interlocutory order of the circuit court where the court has certified that the order involves a question of law to which there is a substantial dispute and that resolution of the question will materially advance the litigation. Id. Our review is de novo . Moore v. Chicago Park District , 2012 IL 112788, ¶ 9, 365 Ill.Dec. 547, 978 N.E.2d 1050.

¶ 13 In this case, the questions certified by the circuit court ask whether a plaintiff homeowner's claims against a subcontractor for breach of an implied warranty of habitability are barred where either the plaintiff has potential recourse from insurance policies or where actual proceeds are received by the plaintiff from a warranty escrow account. As defendants point out, underlying these certified questions is the general assumption that, at least in some instances, it is appropriate to recognize a claim for breach of an implied warranty of habitability against the subcontractors of a newly constructed home, even though the subcontractors have no contractual relationship with the homeowner. Defendants challenge this assumption, arguing that, where there is no contractual privity between a subcontractor...