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Luster v. Jones





APPEAL from the Circuit Court of Cook County; the Hon. DANIEL A. COVELLI, Judge, presiding.


Melvin R. Luster, Irving J. Lewis and Harold E. Friedman filed a complaint against Raymond A. Jakwerth, a condominium unit owner, seeking to foreclose a lien for his share of the unpaid common expenses at 247 East Chestnut Condominium. Thereafter, on behalf of himself and others similarly situated (Owners) Jakwerth filed a counterclaim against Luster and Friedman (Developers) d/b/a Luster, Friedman & Company (LF) and 247 East Chestnut Properties, *fn1 seeking injunction and other relief on the basis of the following legal theories: (1) the Developers' violation of section 22 of the Illinois Condominium Property Act (Ill. Rev. Stat. 1973, ch. 30, par. 322) due to their misrepresentations of and failure to disclose accurate estimates of operating expenses to prospective purchasers prior to the sale of each condominium unit, and the subsequent unilateral increases of monthly maintenance charges and levy of special assessments without authorization from the unit owners, (2) the Developers' misrepresentation of existing material facts constituting common law fraud, and (3) the Developers' violation of the Illinois Antitrust Act (Ill. Rev. Stat. 1973, ch. 38, par. 60-1 et seq.) by tying the purchase of a condominium unit to the acceptance of LF as management agents of the building. Subsequently, the countercomplaint was certified as a class action and the counterclaim was amended inter alia to request punitive damages and rescission of the purchase agreements. R. Alden Jones, an owner of two units in the building, was later substituted for Jakwerth as class representative. The Developers filed a motion for summary judgment with respect to the alleged violations of the Illinois Condominium Property Act and the Illinois Antitrust Act. After a hearing, the trial court granted summary judgment for the Developers on the antitrust claim and the case proceeded to trial on the remaining issues. At the conclusion of the Owners' case the court granted the Developers' motion to strike all individuals from the class who had not responded to certain interrogatories.

At the conclusion of the trial, the court entered a decree which provided inter alia:

"Upon trial of the issues, this Court having considered the testimony of all witnesses and the exhibits and memoranda submitted by each party, IT IS HEREBY ORDERED AND DECREED AS FOLLOWS:

1. Counter-defendants, Melvin R. Luster, Harold E. Friedman, Luster, Friedman & Company and Northwestern National Life Insurance Company, shall, within 45 days of this Decree, hire a qualified contractor or contractors to scrape and paint the spandrels and to tuckpoint the 247 East Chestnut Building ("Building") * * *. Counter-defendants * * * shall pay for the scraping and painting of the spandrels and the tuckpointing of the building.

2. Counter-defendants * * * shall call, within 45 days of this Decree, for the election of a Board of Managers at the Building in accordance with the procedures set forth in Article V of the Declaration of Condominium.

3. Counter-defendants, * * * [LF], shall terminate its contract as managing agent for the building within 45 days of this Decree but shall remain in that capacity until a new managing agent for the Building is retained and undertakes its duties. A new managing agent for the Building shall be hired by the Board * * *.

4. Counter-defendants * * * shall pay the following persons amounts [which] * * * were collected from said persons pursuant to the 1973 Special Assessment:

5. Counter-defendants * * * are hereby enjoined from using the monies collected to date on the 1976 Special Assessment for any purpose other than the repair of the garbage chute in the Building. * * * Counter-defendants are hereby enjoined from levying any further special assessment for 1976 without the approval of the Board elected pursuant to Paragraph 2 above or 75% of the unit owners.

6. Each member of the counter-plaintiff class shall pay to the condominium account for the Building all unpaid assessments as of the date of this Decree within 45 days of this Decree.

8. Counter-plaintiffs' prayer for rescission is denied.

9. Counter-plaintiffs' prayer for punitive damages is denied.

10. Counter-plaintiffs' prayer for attorneys' fees is denied.

11. All other forms of relief prayed for by counter-plaintiffs are denied."

In his decree, the trial judge did not delineate the legal basis upon which he ordered this relief, and the record is further devoid of remarks by the trial judge indicating his legal conclusions. The Owners appeal from the decree to the extent it denied them further relief. The Developers cross-appeal to the extent that the decree ordered the Owners any relief.

Because of our disposition of this matter, we need only address the following issues: (1) whether the Owners were entitled to relief under section 22 of the Condominium Property Act (Ill. Rev. Stat. 1973, ch. 30, par. 322), (2) whether the Owners were entitled to relief under common law fraud principles, (3) whether the Owners were properly certified as a class for purposes of this action, (4) whether the trial court erred in granting summary judgment in favor of the Developers on the antitrust claim. We affirm in part, reverse in part, and remand this cause for further proceedings. The relevant facts follow.


Melvin R. Luster was called as an adverse witness under Section 60 of the Civil Practice Act. (Ill. Rev. Stat. 1975, ch. 110, par. 60.) He testified that Northwestern Life Insurance Company owned the 247 E. Chestnut Building for the 2 or 3 years prior to its conversion. Percy Wilson managed the building during this period while it operated as a rental building. On April 1, 1972, LF formed a joint venture with Northwestern Life Insurance Company for the purposes of converting 247 E. Chestnut to a condominium.

Luster was responsible for the final draft of the projected operating budget which he and the accountant prepared. The budget was prepared in November of 1972 and was based on data he received from the previous management and LF's 6-7 month history with the building. The building was converted on July 1, 1973 and the purchasers received the projected budget by the time that their units closed. The figures on the budget were not changed between October or November of 1972 and June 30, 1973, the day before conversion.

As of October 1972, the employees' union contract had expired and Luster prepared the payroll figure on the basis of one janitor's helper although historically, the building utilized two such employees. A new labor contract was negotiated in April of 1973 and by its terms operated retroactively to December of 1972. After the new contract was negotiated, Luster did not revise the payroll figures prior to closing. However, subsequent to closing, he wrote a letter to the unit owners that payroll costs would have to be increased due to a union regulation requiring the addition of another employee.

The figure for fuel was based on the history of the fuel cost for the building. The cost of fuel began accelerating after July 1, 1973. He discussed the fuel cost with their supplier, Ogden Oil Company, in October of 1972 and was assured that there was no need for additional increases. He did not contact them regarding this matter after October and the cost of fuel increased slightly in April or May of 1973.

The projected garage and laundry income of $7,100 was predicated upon a garage lease that was entered into in April of 1972 pursuant to which the garage operator was to pay $500 per month. The anticipated laundry income was $1100 per year. The garage operator paid $500 through October of 1972. At that time he asked forbearance until conversion of the building since he was losing money. Luster agreed but did not notify the purchasers of this arrangement. No income was received from the garage operator for the entire year of 1973, including the six months after conversion. Laundry income totaled $362 for the year.

Luster did not compare the actual costs during the first six months of 1973 to the budgetary figures. There were no monthly operational statements prepared by the accountant during the first six months of 1973. The first time the budget was reviewed was in September of 1973.

The projected repair figure of $2100 was based upon Luster's experience with buildings of similar size and he did not consult with the former management company of 247 E. Chestnut relating to the computation of this figure. Luster testified that an inspection of the water tower of the building between April 1, 1972, and July 1, 1973, disclosed that it would malfunction and a new one was ordered prior to the conversion date. The water tower broke down in July of 1973 and had to be replaced. The new system necessitated higher water costs. The purchasers were not notified of this fact.

The declaration of condominium for the building was offered in May of 1973. Prior to that time purchasers were given declarations from Ritchie Tower Condominium and were told that the Chestnut declaration would conform in material respects. In the Ritchie Tower declaration LF was named as management company at the rate of $12 per month per unit for the 12-month period following date of sale of 97 units. The 247 E. Chestnut declaration provided for LF to be compensated as management agent at a rate of $15 per month per unit for a period no later than 5 years after the last unit had been sold. Luster did not inform the purchasers of the differences between the two declarations.

The Developer levied a $10,000 special assessment at 247 E. Chestnut in the latter part of 1973. The assessment was allocated on the basis of percentage of unit ownership and the Developer paid the assessment on the units that it still owned. There were increases in monthly maintenance charges in November and December of 1973 and in January of 1974. The Developer neither asked for nor received the Owners' consents for levying the special assessment or increasing the monthly maintenance charges.

When the 1974 operating budget was prepared, an entry was made for elevator fire controls at a cost of $3600. Luster testified that he first learned in the latter part of 1973 that such equipment would be necessary. Judicial notice of a municipal ordinance requiring the installation of fire controls as of January 1, 1973, was taken. A revised operating budget for Ritchie Tower based on the first six months of 1973 was admitted into evidence for the purposes of showing the Developer's knowledge of the ordinance, as it bore an entry of $4200 for the installation of fire controls. The cost of the fire controls for 247 E. Chestnut was borne by the unit owners in 1975.

Luster further testified that he never promised, prior to July 1, 1973, to tuckpoint or paint and scrape the columns and spandrels of the building. To his knowledge, the salespeople did not tell purchasers that tuckpointing would be done. Finally, Luster testified regarding a lawsuit brought by Crown Coin Meter Laundry naming LF as managing agent based on a contract signed prior to April 1, 1972. The case was settled and costs were absorbed by the developer.

Harold E. Friedman testified next as an adverse witness. (Ill. Rev. Stat. 1975, ch. 110, par. 60.) He stated that he was an attorney and a partner in the joint venture and that he prepared the purchase agreement form. The declaration of condominium for 247 E. Chestnut was made available to purchasers on May 17, 1973. Prior to that time, the declaration of condominium for Ritchie Tower was available. Individuals who signed contracts prior to May 17 were told that the declaration of condominium would conform to the one at Ritchie Tower.

Friedman contacted the Cook County assessor to determine how to compute the real estate taxes. However the latter had no knowledge of how the building would be taxed. Friedman compiled the taxes on the basis of the latest year's tax bill plus a percentage to compensate for any possible increase. He spoke to approximately 40 of the purchasers' attorneys and informed each of them that the tax bill was based upon 247 E. Chestnut, while it operated as a rental building and not as a condominium.

George Bruce testified that he is an elevator inspector for the City of Chicago Department of Buildings. He was responsible for the 247 E. Chestnut building and one of his duties was to check if fire safety controls had been installed. The ordinance relating to fire controls went into effect on January 1, 1973. As of May 1, 1972, a document in his file indicated that a notice was sent to the building. Two other notices were sent by someone else in his department on October 25, 1972, and October 26, 1973. A suit was filed with the Board of ...

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