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Sterdjevich v. RMK Management Corp.

September 08, 2003


Appeal from the, Circuit Court of Cook County. No. 95 CH 2846 The Honorable Albert Green, Judge Presiding.

The opinion of the court was delivered by: Presiding Justice Gordon


The instant suit arises from a dispute between plaintiffs Frank Sterdjevich (Sterdjevich) and Tracy Green (Green) and defendants NHP Management Corporation (NHP) and Rescorp Realty, Inc. (Rescorp), stemming from gas utility charges that defendants allegedly billed to plaintiffs in violation of the Tenant Utility Payment Disclosure Act (Act) (765 ILCS 740/1 et seq. (West 1996)) and in breach of their respective lease agreements. On appeal, defendants NHP and Rescorp contend that the trial court erred in denying their motions for sanctions against plaintiff Sterdjevich. who, they assert, knowingly made false material allegations in his pleadings. NHP, alone, further asserts that the trial court erred in denying its motions for attorney fees and other expenses incurred during litigation of the instant case to which it would have been entitled under the express provisions of the operative lease. In his cross-appeal, plaintiff Sterdjevich alleges that the trial court erred in granting NHP's motion for summary judgment with respect to his second amended complaint. For the reasons that follow, we affirm the trial court's judgment with respect to summary judgment and the denial of attorney fees and other litigation expenses, and reverse with respect to sanctions.


In March 1995, plaintiffs Sterdjevich and Green filed a class-action *fn1 complaint on behalf of themselves and as representatives of the other tenants of the building located at 200 Arlington Place in Arlington Heights, Illinois (200 Arlington Place), against RMK Management Corporation (RMK) and Arplace Limited Partnership (Arplace). *fn2 The complaint alleged that RMK and Arplace breached their respective lease agreements, violated the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/2 (West 1996)) and violated the Act when they assessed a monthly gas utility charge to tenants at 200 Arlington Place without providing an assessment formula for master metered utilities. Thereafter, in March 1996, plaintiffs filed a first amended complaint wherein they named additional defendants, including Draper & Kramer, Incorporated (Draper & Kramer), *fn3 Rescorp and NHP. With respect to Rescorp and NHP, plaintiffs made the following allegations which are relevant to the instant appeal: (1) that defendants "breach[ed] lease agreements entered into with the tenants at 200 Arlington Place, by assessing tenants a monthly 'gas charge' in violation of the terms of the lease and in violation of Illinois law"; (2) that defendants committed deceptive practices by failing to disclose that tenants would be required to pay a monthly gas charge; and (3) that the leases executed between defendants and plaintiffs contained a provision which provided that tenants would be responsible only for payment of individually metered utility charges.

Prior to filing their first amended complaint, plaintiffs filed a motion stating the reasons why they sought leave to amend. In the motion, plaintiffs asserted that they deposed Kate Wojciechowski, the manager of 200 Arlington Place, and that she testified that Rescorp and NHP "engaged in the practice of charging tenants for Gas Charges despite explicit lease provisions and Illinois law prohibiting same." In support of this contention, plaintiffs attached to their motion an excerpt from Wojciechowski's deposition, wherein she stated that Rescorp and NHP constructed 200 Arlington Place and that Rescorp subsequently managed the building from 1987 until 1989. NHP then took over management duties until 1991. In the excerpted portion of the deposition, Wojciechowski further stated that she worked as an assistant manager for NHP, and testified that NHP used the same leases as those utilized by other managing companies in the building, which contained the following provision, hereinafter identified as Paragraph 7:

"7. UTILITIES: Unless otherwise agreed in writing, if the Apartment is individually metered, payment to the utility company or authorized metering agency of the applicable charges for gas, electricity or water consumed by Tenant in the Apartment, including, if applicable, current use for electrical heating, ventilation, air conditioning, hot water, etc. shall be Tenant's sole responsibility."

She could not say whether Rescorp also used leases containing a provision similar to Paragraph 7. Wojciechowski averred that Draper & Kramer took over management of 200 Arlington Place in May 1992 and continued in that capacity until December 1992. She averred that Draper & Kramer included language in its lease such as that set forth in Paragraph 7. Although not included in the excerpted testimony provided by plaintiffs, Wojciechowski testified in her deposition that she executed a lease with Rescorp for a unit at 200 Arlington Place for the period of April 19, 1991, through May 31, 1992. Notably, nowhere in the deposition excerpt provided by plaintiffs did Wojociechowski state, as plaintiffs represented, that NHP and Rescorp charged tenants for gas utilities.

On May 26, 1996, defense counsel wrote a letter to plaintiffs' counsel regarding the allegations made in the first amended complaint. In the letter, defense counsel advised that the leases actually used by Rescorp and NHP were materially different from the leases used by the other management agencies, upon which plaintiffs' complaint was based. Defense counsel indicated that the NHP and Rescorp leases "spell out how that charge [utility charge] will be assessed." With the letter, defense counsel provided copies of the 1991 lease executed between Sterdjevich and NHP, as well as the form lease utilized by Rescorp for 200 Arlington Place. Finally, defense counsel advised plaintiffs that it would be filing a motion to dismiss the complaint in the event that plaintiffs decided to proceed with their suit in light of the information provided and would also seek attorney fees because the pleading filed was "baseless." Plaintiffs chose to proceed, and on May 31, 1996, NHP and Rescorp filed a motion to dismiss the first amended complaint. In that motion, defendants contended that dismissal of plaintiffs' first amended complaint was warranted because plaintiffs failed to allege that they entered into a lease agreement with either of the defendants and failed to provide the written instrument upon which their claim was based.

On August 8, 1996, plaintiffs filed their "Response to Defendants Rescorp Reality, Inc. and NHP Management Company's Motion to Dismiss." In that response, plaintiffs asserted that they filed their first amended complaint "[b]ased on Wojciechowski's testimony in which she stated that NHP committed the same practices as the original defendants (RMK and Arplace) with respect to assessing gas charges, and that she did not know whether Rescorp committed such practices." Plaintiffs also argued that defendants' motion to dismiss did not raise adequate pleading defects because "the mere fact that the plaintiffs have not attached a copy of the leases which forms the basis of their allegations against defendant Rescorp and NHP is inconsequential since the leases are or were within the custody and control of the defendants." Plaintiffs went on to assert that "defendants NHP and Rescorp have not produced the leases which their agent admitted exist." Plaintiffs also reiterated that Wojciechowski's deposition supported the facts in their complaint because she stated that NHP entered into leases, which were similar to those of other management companies, "in which gas charges were assessed in violation of the terms of the lease, *** the Consumer Fraud Act, and *** [the Act]."

Defendants, in turn, filed a reply in support of their motion to dismiss wherein they reasserted that the first amended complaint was deficient because it did not allege that plaintiffs were involved in a landlord/tenant relationship with defendants and did not have, as an attachment, a copy of the leases upon which the complaint was based. Defendants also pointed out that copies of the subject leases were turned over to plaintiffs with defendants' May 26, 1996, letter, and in support, attached copies of the letter as well as the subject leases to their reply memorandum. On September 17, 1996, the trial court granted defendants' motion to dismiss and allowed plaintiffs 28 days to file an amended complaint.

On October 15, 1996, plaintiff Sterdjevich filed his second amended complaint, which did not include Rescorp as a defendant but did name NHP. Notably, the second amended complaint was brought by Sterdjevich only and eliminated Green as a putative class representative. *fn4 In count IV of the complaint, plaintiff alleged that he entered into a lease agreement with NHP on December 12, 1991, for a term commencing on January 5, 1992, and continuing through January 31, 1993. With respect to gas utility charges, the lease stated that gas utilities would be master metered for all apartments and that tenants would be charged monthly for their gas usage at a rate proportional to the charges incurred for the entire building based on a ratio between the space leased by the tenant and the total space in the building. Plaintiff alleged in the complaint that the lease did not provide a sufficient formula for the allocation of gas charges to tenants. *fn5 Plaintiff further alleged that NHP allocated a gas charge to him but did not provide a copy of the utility bill from which payment was demanded. In addition to including a copy of the lease in the second amended complaint, plaintiff also included a letter that he wrote on April 9, 1993, to Wojciechowski, the assistant property manager of the building. In the letter, plaintiff stated that he "recently" received notices advising him that a payment of $28.56 was past due on his rent obligation resulting from his failure to pay gas utility charges from December 15, 1992, to January 15, 1993.

NHP subsequently deposed Sterdjevich. In his deposition, Sterdjevich stated that when he leased the apartment at 200 Arlington Place in December 1991, it was his understanding that his heating, ventilation and air conditioning charges (HVAC) would be free for the first six months of the lease and that he would be required to pay for these utilities once the six-month period ended. Sterdjevich testified that he did not pay for HVAC utilities, which included gas, during the first six months of his lease, and that he continued to receive these utilities without being charged for nearly a full year, until February or March 1993, when he first received a billing statement for December 1992 through January 1993. Sterdjevich stated that he paid the gas charges assessed to him in order to retain his lease at 200 Arlington Place. Prior to making the payments for gas utilities, Sterdjevich indicated that his wife contacted Northern Illinois Gas, which provided gas services at 200 Arlington Place, and learned that there was only one master meter, rather than individual meters, for each apartment at the property. The master meter was registered to Draper & Kramer, and not NHP, at that time.

Sterdjevich also stated that he was aware that NHP ceased serving as the managing agent of the company prior to the expiration of his lease. In this regard, Sterdjevich acknowledged that he sent a letter to the managing agent of the building on November 30, 1992, three to four months before he received a demand for payment of utility charges, and the letter was addressed to Draper & Kramer. Sterdjevich stated that he did not receive any gas utility charges in his monthly statements between January 1992 and February 1993, and that NHP was replaced by Draper & Kramer sometime before November 30, 1992. Sterdjevich agreed that he had never been charged for gas utilities prior to November 1992. He also admitted that he had not suffered any damages as a result of any conduct by NHP regarding the collection or imposition of gas utility charges.

NHP next filed "Defendant NHP Management Company's Request to Admit Directed to Plaintiffs," wherein plaintiffs were asked to admit: (1) that plaintiff Green never entered into a lease with NHP; (2) that NHP never demanded payment for master metered utilities from plaintiff Green; (3) that plaintiff Sterdjevich entered into only one lease with NHP, a copy of which was attached; (4) that Sterdjevich wrote a letter to Wojciechowski on April 9, 1993, wherein he stated that he never received any prior gas bills during his tenancy at 200 Arlington Place; and (5) that NHP never made a demand upon Sterdjevich for payment of master metered utilities. Plaintiffs admitted statements one through four, but denied the final statement.

NHP subsequently filed a motion to dismiss asserting that the Act did not apply to the instant case because Sterdjevich's lease agreement was entered into prior to the effective date of the Act; that, in any event, NHP complied with the requirements set forth in the Act; and that Sterdjevich waived any objection relating to utilities when he signed his lease agreeing not to contest utility charges.

NHP also filed a motion for summary judgment asserting that a violation of the Act did not occur because no demand for payment of gas charges incurred by plaintiff Sterdjevich was ever made, and because Sterdjevich never paid NHP for utility charges. In support of its summary judgment motion, NHP presented the trial court with an affidavit signed and sworn to by Brenda Smaller, the property manager of 200 Arlington Place from November 1990 until April 1993. Smaller attested that NHP managed 200 Arlington Place when Sterdjevich signed his lease on December 12, 1991, but was replaced by Draper & Kramer in May 1992. *fn6 Smaller stated that in a letter issued to her assistant property manager, Kate Wojciechowski, *fn7 Sterdjevich indicated that he had not been billed for gas charges before early 1993. Smaller pointed out that, at the time gas charges were assessed to Sterdjevich, NHP was no longer affiliated with the 200 Arlington Place property.

Smaller further stated that NHP never demanded payment for gas utility charges from Sterdjevich and was likewise never paid for such charges. Attached to Smaller's affidavit was a letter she wrote to Sterdjevich on April 15, 1993, wherein she reminded Sterdjevich that he received one year of free heating and air conditioning in 1992, and thus demanded payment of $28.56 for two months worth of gas utility expenses. The letter reminded Sterdjevich that, according to his lease agreement with NHP, he was entitled to only six months of heating and air conditioning without charge, but due to an administrative error, he continued to receive heating and air conditioning without charge after the six-month period had elapsed.

There is some indication in the record that plaintiff responded to these motions; however, we are unable to locate his response in the record and it is not included in the record cites made by the parties. According to NHP's reply memorandum to plaintiff response, however, plaintiff asserted in his response, as he does herein, that NHP should be held liable for the conduct of other management companies acting during the term of NHP's lease with plaintiff, even if those acts occurred after NHP was replaced by its successor, Draper & Kramer.

After a hearing, the trial court granted defendants' motion to dismiss and motion for summary judgment. In doing so, the trial court reasoned that, although Sterdjevich alleged a violation of the Act in his second amended complaint, the Act "had no application to the lease agreement" between NHP and Sterdjevich because "[p]laintiff Sterdjevich and NHP entered into said lease to [sic] December 12, 1991. The [Act] did not go into effect until January 1, 1992." The trial court added that it was granting defendant's motion to dismiss and motion for summary judgment because plaintiff failed to allege, and the "uncontroverted evidence" showed, that NHP never demanded payment from plaintiff for master metered utility services and that plaintiff did not suffer any injury as a result of NHP's conduct.

Prior to the trial court granting summary judgment, NHP, joined by defendant Rescorp, filed a motion for sanctions against plaintiffs asserting that plaintiffs knowingly made false allegations in their first and second amended complaints, as well as in other documents filed during the pendency of the suit. Specifically, defendants asserted that: (1) in their first amended complaint, plaintiffs alleged that defendants used a lease containing the provision previously identified as Paragraph 7, stating that tenants would be responsible for individually metered utilities only, which, in fact, was not used in NHP or Rescorp's leases; (2) plaintiffs did not withdraw the erroneous allegations in their complaint regarding the contents of defendants' leases even after they were presented with copies of NHP and Rescorp's leases which clearly demonstrated that the provision was not included; (3) plaintiffs pled that NHP and Rescorp charged them for utilities in violation of the terms of their leases when Green never entered into a lease with either company and Sterdjevich only entered into a lease with NHP; (4) plaintiff Sterdjevich denied the statement in defendants' request to admit stating that NHP never demanded payment from him for master metered utilities, even though he admitted in his deposition that he was never charged by NHP and suffered no damages as a result of NHP's conduct; (5) Sterdjevich admitted in his deposition that he was aware of the terms of his lease with NHP and knew that his lease required him to pay for utilities for 6 months of his 12-month lease, despite the fact that he originally pled that the utility provision in the lease was the same as that used by other management companies in the building; (6) plaintiff sought to recover damages in his second amended complaint against NHP for gas charges assessed against him, even though he admitted in his deposition that he suffered no damages from NHP's conduct; and (7) plaintiffs could have learned of these issues through reasonable inquiry.

The trial court initially granted defendants' motion for sanctions, stating:

"This Court supports the Defendants' position that any reasonable inquiry on the part of the plaintiffs' counsel as required by Illinois Supreme Court Rule 137, would reveal that the Plaintiffs' initial allegations regarding the text of NHP and Rescorp's leases were false; that the Plaintiffs' initial allegations about having been misled and deceived by NHP and Rescorp were false, that neither NHP nor Rescorp ever made demand upon either Plaintiff for the payment of false charges, that neither Plaintiff ever paid for gas charges incurred while NHP or Rescorp was associated with the property, and that neither plaintiff suffered any damages as a result of any conduct by NHP or Rescorp. Plaintiffs not only failed to make such an inquiry, but ignored the documentary evidence provided by counsel for NHP and answered their Request to Admit in a manner contrary to the testimony of their own client."

After making this ruling, the trial court granted defendants leave to file a motion for attorney fees and costs of litigation.

Plaintiffs subsequently filed a motion to vacate the sanctions order. In their motion, plaintiffs asserted that their right to due process was violated because the trial court imposed sanctions without giving them an opportunity to file a response to defendants' sanctions motion. Plaintiffs also filed a motion to reconsider of the order granting sanctions, asserting that they filed their first amended complaint against Rescorp and NHP because Wojciechowski testified that Rescorp owned the property and NHP managed it through 1991. Sterdjevich testified in his original deposition that he entered into a lease on the property in 1991, and therefore, he believed Rescorp was affiliated with 200 Arlington Place during the term of his lease. Plaintiffs further asserted that they filed their second amended complaint against NHP only because they learned, after receiving a copy of Sterdjevich's lease with NHP, that Rescorp did not own the property, and therefore, they did not include Rescorp in the complaint. They likewise stated that review of NHP's lease showed a violation of the Act based on the fact that NHP did not set forth a formula for calculating monthly gas charges and did not disclose to tenants that the cost of gas consumed for hot water would be charged to them. Plaintiffs also pointed out that Sterdjevich was billed for gas charges incurred during the last month of his lease with NHP, and they asserted that there was no evidence demonstrating that NHP was not responsible for damages incurred during the term of its lease, especially where NHP did not inform Sterdjevich that it had assigned the lease to another entity.

After considering these motions, the trial court granted plaintiffs' motion for reconsideration and denied defendants' motion for sanctions. ...

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