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Kopley Group V., L.P. v. Sheridan Edgewater Properties

September 7, 2007


Appeal from the Circuit Court of Cook County Honorable Paddy H. McNamara, Judge Presiding.

The opinion of the court was delivered by: Justice Gallagher

Plaintiffs, Kopley Group V., L.P., an Illinois limited partnership, as beneficiary under Chicago Title and Trust Company Trust No. 1106522, dated November 4, 1998, and The Kopley Group, Inc., an Illinois corporation, appeal from an order of the circuit court of Cook County granting summary judgment in favor of defendants, Sheridan Edgewater Properties, Ltd., Vranas & Associates, Ltd., an Illinois corporation, a/k/a Vranas & Chioros Realty Group, Inc., William P. Vranas, individually, Michael M. Chioros, individually, and John P. Vranas, individually. We affirm in part, reverse in part, and remand.


This case involves the sale and purchase of real property commonly known as 5200 North Sheridan Road in Chicago (the property) and allegations of misrepresentation, fraud and breach of contract. The property consists of an eight-story apartment building with 223 dwelling units and first-floor commercial space. The seller of the property is defendant Sheridan Edgewater Properties, Ltd. (the Seller).

In 1996, the City of Chicago (the city) had an ordinance requiring routine inspections of the exterior facade on high-rise buildings (the Chicago facade ordinance). Chicago Municipal Code §13-- 196--35. (eff. January 10, 1996). Reports of such inspections were to be filed with the city, describing any repair work that was necessary. The Seller had followed that program and had retained Crest Consulting Engineers, P.C. (Crest), to conduct inspections of the property in 1996 and 1997. Both times, Crest generated an exterior facade report and a descriptive letter to be attached to the standard city form, the latter of which was entitled "Report on Ongoing Inspection and Repair Program of Exterior Walls and Enclosures." Both were stamped "accepted" and signed by the city.

The report prepared in 1997 (for the 1996 inspection) by Crest was dated May 28, 1997 (the 1997 Crest report). The Seller filed the 1997 Crest report with the city approximately one month later, on June 25, 1997.

The report prepared in 1998 (for the 1997 inspection) by Crest was dated March 25, 1998 (the 1998 Crest report). The 1998 Crest report noted, among other things, that shifting brick lintels were "imminently hazardous." The Seller undertook these repairs of the "imminently hazardous" conditions in March 1998. The repairs were performed by Gulf Construction for substantial sums of money. The Seller filed the 1998 Crest report with the city on November 13, 1998, approximately eight months after the report was originally prepared and after all of the issues had been addressed. Ten days later, on November 23, 1998, the Seller sent the city a letter informing it that all conditions noted in the 1998 Crest report had been corrected.

In the spring or early summer of 1998, K. Nicholas Kopley (Mr. Kopley) saw an advertisement in the Chicago Tribune newspaper for the sale of the property. Mr. Kopley is a sophisticated owner and purchaser of rental real estate. He first started acquiring residential real estate in 1992. In 1995, Mr. Kopley formed Kopley Group, Inc., which would serve as general partner in limited partnerships that owned rental properties. Mr. Kopley serves as president and principal shareholder of The Kopley Group, Inc.

By 1998, Kopley Group, Inc., was the general partner in four limited partnerships that owned and managed six separate rental properties. One of the buildings was in excess of four stories.

After Mr. Kopley saw the advertisement for the property, he contacted a broker who requested information on the property on Mr. Kopley's behalf. Subsequently, defendant Vranas & Associates, Ltd. (Vranas & Associates), in its capacity as a real estate broker for Sheridan Edgewater Properties, Ltd., sent a letter to Mr. Kopley stating that informational materials relating to building and financial information regarding the property were available and would be furnished subject to Mr. Kopley executing a confidentiality agreement. At the time, the other three defendants, William P. Vranas, Michael M. Chioros, and John P. Vranas, were individual brokers who also had an ownership interest in the property. Defendant William P. Vranas was president of the Seller and executed the contract on the Seller's behalf. Defendant John P. Vranas also acted as a property manager of the property. The real estate brokers shall be referred to collectively as "the Brokers" or individually by name, where applicable.

On August 12, 1998, Mr. Kopley executed the confidentiality agreement. At some point, Mr. Kopley toured the property and wanted to buy it. Mr. Kopley made some preliminary calls to see if there were investors interested in the property.

On or about September 3, 1998, Mr. Kopley made an offer that was not accepted. In late September 1998, Mr. Kopley learned from his broker that a previously accepted offer might not be going through. Mr. Kopley resubmitted an offer.

On September 24, 1998, the previous purchaser(s) cancelled their September 14, 1998, contract because the condition of the premises was not acceptable to them, based upon "their inspection of the Premises, and their review of the documents and other materials disclosed to them."

On October 15, 1998, the parties in the instant case entered into a written real estate sales contract for the property for a sales price of $7,525,000. Mr. Kopley signed the contract.

Mr. Kopley prepared a confidential private offering memorandum, dated October 20, 1998, to solicit investors in the limited partnership that would be the beneficial owner of the property, Kopley Group V., L.P, a plaintiff in this case. The other plaintiff, The Kopley Group, Inc., is the general partner of Kopley Group V., L.P. We shall refer to both plaintiffs collectively as "the Buyer," where applicable. Mr. Kopley, at all times, acted on behalf of the Buyer in the purchase of the property. The Buyer's initial cash investment in the property was $1,500,000. Mr. Kopley personally contributed $300,000 of the initial capital.

In the confidential private offering memorandum, the Buyer states as follows: "An examination of the files and permit files of the Building Department of the City Of Chicago does not reflect any building code violations other than those cited in Exhibit 'A' of this Memorandum."*fn1

At some point prior to closing, in order to obtain financing, The Kopley Group, Inc., prepared a "General Property Inspection" report that noted that the "the building was constructed in 1926" and stated that "the structure is in good condition with no sign of major structural flaws."*fn2 The Buyer further represented that there were no outstanding building code violations on record.

The real estate contract (the contract) contained a rider that was attached and made a part of the contract. The rider provided, in pertinent part, as follows:

"R-1 SELLER'S REPRESENTATIONS AND WARRANTIES: Seller represents and warrants:

6. To the knowledge of Seller there are no: * * *

B. Outstanding unfulfilled requirements or recommendations of any insurance company or inspection or rating bureau concerning the Premises for any repair or alteration therefor.

R-2 INSPECTION: Purchaser shall have the right to inspect and approve the Real Estate for the period of fifteen (15) business *** days from and after the date of execution hereof ('Due Diligence Period'). In the event Purchaser determines in its sole discretion, the Real Estate and improvements are not satisfactory, Purchaser shall have the right to terminate this Agreement by serving written notice of termination on Seller on or before the expiration of the Due Diligence Period. If Purchaser does not terminate this Agreement pursuant to this paragraph, Purchaser will be deemed to have waived any objections to the Real Estate and improvements and this Agreement shall continue in full force and effect. If Purchaser terminates this Agreement pursuant to this paragraph, the earnest money shall be returned to Purchaser.

Purchaser agrees that it will be acquiring the property and improvements AS IS and that the Purchaser's sole remedy relative to the condition of the premises, environmental matters and structural matters are [sic] set forth in Rider R-2 and R-3 herein. All other warranties, expressed and implied are disclaimed.

R-3 ENVIRONMENTAL and STRUCTURAL: Purchaser shall within twenty (20) business days of this Agreement complete and approve all environmental and structural reports at Purchaser's sole cost and expense. In the event Purchaser determines that the structural or environmental report is not acceptable then this Agreement shall be null and void and all earnest monies shall be returned to Purchaser.

R-6 FINANCIAL INFORMATION: Seller agrees to furnish financial information on the property for the last three years and current year, current leases and any other documents Purchaser may reasonably require to perform its Due Diligence."

The contract and the rider were both drafted by the Buyer's attorney.

The Buyer, whose first bid had been rejected, was aware that the Sellers had entered into an earlier sales contract with another entity and that it did not close. The Buyer asked why the prior deal had fallen through. Defendant-broker Michael M. Chioros (Chioros), who was senior vice president of Vranas & Associates, answered that the previous buyer had attempted to renegotiate the entire contract. In his affidavit dated September 20, 2005, Mr. Kopley stated that Chioros "never mentioned that the deal was terminated by the buyer because the conditions at the building were unacceptable to the buyer." Earlier, however, at his deposition on May 20, 2004, Mr. Kopley had testified that Chioros had told him that the sewer work and tuckpointing were items that he recalled were an issue with the previous buyer. Moreover, on October 23, 1998, pursuant to its due diligence review, the Buyer sent a letter to Chioros. In the letter, the Buyers requested, among other things, "existing building code violation[s]," "any available engineering reports/studies," and "Bid/Estimates for work scheduled or performed regarding a)sewer repairs [and] b) ...

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