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Goldberg v. 401 North Wabash Venture LLC

United States District Court, N.D. Illinois, Eastern Division

October 16, 2012

Jacqueline GOLDBERG, Plaintiff,
v.
401 NORTH WABASH VENTURE LLC and Trump Chicago Managing Member LLC, Defendants.

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[Copyrighted Material Omitted]

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Shelly Byron Kulwin, Jeffrey R. Kulwin, Kulwin, Masciopinto & Kulwin, LLP, Chicago, IL, for Plaintiff.

Stephen Novack, Devra Rachel Hirshfeld, John F. Shonkwiler,

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Rebekah Hava Parker, Novack and Macey LLP, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

AMY J. ST. EVE, District Judge:

This action arises out of a dispute over the sale of two hotel condominium units in the Trump International Hotel and Tower in Chicago, Illinois. The Plaintiff, Jacqueline Goldberg, alleges that the Defendants— 401 North Wabash Venture LLC and Trump Chicago Managing Member LLC— " lured her into signing" agreements to purchase two units by " misrepresent[ing]" that the units included ownership of certain " Trump-branded luxury hotel property and business operations [that] would generate over $5 million in revenue; an ownership interest [that Defendants] stripped unilaterally from [unit] buyers and reclaimed for themselves right before the hotel opened." (R. 138, Pl.'s Resp. at 1.)

In her Amended Complaint, Ms. Goldberg asserts claims under the Illinois Condominium Property Act, the Illinois Consumer Fraud and Deceptive Business Practices Act, and the Federal Interstate Land Sales Full Disclosure Act against both Defendants, and a single claim for breach of contract against Defendant 401 North Wabash Venture LLC. Defendant 401 North Wabash Venture LLC in turn asserts two counterclaims for breach of contract against Ms. Goldberg.

Before the Court is Defendants' motion for summary judgment on all of these claims. For the reasons explained below, the motion is granted in part, and denied in part.

BACKGROUND

I. The Parties

Plaintiff Jacqueline Goldberg, a citizen of Illinois, " is a certified public accountant, certified financial planner and experienced real estate investor who has invested over $10 million in cash in various rental properties." (R. 115 & 133, Stmnt. of Undisputed Facts [1] ¶ 3.) In 2006, Plaintiff entered into agreements with Defendant 401 North Wabash Venture LLC (" Wabash LLC" ) to purchase two hotel condominium units— or HCUs— in the Trump International Hotel and Tower in Chicago, Illinois (" Trump Tower" ). ( Id. ¶ 4.) There are " approximately 339 HCUs within Trump Tower," fifty-five percent of which have been sold since 2003. (R. 133 & 162, Stmnt. of Add'l Undisputed Facts [2] ¶ 78.)

Defendant Wabash LLC, a limited liability company, is the developer of the Trump Tower. (R. 115 & 133, Stmnt. of Undisputed Facts ¶ 1.) Non-party 401 Mezz Venture LLC is the sole member of Defendant Wabash LLC. ( Id. ) 401 Mezz Venture LLC " is a limited liability company with its members comprised of three [other] limited liability companies: [Defendant] Trump Chicago Managing Member LLC; Trump Chicago Member LLC; and TIHT Chicago Member Acquisition LLC." ( Id. ) " The sole member of each of these three limited liability companies is

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Donald Trump, a citizen of [ ] New York." ( Id. ) All of these entities are affiliated with the Trump Organization, which is the " umbrella organization" for Mr. Trump's " real estate developments and other corporate affiliates." (R. 133 & 162, Stmnt. of Add'l Undisputed Facts ¶¶ 1-3 (internal quotation marks omitted).) The Trump Organization, through its affiliates, " directly develops, builds and manages residential, hotel and commercial real estate projects, and separately licenses its brand name to projects built by other developers." ( Id ¶ 3.)

II. The Condominium Form of Ownership

" A condominium is an interest in real estate created by statute that gives each owner an interest in an individual unit as well as an undivided interest in common elements. Administration and operation of the condominium are vested in the condominium association, which is comprised of all unit owners." Bd. of Directors of 175 E. Del. Pl. Homeowners Ass'n v. Hinojosa, 287 Ill.App.3d 886, 889, 223 Ill.Dec. 222, 679 N.E.2d 407 (Ill.App.Ct.1997) ( " Condominiums are creatures of statute" ); see also Seaphus v. Lilly, 691 F.Supp. 127, 134 (N.D.Ill.1988); (R. 158-1, Expert Report of Mr. Robert Levin (" Levin Report" ) at 7 (" A condominium is a form of real estate ownership [that] provides owners with an undivided percentage interest in portions of the condominium property held in common with other owners, and an exclusive interest in an area within the condominium property." ).) In Illinois, the operative statute is the Illinois Condominium Property Act (the " Illinois Condo Act" ). See 765 ILCS 605/1 et seq.

Under the Illinois Condo Act, " [a] condominium comes into being by the recording of a declaration[, which] is prepared and recorded by either the developer or association." Hinojosa, 287 Ill.App.3d at 889, 223 Ill.Dec. 222, 679 N.E.2d 407 (citing 765 ILCS 605/2(a) (defining the declaration as the " instrument by which the property is submitted to the provisions of [the] Act" )). The " primary function" of the declaration " is to provide a constitution for the condominium.... The declaration contains the property's legal description, defines the units and common elements, provides the percentage of ownership interests, establishes the rights and obligations of owners, and contains restrictions on the use of the property." Hinojosa, 287 Ill.App.3d at 889, 223 Ill.Dec. 222, 679 N.E.2d 407 (emphasis added); see also Wolinsky v. Kadison, 114 Ill.App.3d 527, 70 Ill.Dec. 277, 449 N.E.2d 151 (Ill.App.Ct.1983) (" When a controversy arises as to the rights of a unit owner in a condominium, we must examine any relevant provisions in the condominium enabling statute, consider the declaration, and study the bylaws and attempt to reconcile the three." ).

In addition to the Illinois Condo Act, the Chicago Municipal Code governs condominium developments in Chicago. Under the Municipal Code, a condominium developer must prepare and record a " property report" that contains certain required disclosures. See Chi., Ill., Mun.Code ch. 13-72-020. As a general matter, the property report must contain " information [that] establishes the condominium association as a legal entity, defines the condominium units and common elements which are being established and offered for sale, provides information regarding the operation of the condominium interests, and includes a statement of the projected finances of the condominium." (R. 158-1, Levin Report at 8.)

As relevant to the present case, some condominium developments are " situated

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in luxury hotels or vacation properties." ( Id. at 3.) Condominiums of this type

are usually built, operated and managed by established hotel operators. Hotel condominium unit owners usually either use the unit for their own purposes, or rent it out as any other hotel room on the property. The rental of a hotel condominium unit generates revenue for the owner of the hotel condominium unit. Hotel condominium units are usually marketed, rented and managed through a rental program established and administered by the hotel operator and approved by the board. In such cases, the hotel operator manages the rentals of hotel condominium units pursuant to the terms of a rental agreement it executes with the owners who participate in the rental program.

( Id. at 13 (internal paragraph breaks omitted).) Just like in other types of condominium developments, HCU owners would obtain sole ownership of their specific unit, and also joint ownership— as a tenant in common with other HCU owners— of the " common elements" of the condominium. ( Id. at 7.)

III. Trump Tower Chicago

A. The Development

Trump Tower is a ninety-two story mixed-use building located at 401 North Wabash Avenue in Chicago, Illinois. (R. 48, Am. Compl. & R. 84, Am. Ans. ¶¶ 7-8.) An affiliate of the Trump Organization developed the Trump Tower " rather than license its name" to an unaffiliated developer. (R. 133 & 162, Stmnt. of Add'l Undisputed Facts ¶ 11.) The Trump developer began construction of Trump Tower in or around 2005 and completed the construction in or around 2009. The building " consists of private residences, hotel condominium units, a health club, spa, meeting rooms, ballrooms, a public parking garage, a parking garage for the private condominium residents, retail space, restaurants, and various other areas including a concierge desk, reception area, and lobby." (R. 48, Am. Compl. & R. 84, Am. Ans. ¶ 8.) The hotel condominium units— or HCUs— " were not registered as securities." (R. 133 & 162, Stmnt. of Add'l Undisputed Facts ¶ 26.)

In 1997, prior to the development of Trump Tower, " an affiliate of the Trump Organization opened a hotel condominium property in New York City" referred to as the " Trump Tower NYC." ( Id. ¶ 9.) Trump Tower NYC " has a meeting room and a small health club," which are common elements that the HCU condominium association owns and operates, and which generate revenue for the association. ( Id. ¶ 10.) The building has a rental program that permits HCU owners to rent out their units to hotel guests and earn income. ( Id. ¶ 71.) The " rental program, among other things: (a) provides for the allocation of rental opportunities among HCU owners by, among other ways, permitting the HCU owners to stay in the unit without affecting the propriety or allocation of the rental opportunities provided through the rental project; and (b) does not charge HCU owners a percentage fee for the rental of HCUs through the rental project." ( Id. )

The parties agree that " certain information regarding the operation of Trump Tower NYC was used as a model by the individuals who were responsible for planning the hotel condominium at Trump Tower Chicago, including information regarding (a) the rental program; (b) the operating budget; and (c) the identification of common elements." ( Id. ¶ 13; see also R. 133-2, Reiss Dep. at 111 (" very much our model" ).)

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B. 401 North Wabash Avenue Condominium & Property Reports

The hotel condominium units in the Trump Tower are part of the 401 North Wabash Avenue Condominium (the " Condominium" ). Defendant Wabash LLC created the Condominium by preparing, among other things, a condominium declaration (the " Condominium Declaration" ), pursuant to the Illinois Condo Act, 765 ILCS 605/4(g); and a condominium property report (the " Property Report" ), pursuant to the Chicago Municipal Code. See Chi., Ill., Mun.Code ch. 13-72-020. The Property Report contained certain disclosures required by law, and included as attachments the Condominium Declaration and an estimated budget (the " Estimated Operating Budget" ), among other documents. ( See Prop. Rep. [3] & Exs. A-L.)

The Property Report took effect on or about September 24, 2003. (R. 115 & 133, Stmnt. of Undisputed Facts ¶ 10.) Defendant Wabash LLC subsequently amended the Property Report four times: on or about February 25, 2004 (" First Amendment" ); on or about August 18, 2004 (" Second Amendment" ); on or about January 10, 2005 (" Third Amendment" ); and on or about October 1, 2007 (" Fourth Amendment" ). ( Id. )

IV. Plaintiff's Purchase of Two HCUs in Trump Tower

A. Purchase Agreements

In August of 2006, Plaintiff entered into two agreements with Defendant Wabash LLC to purchase two HCUs— Units 2238 and 2240— in the Trump Tower. ( Id. ¶ 4.) At that time, " the HCUs had not yet been built." ( Id. ¶ 6.) The first agreement, dated August 2, 2006, related to Unit 2238 and had a total purchase price of $1,239,500.00. ( Id. ¶ 4.) The second agreement, dated August 8, 2006, related to Unit 2240 and had a total purchase price of $971,687.00. ( Id. ) Each purchase agreement contained materially identical provisions, and the Court will refer to the agreements collectively as the " Purchase Agreements." [4]

In Section 2(a) of the Purchase Agreements, Plaintiff agreed to purchase from Defendant Wabash LLC, and Defendant Wabash LLC agreed to convey to Plaintiff, the following:

(a) Unit No. [2238/2240] (" Purchased Unit" ) in the [Condominium];
(b) the undivided percentage interest attributable to such unit as a tenant-in-common in the Common Elements (as defined in the [Illinois Condo Act] ) of the Condominium;
(c) the Personal Property[ [5]]; and
(d) the FF & E[ [6]].

(Purchase Agreements § 2(a); see also R. 48, Am. Compl. & R. 84, Am. Ans. ¶ 11; R. 133 & 162, Stmnt. of Add'l Undisputed Facts ¶ 27.) Section 4(a) of the Purchase Agreements provided in relevant part:

Prior to closing, Seller will cause the [Condominium Declaration] to be recorded.... Purchaser acknowledges

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that Seller delivered to Purchaser prior to Purchaser's execution of this Purchase Agreement a copy of:
(1) the Condominium Declaration which includes a copy of the By-Laws of the Association (" By-Laws" );
(2) the proposed first year's budget for the Association (" Budget" );
(3) the Floor Plan of the Purchase Unit;
(4) the [P]roperty [R]eport ... required by Chapter 13-72 of the Municipal Code of Chicago; and
(5) all other items required by Section 22 of the [Illinois Condo Act].
The Condominium Declaration, By-Laws, Budget, Floor Plans and such other documents required by Chapter 13-72 of the Municipal Code of Chicago and Section 22 of the [Illinois Condo Act], as amended from time to time, are collectively called the " Condominium Documents." Purchaser acknowledges that Purchaser has had the opportunity to review the Condominium Documents. Seller reserves the right, in its sole and absolute discretion, to modify the Condominium Documents, together with the Articles of Incorporation of the Association and the Statement of Record required by the Interstate Land Sales Full Disclosure Act (the " HUD Report" ), provided that Seller shall notify Purchaser or obtain the Purchaser's approval of any changes in the Condominium Documents, the HUD Report and any such other documents, as the case may be, when and if such notice or approval is required by law. Purchaser agrees, from and after closing, to comply with the provisions of and perform all obligations imposed on Purchaser as a unit owner by the Act, the Condominium Declaration and the By Laws.

(Purchase Agreements § 4(a) (emphasis added).) In various payments beginning in August of 2006, Plaintiff deposited a total of " $516,487.40 toward the purchases of the HCU's pursuant to Paragraph 1(b) of the Purchase Agreements." (R. 115 & 133, Stmnt. of Undisputed Facts ¶ 5.)

B. Documents and Other Materials that Defendants Provided to Plaintiff Before She Executed the Purchase Agreements

" Plaintiff testified that she met with three different real estate brokers for the Trump Defendants...." (R. 133 & 162, Stmnt. of Add'l Undisputed Facts ¶ 46.) An affiliate of the Trump Organization " identified and retained the services of the Chicago real estate brokerage firm Koenig & Stray (‘ K & S') to handle Trump Tower Chicago sales and assist with the marketing materials to promote and sell the HCUs." ( Id. ¶ 22.) The Trump affiliate " met with K & S and provided the information to use in those marketing materials," and also " explained to K & S the property which was offered for sale and dictated the sales practices which K & S was required to use." ( Id. ¶¶ 22-23.) Prior to the execution of the Purchase Agreements, K & S or Defendants provided Plaintiff with certain materials and other information discussed below. (R. 48, Am. Compl. & R. 84, Am. Ans. ¶¶ 15-16, 19.)

1. Marketing Materials

" [A]ffiliates of the Trump Organization and K & S used sales packets and other marketing materials [ (" Marketing Materials" ) ] to promote Trump Tower Chicago HCUs.... [An affiliate of the] Trump Organization approved the Marketing Materials used for Trump Tower Chicago." (R. 133 & 162, Stmnt. of Add'l Undisputed Facts ¶ 40.) Mr. Charles Reiss, Mr. Russell Flicker and Ms. Jill Cremer " were responsible for reviewing and approving all marketing materials for Trump Tower."

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(R. 115 & 133, Stmnt. of Undisputed Facts ¶ 34.)

" The Marketing Materials, among other things, described numerous luxury features and amenities of the Trump Tower Chicago hotel including" :

(1) " a 60,000 square foot Health Club and Spa" ;
(2) " Meeting Rooms featuring state of the art telecommunications systems" ;
(3) " Grand and Junior Ballrooms with 30' ceilings" ;
(4) " an ‘ Executive Lounge with terrace’ " ; and
(5) " 20,000 square feet of multi-function space."

(R. 133 & 162, Stmnt. of Add'l Undisputed Facts ¶ 40.) The Marketing Materials used Mr. Trump's " image and likeness in order to convey his involvement in the project." ( Id. ¶ 7.) The materials also promoted " the Trump brand as established, famous, and successful." ( Id. ¶ 45.)

Some of the Marketing Materials related to a rental program that would be available to HCU owners. ( Id. ¶¶ 41-43.) According to these materials, HCU owners could " occupy the unit ‘ as much or as little as desirable’ and have it rented as a hotel room in the Trump International Hotel ‘ when not occupied.’ " ( Id. ¶ 42.) The program would " provide for the fair allocation of rental opportunities ... and permit owners to occupy their units without adversely impacting the priority and allocation of rental opportunities [.]" ( Id. ¶ 43.) The Marketing Materials included the following question and answer:

When can owners use their hotel guestroom? The hotel program is highly flexible with no minimum or maximum stays required. You may use your personal guestroom as many nights as you wish or not at all....
How is the hotel rental program managed? The hotel rental program will be managed through a specialized computer reservation system that assigns ‘ rotation points' to guestrooms as they are occupied. The hotel rooms with the least number of rotation points are the next to be rented in the system. Through this program, guestrooms will be fairly reserved throughout the hotel.
When does an owner's stay in a personal guestroom affect the hotel program? When an owner, or the designated guest of an owner, occupies their personal guestroom, the reservation system does not assign any points for that night. Therefore, you are encouraged to stay in your personal guestroom since the reservation system will make up for the ‘ vacancy’ of the room after your departure.

( Id. ) Additionally, Defendants represented to Plaintiff that:

At no additional cost beyond the monthly assessment, each HCU owner would have a membership with the Trump Tower's health club, which the owner could use at any time.
Each HCU owner would own a percentage of the common elements, including meeting/function rooms, laundry facilities, storage areas, and ballrooms. The Condominium Association would receive a share of revenues, estimated to be roughly $5 million per year, generated from the meeting rooms and ballrooms.
When HCU owners rented their units, they would be entitled to receive the gross revenue from the rental, which consisted of the rental rate, less a per-use fee, HCU monthly costs, credit-card fees, and travel-agent fees.

(R. 48, Am. Compl. ¶¶ 20, 28-29, 32, 36.)

2. Property Reports

Prior to entering into the Purchase Agreements, Plaintiff received a copy of

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the original Property Report, together with copies of the First, Second, and Third Amendments. Each amendment " included a revised operating budget," among other modifications. (R. 115 & 133, Stmnt. of Undisputed Facts ¶ 18.) Mr. Charles Reiss executed the Property Report, as well as the First and Second Amendments, in his capacity as senior vice president of Defendant Trump Chicago Managing Member LLC. (R. 133 & 162, Stmnt. of Add'l Undisputed Facts ¶ 38.) Mr. Reiss resigned his employment in 2004, and Mr. Russell Flicker signed the Third Amendment in his capacity as senior vice president of Defendant Trump Chicago Managing Member LLC, on behalf of Defendant Wabash LLC. ( Id.; Third Amend.[7] at 1.)

a. Property Report

Defendant Wabash LLC prepared and issued the Property Report in September of 2003. (R. 115 & 133, Stmnt. of Undisputed Facts ¶ 10; R. 133 & 162, Stmnt. of Add'l Undisputed Facts ¶ 28.) The Property Report contained the Declaration of Condominium that defined the " common elements" as those portions of the property defined in Section 3.1 of the Declaration. (Prop. Rep. at 13-14 & Ex. A, Decl.) Section 3.1 of the Declaration in turn provided in part as follows:

The Common Elements shall consist of all portions of the property, except the Units, ... unless otherwise expressly specified herein. The Common Elements include, without limitation and if applicable, any of the following items located at the Property: the walls, roofs, hallways ... housekeeping closets on each floor of the Condominium containing Units, laundry facilities, lobby facilities, the Health Club, the Meeting Rooms, Storage Areas, mail boxes, if any, cable television system (whether leased or owned), if any, fire escapes ... and all other portions of the Property except the individual Units....

( Id. ) The Property Report further stated that each owner " shall be a member of the Health Club for so long as such Unit Owner owns a Unit, and, as such, both the Unit Owner and their respective Occupants ... shall have the right to use the basic Health Club amenities ... without any supplemental charge [.]" ( Id. at 16-17.) The Property Report stated that a hotel management company would administer a hotel reservation program that would seek to promote " fair allocation" of rental opportunities" by assigning reservations " on a rotating basis" among HCUs. ( Id. at 11; see also R. 133 & 162, Stmnt. of Add'l Undisputed Facts ¶ 30.)

The Estimated Operating Budget in the Property Report projected in part as follows:

Common Charges $ 7,162,462

Commissions & Other Rentals $65,000[8]

Other $15,000[9]

Total Income $ 7,242,462

Total Expenses $ 7,242,462

Net Income $0

(Prop. Rep., Ex. H at 1; see also R. 133 & 162, Stmnt. of Add'l Undisputed Facts ¶ 31.) The Property Report contained the following cautionary language:

NO REPRESENTATIONS ARE MADE WITH RESPECT TO EXPECTED OR PROJECTED RENTAL INCOME. THERE IS NO ASSURANCE THAT THE HOTEL UNITS

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WILL BE ABLE TO BE RENTED AT ANY PARTICULAR RATE OR FOR ANY PARTICULAR PERIOD OF TIME AND THE RATES AND TOTAL INCOME FROM EACH UNIT WILL BE AFFECTED BY, AMONG OTHER THINGS, COMPETITION FROM OTHER LUXURY HOTELS, GUEST PREFERENCES, ECONOMIC CONDITIONS, DESIRABILITY OF LOCATION, SIZE OF UNITS, FREQUENCY OF OWNER OCCUPANCY AND MANY OTHER FACTORS.

(R. 115 & 133, Stmnt. of Undisputed Facts ¶ 20 (bold and caps in original).)

b. First Amendment

On or about February 25, 2004, Defendant Wabash LLC prepared and publicly issued the First Amendment. ( See First Amend.[10] at 1; R. 115 & 133, Stmnt. of Undisputed Facts ¶ 10; R. 133 & 162, Stmnt. of Add'l Undisputed Facts ¶ 32.) The amendment modified the description of the " common elements" by (1) expanding " Meeting Rooms" to " Meeting/Function Rooms" ; (2) adding " Ballrooms" ; (3) adding " the executive lounge" [11]; and (4) removing " the Health Club." (R. 115 & 133, Stmnt. of Undisputed Facts ¶¶ 14-15.) The First Amendment did not otherwise modify the statements in the Property Report regarding Health Club membership and the rental program.

The Estimated Operating Budget in the First Amendment projected in part as follows:

Common Charges $3,286,012

Commissions & Other Rentals $5,038,625[12]

Other $ 15,000[13]

Total Income $8,339,637

Total Expenses $8,339,637

Net Income $0

(First Amend., Ex. H; see also R. 133 & 162, Stmnt. of Add'l Undisputed Facts ¶ 34.) Under the First Amendment, the " estimated monthly assessments for Plaintiff's HCU's" totaled $5,832. (R. 115 & 133, Stmnt. of Undisputed Facts ¶ 25.)

c. Second Amendment

On or about August 18, 2004, Defendant Wabash LLC prepared and issued the Second Amendment. ( See Sec. Amend.[14] at 1.) This document " contained no amendments to the Declaration of Condominium" in the First Amendment. (R. 133 & 162, Stmnt. of Add'l Undisputed Facts ¶ 35.) The Estimated Operating Budget in the Second Amendment projected in part as follows:

Common Charges $3,830,120

Meeting & Ballroom Rentals, and Spa Commissions $4,649,500[15]

Other $ 15,000[16]

Total Income $8,494,620

Total Expenses $8,494,620

Net Income $0

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( Id. ¶ 36 & Sec. Amend., Ex. H.) Under the Second Amendment, the " estimated monthly assessments for Plaintiff's HCU's" totaled $5,566. (R. 115 & 133, Stmnt. of Undisputed Facts ¶ 25.)

d. Third Amendment

On or about January 10, 2005, Defendant Wabash LLC prepared and issued the Third Amendment. (R. 133 & 162, Stmnt. of Add'l Undisputed Facts ¶ 35.) This document " contained no amendments to the Declaration of Condominium set forth in" the First Amendment. ( Id. ) The Estimated Operating Budget in the Third Amendment projected in part as follows:

Common Charges $ 4,755,633

Meeting & Ballroom Rentals, and Spa Commissions $ 5,053,625[17]

Valet Parking $ 994,650

Other $ 15,000

Total Income $10,818,908

Total Expenses $10,818,908

Net ...

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