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Siegel Development, LLC v. Peak Construction LLC

Court of Appeals of Illinois, First District, Sixth Division

June 28, 2013

SIEGEL DEVELOPMENT, LLC, an Illinois Limited Liability Company; ROSS SIEGEL; and GARY SIEGEL, Plaintiffs-Appellants,
v.
PEAK CONSTRUCTION LLC and PEAK PROPERTIES LLC, Illinois Limited Liability Companies; COLIN O. HEBSON; MICHAEL L. ZUCKER; ERIC BERNSTEIN; and MICHAEL OBLOY, Defendants-Appellees (842 Wood, LLC, an Illinois Limited Liability Company; Richard E. Lane; and Brad Court, Defendants).

Rehearing denied July 24, 2013

Held [*]

Summary judgment was properly entered for defendants in an action alleging that defendants engaged in a conspiracy to defraud plaintiffs in connection with the sale of a four-unit building for purposes of conversion into condominium units, since plaintiffs did not reasonably rely on the representations made by defendants, most of the representations, including the costs involved, were not actionable, and the record disclosed that there was no meeting of the minds as to the scope of the project, regardless of plaintiffs’ contention that “a deal was in place.”

Appeal from the Circuit Court of Cook County, No. 06-L-11187; the Review Hon. Brigid Mary McGrath, Judge, presiding.

Donald L. Johnson and Julie A. Boynton, both of Donald L. Johnson, P.C., of Chicago, for appellants.

Stuart M. Nagel, of Chalmers & Nagel, P.C., of Chicago, for appellees.

Presiding Justice Lampkin and Justice Hall concurred in the judgment and opinion.

OPINION

GORDON, JUSTICE

¶ 1 The instant consolidated appeals concern a two-story four-unit building purchased by plaintiffs, Siegel Development, LLC, Gary Siegel, and Ross Siegel, for the purpose of converting the building into condominium units. Plaintiffs allege that they purchased the property in reliance on a promise from several of the defendants that defendant Peak Construction LLC would perform the renovations needed for the condominium conversion project for a price of $183, 200. After closing on the purchase, Peak Construction, through defendant Michael Zucker, informed plaintiffs that it would be unable to perform the renovation work. Plaintiffs filed suit, claiming that defendants fraudulently induced them to purchase the property. The trial court granted defendants' motion for summary judgment on plaintiffs' fraud claims, finding that plaintiffs did not reasonably rely on defendants' representations and that most of the representations were not actionable. For the following reasons, we affirm.

¶ 2 BACKGROUND[1]

¶ 3 I. Parties

¶ 4 Plaintiff Siegel Development, LLC (Siegel Development), is an Illinois limited liability company, of which plaintiffs Ross and Gary Siegel are the members.

¶ 5 Plaintiff Gary Siegel is a licensed real estate agent employed by Coldwell Banker Residential Real Estate and the Matt Garrison Group, a real estate agency associated with Coldwell Banker, at the time of the transaction at issue. He has participated in four real estate transactions, not including the transaction at issue in the instant case, which includes: a 90% stake in a building purchased in 2000; a condominium unit purchased in 2002 and sold in 2005; a condominium unit purchased in 2006; and a building purchased on an undisclosed date. During his deposition, Gary[2] also testified that he owned his current home, which he purchased in 2008. Gary further testified that during his time at the Matt Garrison Group, Gary represented three buyers and two sellers in real estate transactions. When he represented the buyer, the agency was paid a commission of 2.5% by the seller, which was the standard in the Chicago real estate industry; Gary received a portion of the commission.

¶ 6 Plaintiff Ross Siegel graduated from the University of Wisconsin in 1997 with a bachelor's degree in accounting and passed the certified public accountant exam the same year. He became a licensed real estate agent in December 2005, but has never purchased or sold any properties as an agent. He has participated in four real estate transactions, not including the transaction at issue in the instant case, which includes: a 50% stake in a "2-flat, " which was purchased in 1998 and sold in 2004; a townhouse used as a primary residence, purchased in 1999 and sold in 2005; a 33% stake in a one-story office building, purchased in 2004; and a house used as a primary residence, purchased in 2005. He also filed suit against the builder of the house purchased in 2005 on June 23, 2006, alleging that the house was set back 15 feet farther from the street than was provided for by the stamped, approved plans. Sam Borek, plaintiffs' attorney during the transaction at issue, opined that Ross "is an extremely bright individual with a very sophisticated tax and business background."

¶ 7 Defendant 842 Wood, LLC (842 Wood), is a member-managed Illinois limited liability company. Defendants Hebson and Lane are the members of 842 Wood. Only Hebson is a party to the instant appeal, [3] as the claims against Lane were dismissed with prejudice pursuant to a settlement agreement and 842 Wood was voluntarily dismissed without prejudice on February 23, 2010. In addition to being a member of 842 Wood, Hebson is an Illinois-licensed real estate agent for @properties.

¶ 8 Defendants Peak Construction LLC (Peak Construction) and Peak Properties LLC (Peak Properties) are manager-managed Illinois limited liability companies. Together with Peak Construction Development LLC (Peak Development), a manager-managed Illinois limited liability company, Peak Construction and Peak Properties are sometimes referred to as the "Peak entities."

¶ 9 Defendant Zucker is a property manager/partner with Peak Properties and is a partner in all three of the Peak entities. Zucker testified that defendant Michael Obloy (Obloy) is an employee of Peak Development whose role was "[f]inance, " meaning "[d]ue diligence on deals." Defendant Eric Bernstein (Bernstein) was employed by Peak Properties in 2006, performing "spot jobs" as part of an "offset" that he described as "just a little separate company that Mike [Zucker] and I were in charge of." Bernstein explained: "I was working for Peak Properties. I was just, kind of, a subsidiary. So I came on to try to establish, you know, an offset of, kind of like, Peak Construction, just running–again, just running some projects and trying to bring in more income." Bernstein testified that Zucker was his supervisor.

¶ 10 Defendant Brad Court (Court) is an Illinois-licensed realtor associated with Coldwell Banker Residential Real Estate and the Matt Garrison Group. Court voluntarily filed for bankruptcy in the United States Bankruptcy Court for the Northern District of Illinois on February 12, 2008, and is not a party to the instant appeal.

¶ 11 II. Transaction at Issue

12 A. 842 Wood's Ownership of the Property

¶ 13 Colin Hebson, a real estate agent and member of 842 Wood, testified that, during the spring of 2006, he learned that a two-story, four-unit building located at 1025 N. Wood Street was for sale. After a walk through the property, Hebson decided to make an offer to purchase it; Hebson did not obtain a professional inspection because "[w]e were buying it to convert to condominiums or hold as an apartment and we felt that it was fine as it were [sic]." He and Lane purchased the property for 842 Wood, even though title to the property was placed in Lane's name.

¶ 14 Lane testified that he was the managing member of 842 Wood and that Hebson was the other member and Lane's business partner. Lane took title to the property in his name, but considered 842 Wood the owner. Originally 842 Wood was going to develop the property, but instead decided to sell it because there was a great deal of interest from potential buyers. As Lane's business partner, Hebson was authorized to sell the property if he located a buyer; Hebson was paid $20, 000 for selling the property and also received 50% of the partnership distribution.

¶ 15 Hebson testified that after they purchased the property, he and Lane explored different opportunities for the property: "In real estate development, we run many different options at the same time. We'll look at selling to people after we purchased a building, we'll look at converting it [to] condos, we also look at keeping it as a rental building." Hebson and Lane obtained a rough estimate of the renovation costs they were considering undertaking, which was obtained from Bernstein in the form of a one-page spreadsheet; Bernstein indicated that the work in the rough estimate could be completed with a repair and replace permit.

¶ 16 Bernstein testified that the first time he visited the property, he was with Lane and Hebson, where Lane discussed the renovations that he envisioned; Hebson also supplied some ideas while they were walking through the property. Bernstein testified that the project was going to be a "lipstick job, " meaning a remodel, as opposed to a "gut rehab, " meaning "complete demolition, down to the shell." In order to complete a lipstick job, "[m]ost likely [the permit required] would be a repair or replace." Within the next week, approximately the end of May to beginning of June 2006, Bernstein provided Hebson with a spreadsheet containing a proposed budget based on their walk-through; the amount was approximately $183, 000. Nothing happened with the proposal; Hebson testified that he and Lane decided not to perform the renovations and instead sold the property.

¶ 17 The instant appeal revolves in large part around the spreadsheet provided to Hebson by Bernstein. Thus, we reproduce the spreadsheet in full:

DEMO

$10, 000.00

ROUGH CARPENTRY

$8, 000.00

FINISH CARPENTRY

$7, 000.00

PAINTING

$13, 200.00

TILE

$3, 500.00

ROOF (SHINGLES)

$8, 000.00

DECK

-

INSULATION

-

ELECTRIC

$12, 000.00

HVAC

$21, 000.00

PLUMBING

$7, 000.00

DRYWALL

$10, 000.00

CONCRETE

$12, 000.00

WINDOWS

$7, 000.00

SIDING/GUTTER/DOWN SPOUTS

-

HARDWOOD FLOORS

$18, 000.00

MASONRY

$6, 000.00

DOORS

$2, 700.00

K/B CABINETS

$6, 000.00

APPLIANCES

$12, 000.00

PLUMBING FINISH

$3, 000.00

GC/SUPERVISOR FEE

$15, 000.00

INSURANCE

$1, 800.00

TOTAL

$183, 200.00

¶ 18 Hebson testified that he "had put the word out to some different people that [1025 Wood was for sale as] an off-market deal." The affidavit of Joseph Zimmerman, a sales agent at "properties with whom Hebson had previously worked, stated that he signed an assignment and assumption of a real estate contract for the purchase of 1025 Wood on January 27, 2006. Zimmerman intended to purchase the property with other members of a limited liability company known as BSD LLC and to have BSD LLC hold title to the property. On February 9, 2006, Zimmerman terminated the assignment and assumption of real estate contract for reasons unrelated to the condition of the property.

¶ 19 Obloy, an employee of Peak Development at the time, testified that he first learned of 1025 Wood when Hebson informed him it was available for sale; Obloy knew Hebson because Peak Development had listed some projects that it had developed for sale through @properties, Hebson's employer. Obloy had been actively purchasing apartment buildings, and he believed that Hebson approached him for that reason. Obloy visited the property and observed that it "generally needed rehab" consistent with an apartment building that was 80 to 100 years old. Obloy submitted an offer to purchase the property for $625, 000. Obloy intended to renovate the property to use for apartment rentals and estimated that it would cost approximately $200, 000 based on his financial projections. Obloy canceled the offer during the attorney review period because he discovered that there was at least one long-term lease on the property.

¶ 20 Hebson testified that he also attempted to sell the property to a third person, whose name Hebson could not recall, but the deal did not go through.

¶ 21 B. The Siegels' Search for a Condominium Conversion Project

¶ 22 The complaint alleges that in February or March 2006, Gary informed Court that he was looking for a condominium conversion opportunity, which was to be Gary's first real estate project. Gary testified that Court was also an agent of the Matt Garrison Group, and was "showing [Gary] the business, going to teach [him] the ropes." Ross testified that Gary and Court had a "[s]eemingly pretty close" relationship; Court "basically help[ed] [Gary] out, help[ed] him learn the business" of being a real estate agent.

¶ 23 Ross testified that once Court learned that Gary and Ross were interested in investing in a real estate project together, Court told Gary that he had a building to show Gary. Gary testified that Court "was being a nice guy trying to help [Gary] out, " but was also "going to play a major role in the resale of the units, " bringing in buyers and receiving a commission. Likewise, Ross testified that he believed that Court was going to help them with their purchase of the property because he wanted to help sell the units upon completion of the project; Court never told Ross that he wanted to help sell the properties, but Ross thought he did "[b]ecause he is a realtor." Court also testified that he assumed that he would be one of the listing agents on the resold units if he was the one putting the project together, because "[t]hat's just how the real estate went down."

¶ 24 Obloy testified that Court called Obloy, who had met Court when Court acted as a listing agent for a property Peak Development developed, to inform him that a real estate professional was looking for a small condominium conversion project. Obloy called Hebson to ask him if he knew of any buildings for sale that would be suitable for the project. Hebson informed Obloy that 1025 Wood was for sale. Obloy testified that he discussed compensation with Court; Court indicated that he wanted to receive a referral fee, and they agreed to split whatever the referral fee would be. Hebson informed Obloy that there would be a referral fee paid by the seller of approximately $20, 000. Obloy did not inform plaintiffs that he or Court was being paid a fee.

¶ 25 Court testified that the project "was supposed to be an easy deal for somebody that was new; here's a building, here's all the stuff, here you go." Accordingly, the complaint alleges that in early June 2006, Court arranged a meeting between Gary, Hebson, and Obloy. At approximately the same time, Court obtained from Hebson an itemized cost spreadsheet prepared by Peak Construction, listing various proposed repairs and upgrades to the building totaling $183, 200. Court gave a copy of the spreadsheet to Gary.

¶ 26 Gary testified that Court informed him that Hebson had done a number of deals with Court and that Hebson was "a big time real estate developer. He gets his hands on the best deals in the city. If I had any desire–which at that point I was starting to spend more and more time in real estate. If I had any desire to be successful, this is a guy that I really wanted to have on my side."

¶ 27 C. Meetings With Defendants

ΒΆ 28 Since the parties disagree as to some of the representations made during the various meetings between them, where necessary, we set forth plaintiffs' version of events ...


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