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D'Attomo v. Baumbeck

Court of Appeals of Illinois, Second District

June 30, 2015

PETER L. D'ATTOMO and KATHLEEN T. D'ATTOMO, Plaintiffs-Appellants,
v.
THOMAS H. BAUMBECK, Individually and in His Capacity as Trustee of the Thomas H. Baumbeck Trust Under an Agreement Dated July 6, 1995; THE MUSEUM SQUARE CONDOMINIUM ASSOCIATION; and THE BOARD OF DIRECTORS OF THE MUSEUM SQUARE CONDOMINIUM ASSOCIATION, Defendants-Appellees

Appeal from the Circuit Court of Du Page County. No. 13-L-969. Honorable Kenneth L. Popejoy, Judge, Presiding.

Appeal dismissed in part; affirmed in part and reversed in part; cause remanded.

HUDSON, JUSTICE delivered the judgment of the court, with opinion. Justices McLaren and Zenoff concurred in the judgment and opinion.

OPINION

HUDSON, JUSTICE

[¶1] Plaintiffs, Peter L. D'Attomo and Kathleen T. D'Attomo, appeal from a judgment of the circuit court of Du Page County dismissing their six-count complaint against Thomas H. Baumbeck, individually and in his capacity as trustee of the Thomas H. Baumbeck Trust under an agreement dated July 6, 1995; the Museum Square Condominium Association; and the Board of Directors of the Museum Square Condominium Association. For the reasons set forth below, we dismiss the appeal in part, affirm in part, reverse in part, and remand this matter for further proceedings.

[¶2] I. BACKGROUND

[¶3] This appeal arises out of a dispute concerning the sale of a condominium unit. Plaintiffs, the purchasers of the condominium unit, claim that limitations on the rental of the property were not disclosed to them prior to the closing. Plaintiffs filed their complaint on October 15, 2013. We take the following facts from plaintiffs' complaint and the exhibits appended thereto. The Museum Square Condominium (Condominium) is a residential condominium development consisting of 56 units, located at 131 West Adelaide Street, Elmhurst, Illinois. The Museum Square Condominium Association (Association) is the governing body of the Condominium. The board of directors of the Association (Board) is responsible for directing and managing the affairs of the Association. At all relevant times prior to June 21, 2013, the Thomas H. Baumbeck Trust under an agreement dated July 6, 1995 (Trust), was the legal owner of Unit 305 (Unit) in the Condominium. Thomas H. Baumbeck is the trustee of the Trust.[1]

[¶4] For several years prior to June 2013, plaintiffs were actively seeking to purchase a condominium unit in Elmhurst. Plaintiffs intended to reside in the condominium unit after they retired and sold their existing residence. Prior to such time, plaintiffs intended to lease the condominium unit while simultaneously maintaining their existing residence. On or about April 28, 2013, plaintiffs and the Trust, acting through Baumbeck, entered into a written real estate sales contract (Contract) whereby plaintiffs agreed to purchase the Unit from the Trust. On May 7, 2013, plaintiffs, through their attorney, Samuel J. Macaluso, requested that the Trust provide " written notice to Buyer's attorney of any changes in [the] condominium documents." Further, on May 16, 2013, during the attorney-review period, plaintiffs, through Macaluso, requested that the Trust provide them with a comprehensive " 22.1 Disclosure" (see 765 ILCS 605/22.1 (West 2012)), including the Condominium's declaration, bylaws, 2013 budget, 2012 financial statements, and 2012 and 2013 minutes of the meetings of the Board.

[¶5] On May 22, 2013, an employee in the office of counsel for the Trust sent to Macaluso via email a copy of a condominium declaration dated June 14, 2002 (2002 Declaration). The 2002 Declaration expressly permitted the lease of units in the Condominium. Specifically, paragraph 7 of the 2002 Declaration provided in relevant part that " [a]ny Unit Owner shall have the right to lease, or permit a subsequent sublease or assignment of all (but not less than all) of his Unit upon such terms and conditions as the Unit Owner may deem acceptable, except that no Unit shall be leased, subleased or assigned for transient or hotel purposes."

[¶6] On June 21, 2013, plaintiffs attended the closing for their purchase of the Unit. Also present at the closing were: Macaluso; the Trust's attorney; the closing agent for the title company; and Jill Bennis, the listing broker for the sale of the Unit. Plaintiffs' intention to lease the Unit during the first year of ownership was openly discussed at the closing, in the presence of the Trust's attorney. Moreover, at the closing, plaintiffs retained Bennis as the leasing broker to procure a tenant for the Unit. To this end, on or about July 10, 2013, plaintiffs entered into a lease agreement pursuant to which prospective tenants agreed to lease the Unit for a 12-month term commencing on August 1, 2013, at a rental rate of $2,600 per month.

[¶7] Unbeknownst to plaintiffs prior to the closing, in or about 2010, the Board and the Association adopted an amendment to the 2002 Declaration (2010 Amendment) that, among other things, (1) precluded a unit owner in the Condominium from renting his or her unit unless such person owned and resided in the unit for a minimum of one year and (2) prohibited the rental of more than 10% of the units in the Condominium. (We refer to the foregoing provisions of the 2010 Amendment as the " Rental Limitations." ) Baumbeck was a member of the Board as well as vice president of the Association at all relevant times, and he personally voted against adopting the Rental Limitations in 2009 when they were proposed. Prior to the closing, the 2010 Amendment was not provided to plaintiffs and the Rental Limitations were not otherwise disclosed to plaintiffs. Rather, following the closing, plaintiffs discovered a binder of documents containing the 2010 Amendment. The binder was tendered to plaintiffs at the closing by the Trust's attorney after the purchase of the Unit was funded and all documents were signed. As a result of the Rental Limitations, plaintiffs were forced to terminate their lease with the prospective tenants and sell the Unit.

[¶8] Counts I and II of the complaint were directed against Baumbeck in his capacity as trustee of the Trust. In count I, plaintiffs alleged a violation of section 22.1(a) of the Condominium Property Act (Act) (765 ILCS 605/22.1(a) (West 2012)). Specifically, plaintiffs asserted as follows. Section 22.1(a) of the Act provides that, in connection with any resale of a condominium unit in Illinois, the seller must, upon demand, provide various documents to the prospective purchaser, including " [a] copy of the Declaration, by-laws, other condominium instruments and any rules and regulations." On May 16, 2013, plaintiffs requested that Baumbeck provide them with a comprehensive " 22.1 Disclosure," including the Condominium's declaration and bylaws and the minutes of meetings of the Board. Furthermore, by letter dated May 7, 2013, plaintiffs expressly requested that Baumbeck provide them with " written notice *** of any changes in [the] condominium documents." Under section 22.1(a), Baumbeck had a duty to provide plaintiffs, as prospective purchasers, " with the current Condominium Declaration, Association Bylaws, and other rules and regulations affecting the *** Unit prior to Closing." Baumbeck breached this duty and violated the Act by failing to provide the aforementioned documents or to otherwise disclose the Rental Limitations prior to the closing.

[¶9] Count II alleged that Baumbeck's failure to provide plaintiffs with the 2010 Amendment or to otherwise disclose the Rental Limitations prior to the closing constituted a breach of contract. In support of this count, plaintiffs alleged the following. Plaintiffs and Baumbeck entered into a valid and enforceable contract. Plaintiffs fully performed their obligations under the Contract. However, Baumbeck failed to provide plaintiffs with the 2010 Amendment or otherwise disclose the existence of the Rental Limitations prior to the closing. The failure to provide plaintiffs with the 2010 Amendment or otherwise disclose the Rental Limitations prior to the closing constituted a breach of the Contract.

[¶10] Count II further alleged that every contract in Illinois contains an implied covenant of good faith and fair dealing. By entering into the Contract, Baumbeck impliedly promised that he would: (1) perform his contractual obligations in good faith, with proper motive, and not arbitrarily, capriciously, or in a manner inconsistent with the reasonable expectations of the parties; (2) in advance of the sale, make the disclosures required by the Contract and section 22.1(a) of the Act in a manner sufficient to apprise plaintiffs of the Rental Limitations and any other rules, regulations, or restrictions affecting the Unit; (3) refrain from conduct that would interfere with, frustrate, or preclude plaintiffs from obtaining ownership rights in the Unit consistent with the provisions of the Condominium declaration and bylaws provided to plaintiffs during the attorney-review period, including the right to lease the Unit during their first year of ownership; and (4) convey ownership of the Unit to plaintiffs free of undisclosed restrictions that would materially affect plaintiffs' use and enjoyment of the Unit, including the right to lease the Unit during their first year of ownership. In breach of the contractual obligations owed to plaintiffs under the Contract, Baumbeck failed to provide plaintiffs with a copy of the 2010 Amendment or otherwise disclose the Rental Limitations prior to the closing, but instead surreptitiously included the 2010 Amendment in a binder of documents delivered to plaintiffs for the first time after all documents were signed at the closing and after the transaction was funded. By denying plaintiffs any reasonable opportunity to discover the 2010 Amendment and the Rental Limitations prior to the closing, Baumbeck interfered with, frustrated, and precluded plaintiffs from obtaining ownership rights in the Unit as contemplated by the Contract.

[¶11] Counts III and IV of plaintiffs' complaint were directed against Baumbeck, both individually and in his capacity as trustee of the Trust. Count III of the complaint, titled " Fraudulent Concealment," alleged as follows. Baumbeck had constructive knowledge of the Rental Limitations by virtue of his position as a member of the Board and vice president of the Association when the Rental Limitations were voted upon and adopted. Baumbeck also had actual knowledge of the Rental Limitations, as evidenced by the fact that he personally voted against adopting them. He also knew that the Rental Limitations would materially affect an owner's use and enjoyment of the Unit, because, on information and belief, Baumbeck himself was leasing the Unit to a tenant. Baumbeck knowingly concealed a material fact, i.e., the existence of the Rental Limitations, with the intent to deceive plaintiffs and to induce the false belief that nothing precluded plaintiffs from leasing the Unit, as evidenced by the fact that Baumbeck surreptitiously included the 2010 Amendment in the binder of documents tendered to plaintiffs for the first time after all documents were signed at the closing and after the transaction was funded. Baumbeck had the opportunity, for several weeks prior to the closing, to provide plaintiffs with a copy of the 2010 Amendment or otherwise disclose the Rental Limitations to plaintiffs and was under a duty to disclose the Rental Limitations pursuant to section 22.1(a) of the Act. Baumbeck had knowledge of the falsity of his misrepresentation, intended to deceive plaintiffs, and intended that his misrepresentation induce plaintiffs to proceed with their purchase of the Unit. Plaintiffs reasonably and justifiably relied on the failure to disclose the Rental Limitations. The Rental Limitations were material facts in connection with plaintiffs' decision to purchase the Unit, as plaintiffs would not have agreed to purchase the Unit had they known of the Rental Limitations. Count IV of the complaint essentially repeated the allegations of count III, except that, in lieu of fraudulent concealment, it alleged fraudulent misrepresentation.

[¶12] Counts V and VI of plaintiffs' complaint were directed against Baumbeck individually, the Association, and the Board. In count V, plaintiffs sought to state a claim for breach of fiduciary duty. In count VI, plaintiffs sought to state a claim for constructive fraud. The allegations in counts V and VI were essentially identical and provided as follows. Upon the closing, plaintiffs became owners in the Condominium and members of the Association. Pursuant to the Act, the officers of the Association, the Board, and each individual member of the Board owe a fiduciary duty to each unit owner in the Condominium. By operation of law, a breach of fiduciary duty by a member of the Board results in liability for the Board and each of its individual members. Baumbeck, the Board, and each individual member of the Board owed plaintiffs (1) a fiduciary duty of care and loyalty and (2) the duty to act with the utmost honesty, good faith, and fairness in all matters relating to the administration of the Association and plaintiffs' interest in the Unit. In breach of his fiduciary duty, Baumbeck failed to act honestly and in good faith toward plaintiffs relative to their interests in the Unit by, among other things: (1) failing to disclose the Rental Limitations; (2) affirmatively concealing the 2010 Amendment; (3) ignoring, refusing, and rejecting plaintiffs' efforts to address and remedy the fraudulent conduct when detected after the closing; (4) intentionally remaining silent and failing to act honestly and in good faith toward plaintiffs to address and remedy the fraudulent conduct when detected after the closing; and (5) wrongfully placing his own personal interests above the interests of plaintiffs relative to the Unit. This breach of fiduciary duty results in liability for the Board, each individual member of the Board, and the Association.

[¶13] Counts V and VI further alleged that article IV, section 12, of the bylaws of the Association provides that, with certain exceptions not applicable here, all meetings of the Board shall be open to all members of the Association. In contravention of this provision, and in breach of the fiduciary duties owed to plaintiffs, the Board (1) refused and rejected plaintiffs' request to attend a special meeting the Board held on July 28, 2013, to furnish information relating to the circumstances surrounding their purchase of the Unit and the concealment of the Rental Limitations and (2) impeded and failed to cooperate with plaintiffs in their effort to communicate with the Board concerning the circumstances surrounding their purchase of the Unit and the concealment of the Rental Limitations. This breach of fiduciary duty and violation of the bylaws was particularly damaging because, on information and belief, the Board accepted as true, without any input from plaintiffs, certain false and defamatory statements by agents of Lieberman Management Services, Inc., to the effect that plaintiffs had knowledge of the Rental Limitations prior to the closing. Counts V and VI also alleged that the Board and the individual members of the Board breached fiduciary duties owed to plaintiffs, separate and apart from any imputed liability arising from the conduct of Baumbeck, by (1) failing to ensure that article IV, section 12, of the bylaws was followed and (2) failing to properly investigate the facts and circumstances surrounding plaintiffs' purchase of the Unit and the concealment of the Rental Limitations by Baumbeck. Both counts further alleged that the conduct of the Board and the individual members of the Board was intentional, grossly negligent, and fraudulent.

[¶14] With respect to each of the six counts in their complaint, plaintiffs alleged that they suffered damages as a direct and proximate result of the foregoing conduct of Baumbeck, the Association, and the Board. Plaintiffs attached to their complaint the following documents: (1) a copy of the Contract; (2) correspondence dated May 7, 2013, and May 16, 2013, between Macaluso and the attorney for the Trust; (3) portions of the 2002 Declaration, including paragraph 7; (4) a letter dated June 24, 2010, notifying unit owners that the Rental Limitations had been adopted effective May 19, 2010, along with a copy of the text of the 2010 Amendment; (5) the July 10, 2013, lease between plaintiffs and the prospective tenants; (6) Baumbeck's proxy/ballot dated November 15, 2009, showing his vote with respect to the proposal to impose the Rental Limitations; and (7) article IV, section 12, of the Association's bylaws.

[¶15] On January 30, 2014, the Association and the Board moved to dismiss the counts against them, pursuant to section 2-615 of the Code of Civil Procedure (Code) (735 ILCS 5/2-615 (West 2012)). In their motion, the Association and the Board asserted that the allegations in counts V and VI stemmed almost exclusively from actions taken prior to the closing of the sale of the Unit. The Association and the Board argued that they did not owe a fiduciary duty to plaintiffs prior to the closing, as plaintiffs were not owners in the Association at that time. The Association and the Board further asserted that plaintiffs' remaining allegations--that the Board refused to allow plaintiffs to attend a meeting after the closing--did not establish that a fiduciary duty was breached. The Association and the Board also argued that the counts against them should be dismissed based on an exculpatory provision contained in the Association's bylaws and on the business-judgment rule.

[¶16] On February 27, 2014, the trial court granted the motion of the Association and the Board and dismissed " without prejudice" counts V and VI against them. The court found that the allegations against the Association and the Board were conclusory and without any factual basis. In addition, the court questioned how prohibiting plaintiffs from attending the July 28, 2013, meeting could constitute the proximate cause of plaintiffs' damages. The court granted plaintiffs leave to refile counts V and VI as they pertained to the Association and the Board.

[¶17] Also on February 27, 2014, Baumbeck filed a motion to dismiss the allegations against him, pursuant to section 2-619(a)(9) of the Code (735 ILCS 5/2-619(a)(9) (West 2012)). With respect to count I of the complaint, Baumbeck argued that plaintiffs did not have a cause of action under the Act, because they failed to timely request the Condominium documents under section 14(c) of the Contract, which provides that the buyer has five business days from the date of acceptance to demand from the seller " items as stipulated by the [Act]." Baumbeck further argued that, regardless of the timeliness of the request, plaintiffs had no remedy available under the Act, as it provides only for preclosing remedies, e.g., terminating the Contract and requesting the return of the earnest money. With respect to count II, Baumbeck claimed that, absent a timely request from plaintiffs, he had no duty under the Contract to provide any Condominium documentation to plaintiffs, and, therefore, there could be no cause of action for breach of contract or for breach of the implied covenant of good faith and fair dealing. Baumbeck further asserted that plaintiffs' allegations of fraudulent concealment (count III), fraudulent misrepresentation (count IV), and constructive fraud (count VI) must be dismissed because they were based upon the alleged implied duty to provide plaintiffs with information regarding the restrictions on renting the Unit and Illinois does not recognize a cause of action for fraud based upon misrepresentations regarding implied obligations. Finally, Baumbeck argued that plaintiffs failed to establish that he owed a fiduciary duty to plaintiffs as alleged in count V. In this regard, Baumbeck noted that the Association owed a duty only to each unit owner, which plaintiffs became only at the closing. He further stated that he was not a member or officer of the Board once the property was sold to plaintiffs, as he was no longer a unit owner. In support of this latter claim, Baumbeck attached his own affidavit.

[¶18] On April 1, 2014, plaintiffs filed a response to Baumbeck's motion to dismiss and a motion to strike Baumbeck's affidavit. With respect to the latter motion, plaintiffs argued that Baumbeck's affidavit failed to satisfy the requirements of Illinois Supreme Court Rule 191 (eff. Jan. 4, 2013), as it consisted of legal conclusions concerning his status with respect to the Association and the Board.

[¶19] On April 24, 2014, the trial court held a hearing on the parties' motions. Initially, the court denied plaintiffs' motion to strike Baumbeck's affidavit. The court then granted Baumbeck's motion and dismissed with prejudice all six counts against him. The order entered on April 24, 2014, provides that it is " a final and appealable order." On May 20, 2014, plaintiffs filed a " Motion to Vacate, Alter and/or Amend" the judgment entered on April 24, 2014. On August 5, 2014, following a hearing, the trial court denied plaintiffs' motion in its entirety. The August 5, 2014, order provides that the final-and-appealable language in the order of April 24, 2014, " was intended as a Rule 304(a) finding that there is no just reason to delay appeal." See Ill. S.Ct. R. 304(a) (eff. Feb. 26, 2010). On August 29, 2014, plaintiffs filed a notice of appeal from the orders entered on February 27, 2014, April 24, 2014, and August 5, 2014.

[¶20] II. ANALYSIS

[¶21] A. Jurisdiction

[¶22] Before we reach the merits of plaintiffs' appeal, we address the issue of our jurisdiction as it pertains to the dismissal of counts V and VI against the Association and the Board. Although neither the Association nor the Board contests jurisdiction in this case, we have an independent duty to confirm our jurisdiction and dismiss an appeal, or portion thereof, if jurisdiction is lacking. In ...


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