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Siena At Old Orchard Condominium Association v. Siena At Old Orchard, L.L.C.

Court of Appeals of Illinois, First District, Fifth Division

March 24, 2017

SIENA AT OLD ORCHARD, L.L.C., an Illinois Limited Liability Company; LENNAR CHICAGO, INC., an Illinois Corporation; and LARRY KEER, Individually, Defendants-Appellees Siena at Old Orchard, L.L.C.; and Lennar Chicago, Inc., Cross-Appellants.

         Appeal from the Circuit Court of Cook County. No. 13 L 8154 The Honorable Patrick J. Sherlock, Judge Presiding.

          PRESIDING JUSTICE GORDON delivered the judgment of the court, with opinion. Justices Lampkin and Reyes concurred in the judgment and opinion.



         ¶ 1 The instant appeal arises from a dispute over construction defects discovered at a condominium complex in Skokie, Illinois. Plaintiffs, Siena at Old Orchard Condominium Association and its board of directors (collectively, the Association), filed suit against the developer, Siena at Old Orchard, L.L.C.; the developer's management company, Lennar Chicago, Inc. (collectively, the developers); and Larry Keer, the president of the Association's initial board of directors. Defendants filed a motion to dismiss the complaint, claiming that the Association had failed to follow the mandatory arbitration requirements contained in the Association's declaration, resulting in waiver of their claims. The trial court granted the motion to dismiss, finding that the Association had waived all claims by failing to abide by the declaration's requirements. The Association appeals the trial court's dismissal of its complaint. The developers cross-appeal, claiming that the trial court did not award them all of the attorney fees and costs to which they were entitled. For the reasons that follow, we reverse.

         ¶ 2 BACKGROUND

         ¶ 3 I. Complaint

         ¶ 4 A. Allegations

         ¶ 5 On July 17, 2013, the Association filed an eight-count complaint against defendants. The complaint alleges that Siena at Old Orchard, L.L.C., was the developer of Siena at Old Orchard Condominium, a residential condominium complex located in Skokie, and that Lennar Chicago, Inc., was the developer's manager. The Association was established on July 24, 2006, and from its formation until March 2007, it was governed by a board of directors appointed by the developer. In March 2007, control of the Association was transferred from the initial developer-appointed board to a board of directors elected from the unit owner membership. Larry Keer was the president of the Association's board of directors on July 18, 2008.

         ¶ 6 The complaint alleges that "the common elements of the building are experiencing numerous latent defects in the construction of the common areas for the Association, namely water leaks are entering the interior of the building." The complaint further alleges that the exterior walls were constructed "without the required flashing and weeps" and were also "undergoing severe cracking and deterioration." Finally, the complaint alleges that "an improper water proofing system was utilized."

         ¶ 7 The complaint alleges that after the turnover, some of the unit owners retained a consultant to investigate the cause of water infiltration problems that were being experienced. During the course of his investigation, "the consultant performed several tests and made exploratory investigations into the common elements of the building to determine the causes of the leaks." The consultant issued a report to the Association in May 2010, identifying "defective" portions of the property, including the asphalt paving, the exterior masonry walls, the masonry expansion joints, and balcony deck membranes. The complaint further alleges that "[t]his is the first time that the post developer Board became aware that there [were] defects at the Association that were attributable to the developer's defective development of the Association." These construction defects were "affecting the structural integrity of the building and its common elements." Furthermore, the complaint alleges, "the manner in which several portions of the building were installed and constructed is contrary to the architectural drawings and specifications prepared for the Association building."

         ¶ 8 The complaint alleges that prior to the turnover, the developer and the initial board had actual knowledge of the construction defects in the common elements, but that "[t]he unit owner controlled board did not have knowledge of these construction defects until after" the May 2010 report by the Association's consultant. However, despite having knowledge of the construction defects, the developer and the initial board "failed to inform the post developer Board of the fact that the defective conditions at the Association were caused by the defective development, design and construction of the Condominium."

         ¶ 9 The complaint set forth eight counts. Counts I through IV were applicable to the developers, while counts V through VIII were aimed at Keer. Count I was for breach of fiduciary duty and alleged that the initial developer-appointed board breached its fiduciary duty to the unit owners by failing to properly investigate the complex, failing to ask the developer to remedy the defects, and "otherwise fail[ing] to protect the interests of the Association's members, " which the complaint alleged were intentional acts done "for the purpose of increasing and maximizing the Developer's profits in the development and sale of the Complex and units in the Association and to avoid its share of assessment responsibility for reserves and repairs, all to the detriment of the owners in the Association."

         ¶ 10 Count II was for breach of contract and alleged that the developer failed to construct the condominium complex according to the terms set forth in the purchase agreement. Count III was for breach of the implied warranty of habitability and count IV was for breach of the implied warranty of good workmanship and materials. All of the counts directed at the developers sought damages "in an amount equal to the total cost of repair or replacement of the aforesaid defects, " which the complaint alleged "is believed to be in excess of $500, 000.00."

         ¶ 11 Counts V through VIII were directed at Keer, who was the president of the Association on July 18, 2008, when he executed a release[1] "that indicated that the Association was releasing its claims against the developer purportedly on behalf of the Association." However, the complaint alleged that Keer did not have the authority to sign documents on behalf of the Association without the approval of the majority of the board, which he did not have at the time of the signing of the release. Accordingly, the complaint set forth two counts for breach of fiduciary duty and two counts of constructive fraud.

         ¶ 12 B. Declaration of Condominium Ownership

         ¶ 13 Attached to the complaint was the declaration of condominium ownership for Siena at Old Orchard Condominium, recorded on July 24, 2006. Article 12 of the declaration was entitled "Dispute Resolution, " and contained five sections. Section 12.01 was entitled "Consensus for Action by the Condominium Association" and provided that, "[e]xcept as provided in this Section, the Condominium Association may not commence a legal proceeding or an action under this Article without the affirmative vote of at least seventy-five percent (75%) of the Voting Members." Section 12.01 further provided that "[p]rior to the Condominium Association or any member commencing any proceeding to which Declarant[2] is a Party, including but not limited to an alleged defect of any improvement, Declarant shall have the right to be heard by the members, or the particular member, and to access, inspect, correct the condition of, or redesign any portion of any improvement as to which a defect is alleged or otherwise correct the alleged dispute."

         ¶ 14 Section 12.02 was entitled "Alternative Method for Resolving Disputes" and provided, in full:

"Declarant, its officers, directors[, ] employees and agents; the Condominium Association, its officers, directors and committee members; all Persons subject to this Declaration; and any Person not otherwise subject to this Declaration who agrees to submit to this Article (each such entity being referred to as a 'Bound Party') agree to encourage the amicable resolution of disputes, without the emotional and financial costs of litigation. Accordingly, each Bound Party covenants and agrees to submit those Claims, grievances or disputes described in Section 12.03 (collectively, 'Claims') to the procedures set forth in Section 12.04."

         ¶ 15 The "Claims" referred to in section 12.02 of the declaration were set forth in section 12.03, which was entitled "Claims." Section 12.03 provided, in relevant part:

"[A]ll claims between any of the Bound Parties regardless of how the same might have arisen or on what it might be based, including but not limited to Claims (a) arising out of or relating to the interpretation, application or enforcement of the provisions of the Act, this Declaration, the By-Laws and reasonable rules and regulations adopted by the Board or the rights, obligations and duties of any bound Party under the provisions of the Act, this Declaration, the By-Laws and reasonable rules and regulations adopted by the Board, (b) relating to the design or construction of improvements; or (c) based upon any statements, representations, promises, warranties, or other communications made by or on behalf of any bound Party shall be subject to the provisions of Section 12.04."

         ¶ 16 Section 12.04, which was entitled "Mandatory Procedures, " set forth the procedure the parties agreed to follow in the event a claim arose. Specifically, section 12.04(a) was entitled "Notice" and provided:

"As a condition precedent to seeking any action or remedy, a Bound Party having a Claim ('Claimant') against any other Bound Party ('Respondent') (the Claimant and the Respondent referred to herein being individually, as a 'Party, ' or, collectively, as the 'Parties') shall notify each Respondent in writing (the 'Notice'), stating plainly and concisely:
(i) the nature of the Claim, including the defect or default, if any, in detail and the Persons involved and the Respondent's role in the Claim;
(ii) the legal basis of the Claim (i.e., the specific authority out of which the Claim arises);
(iii) the proposed remedy;
(iv) any evidence that depicts the nature and cause of the Claim and the nature and extent of repairs necessary to remedy the Claim, including expert reports, photographs and videotapes; and
(v) the fact that Claimant will meet with Respondent to discuss in good faith ways to resolve the claim.
Notices given to Respondent pursuant to this Section shall be deemed sufficient if personally delivered, delivered by commercial messenger service, or mailed by registered or certified mail, postage prepaid, return receipt requested to the last known address of the Respondent as it appears on the records of the Condominium Association on the date of mailing."

         ¶ 17 Section 12.04(b), entitled "Claims Involving Declarant, " provided additional rights for the Declarant developer. These provisions included that: "Claimant agrees to permit Declarant and its agents to perform inspections and tests and to make all repairs and replacements deemed necessary by Declarant to respond to the claim, " and "Declarant or Condominium Association, as the case may be, shall have not less than 35 days nor more than 90 days from receipt of the Notice (the 'Cure Period') to cure as provided herein or to otherwise respond to the Claimant in the event that the Declarant determines that no default has occurred and/or default exists." The provision provided that "Declarant shall have the right, but not the obligation, to take action during the Cure Period and/or respond to any notice received from Claimant."

         ¶ 18 Section 12.04(b)(iv), entitled "Dispute Resolution, " then provided:

"Any dispute (whether contract, warranty, tort, statutory or otherwise) including, but not limited to (a) any and all controversies, disputes or claims arising under, or related to, the Purchase Agreement, the Unit, or any dealings between the Declarant and Owner ***, (b) any controversy, dispute or claim arising by virtue of any representations, promises or warranties alleged to have been made by Declarant or Declarant's representative, and (c) any personal injury or property damage alleged to have been sustained by Purchaser on the Property (hereinafter individually and collectively referred to as 'disputes' or 'Claims'), shall first be submitted to mediation and, if not settled during mediation, shall thereafter be submitted to binding arbitration as provided in Paragraphs 12.04(c) and 12.04(d) below and as provided by the Federal Arbitration Act (9 U.S.C. Section 1 et seq.) or applicable state law relating to arbitration and not by or in a court of law."

         ¶ 19 Section 12.04(c), entitled "Negotiation and Mediation, " provided under subsection (ii), in relevant part, "If the Parties do not resolve the Claim within 90 days after the date of the Notice and the Cure Period has expired (or within such other period as may be agreed upon by the Parties) ('Termination of Negotiations'), either Party shall have 30 days from the date of Termination of Negotiations to submit the claim to mediation." Subsection (iii) stated that "[i]f a Claimant does not submit the Claim to mediation within such time, or does not appear for the mediation, then the Claimant shall be deemed to have waived the Claim, and the Respondent shall be released and discharged from any and all liability to Claimant on account of such Claim."

         ¶ 20 Section 12.04(e), entitled, "Costs and Expenses" provided, in full,

"Except as otherwise provided under subparagraph 12.04(b) above, each Party shall bear its own costs and expenses, including attorney's fees, for any mediation and arbitration. Notwithstanding the foregoing, if a Party unsuccessfully contests the validity or scope of arbitration in a court of law, the non-contesting Party shall be awarded reasonable attorneys fees and expenses incurred in defending such a contest. In addition, if a Party fails to abide by the terms of a mediation settlement or arbitration award, the other Party shall be awarded reasonable attorneys fees and expenses incurred in enforcing such a settlement or award."

         ¶ 21 Section 12.05, entitled "Amendment of Article, " stated in full, "Without express prior written consent of Declarant, this Article may not be amended for a period of twenty years from the effective date of this Declaration."

         ¶ 22 Attached as an exhibit to the declaration was the Association's bylaws. Section 5.10 of the bylaws provided that, "[e]xcept as otherwise expressly provided herein or in the Declaration, any action may be taken upon the affirmative vote of a majority of the Directors present at a meeting at which a quorum is present." Furthermore, section 8.01 discussed authority for the execution of instruments:

"EXECUTION OF INSTRUMENTS: The Board may authorize any officer or officers, agent or agents of the Condominium Association, in addition to the officers so authorized by these By-Laws, to enter into any contract or execute and deliver any instrument (including amendments to the Declaration or these By-Laws which must be executed by the Condominium Association) in the name of and on behalf of the Condominium Association and such authority may be general or confined to specific instances. In the absence of any such authorization by the Board, any such contract or instrument shall be executed by the President or a Vice President and attested to by the Secretary or an Assistant Secretary of the Condominium Association."

         ¶ 23 Finally, included within the declaration is a document entitled "Amendment of the Declaration of Condominium Ownership for Siena Old Orchard Condominium Association." Pursuant to the amendment, Article 12 of the declaration was deleted in its entirety. The amendment stated: "[T]he following Amendment has been approved by the affirmative vote of Voting Members having no less than sixty-seven percent (67%) of the owners as evidenced by the Certification attached hereto ***." The document was signed by the president of the Association and dated August 14, 2011.

         ¶ 24 C. Real Estate Purchase Agreement

         Also attached to the complaint was the "Real Estate Purchase Agreement" for the purchase of a unit within the condominium building, executed by the developer and Larry and Theresia Keer, [3] dated June 24, 2006. The agreement contains a section entitled, "Seller's Limited Warranty/Waiver of Implied Warranty of Habitability." The language stated, in all capital letters, "seller hereby disclaims and purchaser hereby waives the implied warranty of habitability described above." The agreement further stated, "if a dispute arises with seller and if a dispute arises with seller and the dispute results in a lawsuit, purchaser will not be able to rely on the implied warranty of habitability described above as a basis for suing the seller." In an addendum to the agreement, a clause was added that stated, "Purchasers agree that in consideration for Seller providing Purchaser with Limited Warranties, Purchaser will accept the Limited Warranties as a substitute for the Implied Warranty of Habitability." The addendum additionally stated, in all capital letters: "if a dispute arises with seller and the dispute results in a lawsuit, purchaser will not be able to rely on the implied warranty of habitability described above as a basis for suing the seller. Purchaser may, however, rely on the limited warranties made by seller to purchaser." Larry Keer's and Theresia Keer's initials are located under both of these sections. The document is followed by a document entitled, "Siena Condominium Unit Warranty." Though the document failed to identify the parties, the agreement provided the purchaser with a limited warranty of one year after the closing date. Section 8 of the agreement required the parties to submit all claims to mediation and binding arbitration. The warranty is not dated or signed.

         ¶ 25 D. Releases

         ¶ 26 Additionally attached to the complaint are the two releases referred to in counts V through VIII of the complaint against Keer. The Association, represented by Keer, and the developer executed the documents on July 18, 2008, and October 30, 2008. According to the releases, which contained identical language, "[t]he Association *** made various claims against the Developer including, among other things, the 'Items' on the Punch list attached hereto as Exhibit A, " which included problems such as broken concrete in the parking lot and improper placement of the wood trim in the hallways, [4] and "[t]he parties desire to resolve the claims made by the Association and any and all other future claims or causes of action." Accordingly, the developer agreed to pay the Association $20, 734 in the July 18, 2008, release and agreed to pay $7, 779.53 in the October 30, 2008, release. In exchange, the Association agreed to release and discharge the developer from:

"any and all claims, causes of action, or liabilities whosoever, known or unknown, asserted or unasserted, whether arising out of contract, tort, or otherwise, in law or in equity arising, accruing, or based on any action or inaction of any such parties, including, without limitation, any claim for construction defects in connection with the construction of the improvements which are part of the Condominium, the administration of the Association prior to the turnover of control to a board of directors elected by the unit owners and the payment of assessments, charges or other amounts whatsoever due to the Association from the Developer."

         ¶ 27 The developer agreed to release the Association from "any and all claims and causes of action or liabilities whatsoever, known or unknown, asserted or unasserted, whether rising out of contract, tort, or otherwise in law or in equity, arising, accruing, or based on any action of the Association or its directors, officers, or agents." Defendant Lennar Chicago, Inc., through its vice president, Glenn V. Richmond, signed ...

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