By Rosa Tumialán
Member, Dykema Gossett
The Second District considered whether a failure to provide the requisite disclosures under section 22.1 of the Condominium Property Act gives rise to a right of action where the failure to disclose is discovered post-closing. D’Attomo v. Baumbeck, 2015 IL App (2d)140865. The court held that such a right of action does exist for post-closing conduct because to find otherwise would nullify the intended purpose of section 22.1 of the Act.
The plaintiffs in D’Attomo purchased a condominium unit from the defendant in June 2013 which they intended to lease until they retired and sold their existing residence. D’Attomo, 2015 IL App. (2d) 140865, ¶ 4. The plaintiffs made a “22.1 Disclosure” request seeking copies of the condominium declarations, by-laws, budget, financial statements and board meeting minutes. Id. The defendant seller (Baumbeck) provided the plaintiffs with a copy of the 2002 Declarations, which expressly permitted the unit owners to lease their respective units. Id. ¶ 5. The defendant, a member of the association board, did not provide the plaintiffs with notice of a 2010 amendment to the 2002 Declarations that included a Rental Limitations that precluded owners from leasing their individual units. Id. ¶ 7. The defendant voted against this amendment in his capacity as a board member and so was aware of the change in the rules. Id. The plaintiffs discovered the 2010 amendment after the sale closed. Id. They were forced to terminate a prospective lease and sell the unit. Id. They then filed suit against the defendant in his capacity as the seller, as a member of the board. The plaintiffs also sued the board and the association. Id. ¶ 8.
The counts against the defendant seller alleged a violation of section 22.1 of the Act, breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent concealment, fraudulent misrepresentation, breach of fiduciary duty and constructive fraud. The latter two counts were directed against the defendant in his capacity as a board member. The plaintiffs alleged breach of fiduciary duty and constructive fraud against the board and the association. Id. ¶¶ 8-14.
The board and association filed a section 2-615 motion to dismiss the counts against them arguing that they owed no fiduciary duty to the plaintiffs because they were not owners until after the closing and no fiduciary duty could have existed until that time. D’Attomo, 2015 IL App (2d) 140865, ¶ 15. The trial court granted the motion to dismiss the counts against the board and the association without prejudice and with leave to re-plead on February 27, 2014. Id. ¶ 16.
The defendant seller filed a separate motion to dismiss the counts against him under section 2-619(a)(9). D’Attomo, 2015 IL App (2d) 140865, ¶ 17. The defendant argued there was no cause of action under section 22.1 of the Act for post-closing conduct and that plaintiffs otherwise failed to timely request the documents to be able to trigger application of the Act. He further argued that there was no breach of contract claim absent a timely request for a 22.1 disclosure and there is otherwise no cause of action for breach of the implied warranty of good faith and fair dealing. He next contended that the fraudulent concealment and misrepresentation claims failed as both theories were premised on implied obligations. He also claimed that the fiduciary duty and constructive fraud claims based on his status as a board member failed because no fiduciary duty was owed to the plaintiffs until after the closing, the alleged failure to disclose occurred pre-closing and he was no longer a member of the board at that time. Id. ¶ 18.
The trial court granted the defendant’s motion and dismissed the complaint against him in its entirety with prejudice on April 24, 2014. The order stated that it was final and appealable. A motion to reconsider was denied on August 5, 2015. This order stated that the April 24, 2014 order statement regarding finality was intended to be a Rule 304(a) finding. Id. ¶ 19. The plaintiffs then appealed from both the February 27 and April 24 orders.
The appellate court first determined that it had no jurisdiction to review the February 27, 2014 order dismissing the complaint as to the board and the association. D’Attomo, 2015 IL App (2d) 140865, ¶¶ 22-28. The court observed that the February 27 dismissal was without prejudice which indicated it was not final. Id. ¶ 24. This much was confirmed by the trial court’s statements to the plaintiffs allowing them leave to re-plead. Id. ¶ 26. Finally, the fact that Rule 304(a) language attached to the April 24 order did not affect the non-appealability and non-finality of the February 27 order because there was no reference to the dismissal of the board or association, parties who were dismissed via a separate motion. Id. ¶ 27. The record also showed that the Rule 304(a) language was invoked because the defendant filed a fee petition. Id. The court then turned to the merits of the plaintiff’s appeal from the order dismissing the counts against defendant seller. Id. ¶ 30.
The court first examined section 22.1 of the Act and noted that its purpose was to fully inform condominium purchasers from buying a unit without being fully informed of the rules, regulations and financial stability of the management. D’Attomo, 2015 IL App (2d) 140865, ¶ 34. Adopting the reasoning set out in Nikolopulos v. Valaudos, 245 Ill. App. 3d 71 (1993), the court concluded that a right of action exists where the requested documents were concealed and the concealment is not revealed until after the closing. D’Attomo, 2015 IL App (2d) 140865, ¶¶ 35-38. The court acknowledged that Nikolopulos considered pre-closing conduct but found that the reasoning in that case applied equally to post-closing conduct. To conclude otherwise would render section 22.1 ineffective. Id. ¶¶ 38-39. In so concluding, the appellate court rejected the defendant’s argument that the Act’s reference only to pre-closing remedies precluded a recognition of a post-closing remedy. Id. ¶¶ 43-44. The court also rejected the defendant’s timeliness argument, finding he waived that objection by formally responding to the plaintiff’s 22.1 disclosure request. Id. ¶ 45.
As for the breach of contract claim, the court found that, because the obligations to provide full disclosure under section 22.1 of the Act were incorporated into the contract to sell the condominium unit as a matter of law, the defendant’s failure to disclose the 2010 amendment and Rental Limitation could support a breach of contract claim. Id. ¶¶ 49-52. The court, however, agreed with the defendant that there was no independent cause of action for the breach of the implied covenant of good faith and fair dealing. Id. ¶ 53.
The court next affirmed dismissal of the fraudulent concealment counts citing the absence of a fiduciary relationship between the defendant and the plaintiffs. D’Attomo, 2015 IL App (2d) 140865, ¶¶ 57-60. The court reasoned that, because the first element of a fraudulent concealment claim requires proof of concealment when there is a duty to speak, a fiduciary or confidential relationship must exist for that duty to speak to arise. Id. ¶ 59. The court observed that, although the plaintiffs alleged that the defendant had a duty to disclose under section 22.1 of the Act, there were no allegations that the defendant was the plaintiff’s fiduciary or in a position of superior influence over them. Id. ¶ 60. To the contrary, the plaintiffs could have discovered the 2010 amendment through their own reasonable inquiry, which was another basis to support a dismissal of this count. Id. The fact that the plaintiffs did not allege that they could not have discovered the 2010 amendment through their own reasonable inquiry also defeated the fraudulent misrepresentation count. Id. ¶ 61.
Finally, the court affirmed dismissal of the breach of fiduciary duty and constructive fraud counts against the defendant in his capacity as a board member because no fiduciary relationship with the plaintiffs could have existed until after the closing at which time the defendant was no longer a member of the board. D’Attomo, 2015 IL App (2d) 140865, ¶¶ 67-74. While the plaintiffs alleged both pre and post-sale misconduct, the failure to disclose happened pre-sale before a fiduciary duty could have arisen. Id. ¶ 67. Similarly, since constructive fraud “springs” from a breach of fiduciary duty, that claim was also properly dismissed because no such duty existed when the concealment occurred. Id. ¶ 73-74.
The court reversed the dismissal of the section 22.1 claim and the breach of contract count, affirmed dismissal of the remainder of the complaint as to the defendant seller and remanded for further proceedings. D’Attomo, 2015 IL App (2d) 140865 ¶ 76. The appeal from the order dismissing the board and the association was dismissed.
Recommended Citation: Rosa M. Tumialán, Condominium Property Act Allows a Right of Action for Post-closing Conduct, The Brief, (August 4, 2015), http://applawyers-thebrief.blogspot.com/2015/08/condominium-property-act-allows-right.html#more.
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