Chiurato v. Dayton Estates Dam & Water Company
2017 IL App (3d) 160102
| Ill. App. Ct. | 2017Background
- Dayton Estates and Dayton Estates West subdivisions were created by recorded declarations of covenants (1973–1975); the second amendment provided that each lot owner would be a member of Dayton Estates Dam & Water Company, a non‑profit formed to maintain the dam and lake and to levy assessments.
- Articles of incorporation and bylaws for the company were recorded in 1975; the articles described the company’s purpose as maintaining the dam and authorizing assessments, but did not expressly adopt or incorporate the recorded covenants.
- The dam failed in August 2007. The company’s board investigated repairs, obtained engineering estimates and SBA financing for studies, but did not proceed with rebuilding due to high projected costs.
- Plaintiffs (lot owners and some former directors) sued in 2009 seeking (among other relief) declaratory judgment that the company is a homeowners association administering a "common interest community," a declaration that the company had an absolute duty to rebuild the dam, breach of contract against the company, and breach of fiduciary duty against individual directors.
- The trial court dismissed the breach of contract count and granted summary judgment that the company is not a homeowners association administering a common interest community and disposed of the fiduciary‑duty claims; the appellate court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether recorded covenants, articles, and bylaws create a contractual duty on the company to rebuild the dam | The documents, read together, form a binding contract obligating the company to maintain and, if necessary, rebuild the dam | Documents do not create an enforceable contract obligating the company to replace the dam; different instruments were executed by different parties and no express ratification exists | Plaintiffs failed to plead facts establishing a contract; breach‑of‑contract count properly dismissed |
| Whether the company is a "homeowners association administering a common interest community" under 735 ILCS 5/9‑102(c) | Company is the association created by the covenants to administer the lake and assessments, so it qualifies and thus must enforce covenants (including dam maintenance) | The corporate documents and covenants do not describe the lake real estate as a common interest community; the company holds title to the lake real estate (not the lot owners), and the declarations do not meet the statutory definition | Company is not a homeowners association administering a common interest community; summary judgment for defendants affirmed |
| Whether, if the company were such an association, it would have an absolute duty to rebuild the dam | If the company qualifies as a homeowners association, statutory/contractual powers would require rebuilding | Even assuming association status, the covenants do not impose a contractual duty to permanently maintain/replace the dam | Court assumed no contractual duty exists and did not reach a separate ruling on statutory duty; summary judgment on related declaratory claims affirmed |
| Whether individual board members breached fiduciary duties by failing to repair the dam | Directors knew or should have known of dam deterioration and failed to take necessary steps, so breached fiduciary duty | Directors investigated, sought engineering studies and funding, and exercised business judgment; plaintiffs did not allege bad faith, fraud, or gross overreaching | No evidence of bad faith or breach; business‑judgment rule applies; summary judgment for individual defendants affirmed |
Key Cases Cited
- People ex rel. Fahner v. Carriage Way West, Inc., 88 Ill. 2d 300 (supremacy of pleading required to state cause of action)
- Unifund CCR Partners v. Shah, 407 Ill. App. 3d 737 (incorporation of separate instruments requires express reference)
- Brownholtz v. Providers Life Assurance Co., 329 Ill. 42 (preincorporation contracts bind corporation only upon express ratification)
- Owens v. McDermott, Will & Emery, 316 Ill. App. 3d 340 (unambiguous contract terms are enforced as written)
- Schweickart v. Powers, 245 Ill. App. 3d 281 (board of directors of community associations owe fiduciary/quasi‑fiduciary duties; business‑judgment deference)