Chiurato v. Dayton Estates Dam & Water Co.
2017 IL App (3d) 160102
| Ill. App. Ct. | 2017Background
- Dayton Estates and Dayton Estates West are residential subdivisions whose recorded declarations created automatic membership for lot owners in Dayton Estates Dam & Water Company, a not-for-profit corporation formed to maintain the dam and operate a potential water system.
- The company's articles and bylaws authorized assessments, board governance, and a corporate purpose to maintain the dam and lake; officers answered “yes” on later annual reports that the company was a homeowners association/common interest community.
- The dam failed in August 2007; the company and various boards discussed repairs, obtained engineering estimates and an SBA loan for studies, but did not undertake full reconstruction due to high cost.
- Plaintiffs (lot owners Chiurato, Corbin, Cioni) sued the company and individual directors seeking declaratory relief (that the company is a homeowners association and must rebuild the dam), breach of contract, breach of fiduciary duty, and injunctive relief; the trial court dismissed or granted summary judgment for defendants.
- Trial court dismissed the breach of contract claim (count VII) as deficient, granted summary judgment that the company is not a homeowners association administering a common interest community (counts I and II), and entered summary judgment on breach of fiduciary duty claims against the individual directors.
- The appellate court affirmed: covenants and corporate documents did not impose a contractual duty to rebuild the dam; the company did not meet the statutory definition of a common interest community association; no fiduciary breach shown absent bad faith or gross misconduct.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the recorded covenants, articles, and bylaws created a contract obligating the company to rebuild the dam | The recorded covenants plus corporate documents form a binding contract imposing an obligation to maintain/replace the dam | The covenants do not impose a duty to replace the dam; different instruments were executed by different parties and no express incorporation or ratification exists | Dismissal affirmed — plaintiffs failed to plead a contract obligating the company to rebuild the dam |
| Whether the company is a homeowners association administering a "common interest community" under 735 ILCS 5/9-102(c) | The company functions as a homeowners association and thus has statutory duties (including enforcing covenants) that would require rebuilding the dam | The corporate documents do not describe the lake real estate as part of a declaration administered by an association; company owns the dam real estate separately; statutory definition not met | Summary judgment for defendants affirmed — company is not a homeowners association under section 9-102(c) |
| Whether, as a homeowners association, the company would have an absolute duty to rebuild the dam | If the company qualifies as an association administering a common interest community, it would have the duty to rebuild under covenants/statute | Even if labeled an association, the covenants do not create an express contractual duty to rebuild; company did not accept preincorporation obligations | Court declined to reach duty question because company is not an association; no absolute duty found |
| Whether individual directors breached fiduciary duties by failing to repair the dam | Directors knew or should have known of dam deterioration and failed to take necessary repair steps, breaching fiduciary duty | Directors investigated, sought engineering, contacted IDNR, obtained financing for studies; no bad faith, fraud, or gross overreaching alleged | Summary judgment for directors affirmed — no evidence of bad faith or breach of fiduciary duty |
Key Cases Cited
- Toombs v. City of Champaign, 245 Ill. App. 3d 580 (motion-to-dismiss standard)
- Lawson v. City of Chicago, 278 Ill. App. 3d 628 (pleading must allege specific facts; conclusions insufficient)
- Carney v. Donley, 261 Ill. App. 3d 1002 (interpretation of covenants running with the land)
- Xinos v. Village of Oak Brook, 298 Ill. App. 3d 520 (covenants construed as contracts; plain meaning controls)
- Unifund CCR Partners v. Shah, 407 Ill. App. 3d 737 (instrument must expressly incorporate another agreement to bind different parties)
- Brownholtz v. Providers Life Assurance Co., 329 Ill. 42 (corporation not bound by preincorporation obligations unless expressly ratified)
- Schweickart v. Powers, 245 Ill. App. 3d 281 (fiduciary/quasi-fiduciary duties of association directors)
- Stamp v. Touche Ross & Co., 263 Ill. App. 3d 1010 (business judgment rule; courts defer absent bad faith/fraud/gross overreaching)
- Forest Glen Community Homeowners' Ass'n v. Bishof, 321 Ill. App. 3d 298 (homeowners association powers to enforce subdivision covenants)