Fountain Square on the River Condominium Ass'n, Ltd. v. First American Bank
2024 IL App (2d) 230076-U
Ill. App. Ct.2024Background
- Fountain Square on the River Condominium Association (the Association) sued First American Bank and related parties over alleged failures regarding building defects (notably water leaks) and inadequate financial reserves following the construction and sale of a condominium building in Elgin, Illinois.
- The bank took over the building after the original developer defaulted, appointed employees to the board, and eventually sold the remaining unsold units and commercial property to a third party (Northhampton), after which a new association board was elected.
- The Association alleged that the defendants breached fiduciary duties, committed consumer fraud, and common law fraud by failing to properly address known construction defects and set aside sufficient reserves, while also concealing information from the new board.
- Defendants moved to dismiss under Illinois Code section 2-619(a)(9), invoking the business judgment rule, supported by affidavits asserting that they acted in good faith on expert advice and provided appropriate reports regarding reserves.
- The trial court granted the motion to dismiss with prejudice, finding that the business judgment rule shielded the defendants' actions and that the plaintiffs failed to rebut this defense or show evidence of fraud.
- On appeal, the Association challenged the propriety of the business judgment rule as an affirmative defense, the sufficiency of the defendants' evidence, and the adequacy of its own rebuttal, while the dissent emphasized fact issues precluding dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was the business judgment rule properly invoked as an affirmative matter? | It should not defeat claims at the pleading stage, especially with allegations of fraud and bad faith | It is a proper affirmative defense under 2-619(a)(9) and covers the board's challenged actions | Rule is a valid affirmative matter for 2-619(a)(9) dismissal |
| Did defendants conclusively defeat the complaint's facts? | Alleged mismanagement and concealment of defects are sufficient to survive dismissal | Actions were taken based on expert advice; no evidence of bad faith or concealment | Defendants' evidence (affidavits, reports) defeated plaintiff's claims |
| Did plaintiffs adequately rebut the business judgment defense? | Submitted affidavits suggesting information was withheld and repairs were stop-gap | Plaintiff's affidavits were conclusory, not fact-based, and did not refute evidence of due care | Plaintiff's rebuttal insufficient to overcome business judgment evidence |
| Was it error to dismiss with prejudice at the pleading stage? | Dismissal precluded further factual development, especially where fraud/bad faith were alleged | Complaints failed to plead specific facts showing fraud/bad faith; only conclusory allegations were present | No error; allegations were conclusory, not enough to survive under business judgment rule |
Key Cases Cited
- Miller v. Thomas, 275 Ill. App. 3d 779 (Ill. App. Ct. 1995) (affirmed the business judgment rule as an affirmative matter that shields directors from liability for good faith decisions)
- Krilich v. American Nat. Bank and Trust Co. of Chicago, 334 Ill. App. 3d 563 (Ill. App. Ct. 2002) (clarifies standard for a section 2–619 motion to dismiss—defenses that bar claims based on admitted facts)
- Stamp v. Touche Ross & Co., 263 Ill. App. 3d 1010 (Ill. App. Ct. 1993) (summarizes business judgment rule and its protective scope for directors)
- Henderson Square Condominium Ass’n v. LAB Townhomes, LLC, 2015 IL 118139 (Ill. 2015) (limits business judgment rule where bad faith or fraud is adequately alleged)
- Kai v. Spring Hill Building 1 Condominium Assoc., Inc., 2020 IL App (2d) 190642 (Ill. App. Ct. 2020) (allegations of bad faith or fraud survive a motion to dismiss under business judgment rule)