Kai v. Board of Directors of Spring Hill Building 1 Condominium Ass'n
2020 IL App (2d) 190642
Ill. App. Ct.2020Background
- Spring Hill is a six-building condominium complex; Mosaic Spring Hill, LLC (MSH) acquired a majority of units in several buildings and installed its principals (Dresdner, Blitstein, Blatt) on each building and the master boards.
- The Defendant Board Members and their affiliated buyer (Mosaic Beverly FMC, LLC) used board authority to propose bulk-sale contracts that favored the defendants (low per-unit payments, buyer discretion to avoid actual transfers, releases protecting board members).
- July 2018 meetings were controlled by the Defendant Boards; buildings 4, 5, and 6 achieved the >75% vote needed under 765 ILCS 605/15 for a forced bulk sale; most objecting unit owners timely filed written objections.
- Plaintiffs (minority unit owners) sued alleging breach of fiduciary duty, constructive fraud, civil conspiracy, and rescission; they did not challenge compliance with section 15 procedures.
- The trial court dismissed the claims under 735 ILCS 5/2-619, holding section 15 provided the plaintiffs’ exclusive remedy; the appellate court reversed dismissal of fiduciary-duty, constructive-fraud, and conspiracy counts but affirmed dismissal of the rescission count.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether section 15 of the Condominium Property Act precludes common-law fiduciary-duty claims arising from a bulk sale | Section 15 does not expressly abrogate common-law causes of action; fiduciary duties remain in force and apply to boards | Section 15’s appraisal/objection scheme is the exclusive remedy for minority owners in a bulk sale, even if majority/self-dealing involved | Reversed trial court: section 15 does not plainly or expressly abrogate common-law fiduciary duties; fiduciary claims may proceed |
| Whether plaintiffs pleaded a viable breach of fiduciary duty based on alleged self-dealing and control of the sale process | Allegations that board members controlled both majority-owner MSH and the buyer, used board resources, suppressed dissent, and approved a one-sided contract state a plausible breach | Allegations of self-interest alone are insufficient; record/bylaws not in complaint to define duties | Rejected defendants’ challenges at dismissal stage: pleaded facts are sufficient to state fiduciary breach; business-judgment rule not applicable given allegations of bad faith/fraud |
| Whether rescission of the bulk-sale contracts is an available remedy after closings | Rescission is an equitable remedy available for fraud or abuse of a confidential/fiduciary relationship; alleged self-dealing could justify rescission | Contracts have closed and rescission would be inequitable because of time and third-party reliance; therefore rescission is unavailable as a matter of law | Affirmed dismissal of rescission: rescission is generally available for fiduciary abuse, but given the elapsed time and equitable concerns, trial court’s dismissal stands |
| Whether allowing fiduciary claims by objecting and non-objecting owners would improperly allow end-runs around section 15 | Section 15 remains the remedy for ordinary bulk sales, but where fiduciary breaches (self-dealing) are alleged, common-law claims are appropriate; procedural safeguards deter frivolous suits | Permitting such suits undermines the low-cost appraisal remedy and encourages litigation by objectors who failed to timely use section 15 procedures | Court: not persuaded defendants’ ‘‘end-run’’ concern defeats fiduciary claims; statutory appraisal remedy still governs ordinary cases, but it does not foreclose fiduciary remedies when serious self-dealing is alleged |
Key Cases Cited
- Wallace v. Smyth, 203 Ill. 2d 441 (Ill. 2002) (pleaded facts are taken as true on dismissal)
- McIntosh v. Walgreens Boots Alliance, Inc., 2019 IL 123626 (Ill. 2019) (common-law rights remain unless expressly abrogated by statute)
- Moehling v. W.E. O’Neil Construction Co., 20 Ill. 2d 255 (Ill. 1960) (abuse of a confidential relation justifies setting aside transactions)
- Martin v. Heinold Commodities, Inc., 163 Ill. 2d 33 (Ill. 1994) (punitive damages may be available for breaches of fiduciary duty when restitution is impracticable)
- Burdett v. Miller, 957 F.2d 1375 (7th Cir. 1992) (describing strict duties of condominium board members to unit owners)