Michael Burke v. 401 N. Wabash Venture, L.L.C.
714 F.3d 501
7th Cir.2013Background
- Burke signed a contract to buy a Trump Tower condo unit and two parking spaces for about $2.28M and paid earnest money of $456,426 (20%).
- Before signing, Burke received a Property Report indicating an undetermined number of parking spaces on floors 3–12.
- The Declaration/Special Amendment stated sixth floor would be used for parking.
- Closing was set for Aug. 7, 2008; Burke refused to close and sought a refund of earnest money, alleging a material change and other breaches.
- The district court dismissed Counts, Burke amended to a second amended complaint with 16 counts, and Burke appeals.
- The Seventh Circuit affirmed dismissal, holding no material change occurred, mutuality existed, the liquidated damages clause was enforceable, and no IL SFD A violation or breach supported relief.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Material change under Illinois Condominium Act §22 | Burke asserts a 75% owner approval required; alleges a material change. | No material change; sixth-floor parking was disclosed as a possibility. | No material change; disclosures already contemplated sixth-floor parking. |
| Mutuality of obligation | Purchase agreement lacks mutuality because seller can breach and refund only; Burke argues a defective premise. | Implied good faith and fair dealing fill gaps; mutuality exists. | Mutuality exists due to implied good faith; contract enforceable. |
| Liquidated damages clause vs penalty | Clause effectively allows breach remedies that could exceed actual damages; potentially a penalty. | Clause provides sole remedy via termination with liquidated damages; not a penalty. | Clause enforceable as liquidated damages (not a penalty); no option for actual damages. |
| Interstate Land Sales Full Disclosure Act (ILSFDA) compliance | Contract should comply with ILSFDA §1703(d)(3); purchaser entitled to certain refunds. | Wordings misinterpreted; seller must refund only if applicable; no violation shown. | No ILSFDA violation; statutory language did not require Burke to receive a different remedy. |
| Breach claim for retaining earnest money | Retention of 5% ($114,106.50) constitutes breach of liquidated damages provision. | Need plausible claim that actual damages were less than liquidated amount; pleaded adequately. | Plaintiff failed to plead plausible claims; district court’s dismissal affirmed. |
Key Cases Cited
- Citadel Group Ltd. v. Washington Regional Medical Ctr., – 692 F.3d 580 (7th Cir. 2012) (12(b)(6) de novo standard; pleadings viewed in plaintiff’s favor)
- Rosenblum v. Travelbyus.com Ltd., 299 F.3d 657 (7th Cir. 2002) (attachments to motions may be considered if referenced and central to claim)
- McCready v. eBay, Inc., 453 F.3d 882 (7th Cir. 2006) (documents attached to a motion to dismiss may be treated as part of the pleadings)
- Borys v. Josada Builders, Inc., 441 N.E.2d 1263 (Ill. App. Ct. 1982) (implied good faith in real estate contracts; mutuality of obligation)
- Schwinder v. Austin Bank of Chicago, 809 N.E.2d 180 (Ill. App. Ct. 2004) (implied good faith in conveyance and mutual obligations despite liquidation clause)
- Karimi v. 401 N. Wabash Venture, LLC, 952 N.E.2d 1278 (Ill. App. Ct. 2011) (liquidated damages clause not a true penalty; limits recoverable damages to deposited amount)