The Henderson Square Condominium Association v. LAB Townhomes, LLC
2015 IL 118139
| Ill. | 2016Background
- Henderson Square Condominium Association (Henderson) and its board sued developers, Enterprise Development Company, and the Shipkas for construction defects and related misconduct after water infiltration and latent building defects were discovered; initial complaint filed Oct. 31, 2011.
- Plaintiffs allege marketing materials promised construction "in accordance with plans and specifications" (including insulation and vapor barrier) and that defendants cut corners to increase profits; Warton engineer’s 2009 report found significant latent defects requiring major reconstruction.
- Plaintiffs pleaded five counts; the trial court dismissed most counts and later dismissed counts IV (violation of Chicago Municipal Code §13‑72‑030) and V (breach of fiduciary duty) with prejudice as time‑barred under the construction statute of limitations/repose (735 ILCS 5/13‑214) and for failure to plead fraud with particularity.
- The appellate court reversed dismissal of counts IV and V, holding the fraud exception to §13‑214(e) could apply (issues of fact as to fraudulent misrepresentation/concealment and reserve funding), and that §13‑72‑030 allows a private damages action; this Court affirmed the appellate court.
- The Supreme Court held plaintiffs sufficiently alleged: (1) fraudulent concealment (including where statements and omissions formed part of a scheme and where fiduciary concealment is alleged) to avoid dismissal under §2‑619; (2) that §13‑72‑030 reaches false statements used to market units (not limited to preexisting facts) and permits private monetary relief; and (3) that plaintiffs adequately pleaded a breach of fiduciary duty regarding reserve funding such that the business‑judgment rule did not mandate dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of construction statute of limitations/repose (§13‑214) and fraud exception (§13‑214(e)) | §13‑214 does not apply because defendants fraudulently misrepresented and concealed defects; tolling/exception applies | Claims are construction claims barred by §13‑214 because action was filed >10 years after turnover; fraud exception not pled with required particularity | Fraud exception plausibly alleged (misrepresentations in marketing packet + alleged concealment and inadequate reserves); factual questions preclude §2‑619 dismissal |
| Fraudulent concealment — must affirmative acts be subsequent? and role of fiduciary relationship | Misrepresentations in marketing materials and Shipkas’ reserve decisions were part of a scheme that prevented discovery; fiduciary silence can constitute concealment | Concealment must be affirmative acts occurring after the tort; statements of intent/future conduct and puffing cannot constitute fraudulent concealment; plaintiffs fail to plead reliance/scienter | Acts or omissions that are concurrent with or part of a continuing scheme can constitute concealment; fiduciary relationship here permits liability for nondisclosure; pleadings sufficient to raise factual dispute on concealment and discovery timing |
| Scope and remedies under Chicago Municipal Code §13‑72‑030 (false marketing statements) | §13‑72‑030 prohibits any false statement used to market condominium units and allows private damages (pre‑amendment remedies were cumulative) | Ordinance should be read narrowly (only factual statements, not puffing or promises) and pre‑2011 text did not allow monetary damages | §13‑72‑030’s plain language covers “any” false statement used to market units (not limited to statements of preexisting fact); pre‑amendment remedies are cumulative and a private damages remedy is available |
| Breach of fiduciary duty re: reserve funding and business‑judgment rule | Board members (Shipkas) had statutory fiduciary duties to provide reasonable reserves; allegations of bad faith/fraud and knowledge of defects support breach | Business‑judgment rule shields board’s budgetary decisions; plaintiffs merely challenge hindsight budgeting | Pleadings alleging bad faith/fraud and inadequate reserves raise factual issues; business‑judgment rule does not bar claim at pleading stage |
Key Cases Cited
- Clay v. Kuhl, 189 Ill.2d 603 (Ill. 2000) (describes tolling and discovery rule for fraudulent concealment)
- Orlak v. Loyola University Health System, 228 Ill.2d 1 (Ill. 2007) (explains affirmative‑act requirement for fraudulent concealment and role of fiduciary relationship)
- Keithley v. Mutual Life Ins. Co. of New York, 271 Ill. 584 (Ill. 1916) (concurrent or prior fraudulent acts may operate to prevent discovery if intended to do so)
- Hagney v. Lopeman, 147 Ill.2d 458 (Ill. 1992) (fraudulent concealment through fiduciary confidence must be specifically pled)
- HPI Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 131 Ill.2d 145 (Ill. 1989) (exception permitting promissory or future‑conduct misrepresentations to support fraud when part of a scheme)
- Steinberg v. Chicago Medical School, 69 Ill.2d 320 (Ill. 1977) (recognizes promissory‑fraud exception)
- VonHoldt v. Barba & Barba Constr., Inc., 175 Ill.2d 426 (Ill. 1997) (latent defects alone do not avoid the statute of repose)