HENDERSON SQUARE CONDOMINIUM ASSOCIATION et al., Appellees, v. LAB TOWNHOMES, LLC, et al., Appellants.
Docket No. 118139
SUPREME COURT OF THE STATE OF ILLINOIS
November 4, 2015
Modified upon denial of rehearing January 28, 2016.
2015 IL 118139
JUSTICE THOMAS delivered the judgment of the court, with opinion. Chief Justice Garman and Justices Kilbride and Theis concurred in the judgment and opinion. Justice Burke dissented, with opinion, joined by Justices Freeman and Karmeier.
¶ 1 Plaintiffs, Henderson Square Condominium Association (Henderson) and Henderson‘s board of managers (Board), filed suit against defendants, alleging five separate counts: breach of the implied warranty of habitability, fraud, negligence, breach of the
¶ 2 BACKGROUND
¶ 3 Plaintiffs filed their initial complaint on October 31, 2011. Plaintiff Henderson is a not-for-profit corporation with its principal place of business located in Chicago. Henderson is the governing body of a property of townhomes located in Chicago, and Henderson is controlled by its Board, which is comprised of elected managers.
¶ 4 Defendants can be divided into three groups, which we will refer to as (1) the development companies; (2) Enterprise; and (3) the Shipkas. The development companies are defendants LAB Townhomes, LAB Lofts, and Lincoln, Ashland & Belmont, which are limited liability companies incorporated in Delaware. Defendant Enterprise Development Company (Enterprise) is an Illinois corporation with its principal place of business in Chicago. The Shipkas are defendants Ronald Shipka, Sr., Ronald Shipka, Jr., and John Shipka, who are persons residing in Cook County.
¶ 5 Plaintiffs’ original complaint alleged that the Shipkas are in the business of developing residential property, and they own, manage and operate Enterprise. The plaintiffs further alleged that Enterprise represented on its website that it was the “largest and most respected developer” in the Chicago area due to, among other things, its “commitment to rigid quality standards.” The Shipkas were chosen by the City of Chicago to be the developers for a project known as the Lincoln-Belmont-Ashland Redevelopment Project Area. The Shipkas formed the development companies, which entered into a contract with the City of Chicago to construct a mixed use project. The project included retail space, a parking structure, loft condominiums, and townhouses. The development companies entered into an
¶ 6 Prior to the completion of the project, Henderson was established as a condominium association in accordance with the
¶ 7 Plaintiffs alleged that defendants began to market and sell individual units of the project in 1996, and in doing so, they represented and impliedly warranted that the property and the units would be habitable and free from defects. Plaintiffs also alleged that the development companies sold the units with a form sales contract, which included a provision stating that the common elements of the project and the units would be “constructed substantially in accordance with the plans and specifications.” After the project was completed and the owners began to occupy the units, certain units began to experience water seepage and resulting damage.
¶ 8 The Board retained Warton, Inc. (Warton), an exterior restoration consultant and engineer, to investigate the water problem. On May 18, 2009, Warton issued a report of its findings, concluding that “significant amounts of water were entering into certain units at various locations, including various exterior wall components.” Warton further concluded that the “overall quality of construction detailing and workmanship at the specific areas that were investigated was very poor” and that the water penetration problems would be very difficult, if not impossible, to mitigate unless there was substantial reconstruction of the units.
¶ 9 After the Board reviewed the Warton report, it retained a contractor to solve the problem. The contractor began its work and confirmed that there were “a significant number of deficiencies with the original construction.” The contractor reported that the coping leaked, the masonry lacked mortar, there was no flashing or drainage system, the lintels and sills were not sealed, and the roofing systems were defective.
¶ 11 On January 3, 2012, defendants filed their first motion to dismiss, brought pursuant to
¶ 12 The trial court granted defendants’
¶ 13 Plaintiffs filed an amended complaint on July 2, 2012. Plaintiff repleaded the allegations of counts I, II, and III for the purpose of preserving them for appeal. With respect to count IV of that complaint, plaintiffs allege that defendants Enterprise and the development companies, but not the Shipkas, breached
¶ 15 The amended complaint also alleges that Enterprise and the development companies, in the course of selling the units, made false material representations in the information packet, which it summarizes as follows:
(1) that the Property and the Units reflected ‘new architectural energies and solid construction skills‘;
(2) that the [development companies] and/or Enterprise was committed to ‘quality construction and detail’ for the Property and Units;
(3) that the [development companies] and/or Enterprise consistently deliver ‘quality buildings’ and ‘successful developments’ which succeed ‘architecturally, aesthetically and economically‘; and
(4) that ‘[a]ll insulation shall be soundbatt fiberglass with the following R values: Exterior walls—R11; Third floor ceiling—R30 with integral vapor barrier.’
Plaintiffs allege that Enterprise and the development companies knew and intended the representations in the information packet to be false.
¶ 16 With respect to count V of the amended complaint, plaintiffs allege that the Shipkas breached their fiduciary duty to the unit owners to pay their share of common expenses and to fund sufficient reserves.1 Plaintiffs allege that the Shipkas, during their time as members of the Board, failed to fund common expenses and reserves sufficiently to repair the project despite the fact that they knew or should have known that plaintiff Henderson‘s obligations could not be met without sufficient reserve funds. Further, the Shipkas knew or should have known that the project contained extensive defects and that the funding they provided during their tenure on the Board was inadequate to address those defects. The
¶ 17 On August 6, 2012, defendants filed their second motion to dismiss, this time seeking dismissal pursuant to both sections 2-615 and 2-619 of the Code in a combined motion to dismiss. See
¶ 18 Defendants based their
¶ 19
(a) Actions based upon tort, contract or otherwise against any person for an act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property shall be commenced within 4 years from the time the person bringing an action, or his or her privity, knew or should reasonably have known of such act or omission.
735 ILCS 5/13-214(a) (West 1996) .
¶ 20 Subsection (b) of
(b) No action based upon tort, contract or otherwise may be brought against any person for an act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property after 10 years have elapsed from the time of such act or omission. However, any person who discovers such act or omission prior to the expiration of 10 years from the time of such act or omission shall in no
event have less than 4 years to bring an action as provided in subsection (a) of this Section.
735 ILCS 5/13-214(b) (West 1996) .
¶ 21 In the alternative, defendants argued in their motion that all of plaintiffs’ claims were time-barred under
¶ 22 Defendants also moved to dismiss count IV pursuant to section 2-615, arguing that it failed to state a cause of action. Defendants asserted that count IV, alleging a violation of the Municipal Code, must be dismissed because the Municipal Code does not provide for a private right of action.
¶ 23 In their response to defendants’ second motion to dismiss, plaintiffs argued, among other things, that by its own terms, the limitation of
¶ 24 Plaintiffs argued that defendants knowingly misrepresented the condition of the property and then concealed the defects. Thus,
¶ 25 The trial court ruled in favor of defendants and dismissed plaintiffs’ amended complaint with prejudice. In so doing, the court rejected plaintiffs’ argument that the liability was not based on construction-related activity. The court found that regardless of whether plaintiffs’ claims were based on a misrepresentation or a fiduciary duty, the claims were construction claims for purposes of applying the
¶ 26 The trial court found that the fraud exception to the statute of limitations and statute of repose did not apply because plaintiffs failed to allege facts with the necessary particularity to support a claim for fraud. In the court‘s view, a fraudulent misrepresentation requires the misrepresentation of a preexisting fact and does not encompass a promise to perform future conduct.2
¶ 27 Moreover, the trial court further found that plaintiffs failed to state a claim for either breach of a fiduciary duty or for misrepresentation under
¶ 28 The plaintiffs appealed, and the appellate court reversed and remanded for further proceedings. 2014 IL App (1st) 130764, ¶ 136. The appellate court found that plaintiff‘s claims in count IV and V were construction related and therefore the limitation and repose of
¶ 29 The appellate court also found that the circuit court erred in dismissing counts IV and V under section 2-615 for failure to state a cause of action. With respect to count IV, the appellate court concluded that the Municipal Code allows private parties to seek damages under its provisions and that the representations here—which were made during the marketing process before construction was complete—were actionable under that Code. Id. ¶¶ 108-17. With respect to count V, the appellate court concluded that defendants had a fiduciary duty to budget for reasonable reserves. Id. ¶ 128. And whether defendants provided reasonable reserve funds for the repair and replacement necessitated by the allegedly known latent defects was a question of fact that was erroneously decided by the circuit court pursuant to a section 2-615 dismissal. Id.
¶ 30 Defendants filed a petition for leave to appeal (
¶ 31 ANALYSIS
¶ 32 This appeal arises from an order granting defendants combined motion to dismiss filed under
¶ 33 I. Section 2-619
¶ 34 Defendants’ motion to dismiss plaintiffs’ amended complaint as time-barred was based upon
¶ 35 A. Fraudulent Concealment
¶ 36 Under the fraudulent concealment doctrine, the statute of limitations will be tolled if the plaintiff pleads and proves that fraud prevented discovery of the cause of action.
¶ 37 Before this court, defendants first argue that plaintiffs failed to establish fraudulent concealment of their cause of action. They contend that plaintiffs were required to allege affirmative acts by defendants that occurred after the allegedly tortious acts (i.e., the misrepresentations in the packet and the breach of fiduciary duty in connection with the reserve fund) that were calculated to induce defendants
¶ 38 We note that generally the concealment necessary to toll the statute of limitations must consist of affirmative acts or representations calculated to lull or induce a plaintiff into delaying the filing of his claim or preventing him from discovering the claim. Orlak v. Loyola University Health System, 228 Ill. 2d 1, 18 (2007). Defendants are mistaken, however, in their contention that the affirmative acts that constitute the fraudulent concealment must always be subsequent to and can never be the same statements or omissions that form the basis of the cause of action. This is especially true where
¶ 39 At any rate, this court held in Keithley v. Mutual Life Insurance Co. of New York, 271 Ill. 584, 598 (1916), that even though the acts constituting the fraudulent concealment “ordinarily must be subsequent to the accruing of the cause of action, *** they may be concurrent or coincident with it, or even precede it, provided they are of such a nature *** as to operate after the time when the cause of action arose and thereby prevent its discovery, and were so designed and intended.” Here, plaintiffs’ amended complaint alleges that the defendant companies—which the Shipkas own, manage and operate—knew and intended the misrepresentations in the marketing information packet to be false. Furthermore, plaintiffs allege that the defendant companies knowingly failed to comply with the plans and specifications
¶ 40 Plaintiffs’ counts at issue here also survive dismissal pursuant to
” ’ ” ’ [i]t is the prevailing rule that, as between persons sustaining a fiduciary or trust or other confidential relationship toward each other, the person occupying the relation of fiduciary or of confidence is under a duty to reveal the facts to the plaintiff (the other party), and that his silence when he ought to speak, or his failure to disclose what he ought to disclose, is as much a fraud at law as an actual affirmative false representation or act; and that mere silence on his part as to a cause of action, the facts giving rise to which it was his duty to disclose, amounts to a fraudulent concealment ***.’ ” ’ ” Orlak, 228 Ill. 2d at 19 (quoting Hagney v. Lopeman, 147 Ill. 2d 458, 463 (1992), quoting Chicago Park District v. Kenroy, Inc., 78 Ill. 2d 555, 562 (1980), quoting L.S. Tellier, Annot., What Constitutes Concealment Which Will Prevent Running of Statute of Limitations, 173 A.L.R. 576, 588 (1948)).
The facts that indicate that the fraud was kept concealed through confidence placed in the fiduciary must be specifically pled in order to bring the discovery rule into play and to toll the statute of limitations. Hagney, 147 Ill. 2d at 465.
¶ 42 Specifically, plaintiffs allege that the Shipkas failed to provide sufficient funding for the reserve fund to meet the repairs needed due to the extensive defects in the construction. Furthermore, the amended complaint alleges that the Shipkas participated in making the misrepresentations concerning the project with the intent of deceiving the purchasers. Finally, the amended complaint alleges that the Shipkas knew or should have known that the project contained extensive defects and that the funding they provided during their tenure on the Board was not adequate to address those defects. Plaintiffs use these well-pled facts to argue before this court that defendants’ misrepresentations, coupled with the Shipkas’ failure to adequately fund the reserve fund was sufficient to allege fraudulent concealment. Plaintiffs explain that the amount budgeted for repairs by the Shipkas gave the appearance that the building was in much better shape than it was.
¶ 43 Defendants, on the other hand, rely upon this court‘s decisions in Hagney and Orlak to argue that plaintiffs were required to allege facts attributing the failure to discover the cause of action to the trust placed in the fiduciary. Defendants maintain that plaintiffs’ amended complaint fails to allege such facts. Moreover, defendants take issue with plaintiffs’ allegation that the Shipkas “knew or should have known” that the project contained extensive defects and that the funding provided during their tenure on the board was therefore inadequate. According to defendants, this allegation‘s inclusion of the words “or should have known” was not sufficient to satisfy the scienter element for a fraudulent concealment claim based upon a fiduciary duty.
¶ 45 As to the allegation that the Shipkas knew or should have known that the project contained extensive defects and that the funding was therefore inadequate, we do not find it fatal to the cause of action under the circumstances. Plaintiffs have alleged that the Shipkas participated in making the misrepresentations concerning the project with the intent of deceiving the purchasers in a scheme to gain greater profits from the city contract. Plaintiffs have also alleged that the Shipkas controlled and operated the defendant companies that performed the contracting work, and those companies were supposed to be committed to “quality construction” that was to be performed in accordance with the plans and specifications they listed. Moreover, it was alleged that the Shipkas owed a fiduciary duty to the unit owners in connection with the funding of the reserve fund and that they breached that duty by failing to fund it in a sufficient manner and by participating in the fraudulent representations with the intent of deceiving the unit owners. These are sufficient facts from which it can reasonably be inferred that “the trust which was reposed in the fiduciary prevented the discovery of the cause of action” so as to satisfy the Hagney standard. See Hagney, 147 Ill. 2d at 465.
¶ 46 Defendant‘s reliance upon Orlak is also unavailing. There, the plaintiff was hospitalized in 1989 for an accident and received a blood transfusion under the defendant‘s care. In 1990, the defendant advised the plaintiff to be tested for HIV, which she did, testing negative. In 2000, the defendant advised the plaintiff to be tested for the hepatitis C virus (HCV), and the plaintiff tested positive for that virus. The plaintiff filed suit in 2002, alleging that the defendant was liable for failure to notify her by March 1997—when accurate testing for HCV allegedly first became available—that she should be tested for HCV. The defendant argued that the suit was time-barred under the four-year medical malpractice statute of repose (
¶ 47 Orlak has no application to the present case that is helpful to defendants because in Orlak, the plaintiff alleged that the defendant had an obligation to disclose facts that the defendant first learned seven years after the fiduciary relationship ended. Here, in contrast, plaintiffs’ amended complaint alleges that the Shipkas participated in making the misrepresentations in the packet with the intention of deceiving the purchasers and that they then should have known that the reserve funding was inadequate to address the construction defects during the time that the Shipkas were still on the board and during the time they still had a fiduciary relationship. The present case is also distinguishable from Orlak because plaintiffs here have alleged affirmative acts to constitute fraudulent concealment in the form of the misrepresentations in the packet that were designed and intended to operate after the cause of action arose.
¶ 48 In sum, counts IV and V of plaintiffs’ amended complaint were sufficient to survive a section 2-619 dismissal given the specific allegations. We find that at the very least a question of fact remains as to whether defendants’ failure to speak about the construction deficiencies or in the alternative to adequately fund the reserve fund, coupled with the earlier alleged misrepresentations, amounted to fraudulent concealment so as to invoke the exception of
¶ 49 B. Section 13-205
¶ 50 Defendants next argue that the appellate court erred by failing to continue its statute of limitations analysis to consider whether the amended complaint was time-barred under the default five-year statute of limitations set forth in
¶ 51 As we have already noted, Gillespie holds that the time constraints of
¶ 52
¶ 53 Defendants argue that plaintiffs were vague and evasive in their pleading when they alleged their discovery of the water leakage “no later than the winter of 2007/2008.” Defendants also point to the Warton report attached to plaintiffs’ amended complaint. According to that report, the water leaks had been “ongoing for years” and several different repair attempts had been made. Defendants argue that plaintiffs failed to allege sufficient facts as to the date of discovery to properly invoke the discovery rule.
¶ 54 In response, plaintiffs argue that in late 2007 or early 2008, 4 of plaintiffs’ 47 units, the garden units, first experienced minor leaks from the wooden decks that were located on the units above them. Plaintiffs believed that the repairs were sufficient, but when the leaks persisted, they engaged an engineer and a contractor to investigate. It was only then, in 2009, that plaintiffs first learned the construction
¶ 55 From our review of plaintiffs’ amended complaint, we find that a question of fact exists that precludes dismissal pursuant to defendants’ section 2-619 motion. Defendants focus all of their attention on the date plaintiffs first knew that there was water infiltration into the units. Plaintiffs, on the other hand, interpret their pleading as having alleged that water infiltration first occurred in late 2007 or early 2008. We note that if plaintiffs indeed intended to allege that water first infiltrated the units in late 2007 or early 2008, they have done an abysmally poor job of it. We find, however, that this point is of no moment under the circumstances here where the discovery rule requires that a plaintiff know both of his injury and that it was wrongfully caused to set the limitations period running. Here, plaintiffs filed their initial complaint on October 31, 2011. Thus, if it can be said that before October 31, 2006, plaintiffs did not know nor should they have reasonably known that their injury was wrongfully caused, then plaintiffs’ suit is considered timely filed.
¶ 56 We find that the allegations of plaintiffs’ complaint were clearly sufficient to raise a question of fact as to the time when plaintiffs knew or reasonably should have known that their injury was wrongfully caused. It is apparent from plaintiffs’ amended complaint that after plaintiffs began experiencing water problems from the wood decks, they “hired a contractor to perform minor suggested repairs and undertake certain maintenance work to abate the problem.” According to the amended complaint, plaintiffs “reasonably believed they had remediated the water infiltration problems.” But despite plaintiffs’ best efforts and given their lack of knowledge of the latent defects, “the water infiltration problem continued and further units began to experience similar problems.” As a result, they then hired Warton in 2009 to evaluate the source of water infiltration. Plaintiffs then reviewed the Warton report issued in May 2009, and as a result hired a contractor to begin remediation work. It was only after the contractor‘s work progressed and he opened up the walls to undertake invasive testing and repairs, which first started in late 2009, that plaintiffs first discovered that a significant number of latent deficiencies existed with the original construction, including leaky coping, masonry that lacked mortar, lack of flashing or a drainage system, unsealed lintels and sills, and walls
¶ 57 The facts alleged in the present case are similar to those in a number of cases where Illinois courts have found that fixing a date of discovery was a question of fact for the trier of fact that could not be decided on a defendant‘s motion to dismiss. See, e.g., County of Du Page v. Graham, Anderson, Probst & White, Inc., 109 Ill. 2d 143, 153-54 (1985) (the date the plaintiff knew or reasonably should have known that his injury was wrongfully caused is normally a question of fact); La Salle National Bank v. Skidmore, Owings & Merrill, 262 Ill. App. 3d 899, 906 (1994) (same); Society of Mount Carmel v. Fox, 31 Ill. App. 3d 1060 (1975) (same). In Graham, this court emphasized that under the discovery rule, the statute of limitations in construction cases begins to run “when a person knows or reasonably should know of his injury and also knows or reasonably should know that it was wrongfully caused.” (Internal quotation marks omitted and emphasis added.) Graham, 109 Ill. 2d at 153-54. In Graham, the plaintiff knew of moisture problems in its building, which was constructed by the defendant eight years before the plaintiff‘s complaint was filed in 1982 for faulty construction. The architect had provided reasons for the moisture problems that were not actionable, and the plaintiff attempted repairs over a number of years that were unsuccessful in solving the problem. This court reversed the trial court‘s order that dismissed the plaintiff‘s cause of action. In so doing, this court observed as follows:
“Although the [plaintiff] was aware of the moisture problem as early as 1974, it is impossible to state, as a matter of law, that this knowledge was sufficient to trigger the running of the limitations period. It is possible that the suggestions of the architect and the resulting repairs were adequate to keep a reasonable person from investigating further.” Id. at 154.
¶ 58 In Fox, the plaintiffs sued their architect for the faulty construction of a school. Plaintiffs noticed cracks and defects in the building more than five years before their complaint was filed. Plaintiffs, however, attempted repairs of what they were led to believe were “maintenance problems.” Sometime later, the plaintiffs obtained a report that indicated the cracks were caused by a design defect involving the lack of expansion joints. Fox affirmed a verdict for the plaintiffs after a lengthy trial and held that the statute of limitations did not begin to run until the date of the discovery of the design defect, rather than the date when the plaintiffs knew of the
¶ 59 Similar to Graham and Fox, we find that it is possible that the minor repairs in the present case, coupled with the limited nature of the water infiltration experienced, was enough to reasonably delay plaintiffs’ hiring of professional contractors to open up the wall and to discover the latent defects. We conclude that the date when plaintiffs knew or reasonably should have known that an injury occurred and that it was wrongfully caused was a question of fact not to be decided on a motion to dismiss under the circumstances of the present case.
¶ 60 II. Section 2-615
¶ 61 We now turn to the section 2-615 portion of defendants’ motion to dismiss, which tests the legal sufficiency of the amended complaint. The question presented on review is whether the allegations of the complaint, construed in the light most favorable to the plaintiff, are sufficient to state a cause of action upon which relief can be granted. Turner v. Memorial Medical Center, 233 Ill. 2d 494, 499 (2009). In making this determination, all well-pleaded facts must be taken as true. Doe-3 v. McLean County Unit District No. 5 Board of Directors, 2012 IL 112479, ¶ 16. A court should not dismiss a complaint pursuant to section 2-615 unless it clearly appears that no set of facts can be proved that would entitle the plaintiff to recovery. Marshall v. Burger King Corp., 222 Ill. 2d 422, 429 (2006). The standard of review is de novo. Id.
¶ 62 A. Count IV—Section 13-72-030 of the Chicago Municipal Code
¶ 63 As previously noted, count IV of plaintiffs’ amended complaint alleges a violation of
“No person shall with the intent that a prospective purchaser rely on such act or omission, advertise, sell or offer for sale any condominium unit by (a) employing any statement or pictorial representation which is false or (b) omitting any material statement or pictorial representation.”
Chicago Municipal Code § 13-72-030 .
¶ 65 The appellate court disagreed with the trial court‘s analysis and found that
¶ 66 Defendants argue that the trial court has the better view, and the protections of the Municipal Code should be construed narrowly to bar recovery for statements that do not concern purported preexisting facts but are instead simply promises that turn out to be false. Defendants also argue that the phrase “any statement” in
¶ 67 This court’s primary objective in interpreting a statute or ordinance is to ascertain and give effect to the intent of the legislative body. See Gillespie, 2014 IL 115330, ¶ 31; People v. Martino, 2012 IL App (2d) 101244, ¶ 25. The best indication of that intent is the language used, which must be given its plain and ordinary meaning. Metropolitan Life Insurance Co. v. Hamer, 2013 IL 114234, ¶ 18. If the language is clear and unambiguous, it will be given effect without resort to other aids of statutory construction. Kunkel v. Walton, 179 Ill. 2d 519, 534 (1997).
¶ 68 Here, we find that the language of section
¶ 69 We further note that the trial court’s analysis seems to have ignored the well-recognized exception to the general rule against common-law promissory fraud actions. Under that exception, false promises or misrepresentations of future conduct are actionable where they are alleged to be the scheme employed to accomplish the fraud. HPI Health Care Services, Inc. v. Mt. Vernon Hospital, Inc., 131 Ill. 2d 145, 168-69 (1989); Steinberg v. Chicago Medical School, 69 Ill. 2d 320, 334 (1977); Roda v. Berko, 401 Ill. 335, 340 (1948); Stamatakis Industries, Inc. v. King, 165 Ill. App. 3d 879, 882-83 (1987). Here, count II of plaintiffs’ complaint, which was also dismissed by the trial court, did allege that the defendants made false representations in a “scheme to induce prospective purchasers to purchase the units so [defendants] could profit from the sales.” Furthermore, that count alleges that “[t]he unit owners relied upon those representations when they purchased the units and would not have purchased the units had they known the property and the units contained multiple and significant defects.” Thus, it is apparent that even if we were to accept the trial court’s and defendants’ narrow interpretation of section
¶ 70 Defendants next argue that the appellate court misconstrued the facts in reaching its holding that defendants made false statements about the insulation. In our view, much of defendants’ argument in connection with the missing insulation raises irrelevant points. Defendants’ main point, however, seems to be that the appellate court misread the marketing packet to say that insulation would be provided when the packet actually states that “[a]ll insulation shall be soundbatt fiberglass with the following R values: Exterior walls—R11; Third floor ceiling—R30 with integral vapor barrier.” According to defendants, this language simply means that to the extent that any insulation is installed at all, it would be of the specified values. In other words, according to defendant, there was no representation that insulation or a vapor barrier would be installed.4 We reject defendants’ argument. We instead find the statement in the packet to be an advertisement promising that insulation and a vapor barrier would be installed.
¶ 71
¶ 72 Defendants next argue that the appellate court erred in holding that private parties could recover monetary damages as a remedy under the preamended version of section
¶ 73 In rejecting this same argument, the instant appellate court relied upon Wolinsky v. Kadison, 2013 IL App (1st) 111186, which addressed a remedies provision in a chapter of the Chicago Municipal Code dealing with discrimination in the sale or lease of condominiums, which was similar to the preamended remedies provision in the present case. Wolinsky found that the broad provision that remedies under the ordinance be cumulative and in addition to other remedies reflected the legislature’s intent that a cause of action for damages be allowed for violations of the ordinance. Id. ¶ 40.
¶ 74
¶ 75 We believe that the appellate court and Wolinsky have provided the correct analysis. But we find that plaintiffs would prevail even upon application of the Abbasi factors. Defendants argue that section
B. Count V—Breach of Fiduciary Duty
¶ 77 Defendants’ final argument is that plaintiffs failed to allege sufficient facts to overcome the business judgment rule. Under the business judgment rule, in the absence of bad faith, fraud, illegality or gross overreaching, courts will not interfere with the exercise of business judgment by corporate directors. See Palm v. 2800 Lake Shore Drive Condominium Ass’n, 2014 IL App (1st) 111290. When a board properly exercises its business judgment in interpreting its own declaration, a court will not find the board’s interpretation to be a breach of fiduciary duty. See Carney v. Donley, 261 Ill. App. 3d 1002, 1011 (1994). If, however, the board members fail to exercise due care, then they may not use the business judgment rule as a shield for their conduct. See Palm, 2014 IL App (1st) 111290, ¶ 111.
¶ 78 Defendants argue that they only had a duty to prepare an estimated operating budget projecting a first year reserve fund following turnover. Furthermore, defendants cite section
¶ 79 Defendants’ invocation of the business judgment rule at this point must be rejected. Plaintiffs’ amended complaint specifically alleges that defendants acted fraudulently and in bad faith when they knew of the shoddy construction yet failed to account for those repairs (that would have been immediately required in 1996 had the unit owners known about the latent defects) when they set the reserves. We find that the questions presented—whether defendants’ actions were reasonable in
CONCLUSION
¶ 81 For the foregoing reasons, we affirm the appellate court’s decision reversing the trial court’s order dismissing counts IV and V of plaintiffs’ amended complaint. We remand the cause to the circuit court of Cook County for further proceedings consistent with this opinion.
¶ 82 Appellate court judgment affirmed.
¶ 83 Cause remanded.
¶ 84 JUSTICE BURKE, dissenting:
¶ 85 I disagree with both the majority’s holding that plaintiffs have adequately alleged fraudulent concealment under section
I. Fraudulent Concealment
¶ 87 The threshold issue in this case is whether plaintiffs’ complaint is barred by section
“(b) No action based upon tort, contract or otherwise may be brought against any person for an act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property after 10 years have elapsed from the time of such act or omission. However, any person who discovers such act or omission prior to expiration of 10 years from the time of such act or omission shall in no event have less than 4 years to bring an action as provided in subsection (a) of this Section.”
Id.
¶ 88 The majority concludes, however, that plaintiffs’ complaint may go forward under section
A. The Statements in Defendants’ Sales Brochure
¶ 90 To establish fraudulent concealment under section
¶ 91 In holding that plaintiffs have adequately pled fraudulent concealment, the majority relies primarily on representations made by defendants in a sales brochure that was part of the defendants’ marketing in 1995 and 1996. The brochure is attached to plaintiffs’ complaint and a copy is included in appendix A to this dissent. Infra ¶ 121. The relevant representations made in the brochure were:
“ ‘(1) that the Property and the Units reflected “new architectural energies and solid construction skills”;
(2) that the [development companies] and/or Enterprise was committed to “quality construction and detail” for the Property and Units;
(3) that the [development companies] and/or Enterprise consistently deliver “quality buildings” and “successful developments” which succeed “architecturally, aesthetically and economically”; and
(4) that “[a]ll insulation shall be soundbatt fiberglass with the following R values: Exterior walls—R11; Third floor ceiling—R30 with integral vapor barrier.” ’ ” Supra ¶ 15.
¶ 92 The majority notes that plaintiffs have alleged in their complaint that defendants knew these statements “to be false” and that plaintiffs have alleged the statements were made with the intent to deceive those who read the brochure. Supra ¶ 39. On this basis, the majority concludes that plaintiffs have adequately pled a fraudulent scheme by defendants “designed and intended” to prevent plaintiffs from discovering their causes of action. Id. Therefore, the majority holds, dismissal of plaintiffs’ complaint “pursuant to section
¶ 93 The first three statements on the majority’s list, all of which are variations of a statement by defendants that they provide “quality” construction, cannot form the basis of fraudulent concealment. As this court has stated, “[d]escribing a product as ‘quality’ or as having ‘high performance criteria’ are the types of subjective characterizations that Illinois courts have repeatedly held to be mere puffing.” Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill. 2d 100, 174 (2005). As an expression of subjective opinion, a puffing statement cannot be proven true or false and, therefore, cannot be a basis for fraud. Barbara’s Sales, Inc. v. Intel Corp., 227 Ill. 2d 45, 72 (2007). Further, a statement by a builder asserting that it provides “quality” construction is not only a subjective characterization, it is also the type of statement made by every builder to its customers—no builder tells its customers it provides poor quality construction. If, as the majority holds, a mere statement by a builder that it performs “quality” work can form the basis of fraudulent concealment so as to negate the statute of repose, then the statute has effectively been written out of existence.
¶ 94 The fourth statement on the majority’s list is a specification by defendants to provide thermal insulation of a certain quality in exterior walls and the “third-floor ceiling,” which plaintiffs allege defendants failed to do. The majority concludes that defendants’ statement regarding insulation also properly forms the basis of fraudulent concealment under section
¶ 95 Defendants’ specification of a certain type of insulation is not puffing. However, plaintiffs are not suing defendants because some of the occupants of the Henderson Square residences are too cold in the winter or too hot in the summer. They are suing to recover for water damage caused by structural defects. This is stated explicitly in plaintiffs’ complaint, which alleges “significant water infiltration and resulting damages,” and spelled out in detail in a report prepared by a consulting firm, Warton, Inc., that is appended to plaintiffs’ complaint.
¶ 96 In this report, the Warton firm describes how its engineers examined two “garden-level” units in the Henderson Square development that sit beneath street-level townhomes. (A picture is included in appendix B to this dissent. Infra ¶ 122.) The exterior front walls of the street-level townhomes, as well as outdoor decks, sit directly over the living areas of the garden-level units. The problem, according to the report, was that rain and melting snow were penetrating through various gaps in the exterior front walls of the upper townhomes, such as around the windows and doors, and then traveling downward into the ceilings of the garden units. The report does not say, and there is no allegation in plaintiffs’ complaint, that the water problems in the garden-level units had anything to do with a lack of insulation, and there is obviously no assertion that these problems had anything to do with insulation in the “third floor ceiling”—the top floor of the street-level townhomes, three stories above.6
¶ 97 To properly plead fraudulent concealment it is not enough to simply allege that the defendant made a false statement. The plaintiff must also plead causation by alleging that he “detrimentally relied” on the false statement. Orlak, 228 Ill. 2d at 18. See also, e.g., Clay v. Kuhl, 189 Ill. 2d 603, 613 (2000) (to establish fraudulent concealment, a plaintiff must “plead[ ] and prove[ ] that fraud prevented the discovery of the cause of action”); Foster v. Plaut, 252 Ill. App. 3d 692, 699 (1993) (“it is necessary to show affirmative acts by the defendant which were designed to prevent, and in fact did prevent, the discovery of the claim”).
¶ 98 Plaintiffs’ complaint is deficient because, even assuming that defendants’ specification of a certain type of insulation was a false statement for the purposes of fraudulent concealment under section
¶ 99 The majority opinion suffers from the same problem. Indeed, the majority’s holding that defendants’ specification of a certain type of insulation can form the basis for fraudulent concealment in this case appears to mean that any false statement made by a defendant, even if it did not, and could not, cause the plaintiff’s failure to discover the underlying cause of action, can serve as the basis for fraudulent concealment under section
¶ 100 The majority also offers the following statement in support of its holding that plaintiffs have adequately alleged fraudulent concealment with respect to the representations in the sales brochure: “Plaintiffs allege that defendants ‘covered up the Units’ deficiencies in brick and mortar,’ cutting costs ‘for the purpose of realizing greater profits from the city contract,’ and that these deficiencies could not have been discovered by plaintiffs ‘without extensive testing and opening up
¶ 101 However, this court has rejected this proposition. As the appellate court below stated:
“The presence of latent defects, by themselves, are not sufficient to circumvent the statute of repose under the section 13-214(e) fraud exception. For example, in VonHoldt v. Barba & Barba Construction, Inc., 175 Ill. 2d 426 (1997), our supreme court considered whether a cause of action involving a latent defect was barred by the statute of repose. The supreme court found that the plaintiff had successfully pleaded a cause of action for breach of the implied warranty of habitability because a latent defect existed. VonHoldt, 175 Ill. 2d at 432. However, the plaintiff filed the lawsuit 11 years after construction was completed. VonHoldt, 175 Ill. 2d at 433. The supreme court concluded that the lawsuit was time-barred by the statute of repose. VonHoldt, 175 Ill. 2d at 434.” 2014 IL App (1st) 130764, ¶ 98.
The majority does not explain why it is rejecting the reasoning of VonHoldt. This, too, is error.
¶ 102 The statements in defendants’ sales brochure cannot form the basis for fraudulent concealment. I would hold, therefore, that section
B. Insufficient Reserve Fund
¶ 104 The majority offers a second basis for finding that plaintiffs have alleged fraudulent concealment, at least with respect to defendants Ronald Shipka, Sr., Ronald Shipka, Jr., and John Shipka. The majority observes that the Shipkas served as the first board of managers for the condominium association for approximately six months in 1996, from June until the end of that year, when control was turned over to the first elected board. During that time, the Shipkas had a fiduciary duty to maintain a reserve fund for capital expenditures and repairs of common elements in the condominium association. Supra ¶ 42.
¶ 105
¶ 106 Again, however, to plead fraudulent concealment it is not enough to simply allege that the defendant made a false statement. The plaintiff must also plead causation by alleging detrimental reliance. Orlak, 228 Ill. 2d at 18. There is no allegation in plaintiffs’ complaint that any occupant of the Henderson Square development, whether at the time the residences were first constructed or later, was, in fact, aware of the amount of money in the reserve fund, and because of that awareness, was prevented from discovering the water problems in the garden-level units, or from discovering any cause of action related to those problems. This is fatal to an assertion of fraudulent concealment under section
¶ 107 Moreover, an inadequate reserve fund is going to exist in every instance where a condominium board sues a builder for construction problems; if there were an adequate reserve there would be no need for litigation. Thus, the majority appears to be saying that whenever a condominium board has to sue a builder, the statute of repose simply does not apply. I do not think the legislature intended this result.
¶ 108 A statute of repose, such as section
¶ 109 I would hold that plaintiffs have failed to plead fraudulent concealment within the meaning of section
II. Count IV—Section 13-72-030 of the Chicago Municipal Code
¶ 111 In count IV of their complaint, plaintiffs allege that defendants violated section
“No person shall with the intent that a prospective purchaser rely on such act or omission, advertise, sell or offer for sale any condominium unit by (a) employing any statement or pictorial representation which is false or (b) omitting any material statement or pictorial representation.”
Chicago Municipal Code § 13-72-030 .
Plaintiffs allege that the four statements in defendants’ sales brochure discussed above (see supra ¶ 15), constitute “false” statements within the meaning of section
¶ 112 In addition, plaintiffs contend that, should they prove defendants violated the ordinance, they are entitled to money damages. Specifically, plaintiffs argue they would be entitled to the “total cost of remediation of the deficiencies and damage to the common elements and residential units” plus “reasonable attorney fees.”
¶ 113 The majority agrees and holds that plaintiffs have properly alleged a violation of section
¶ 114 The majority also concludes that plaintiffs need not prove detrimental reliance or causation to recover under the ordinance. According to the majority, recovery
¶ 115 Finally, the majority agrees with plaintiffs that recovery under section
¶ 116 The majority’s reasoning cannot be correct. Section
¶ 117 Further, consider the scope of the majority’s holding here. According to the majority, not only is puffing prohibited under the ordinance, but a plaintiff can recover damages that were not caused by the puffing. In this case, for example, even if plaintiffs are unable to prove that anyone actually saw defendants’ sales brochure, and are unable to prove that the statements in the brochure were in any way related to the water damage (which is a given), it does not matter. Under the majority’s reading of section
¶ 118 I would hold that section
¶ 119 For the foregoing reasons, I respectfully dissent.
¶ 120 JUSTICES FREEMAN and KARMEIER join in this dissent.