Fountain Square on the River Condo. Ass'n v. First Am. Bank

1

2024 IL App (2d) 230076-U

FOUNTAIN SQUARE ON THE RIVER CONDOMINIUM ASSOCIATION, LTD., an Illinois not-for-profit corporation, Plaintiff-Appellant, v. FIRST AMERICAN BANK, FIRST AMERICAN BANK, as Trustee under that certain trust agreement dated August 19, 2009, and known as Trust No. 1-09-124, JOHN OLSEN, JAMES BERTON, JOHN M. LEE, DIANE HEITKEMPER, and AMERICAN REAL ESTATE INVESTMENTS NO. 4, LLC, Defendants-Appellees.

RSC-ELGIN, LLC, an Illinois limited liability company, NOVAK CONSTRUCTION COMPANY, an Illinois corporation, RICHARD CURTO, JARED MARGOLIS, REIS KAYSER, Defendants.

No. 2-23-0076

Court of Appeals of Illinois, Second District

November 14, 2024

This order was filed under Supreme Court Rule 23(b) and is not precedent except in the limited circumstances allowed under Rule 23(e)(1).

Appeal from the Circuit Court of Kane County. No. 17-L-301 Honorable Robert K. Villa, Judge, Presiding.

JUSTICE HUTCHINSON delivered the judgment of the court. Justices Schostok concurred in the judgment. Justice Kennedy dissented in the judgment.

ORDER

HUTCHINSON, JUSTICE

¶ 1 Held: The trial court did not err in dismissing plaintiff's second amended complaint after finding that defendants properly raised the affirmative matter of the business judgment rule to defeat plaintiff's claims. The trial court did not err in finding that plaintiff failed to rebut defendants' evidence that the business judgment rule barred its claims.

¶ 2 Plaintiff, Fountain Square on the River Condominium Association, appeals from the trial court's dismissal with prejudice, of its second amended complaint's claims sounding in fraud, consumer fraud, and breach of fiduciary duty against defendants pursuant to section 2-619(a)(9) (735 ILCS 5/2-619(a)(9) (West 2020) of the Code of Civil Procedure (the Code).^[1] Plaintiff contends that the trial court (1) improperly considered defendants' argument as to the business judgment rule as an affirmative matter; (2) erred in finding that defendants' section 2-619(a)(9) motion conclusively defeated the facts articulated in plaintiff's second amended complaint; (3) incorrectly concluded that plaintiff failed to rebut defendant's evidence that the business judgment rule barred its claims and (4) abused its discretion in granting defendant's motion to dismiss plaintiff's second amended complaint with prejudice.

¶ 3 I. BACKGROUND

¶ 4 In 2005, RSC-Elgin entered into a construction loan agreement with First American Bank to finance the building and development of a 93-unit residential condominium building in Elgin. RSC-Elgin retained Novak Construction Company (Novak) as its general contractor to develop the building. RSC-Elgin and Novak engaged in ongoing disputes over certain construction defects to the building between 2005 and 2008. On October 21, 2008, Novak filed a suit in Kane county to foreclose on a mechanic's lien filed against RSC-Elgin after it failed to pay money owed to Novak.

¶ 5 On June 23, 2009, RSC-Elgin, First American Bank, and Novak entered into a settlement agreement and release of the mechanic's lien. In the agreement, RSC-Elgin agreed to pay Novak $775,000 in three separate installments. The first payment of $250,000 was to be made upon Novak's dismissal of its mechanic's lien action in Kane County. The second payment of $250,000 was to be made upon Novak's "substantial completion" of all work set forth in a "punch list." The agreement defined "substantial completion" to mean that "all work recorded on the punch list has been completed except for minor or inconsequential details of construction ***." The third payment of $275,000 was to be made upon

"(a) Novak's final completion of all (100%) of the work set forth in the Punch List, (b) inspection and approval by RSC-Elgin and its lender, First American Bank, to confirm completion of all such work, which approval shall not be unreasonably withheld, and (c) an unqualified certification from Wiss, Janney, Elstner Associates, Inc. (Wiss Janney) that all causes of water infiltration causing leaks in the building and all (100%) of the work set forth in the Punch List have been corrected."

¶ 6 On July 2, 2009, Wiss Janney Principal, Joseph Godfryt provided First American Bank Assistant Vice President, John Lee, with a memorandum in response to the building's repair work proposed by Novak "to eliminate water leakage at the roof to wall balcony condition at the 8th floor of the *** property[,]" and read as follows:

"a. Barrier Wall design:

It is critical to understand that by design, the barrier wall system at this property relies solely on the integrity of exterior sealant to keep the building watertight. With that in mind, any joint defect (including minor joint installation errors) is a candidate as a source for water entry. This includes the wall system as well as the north parking deck area atop the underground garage. In our opinion, this equates to an anticipated watertight performance expectation of 7 to 12 years, as the in-place sealant will deteriorate and fail due to normal weathering at some point within that time frame. Consideration must also be given to the substrates to which the sealant is applied. At the balcony, concrete is a porous material and can allow for the infiltration of moisture under the perimeter sealant, which may be contributing to the recent leak issues. [Wiss Janney] typically recommends the inherent redundancy provided by a flashing and/or rainscreen design approach for the exterior building enclosure design. The water entry problems that are occurring at this property are typical of those associated with barrier wall designs and they include installer errors and sealant adhesion defects.

b. Long Term Durability:

Although Novak Construction seems to be certain that the source of the leakage at the upper corner units (west elevation) is the result of defective sealant at the balcony-to-wall interface, [Wiss Janney] cannot "endorse" their proposed sealant joint replacement repair. [Wiss Janney] did not perform field water testing at the as-built installation to conclusively identify that this is a single-source leak problem. It is possible that the window assembly and/or the adhered EPDM deck membrane, or interfaces between these components is also defective and if that is the case, leakage will re-occur. Note that in the field opening made by Novak, there was no visual evidence of water staining or corrosion on the steel stud wall framing. This absence of visible corrosion would normally be expected at a location that has been an active leakage source for any extended period of time. Based upon our experience the absence of such visible staining suggests that the proposed repair area may not be the only water path that exists at this location.

c. Constructability of Repairs:

If Novak is correct and the defective corner (which was opened in our last site visit) is in fact the sole source of current leakage, it is critical to understand that such a sealant repair approach will likely not result in what we would define as a permanent solution to the problem. We are not sure why the whole area of EIFS was removed if in fact the only area believed to be a problem was the sealant joint. The balcony design, inclusive of the actual drainage path in relation to the extremely narrow balcony width is such that it poses significant constructability issues in terms of developing a permanent watertight solution to the problem.

It is my understanding that Novak has proceeded with repair activity as described in their recent email. Assuming that repairs were performed this week, we suggest that the materials be allowed to fully cure (for a one week minimum period) followed by re-testing to confirm watertight performance.

In the event that water leakage continues to occur, [Wiss Janney] will be available to provide a comprehensive repair approach to the problem. In the interim, we will proceed with our written summary statements with respect to the garage leakage issues, ceiling finish cracks, as well as our related recommendations towards resolving all major water entry issues at the property."

¶ 7 On July 20, 2009, Godfryt emailed to Lee a proposal detailing Wiss Janney's plan to determine "if sealant joint repair and replacement work that is currently being performed [by Novak] has corrected water entry problems at the west portion of the building." Godfryt's email detailed the following proposed services:

"1. Visual inspection of the entire west elevation will be performed. Close-up inspections will be performed via a portable man lift. All inspection observations will be graphically and photographically recorded. These inspections will include:

a. Precast concrete sealant joints

b. Perimeter window sealant joints

c. Balcony waterproofing

2. Field Testing: Field water testing will be performed at all units on the west elevation of the building that have experienced leakage as evidenced by interior finish staining. Per our past interior inspections we assume that this represents at least one window opening in each of the west elevation units at both the north and south sides of the building. A portable man lift will be used to gain close-up access for our field personnel. We will employ both calibrated water nozzle as well as water spray rack procedures to complete this testing. Where interior occurs [sic], we will attempt to trace the water entry path (as accurately as possible) to confirm if the source of water entry is defective sealant or an inherent defect in the window assembly.

3. Upon completion of all field testing tasks we will prepare and submit a written report of our findings. Our report will include a discussion of all pertinent design and construction issues related to past water entry concerns."

Lee responded...