Kai v. Bd. of Dirs. of Spring Hill Bldg. 1 Condo. Ass'n, Inc.

2020 IL App (2d) 190642

171 N.E.3d 42

446 Ill.Dec. 607

Katie KAI; Baohua Xue; Milin P. Patel; Arti D. Patel; Maciej Labowicz; Eva Labowicz; VSA Properties LLC; Everyoung, LLC-Series 1; Everyoung, LLC-Series 2; Everyoung, LLC-Series 3; Everyoung, LLC-Series 4; Everyoung, LLC-Series 5; Everyoung, LLC-Series 6; Everyoung, LLC-Series 7; Newport Homes Pension Plan; Mitul Rao; Nishaben Rao; Hemal Rao; Shital Rao; David Yu; Jane Lee; Charlene M. Romberg Revocable Living Trust; Dennis Krull; Renata Majewski; Grazyna Kielczeska; Brian Przybylski; Boguslaw Przybylski ; and Maureen Jordan, Plaintiffs,

v.BOARD OF DIRECTORS OF SPRING HILL BUILDING 1 CONDOMINIUM ASSOCIATION, INC.; Board of Directors of Spring Hill Building 4 Condominium Association, Inc.; Board of Directors of Spring Hill Building 5 Condominium Association, Inc.; Board of Directors of Spring Hill Building 6 Condominium Association, Inc.; Spring Hill Condominiums Master Association, Inc.; Mosaic Springhill, LLC; David I. Dresdner; Sherwood E. Blitstein; Richard Blatt ; and Mosaic Beverly FMC, LLC, Defendants-Appellees

(Maureen Jordan, Plaintiff-Appellant).

No. 2-19-0642

Appellate Court of Illinois, Second District.

Opinion filed June 3, 2020

Rehearing denied July 8, 2020

John L. Quinn, of Churchill, Quinn, Richtman & Hamilton, Ltd., of Grayslake, for appellant.

James D. Wilson and Jeffrey M. Schieber, of Taft Stettinius & Hollister LLP, of Chicago, for appellees Mosaic Springhill, LLC, and Mosaic Beverly FMC, LLC, of Chicago.

Matthew J. Goldberg and Britany Fijolek, of Richman, Goldberg & Gorham, LLC, of St. Charles, for other appellees.

JUSTICE SCHOSTOK delivered the judgment of the court, with opinion.

¶ 1 This case centers on the forced bulk sale of condominium units under section 15 of the Condominium Property Act (Act) ( 765 ILCS 605/15 (West 2018) ). The plaintiffs—all individual unit owners—filed suit, contending among other things that the defendants breached their fiduciary duties toward the plaintiffs. The trial court dismissed their claims, ruling that the procedures in section 15 constituted the sole remedy available to the plaintiffs, regardless of any breach of fiduciary duty by the defendants. The correctness of that determination is the focus of this appeal.

¶ 2 I. BACKGROUND

¶ 3 The following facts are drawn from undisputed facts in the record and the allegations of the second amended complaint. Because this is an appeal from the dismissal of that complaint, we take the facts alleged therein as true. See Wallace v. Smyth , 203 Ill. 2d 441, 447, 272 Ill.Dec. 146, 786 N.E.2d 980 (2002).

¶ 4 The Spring Hill condominium complex is located in Roselle. It consists of six buildings (numbered 1 through 6), each of which has more than four units. Each building is governed by a condominium association that acts through a five-person board elected by the unit owners in that association. The associations in turn belong to a single master association for the complex. The plaintiff Maureen Jordan owned two units in the complex: one in building 1 and one in building 6. All of the remaining plaintiffs owned units in buildings 1, 4, 5, or 6.

¶ 5 The defendant Mosaic Spring Hill, LLC (MSH), was controlled, directly or indirectly, by the defendants, David Dresdner, Sherwood Blitstein, and Richard Blatt. Over a few years, MSH purchased a number of the units at the complex. As of October 2018, MSH owned all of the units in buildings 2 and 3. It also owned more than 75% of the units in buildings 4, 5, and 6, and a majority of the units in building 1. With this majority interest, MSH elected Dresdner, Blitstein, and Blatt (the Defendant Board Members) to the boards of each building's association as well as the master association, enabling them to exercise a controlling vote on each association's board. Dresdner was the president of the association boards for buildings 1, 4, 5, and 6, and the master association. Those boards (Defendant Boards) were all named as defendants herein.

¶ 6 Under section 15 of the Act, if a sufficient majority of the unit owners in an association votes in favor of a bulk sale of all of the units, the majority may force such a sale. The minority owners are entitled to receive the value of their interests in the property but must sell their units as provided in the bulk sale contract. The provisions of section 15 are intended to prevent holdout unit owners from blocking a sale favored by the majority of owners.

"§ 15. Sale of property.

(a) Unless a greater percentage is provided for in the declaration or bylaws, * * * not less than 75% where the property contains 4 or more units may, by affirmative vote at a meeting of unit owners duly called for such purpose, elect to sell the property. Such action shall be binding upon all unit owners, and it shall thereupon become the duty of every unit owner to execute and deliver such instruments and to perform all acts as in manner and form may be necessary to effect such sale, provided, however, that any unit owner who did not vote in favor of such action and who has filed written objection thereto with the manager or board of managers within 20 days after the date of the meeting at which such sale was approved shall be entitled to receive from the proceeds of such sale an amount equivalent to the greater of: (i) the value of his or her interest, as determined by a fair appraisal, less the amount of any unpaid assessments or charges due and owing from such unit owner or (ii) the outstanding balance of any bona fide debt secured by the objecting unit owner's interest which was incurred by such unit owner in connection with the acquisition or refinance of the unit owner's interest, less the amount of any unpaid assessments or charges due and owing from such unit owner. The objecting unit owner is also entitled to receive from the proceeds of a sale under this Section reimbursement for reasonable relocation costs * * *.

(b) If there is a disagreement as to the value of the interest of a unit owner who did not vote in favor of the sale of the property, that unit owner shall have a right to designate an expert in appraisal or property valuation to represent him, in which case, the prospective purchaser of the property shall designate an expert in appraisal or property valuation to represent him, and both of these experts shall mutually designate a third expert in appraisal or property valuation. The 3 experts shall constitute a panel to determine by vote of at least 2 of the members of the panel, the value of that unit owner's interest in the property." 765 ILCS 605/15 (West 2018).

¶ 7 In late 2017, the Defendant Board Members decided to acquire the remaining units that MSH did not own through a bulk sale to the defendant, Mosaic Beverly FMC, LLC (Mosaic Beverly)—an entity that they also controlled. In preparation for this sale, they used their positions on the Defendant Boards to approve the use of association funds to pay for the services of lawyers and appraisers. They also could suppress dissent and block other potential buyers from being considered.

¶ 8 In June 2018, the Defendant Boards notified all unit owners of a July 9 meeting for each building for the purpose of approving a bulk sale of all units. A copy of a sale contract identifying Mosaic Beverly as the buyer was attached to the notices. Under the contract, owners of one-bedroom units would receive $83,475, an amount substantially less than the sale price for comparable units in Spring Hill in 2016. The contract explicitly favored the defendants in several respects. For instance, the contract did not require MSH to actually transfer its units, providing that, if the buyer or any of its affiliates owned a unit, it could elect not to actually transfer the unit and instead the ownership interest of that unit would simply be deemed to have been transferred at closing "for purposes of calculating the unit ownership of the Association transferred." (Presumably, this provision was intended to minimize any transfer taxes and avoid other ordinary consequences of unit ownership transfer. Moreover, as the units owned by MSH would not actually be sold, the low price being paid by the affiliated buyer would not matter to MSH.) Further, the buyer retained sole discretion to elect not to proceed with the sale and terminate the contract, making the obligation to proceed with the sale one-sided. The contract also included other terms that served the defendants' interests at the expense of minority unit owners, including a purported release of personal liability for association board members. The overall effect of the contract was to oust the minority unit owners on terms favoring the defendants.

¶ 9 The July 9 meetings, which were controlled by the Defendant Board Members, were cursory. For example, the meeting for building 1 was adjourned immediately after being called to order, when the Defendant Board Members realized that the sale did not have the support of 75% of the unit owners. The board refused to allow any discussion of the proposed sale, hold an actual vote, or allow a non-MSH board member to videotape the meeting. The other three meetings consisted solely of the vote, without allowing discussion of the sale contract or any other matters. Because MSH owned more than 75% of the units in buildings 4, 5, and 6, the bulk sale of those buildings was approved. Within 20 days, all of the plaintiff unit owners except Jordan submitted written objections to the sale.

¶ 10 The plaintiffs filed suit in late July 2018, claiming breach of fiduciary duty, fraud, and civil conspiracy, and seeking an injunction to prevent the sale as well as rescission of the bulk sale contract. They filed an amended complaint in September 2018. The defendants moved to dismiss on a variety of grounds. The trial court granted the defendants' motions and dismissed the amended complaint without prejudice.

¶ 11 In October 2018, the plaintiffs filed their second amended complaint. It contained four...