A group of Chicago condominium owners has been cleared to continue their lawsuit against a group of builders 15 years after the developers allegedly sold them a shoddy building under false pretenses, after the Illinois Supreme Court ruled 4-3 on Nov. 4 to revive their case and send it back to circuit court for more proceedings.
Henderson Square Condominium Association and its board of managers filed suit in October 2011 against the development companies Enterprise, LAB Townhomes, LAB Lofts and Lincoln, Ashland & Belmont, as well as against the men who set up the companies – Ronald Sr., Ronald Jr. and John Shipka, all of Cook County.
Plaintiffs said their condominium building was constructed by the Shipkas in 1996 as part of a contract with the city of Chicago for the Lincoln-Belmont-Ashland Redevelopment Project Area. The Shipkas installed themselves as the condominium’s first board of managers, turning over control after several months to an elected board in late 1996.
Plaintiffs alleged their building was rife with defects that led to serious water seepage more than a decade later. A restoration consultant hired by plaintiffs inspected the building and reported in 2009 that the structure’s workmanship was “very poor” and substantial reconstruction was required to mitigate the problems. Plaintiffs alleged the developers “covered up” the shortcuts they took, so as to reduce construction costs and thereby realize greater profits.
The condominium owners’ lawsuit contained five counts. Defendants lodged a motion to dismiss the first three counts, on grounds those counts were filed after expiration of the statute of repose – similar to a statute of limitations. The motion was granted, with defendants then filing another motion to dismiss the two remaining counts alleging breach of municipal code prohibiting misrepresentation in marketing and selling real estate, and breach of fiduciary duty. Defendants again invoked the statute of repose for both counts, as well as failure to state a cause of action for count four. The judge agreed and dismissed the two counts.
Plaintiffs went to First District Appellate Court in Chicago to appeal dismissal of counts four and five. That court reversed the lower court's ruling. Defendants fought back by asking the Illinois Supreme Court to address the matter, which that body did. Justice Robert Thomas delivered the opinion Nov. 4 affirming the appellate court’s decision to reverse. As a result, the case was remanded to circuit court. Chief Justice Rita Garman and Justices Thomas Kilbride and Mary Jane Theis concurred.
The justices ruled that under the fraudulent concealment doctrine, plaintiffs had five years from the time they discovered the true extent of the seepage, to bring legal action. The defendants argued plaintiffs were vague as to when the seepage came to the condo owners’ knowledge.
Justices took note the owners first noticed minor leaks in late 2007 or early 2008, and had them repaired, believing that was sufficient. But when the leaks continued, further investigation in late 2009 showed the magnitude of the problem. The justices concluded it could be plausible fraud prevented earlier discovery of the poor workmanship, and so 2009 was the period when the five-year statute of repose began tolling, with plaintiffs filing in plenty of time. At any rate, determination of the date of discovery is a question to be hashed out at trial, not in a motion to dismiss, the justices said.
As far as plaintiffs’ cause of action, defendants argued plaintiffs needed to show false statements about the building's quality had to refer to preexisting facts, and not be promises that may have turned out false. The justices found that any false statement – regardless whether it concerns promises or preexisting facts – that is intended to lure a prospective buyer could be the basis for a suit.
Plaintiffs also have grounds to claim defendants breached their fiduciary duty during their stint on the condo board in 1996, when they did not provide sufficient funds to repair the defects they knew existed, according to the justices. Further, justices found it is plausible the inadequate reserve fund was deliberately kept low to advance the belief among prospective buyers that the building was better built.
However, three justices – Anne Burke, Charles Freeman and Lloyd Karmeier – took issue with the majority opinion and dissented. They questioned the majority view that defendants may have committed fraudulent concealment by promising to provide “quality” construction, when what they were really doing was engaging in an “expression of subjective opinion.” The minority justices pointed out Illinois courts have long held that such expressions, known as “puffing,” are acceptable.
“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,” wrote Burke.
The minority justices also did not buy into the view the defendants' fund reserve acted to defraud plaintiffs, because no evidence was shown any condo owners based their decision to buy a unit on the amount in the reserve.
Chicago law firms are representing the parties – Bryce, Downey & Lenkov for plaintiffs and Brown, Udell & Peters for defendants.