Court Opinion

ID: 4636562
Source: CourtListenerOpinion
Date Created: 2020-11-24 22:38:14.435558+00
Date Added: 2024-06-11T07:58:34.630451
License: Public Domain

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                                    Appellate Court                         Date: 2020.05.26
                                                                            14:18:29 -05'00'

             Ruiz v. Cal-Ful Condominium Ass’n, 2019 IL App (1st) 181734

Appellate Court        GONZALO RUIZ and DINA RUIZ, Plaintiffs-Appellants, v.
Caption                CAL-FUL CONDOMINIUM ASSOCATION, an Illinois
                       Not-for-Profit    Corporation;     CALIFORNIA      COMMONS
                       RESIDENTIAL CONDOMINIUM ASSOCIATION, an Illinois
                       Not-for-Profit Dissolved Corporation; MARIA ARCOS; RACHEL
                       OWENS; and OMAR R. CASTRO, Defendants (Cal-Ful
                       Condominium Association, Maria Arcos, Rachel Owens, and Omar R.
                       Castro, Defendants-Appellees).

District & No.         First District Sixth Division
                       No. 1-18-1734

Filed                  September 20, 2019
Rehearing denied       October 18, 2019

Decision Under         Appeal from the Circuit Court of Cook County, No. 13-CH-20579; the
Review                 Hon. Anna H. Demacopoulos, Judge, presiding.

Judgment               Affirmed in part, reversed in part, and remanded.

Counsel on             Marty Schwartz and Tyler Manic, of Schain, Banks, Kenny &
Appeal                 Schwartz, of Chicago, for appellants.

                       David T. Brown and Lucas Sun, of Kaufman Dolowich & Voluck,
                       LLP, of Chicago, for appellees.
     Panel                        JUSTICE CUNNINGHAM delivered the judgment of the court, with
                                  opinion.
                                  Justices Connors and Harris concurred in the judgment and opinion.

                                                     OPINION

¶1         This case arises out of a dispute between two condominium unit owners and the
       condominium board of directors regarding the directors’ exercise of their fiduciary duty.
       Plaintiffs-appellants Gonzalo and Dina Ruiz, the unit owners, appeal the circuit court of Cook
       County’s dismissal of certain counts of their complaint against defendant-appellee Cal-Ful
       Condominium Association and the court’s entry of summary judgment in favor of
       codefendants-appellees Maria Arcos, Rachel Owens, and Omar R. Castro, members of the
       condominium board of directors.
¶2         On appeal, the Ruizes argue that the court erred in granting summary judgment for the
       directors based on the directors’ defense of equitable estoppel. The Ruizes further argue that
       the court erred in dismissing count II of their complaint, seeking attorney fees from the Cal-Ful
       Condominium Association for the failure to state a claim.
¶3         Finding that the Ruizes were not estopped from bringing their breach of fiduciary duty
       claim as a matter of law, but that they did not state a claim for attorney fees, we affirm the
       circuit court of Cook County in part, reverse in part, and remand for further proceedings.

¶4                                          I. BACKGROUND
¶5         The following facts are taken from the Ruizes’ third amended complaint. Gonzalo
       purchased the buildings located at 2353-63 North California Avenue and 2757 West Fullerton
       Avenue in Chicago in 1985. In 1994, Gonzalo, as the developer, converted the buildings into
       two condominium associations, one commercial and one residential. The commercial
       association had 3 units, while the residential association had 10. In December 1994, the Ruizes
       recorded declarations identifying California Commons Commercial Condominiums (CCC)
       and California Commons Residential Condominiums (CCR) as the associations for the
       commercial and residential properties, respectively. (CCR was incorporated; CCC was not.)
       The Ruizes were the beneficiaries of a land trust that owned the three commercial units.
¶6         In 2001, CCR was involuntarily dissolved for failing to file annual reports with the Illinois
       Secretary of State. Rather than reinstate the dissolved association, the Ruizes incorporated the
       Cal-Full Condominium Association 1 (CFCA). On paper, CFCA served as the association only
       for the residential condominiums, while CCC served as the association for the commercial
       units. In practice, however, CFCA acted as an association for both the residential and
       commercial units in the following ways: (1) there was only one board of directors for both
       associations, and unit owners voted for directors without distinguishing between the two
       associations, (2) the associations did not have separate unit owner meetings, (3) the
       associations shared a budget and bank accounts, (4) the directors collected and commingled

             1
              “Cal-Full” is alternately spelled “Cal-Ful.”

                                                         -2-
       assessments from the owners of both the residential and commercial units, and (5) there was
       one insurance policy for the building.
¶7         Gonzalo served on the board of directors of CFCA until 2006. In 2007, Maria Arcos,
       Rachel Owens, and Omar R. Castro (collectively, directors) joined the board of directors and
       remained on the board until 2014. All three owned residential units in the building.
¶8         In 2007, the Ruizes altered the first page of the 1994 CCR declaration, which was
       originally captioned “The California Commons Residential Condominiums” to read “The
       Cal/Ful Condominiums Association, Residential and Commercial.” The Ruizes recorded the
       2007 declaration with the recorder of deeds against the commercial units. Significantly, none
       of the substantive terms of the 1994 CCR declaration were changed; the legal description of the
       property in the 2007 declaration includes only a description of the residential units. According
       to the Ruizes, they made this alteration to comply with certain requirements promulgated by
       the United States Department of Housing and Urban Development, so that it would continue to
       provide mortgage loans to residential condominium purchasers at the building.
¶9         Also in 2007, Gonzalo asked Arcos to distribute a notice to all unit owners that referred to
       the “California Fullerton Condominium Association” as including “13 condominiums of
       which 10 are residential and 3 are commercial.”
¶ 10       Based on the 2007 notice and declaration as well as the Ruizes’ own representations, the
       directors managed, controlled, and made expenditures for both the commercial and residential
       associations between 2007 and 2014. In other words, they believed the association of which
       they were directors—CFCA—governed both the commercial and residential units.
¶ 11       In January 2011, a fire occurred, causing damage to both commercial and residential units
       in the buildings. As noted supra ¶ 6, both the residential and commercial units shared a single
       policy of property insurance issued by Travelers Insurance Company of America (Travelers).
       In February 2012, Travelers provided the directors with an estimate of damages that it would
       cover for the loss under the policy. That estimate allocated $51,500 to repair the damages to the
       common elements of the commercial units. The directors approved the estimate and agreed to
       settle the claim for that amount. Shortly after the fire, the directors authorized the demolition of
       the commercial units.
¶ 12       This litigation commenced in September 2013, when Gonzalo filed his first complaint
       against only “Cal-Full Condominium Association,” seeking to compel the production of books
       and records. In both his first complaint and his verified amended complaint, filed in August
       2014, Gonzalo asserted that the “Cal-Full Condominium Association” was governed by the
       2007 declaration. It was not until the filing of his second amended complaint in August 2015
       that Gonzalo acknowledged that there were two condominium associations, although he
       continued to maintain that they operated as one entity. Also in the verified second amended
       complaint, Gonzalo named CCR and the directors as defendants for the first time in addition to
       CFCA.
¶ 13       At the same time, the directors learned through their management company that there were
       two associations for the building. They allowed CFCA to dissolve in 2015 and reinstated CCR,
       which is the successor in interest to CFCA.

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¶ 14       In their third amended complaint filed in October 2016, at issue here, the Ruizes raised six
       counts. 2 Counts I, V, and VI were dismissed and are not part of this appeal. Count II sought
       attorney fees from CFCA and CCR for failing to produce certain books and records pursuant to
       section 19 of the Condominium Property Act (Act). 765 ILCS 605/19 (West 2016). Counts III
       and IV alleged breach of fiduciary duty by the directors for settling with Travelers for $51,500
       and authorizing the demolition of the commercial units. Specifically, the Ruizes alleged that
       the amount offered by Travelers to repair the commercial units was grossly inadequate and the
       directors breached their fiduciary duty by accepting it. Further, they alleged that the directors
       failed to provide the Ruizes with the entire $51,500 to repair the units. With regard to the
       demolition, the Ruizes alleged that it was a breach of fiduciary duty for the directors to
       authorize the demolition of the commercial units prior to investigating whether the demolition
       was necessary, obtaining the Ruizes’ permission, or verifying that the insurance policy would
       cover the cost of repair and replacement.
¶ 15       In November 2016, the defendants moved to dismiss the complaint pursuant to section
       2-615 of the Code of Civil Procedure. 735 ILCS 5/2-615 (West 2016). The court granted the
       motion as to counts II, V, and VI in February 2017. (The Ruizes voluntarily dismissed count I.)
       With regard to count II, the court found that the Ruizes had not adequately pled bad faith as
       required to sustain an action for attorney fees pursuant to section 19(e) of the Act. 765 ILCS
       605/19(e) (West 2016).
¶ 16       One year later, in November 2017, the directors moved for partial summary judgment on
       counts III and IV of the complaint on the basis that the Ruizes were equitably estopped from
       asserting a breach of fiduciary duty. (The circuit court permitted the directors to reserve all
       other defenses.) Following a hearing in February 2018, the court granted the directors’ motion.
       The court concluded that equitable estoppel applied as a matter of law, noting that the Ruizes
       knowingly and fraudulently misled the directors into believing there was one association
       governing the commercial and residential units and requiring them to act as fiduciaries for the
       commercial association. The court further found that the directors would be prejudiced if the
       Ruizes were allowed to deny the truth that there were two associations and that the directors
       had no obligation to assume fiduciary responsibilities for the commercial units.
¶ 17       The court denied the Ruizes’ motion for reconsideration in June 2018, and the Ruizes
       timely appealed from the circuit court’s dismissal of count II of their complaint and the court’s
       entry of summary judgment in favor of the directors on counts III and IV.

¶ 18                                          II. ANALYSIS
¶ 19       We note that we have jurisdiction to review this matter, as the Ruizes filed a timely notice
       of appeal following the denial of their motion for reconsideration. Ill. S. Ct. R. 301 (eff. Feb. 1,
       1994); R. 303 (eff. July 1, 2017).
¶ 20       We turn first to the Ruizes’ challenge to the court’s entry of summary judgment in favor of
       the directors. Summary judgment is appropriate only when “ ‘the pleadings, depositions, and
       admissions on file, together with the affidavits, if any, show that there is no genuine issue as to
       any material fact and that the moving party is entitled to a judgment as a matter of law.’ ” 1010
       Lake Shore Ass’n v. Deutsche Bank National Trust Co., 2015 IL 118372, ¶ 20 (quoting 735

           2
            Gonzalo added Dina as a plaintiff for the first time in the third amended complaint without leave of
       court. The defendants maintain they have reserved their rights on this issue.

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       ILCS 5/2-1005(c) (West 2008)). All supporting materials are strictly construed against the
       movant and in favor of the opposing party. Mashal v. City of Chicago, 2012 IL 112341, ¶ 49.
       We review de novo an order granting summary judgment. Nationwide Financial, LP v.
       Pobuda, 2014 IL 116717, ¶ 24.
¶ 21       The directors’ motion for summary judgment was based entirely on the theory that the
       Ruizes were equitably estopped, as a matter of law, from claiming a breach of fiduciary duty.
       In order to raise a successful defense of equitable estoppel, the party claiming estoppel must
       show (1) the other party misrepresented or concealed material facts, (2) the other party knew,
       at the time the representations were made, that those representations were false, (3) the party
       claiming estoppel did not know of the falsity of the representations when they were made or
       when they were acted upon, (4) the other party intended or reasonably expected the
       representations to be acted upon by the party claiming estoppel, (5) the party claiming estoppel
       reasonably relied upon the representations in good faith to his detriment, and (6) the party
       claiming estoppel has been prejudiced by his reliance on the representations. In re Parentage
       of Scarlett Z.-D., 2015 IL 117904, ¶ 25. Succinctly stated,
                “where a person by his or her statements and conduct leads a party to do something that
                the party would not have done but for such statements and conduct, that person will not
                be allowed to deny his or her words or acts to the damage of the other party.” Geddes v.
                Mill Creek Country Club, Inc., 196 Ill. 2d 302, 313 (2001).
¶ 22       We agree with the Ruizes that equitable estoppel has no application to this case.
       Fundamentally, the Ruizes are not repudiating the fact that they told the directors that one
       association governed both the commercial and residential units in the building. They admit in
       their pleading that in practice, if not in fact, the building was governed by a single association.
       A basic precept of estoppel is that a party may not deny the effect of his conduct or
       representation if to do so would cause prejudice to the party claiming estoppel. See Scarlett
       Z.-D., 2015 IL 117904, ¶ 25. The directors here do not point to any denial or repudiation by the
       Ruizes.
¶ 23       Significantly, the Ruizes do not allege that the directors should not have exercised their
       fiduciary duty on behalf of the commercial units. To the contrary, they accept that their actions
       induced the directors to act as fiduciaries. Their lawsuit is based on the allegation that the
       directors breached that duty. Needless to say, the directors’ reliance on the Ruizes’
       representations did not lead them to (allegedly) breach their fiduciary duties; it led them only to
       exercise those duties in the first place. And contrary to the directors’ contention, they suffered
       no detriment merely from undertaking those fiduciary duties. 3 For these reasons, we conclude
       that the trial court erred in applying equitable estoppel to bar the Ruizes from proceeding on
       their causes of action for breach of fiduciary duty. We therefore reverse the entry of summary
       judgment in favor of the directors.
¶ 24       We turn next to the Ruizes’ challenge to the trial court’s dismissal of count II of their
       complaint. A motion to dismiss pursuant to section 2-615 tests the legal sufficiency of a
       complaint based on defects apparent on its face. Simpkins v. CSX Transportation, Inc., 2012 IL
       110662, ¶ 13. The court must accept as true all well-pleaded facts as well as all reasonable

           3
            At oral argument, counsel for the directors maintained that that assuming fiduciary responsibilities
       for the commercial, as well as the residential units, subjected the directors to an increased risk of suit,
       but this is too speculative to qualify as a legal detriment.

                                                       -5-
       inferences drawn from those facts. Id. Our review of a trial court’s order granting or denying a
       2-615 motion is de novo. Patrick Engineering, Inc. v. City of Naperville, 2012 IL 113148, ¶ 31.
¶ 25       Here, the trial court dismissed the Ruizes’ claim seeking attorney fees for the association’s
       alleged failure to produce “books and records” based on its finding that the Ruizes failed to
       allege bad faith pursuant to section 19(e) of the Act. 765 ILCS 605/19(e) (West 2016).
¶ 26       The parties initially dispute which version of the Act applies. Prior to 2018, the Act
       provided, in relevant part, that a party who prevailed in an enforcement action to compel
       examination of, among other things, books and records of account, was not entitled to attorney
       fees unless the court found that the directors of the association acted in bad faith. 765 ILCS
       605/19(e) (West 2016). In January 2018, the Act was amended to exclude “books and records”
       from the bad faith requirement (i.e., a party seeking attorney fees for an association’s failure to
       produce books and records no longer needs to prove the directors acted in bad faith in failing to
       make those documents available). 765 ILCS 605/19(e) (West 2018). The Ruizes urge us to
       hold that the 2018 version of the Act applies, while the association maintains that the earlier
       version is applicable.
¶ 27       Determining whether a current or prior version of a statute is applicable to a cause of action
       ordinarily requires a retroactivity analysis as set forth in Commonwealth Edison Co. v. Will
       County Collector, 196 Ill. 2d 27, 38 (2001). Here, however, the Ruizes do not argue that the
       2018 Act is applicable retroactively to 2016, when they filed their third amended complaint.
       Rather, the Ruizes argue that the association’s conduct giving rise to their claim is ongoing and
       therefore the most current version of the Act applies. We find no merit to this contention.
¶ 28       In their third amended complaint, the Ruizes did not seek the production of the missing
       records, but only attorney fees for the association’s past failure to produce them. And that
       failure occurred in 2013, when Gonzalo made his initial request. While the association may
       have persisted in its failure to produce the books and records—an allegation that finds limited
       support in the record—this was not the basis for the Ruizes’ claim so as to establish an ongoing
       violation of the Act. Accordingly, we find that the earlier version of the Act is applicable.
¶ 29       Having determined that the pre-2018 Act is applicable to the Ruizes’ cause of action, we
       turn to the merits of the circuit court’s decision dismissing count II. It is necessary to begin by
       setting forth the documents the Act requires the board of directors to “keep and maintain”:
                   “(1) the association’s declaration, bylaws, and plats of survey, and all amendments
               of these;
                   (2) the rules and regulations of the association, if any;
                   (3) if the association is incorporated as a corporation, the articles of incorporation
               of the association and all amendments to the articles of incorporation;
                   (4) minutes of all meetings of the association and its board of managers for the
               immediately preceding 7 years;
                   (5) all current policies of insurance of the association;
                   (6) all contracts, leases, and other agreements then in effect to which the
               association is a party or under which the association or the unit owners have obligations
               or liabilities;
                   (7) a current listing of the names, addresses, and weighted vote of all members
               entitled to vote;

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                    (8) ballots and proxies related to ballots for all matters voted on by the members of
                the association during the immediately preceding 12 months, including but not limited
                to the election of members of the board of managers; and
                    (9) the books and records of account for the association’s current and 10
                immediately preceding fiscal years, including but not limited to itemized and detailed
                records of all receipts and expenditures.” 765 ILCS 605/19(a) (West 2016).
¶ 30        The Act provides that attorney fees are available for any member of the association who
       prevails in an enforcement action to compel examination of the records described in
       subsubsections (1) through (5). 765 ILCS 605/19(b) (West 2016). With respect to the
       documents described in subsubsections (6) through (9), the Act also permits recovery of
       attorney fees, but only upon a court finding that the directors acted in bad faith in denying the
       member’s request for the documents. 765 ILCS 605/19(e) (West 2016).
¶ 31        In his demand letter of 2013, Gonzalo expressed concern for the deteriorating condition of
       the condominium and sought to determine whether there was “waste, mismanagement, or
       dissipation” of financial resources. To that end, he made a general demand for “books and
       records” of the association and specifically requested the documents described in
       subsubsections (1) through (4), (6), and (9) of subsection (a) of the Act. He also requested
       “[f]inancial and accounting records related to income and expenses,” “code violations,” and
       “annual reports.”
¶ 32        The Ruizes argue that, pursuant to the Act, they were not required to plead bad faith to state
       a cause of action for attorney fees for the association’s failure to produce the documents falling
       within subsubsections (1) through (4). But count II of their third amended complaint did not
       allege that they were not provided with the documents referenced in subsubsections (1)
       through (4): it sought attorney fees only for the failure to produce books and records. The
       count itself is captioned “Attorney’s Fees for Failure to Produce Books and Records.” And the
       Ruizes specifically alleged that they had not been provided with “tax returns, financial
       statements, check ledgers, cancelled checks, a general ledger, a disbursement letter, or a cash
       receipts journal.” These documents fall within the catch-all of subsubsection (9), which lists
       “itemized and detailed records of all receipts and expenditures” among “books and records of
       account.” Accordingly, we conclude that the court did not err in finding that the Ruizes were
       required to plead bad faith to sustain their cause of action for attorney fees.
¶ 33        The only question that remains is whether the Ruizes sufficiently pled bad faith. Illinois is
       a fact-pleading jurisdiction; plaintiffs are required to set forth the facts that give rise to their
       cause of action. See Schal Bovis, Inc. v. Casualty Insurance Co., 314 Ill. App. 3d 562, 574
       (1999). This applies to all elements of a plaintiff’s claim. Id. “[N]otice pleading, conclusions of
       law, and conclusions of fact are insufficient.” Johnson v. Matrix Financial Services Corp., 354
       Ill. App. 3d 684, 696 (2004).
¶ 34        Here, the Ruizes alleged that the association’s failure to provide them with access to its
       books and records was “willful, vexatious, and without a proper purpose.” This is a
       quintessential conclusion of law. See, e.g., Oravek v. Community School District 146, 264 Ill.
       App. 3d 895, 898 (1994) (“The bare characterization of certain acts as wilful and wanton
       misconduct is not sufficient to withstand a motion to dismiss because such misconduct must be
       manifested by facts alleged in the complaint.”). They did not allege facts showing how the
       association acted willfully or vexatiously, nor did they plead facts demonstrating that the
       association’s failure to turn over records was without a proper purpose. Instead, the Ruizes

                                                    -7-
       argue that the association’s failure to produce the books and records within 30 days of
       Gonzalo’s request is necessarily indicative of bad faith. Were we to accept this contention, we
       would read the requirement of bad faith out of the statute entirely, as any failure to produce
       records would constitute bad faith, rendering the requirement meaningless. This we must
       avoid. See Brucker v. Mercola, 227 Ill. 2d 502, 514 (2007) (“Each word, clause and sentence
       of the statute, if possible, must be given reasonable meaning and not rendered superfluous.”).
¶ 35       Because the Ruizes failed to allege facts demonstrating bad faith on the part of the
       association, we affirm the circuit court’s dismissal with prejudice of count II of the Ruizes’
       third amended complaint.

¶ 36                                       III. CONCLUSION
¶ 37       For the foregoing reasons, we affirm the dismissal of count II of the Ruizes’ complaint,
       reverse the circuit court of Cook County’s entry of summary judgment in favor of the directors
       on counts III and IV, and remand the matter for further proceedings in accordance with this
       ruling.

¶ 38      Affirmed in part, reversed in part, and remanded.

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