Search

Condominium Law FLASHPOINTS March 2021

Kenneth Michaels, Jr., Bauch & Michaels, LLC, Chicago
312-588-5000 | E-Mail Kenneth Michaels, Jr.

Association Directors Owe Unit Owners Under Investigation for Rules Violations Duty of Candor

This month, the Illinois appellate court affirmed judgment for a 77-year-old unit owner, who had lived in her townhome for more than 30 years, when the association sought to evict her for not paying a fine because her dog allegedly urinated on a neighbor’s lawn and although the association failed to produce any evidence against her, it nevertheless found her guilty. Westgate Townhome Ass’n v. Kirsch, 2021 IL App (2d) 200373-U. (Under amended Illinois Supreme Court Rule 23(e)(1), an unpublished order published after January 1, 2021, while not precedential except for limited purposes, may be cited for persuasive purposes.)

The Conflict

Condominium and homeowners’ associations need mechanisms to adopt and enforce rules and regulations. This authority and power are necessary to maintain peace and order within multifamily communities where people live in the same buildings or within close proximity to each other and share common resources and facilities. Additionally, without such mechanisms, property values are at greater risk. Experience teaches us that most associations exercise their authority and power over unit owners with prudence and discretion.

However, Illinois law largely leaves this authority and power without checks and balances. Some directors behave as if the law provides unfettered access to unit owners’ purses, leaving only wealthy unit owners, or those with nothing to lose, recourse against the association’s directors. The situation is ripe for abuse. And one of the most frequently used vehicles for abuse is the association’s fallback rule for when all else fails: violations for nuisances or noxious behavior.

Section 18.4(l) of the Illinois Condominium Property Act, 765 ILCS 605/1, et seq., provides only the following guidance to condominium associations on the process required to enforce rules and regulations.

The powers and duties of the board of managers shall include . . . the following:

* * *

To impose charges for late payment of a unit owner’s proportionate share of the common expenses, or any other expenses lawfully agreed upon, and after notice and an opportunity to be heard, to levy reasonable fines for violation of the declaration, by-laws, and rules and regulations of the association. 765 ILCS 605/18.4(l).

Regarding master associations and homeowner associations, the Condominium Property Act provides:

(7) The board of the master association or a common interest community association shall have the power, after notice and an opportunity to be heard, to levy and collect reasonable fines from members for violations of the declaration, bylaws, and rules and regulations of the master association or the common interest community association. Nothing contained in this subdivision (7) shall give rise to a statutory lien for unpaid fines. 765 ILCS 605/18.5(c)(7).

The phrase “opportunity to be heard” is not defined in the Condominium Property Act. The only other appearance of this phrase in the Act refers to providing notice and opportunity to be heard, in court proceedings, to unit owners and parties in interest of a distressed condominium association before a receiver enters into a contract to sell all their interests. 765 ILCS 605/14.5(d).

As an aside, although the phrase “common interest community association” appears more than a dozen times in the Condominium Property Act, it is not defined therein. However, a “common interest community” is defined in the Illinois Common Interest Community Association Act (CICA Act), 765 ILCS 160/1-1, et seq.:

“Common interest community” means real estate other than a condominium or cooperative with respect to which any person by virtue of his or her ownership of a partial interest or a unit therein is obligated to pay for the maintenance, improvement, insurance premiums or real estate taxes of common areas described in a declaration which is administered by an association. “Common interest community” may include, but not be limited to, an attached or detached townhome, villa, or single-family home. A “common interest community” does not include a master association. 765 ILCS 160/1-5.

The CICA Act also provides that a unit owner must be afforded an opportunity to be heard but does nothing to define what the phrase means.

The board shall have the power, after notice and an opportunity to be heard, to levy and collect reasonable fines from members or unit owners for violations of the declaration, bylaws, operating agreement, and rules and regulations of the common interest community association. 765 ILCS 160/1-30(g).

The Condominium and Common Interest Community Ombudsperson Act, 765 ILCS 615/1, et seq., required that by January 1, 2019, all condominium associations and most common interest community associations adopt a written policy for resolving complaints. See IICLE® Condominium Law November 2018 FLASHPOINTS (available in the IICLE® Online Library to subscribers). Although this legislation requires associations to be included in their written policy for resolving complaints a description of the process to deliver complaints to the association, the legislation is silent as to any substantive process to be followed in resolving complaints. 765 ILCS 615/35(a). Indeed, the Condominium and Common Interest Community Ombudsperson’s website suggests a sample complaint procedure for compliance with the Ombudsperson Act, however, that policy is silent as to any substance regarding the process to be followed at hearings or what the phrase “opportunity to be heard” means.

Boucher

Before examining Westgate Townhome, we should briefly review where the appellate court left us in Boucher v. 111 East Chestnut Condominium Ass’n, 2018 IL App (1st) 162233, 117 N.E.3d 1123, 427 Ill.Dec. 186. In Boucher, a split panel reversed and remanded the trial court’s granting of dismissal and summary judgment for the association and directors on a three-count complaint. Justice Neville (in his last opinion before joining the Illinois Supreme Court), joined by Justice Pucinski, reversed summary judgment holding that the unit owner had presented sufficient evidence to support a finding that the directors violated the Condominium Property Act when they refused to produce a copy of the recording they made of the hearing at which they imposed fines against the unit owner and that the directors breached their fiduciary duties in failing to disclose evidence against the unit owner as part of the hearing. The court also reversed dismissal of the plaintiff’s count alleging that the association violated his First Amendment rights by penalizing him for expressing his opinion about management of the association. Justice Mary Anne Mason filed a written dissent essentially contravening the majority’s holdings.

Boucher requested a hearing on the accusations, attended with his attorney, and presented his account of the occurrences. Boucher’s attorney asked to review “all underlying evidence, information, and/or documents relating to the allegations.” 2018 IL App (1st) 162233 at ¶5. The board denied the request at the hearing. After the hearing, Bouchard’s attorney sent a letter to the association’s attorney requesting a copy of the video and audio tape that the association recorded at the hearing. Id. The association denied the request for the recording. A letter from the property manager informed Bouchard that the board fined him $250 for each violation. Bouchard paid the fines and sued the directors and association. 2018 IL App (1st) 162233 at ¶6.

Count III of the plaintiff’s complaint alleged that each of the directors individually and, as a result thereof, the association breached their fiduciary duties owed to the plaintiff as a unit owner by refusing to show him the evidence against him. The trial court dismissed Count III against the association for failure to state a cause of action and entered summary judgment for the individual directors on this count. 2018 IL App (1st) 162233 at ¶32. Section 18.4 of the Illinois Condominium Property Act requires that directors must “exercise the care required of a fiduciary of the unit owners.” The appellate court noted that the Act uses imprecise language as to the duty of care, but under common-law tradition, “[w]e look to Illinois common law of fiduciary duties to help us flesh out the meaning of the Act.” 2018 IL App (1st) 162233 at ¶33.

In examining general propositions of fiduciary duties owed by directors, the court, quoting from condominium and non-condominium fiduciary duty cases, broadly defined the duties owed by directors to include duties of care, good faith, loyalty, candor, and rectitude. 2018 IL App (1st) 162233 at ¶¶35 – 36. The court relied on an older case discussing a trustee’s duty of candor to find that directors may be liable for a failure to disclose information to their unit owners. 2018 IL App (1st) 162233 at ¶36. By refusing to show the plaintiff a written complaint an employee made or the video recording of the elevator incident, “the board members ensured that they would not hear significant evidence before deciding whether to fine [plaintiff].” 2018 IL App (1st) 162233 at ¶37. The court found this case like Congress Street Condominium Ass’n v. Anderson, 156 Conn.App. 117, 112 A.3d 196 (2015). “The Anderson court held that before imposing fines, the association had a duty to give the accused unit owner ‘an opportunity to know the facts on which the agency is asked to act, to cross-examine witnesses and to offer rebuttal evidence.’ ” 2018 IL App (1st) 162233 at ¶38, quoting Anderson, supra, 112 A.3d at 200. It should be noted that the language in the Connecticut statute is substantially the same as that in §18.4(l) of the Illinois Condominium Property Act requiring notice and an opportunity to be heard before imposing fines on a unit owner. Among other holdings not relevant to this discussion, the Boucher court reversed and remanded the dismissal order and summary judgment entered regarding the fiduciary duty complaint.

Westgate Townhome

The plaintiff townhome association filed a complaint to evict Kirsch, the elderly unit owner, for nonpayment of common expenses. The appellate court’s opinion is vague on the subject, but it appears that this aspect of the litigation was mooted by Kirsch’s filing a bankruptcy petition. The complaint also sought an in rem judgment in the amount of $6,516.70, plus additional attorneys’ fees and costs, flowing from an unpaid $300 fine against her because her dog allegedly peed on a neighbor’s lawn. Westgate Townhome, supra, 2021 IL App (2d) 200373-U at ¶¶4, 8.

At a bench trial, the association president testified that the community was dog-friendly and that it was reasonable to expect dogs to urinate on lawns. However, the association manual provided that “no pet shall be allowed to create a nuisance or unreasonable disturbance, whether inside or out, or to damage property.” 2021 IL App (2d) 200373-U at ¶5. To support this allegation, the neighbor provided the association with an “expiring link” to a video that the association’s board of directors had viewed. Id.

A hearing was conducted lasting 20 minutes. Kirsch appeared without counsel. The video that the board had previously viewed was not shown. The president testified that he believed Kirsch had already seen the video, which she denied at trial. Kirsch testified that she was prevented from offering any defense. After the hearing, the board imposed a $300 fine on Kirsch. Most of the claim against Kirsch at trial was for the association’s legal fees. 2021 IL App (2d) 200373-U at ¶¶6 – 8. The trial court entered judgment for Kirsch.

The court reasoned that Westgate introduced no evidence substantiating the claim that Kirsch’s dog damaged the neighbor’s yard. Specifically, the court found that Westgate failed to present video showing the damage, an invoice for yard repairs and replacement, or any other documentation showing a violation of Westgate’s rules. Further, the court found that the board did not demonstrate that the fines were reasonable and did not make its decision about any alleged violation of the rules in good faith. 2021 IL App (2d) 200373-U at ¶9.

On the association’s motion for reconsideration, the trial court clarified that Westgate not only failed to make its decision in good faith but also did not timely disclose all material facts to Kirsch. The trial court also said that it found the association president’s testimony unconvincing and that no evidence contradicted Kirsch’s testimony that she had not been afforded an opportunity to tell her side of the story at the hearing. 2021 IL App (2d) 200373-U at ¶¶10 – 11.

On appeal, the appellate court affirmed judgment for Kirsch. The association argued that the business-judgment rule barred the court from interfering with the board’s determination that Kirsch violated the association’s rules. It also argued that Kirsch waived raising the association’s bad faith because she had not done so in response to the motion for reconsideration. Kirsch responded that the trial court’s decision was not against the manifest weight of evidence, and the association acted in bad faith. 2021 IL App (2d) 200373-U at ¶¶14 – 15. When a party challenges the sufficiency of evidence, as the association did here, the standard of review is whether the trial court’s judgment is against the manifest weight of evidence. This standard is met “only when an opposite conclusion is apparent or when findings appear to be unreasonable, arbitrary, or not based on evidence.” 2021 IL App (2d) 200373-U at ¶16, citing Kroot v. Chan, 2017 IL App (1st) 162315, ¶19, 89 N.E.3d 778, 417 Ill.Dec. 859.

The appellate court’s analysis reviewed basic principles of fiduciary duties under Illinois law, including that evidence of a breach of a fiduciary duty rebuts any presumption raised under the business-judgment rule. The trial court had noted in both its order denying the motion for reconsideration and in the amended bystanders report that the association’s board had not acted in good faith in finding that Kirsch had violated the association’s rules. While none of the attorneys may have used the phrase “good faith” or “business judgment” at trial, these issues were implicated throughout the parties’ arguments. Additionally, a party may raise any argument on appeal to affirm the court below if the factual basis for the argument was before the trial court. 2021 IL App (2d) 200373-U at ¶¶17 – 20.

The appellate court held that the record supported the trial court’s conclusion that the association did not provide sufficient evidence of a violation. It also held that the trial court reasonably found that “Westgate acted in bad faith when it failed to timely disclose all relevant information regarding the alleged violation to Kirsch.” 2021 IL App (2d) 200373-U at ¶22. After a lengthy review of Boucher, the court held that “[w]hen investigating charges of misconduct against a unit owner, the duty of candor imposes on board members an obligation of full, fair, complete, and timely disclosure of material facts.” 2021 IL App (2d) 200373-U at ¶24, citing Boucher, supra, 2018 IL App (1st) 162233 at ¶36.

Takeaway

Westgate Townhomes reinforces that directors must be especially cautious in fulfilling their fiduciary duties to unit owners when conducting investigations into rules violations or conducting hearings on complaints against unit owners. These duties include a duty of candor to make full, fair, complete, and timely disclosures of all material facts to the unit owners under investigation or subject to the hearing. As we previously learned from Boucher, at the hearing these duties include the unit owners’ right to cross-examine witnesses and to offer rebuttal evidence. One method that association attorneys may consider implementing to ensure a more efficient process that satisfies the directors’ duties is adopting rules defining how hearings are conducted.

An unacceptable development from Boucher, as reported to this writer by several management companies, is that some residents have read Boucher as giving them license to demean and degrade management company and association employees, contractors, and agents, including using offensive, racist, and sexist attacks. We will be examining this situation in the future to try to find methods to afford protection to First Amendment principles yet provide redress for this behavior.

For more information about condominium law, see CONDOMINIUM LAW: GOVERNANCE, AUTHORITY, AND CONTROLLING DOCUMENTS (IICLE®, 2021). Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit www.iicle.com/subscriptions.

Leave your comment
Filters
Sort
display