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

2019 IL App (1st) 181734
SIXTH DIVISION
SEPTEMBER 20, 2019
No. 1-18-1734
GONZALO RUIZ, and DINA RUIZ, )
) Appeal from the
Plaintiffs-Appellants, ) Circuit Court of
) Cook County.
v. )
)
CAL-FUL CONDOMINIUM ASSOCATION, an Illinois )
Not-for-Profit Corporation, CALIFORNIA COMMONS )
RESIDENTIAL CONDOMINIUM ASSOCIATION, )
an Illinois Not-for-Profit Dissolved Corporation, MARIA ) No. 13 CH 20579
ARCOS, RACHEL OWENS, and OMAR R. CASTRO, )
)
Defendants )
)
(Cal-Ful Condominium Association, Maria Arcos, ) Honorable
Rachel Owens, and Omar R. Castro, ) Anna H. Demacopoulos,
) Judge Presiding.
Defendants-Appellees). )
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.
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¶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
1
“Cal-Full” is alternately spelled “Cal-Ful.”
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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 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
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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.
¶ 14 In their third amended complaint filed in October 2016, at issue here, the Ruizes raised
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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
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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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 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.
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¶ 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.
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¶ 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
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
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.
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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”:
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“(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;
(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).
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¶ 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,
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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 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.”).
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¶ 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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No. 1-18-1734
Cite as: Ruiz v. Cal-Ful Condominium Ass’n, 2019 IL App (1st) 181734
Decision Under Review: Appeal from the Circuit Court of Cook County, No. 13-CH-
20579; the Hon. Anna H. Demacopoulos, Judge, presiding.
Attorneys Marty Schwartz and Tyler Manic, of Schain, Banks, Kenny &
for Schwartz, of Chicago, for appellants.
Appellants:
Attorneys David T. Brown and Lucas Sun, of Kaufman Dolowich &
for Voluck, LLP, of Chicago, for appellees.
Appellees:
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