Metropolitan Condominium v. Crescent Heights

FIFTH DIVISION
November 22, 2006
No. 1-06-0340
METROPOLITAN CONDOMINIUM )
ASSOCIATION, an Illinois Not-For-Profit )
Corporation, )
) Appeal from the
Plaintiff-Appellant, ) Circuit Court of
) Cook County
v. )
)
CRESCENT HEIGHTS, d/b/a The Metropolitan )
at Sheridan, L.L.C., a Delaware Limited Liability )
Company, )
) Honorable
Defendant-Appellee ) William O. Maki,
) Judge Presiding.
(Sudler Nagy, Inc., an Illinois Corporation, )
)
Defendant). )
JUSTICE O’MARA FROSSARD delivered the opinion of the court:
Plaintiff Metropolitan Condominium Association (the Association), which consists of
members who own condominiums at 5320 North Sheridan Road in Chicago, filed a three-count
complaint against defendant condominium developer Crescent Heights, d/b/a the Metropolitan at
Sheridan, L.L.C. (Metro), and Sudler Nagy, Inc. (Sudler), a property management company.
Count I of the Association's complaint is directed against Metro and seeks a declaratory judgment
requiring Metro to provide a "detailed accounting" pursuant to section 18.2(d)(2) of the Illinois
Condominium Property Act (Act) (765 ILCS 605/18.2(d)(2) (West 2004)). Counts II and III of
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the complaint are directed against Sudler and allege breach of contract and unjust enrichment.
Both of those counts were dismissed pursuant to a settlement between the Association and Sudler
and are not at issue in this appeal.
Metro filed a motion for summary judgment on the declaratory judgment claim against it,
and the Association in turn filed a cross-motion for summary judgment. Following a hearing at
which the parties presented oral arguments, the trial court entered an order granting Metro's
motion and denying the Association's motion. The Association now appeals from that order,
contending that Metro had an obligation under the Act to provide a "detailed accounting" and that
financial documents provided by Metro did not qualify as such. For the reasons that follow, we
agree and reverse.
BACKGROUND
In 1999, Metro began a project to convert apartments at 5320 North Sheridan in Chicago
into condominiums. In accordance with the Act, the board of directors representing the
Association at the outset of the conversion project consisted of individuals selected by Metro.
See 765 ILCS 605/18.1 (West 2004). The project culminated in transfer of control of the
Association from the board of directors selected by Metro (hereinafter the developer-controlled
board or developer board) to the first elected board of managers comprised of a majority of unit
owners other than the developer (hereinafter the unit-owner-controlled board, unit-owner board,
or owner board). This case concerns the transition period between Metro's sale of the first
condominium unit in March 2000, and the election of the Association's unit-owner-controlled
board in April 2001. The nature of this transition is governed by the Act, which specifies that
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during the transition, "the same rights, titles, powers, privileges, trusts, duties and obligations
vested in or imposed upon the board of managers by this Act and in the declaration and bylaws
shall be held and performed by the developer." 765 ILCS 605/18.2(a) (West 2004). Specifically,
the Act requires developers (such as Metro) to pay assessments on unsold units beginning with
the first conveyance and to collect assessments from unit owners until election of the first unit-
owner-controlled board. See 765 ILCS 605/9(a), 18.2(a), 18.4(d) (West 2004).
Prior to the election and formation of the first owner board at the April 2001 turnover
meeting, the developer Metro exercised its limited statutory power to contract on behalf of the
Association and hired Sudler to manage the property during the transition period and possibly
beyond. The developer can enter a contract on behalf of the Association subject to the
Association's right to cancel the contract (if it extends for more than two years from the date of
the election of the owner board) upon a majority vote of the unit owners (excluding the
developer) taken within 180 days of the election. See 765 ILCS 605/18.2(e) (West 2004). The
contract was signed on behalf of the Association and its board of directors by Metro's president
and specified that Sudler would manage the property for one year following the first unit closing
and would continue month to month thereafter. After the unit-owner board took control of the
Association in April 2001, it continued to engage Sudler as the Association's agent until August
2002.
In September 2003, the Association filed its complaint alleging that Metro, as the de facto
manager of the Association, had a duty to maintain records concerning the construction, sale, and
operation of the condominiums until the turnover meeting conducted on April 5, 2001. The
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complaint alleged that within 60 days of the turnover, Metro failed to deliver to the Association,
pursuant to section 18.2(d) of the Act, a series of documents, including "[a] detailed accounting
by the developer, setting forth the source and nature of receipts and expenditures in connection
with the management, maintenance and operation of the property and copies of all insurance
policies and a list of any loans or advances to the association which are outstanding." 765 ILCS
605/18.2(d)(2) (West 2004). In its prayer for relief, the Association requested a judgment
declaring that Metro was obligated to produce to these documents and pay the Association for its
reasonable attorney fees and costs pursuant to section 18.2(g) of the Code (765 ILCS 605/18.2(g)
(West 2004)).
Metro filed a motion for summary judgment, contending as follows:
"Sudler served as the Association's agent at all relevant times and
was responsible for maintaining all records. This same agent served
the Association prior to and after the election of new officers in
March 2001. Plaintiff's claim against Metro LLC thus fails under
well-settled principles of agency law because knowledge of an
agent is imputed to the principal. As the Association was, at all
relevant times, in constructive if not actual possession of all
relevant documents, its attempt to pursue a claim for failure to
'turnover' documents is factually incorrect and legally
unsupportable."
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The Association filed its own motion for summary judgment and response in opposition to
defendant's motion for summary judgment. In its response to Metro's motion for summary
judgment, the Association contended that Metro's reliance on agency law was misplaced because
the "information at issue is from a time when Sudler served [Metro] and not [the unit-owner-
controlled] board of managers."
In its motion for summary judgment, the Association argued that the uncontroverted facts
proved that Metro failed to make and provide the detailed accounting required by section
18.2(d)(2) of the Act.
The Association attached to its response and motion for summary judgment the affidavit
of Michael Franz, then president of the unit-owner-controlled board of directors. That affidavit
states in relevant part:
"5. After turnover, the Association sought to determine
whether the Developer paid assessments on unsold units and
charged association accounts for other development projects.
6. As a result, on September 19, 2002, I sent a letter via
certified mail, pursuant to my duties as President of the Association
Board of Directors, to Developer demanding that it provide, inter
alia, the detailed accounting required by Section 18.2(d) of the
Illinois Condominium Act. ***
7. Developer has failed to provide the 'detailed accounting'
as requested and required by the statute.
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8. Without the 'detailed accounting,' the Association is
unable to determine whether the Developer paid assessments on
unsold units and charged association accounts for other
development projects." (Emphasis added.)
Metro filed a "Reply in further Support of its Motion for Summary Judgment and
Response to Plaintiff's Cross-Motion for Summary Judgment," contending that the Association
"did receive detailed financial reporting that included a breakdown of every aspect of its financial
activity." In support of its reply, Metro attached samples of financial reports from 2000, 2001,
and 2002. According to Metro, the reports include a monthly balance sheet identifying: (a) the
Association's operating and reserve funds, liabilities, and balances; (b) the statement of operations
and budget comparisons identifying monthly income and expenses; and (c) the general ledger
identifying each specific journal entry (down to the detail of payments for janitor's supplies and
window washing fees).
The Association, in turn, filed a reply in support of its motion for summary judgment,
contending that "any detailed account for the pre-turnover period should include a breakdown of
which units were sold, when they were sold, what assessments were paid for each unit, when the
assessments were paid, and whether Developer properly paid assessments for all units during the
period prior to the initial sale." The Association contended in its reply that Metro never provided
it with this information, but instead provided documents which simply gave total assessments
received, without any information regarding payments (or nonpayments) for specific units.
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The trial court conducted a hearing on the parties' summary judgment motions in January
2006. The record on appeal does not include a transcript of that hearing, a bystander's report, or
an agreed statement of facts. Following the hearing, the trial court entered a written order
granting Metro's motion and denying the Association's motion. The order reflects that counsel
presented oral arguments at the hearing but does not indicate that any new evidence was
presented at the hearing in support of or in opposition to the subject motions.
The Association filed its notice of appeal on February 3, 2006. The notice states that the
Association "hereby appeals the judgment entered against it on January 5, 2006, granting
[defendant] summary judgment on count I." The notice further states that the Association
"requests that the appellate court reverse the circuit court's order granting [Metro] summary
judgment on count I of [the Association's] verified complaint, vacate the judgment entered in
favor of [Metro], and remand the matter to the circuit court for further proceedings." The notice
does not expressly state that the Association was appealing or seeking reversal of the portion of
the trial court's order which denied its cross-motion for summary judgment.
ANALYSIS
The Association contends on appeal that the trial court's order denying its motion for
summary judgment and granting summary judgment in favor of Metro must be reversed because
Metro failed to provide it with a "detailed accounting" pursuant to section 18.2(d)(2) of the Act.
765 ILCS 605/18.2(d)(2) (West 2004). Metro responds that the trial court's order must be
affirmed because it did provide the Association with a "detailed accounting" and, alternatively,
because the Association already had constructive knowledge of all the relevant financial
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documents by virtue of its employment of Sudler as its property manager (i.e., as its agent).
Summary judgment should be granted when there is no genuine issue of material fact and
the moving party is entitled to judgment as a matter of law. Outboard Marine Corp. v. Liberty
Mutual Insurance Co., 154 Ill. 2d 90, 102 (1992). In reviewing a motion for summary judgment,
the trial court is required to consider affidavits, depositions, admissions, exhibits, and pleadings on
file and to construe them strictly against the moving party and liberally in favor of the nonmoving
party. In re Estate of Hoover, 155 Ill. 2d 402, 410-11 (1993). We apply de novo review to
orders granting summary judgment. In re Estate of Hoover, 155 Ill. 2d at 411.
The primary issues before us are (1) whether the relevant undisputed facts establish as a
matter of law that Metro provided the Association with a "detailed accounting" pursuant to
section 18.2(d)(2) of the Act, and (2) if not, whether Sudler's status as the Association's agent
relieved Metro of its obligation to provide such an accounting. Before reviewing these issues, we
address two preliminary matters raised by Metro.
I. Preliminary Matters
In its appellate briefs, the Association requests that we enter summary judgment in its
favor even though its notice of appeal did not specify that it was appealing the denial of its motion
for summary judgment. Metro argues that the Association's failure to specify in its notice of
appeal that it was appealing the denial of its summary judgment motion precludes us from
granting the relief requested by the Association in its briefs. We disagree.
"[A] notice of appeal is to be liberally construed" and will confer jurisdiction on an
appellate court if, when considered as a whole, it "fairly and adequately sets out the judgment
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complained of and the relief sought so that the successful party is advised of the nature of the
appeal." Burtell v. First Charter Service Corp., 76 Ill. 2d 427, 433-34 (1979). "Unless the
appellee is prejudiced thereby, the absence of strict technical compliance with the form of the
notice is not fatal, and where the deficiency in the notice is one of form only, and not of
substance, the appellate court is not deprived of jurisdiction." Burtell, 76 Ill. 2d at 434.
The notice of appeal in the instant case identifies the order appealed from, specifying that
it granted summary judgment in favor of Metro. We recognize that the notice does not specify
that the order appealed from also denied the Association's motion for summary judgment.
Furthermore, we recognize that the notice does not expressly seek reversal of that denial. Despite
these omissions, we find that the notice fairly and adequately advised Metro of the nature of the
appeal. The parties' cross-motions for summary judgment clearly addressed the same legal issues,
and thus, appealing the grant of one of the motions was essentially the same thing as appealing the
denial of the other. Metro does not assert that it was prejudiced by the Association's notice of
appeal, and we find no basis for concluding that Metro's ability to defend itself on appeal was in
any way compromised or prejudiced by the formal, nonsubstantive defects in the Association's
notice of appeal.
In addition to challenging the sufficiency of the notice of appeal, Metro argues that the
record on appeal is incomplete and that we should therefore resolve this appeal against the
Association, the appellant in the instant case. Metro contends that we cannot review the instant
appeal because the Association failed to present an adequate record of the proceedings in the trial
court. Specifically, Metro points out that the Association failed to provide a transcript,
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bystander's report, or other record of the summary judgment hearing. We reject Metro's
contention.
The absence of a transcript of proceedings in the trial court does not bar review of an
appeal by this court when the issue on appeal is solely a question of law and does not involve
evidentiary issues. Korogluyan v. Chicago Title & Trust Co., 213 Ill. App. 3d 622, 627-28
(1991). The instant appeal requires us to review whether the financial documents provided by
Metro to the Association qualified as a "detailed accounting" under the Act and, if not, whether
agency principles relieved Metro of its obligation to provide such an accounting. The facts
relevant to the legal issues now before us are undisputed. Accordingly, we conclude that the
record on appeal is sufficiently complete for us to address the arguments raised on appeal by the
Association.
II. "Detailed Accounting" Under Section 18.2(d)(2)
The first substantive issue before us is whether the relevant undisputed facts establish as a
matter of law that the financial documents which Metro provided the Association constituted a
"detailed accounting" pursuant to section 18.2(d)(2) of the Act.
The Association contends that "[a]ny detailed accounting for the pre-turnover period
should at the very least include a breakdown of which units were sold, when they were sold, what
assessments were paid for each unit, when the assessments were paid, and whether Defendant
properly paid assessments for all units during the period prior to the initial sale." Such
information, the Association argues, provides the only avenue for a unit-owner board of managers
to determine whether a developer properly fulfilled its statutory pre-turnover financial obligations.
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In the instant case, the Association emphasizes, Metro did not provide this information to it.
Metro responds that it was not required to provide the Association with such information
because "it is not what the statute says" and contends that the Association has improperly
"attempt[ed] to add language that is not contained in the statute." In support of its position,
Metro quotes section 18.2(d)(2) of the Act, but does not address the meaning of the language
within the provision itself.
The issue at hand calls upon us to construe section 18.2(d)(2) of the Act and determine
whether Metro has satisfied its duty to provide a "detailed accounting" under that provision. "The
primary rule of statutory construction is to ascertain and give effect to the intent of the
legislature." Midstate Siding & Window Co. v. Rogers, 204 Ill. 2d 314, 320 (2003). "To do so,
we examine the language of the statute, the most reliable indicator of the legislature's objectives in
enacting the law." Rogers, 204 Ill. 2d at 320. "We afford the language of the statute its plain and
ordinary meaning [citation] and construe the statute as a whole." Rogers, 204 Ill. 2d at 320.
"Words and phrases must not be viewed in isolation but must be considered in light of other
relevant provisions of the statute." Rogers, 204 Ill. 2d at 320. "We also presume that in enacting
the statute the legislature did not intend absurdity, inconvenience, or injustice." Rogers, 204 Ill.
2d at 320.
Section 18.2(d)(2) of the Condominium Property Act states:
"Within 60 days following the election of the first unit
owner board of managers, the developer shall deliver to the board
of managers:
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***
(2) A detailed accounting by the developer, setting
forth the source and nature of receipts and expenditures in
connection with the management, maintenance and
operation of the property and copies of all insurance policies
and a list of any loans or advances to the association which
are outstanding." 765 ILCS 605/18.2(d)(2) (West 2004).
"The purpose of this requirement is to insure that the developer does not commingle funds
received from the sales of units with money collected and used for the operation of the
association." M. Pearlstein, Condominium Management, in Illinois Condominium Law §4.4 (Ill.
Inst. for Cont. Legal Educ. 2000).
The plain language of section 18.2(d)(2) of the Act requires the developer to deliver to
the unit-owner board of managers, inter alia, a "detailed accounting providing the source and
nature of receipts in connection with the management, maintenance and operation of the
property." The Act does not include a definition of either "accounting" or "receipts," and our
research reveals no Illinois case construing these terms under section 18.2(d)(2) of the Act.
Accordingly, we look to the plain and ordinary meaning of those terms. See Gem Electronics of
Monmouth, Inc. v. Department of Revenue, 183 Ill. 2d 470, 477-78 (1998) (noting that
"[u]ndefined terms in a statute must be ascribed their ordinary and popularly understood
meaning").
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Webster's Third New International Dictionary defines "accounting" as "the system of
classifying, recording, and summarizing business and financial transactions in books of account
and analyzing, verifying, and reporting the results." Webster's Third New International
Dictionary 13 (1986). An accounting thus consists of reported results that classify, record, and
summarize business and financial transactions. Furthermore, these results should provide enough
detail so that any summary of information within them can be verified by looking first to the
subject transaction which has been recorded in the accounting itself and then to the underlying
records to confirm the accuracy of the recording.
Webster's Third New International Dictionary defines "receipt" as "a writing
acknowledging the taking or receiving of goods or money delivered or paid." Webster's Third
New International Dictionary 1894 (1986). Thus, receipts received "in connection with the
management, maintenance and operation of the [subject] property" would include written
records reflecting money received by Metro for the sale of condominium units as well as
assessments received by Metro for the maintenance of the property at 5320 N. Sheridan.
Furthermore, the "source" and "nature" of such receipts (which section 18.2(d)(2) requires the
developer to provide) would include (1) the dates on which individual units at 5320 N. Sheridan
were sold, (2) the assessments paid for each individual unit, and (3) the dates on which those
assessments were paid.
In the instant case, Metro does not suggest that the documents it has provided to the
Association include this information. Indeed, a review of the documents included in the record
on appeal reflects that while they list the total amount of assessment income received, they do
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not provide (1) the dates on which individual units were sold, (2) the assessments paid for each
individual unit commencing on the date of the sale of the first unit, and (3) the dates on which
those assessments were paid. We hold, based upon the above-discussed plain language, that a
"detailed accounting" under section 18.2(d)(2) of the Act must include such information.
We note that our holding today is consistent with the purpose underlying section
18.2(d)(2). That purpose, as previously noted, is to insure that prior to the turnover of control
of the Association to the first owner board, the developer does not commingle funds received
from the sales of units with money collected on behalf of the Association. M. Pearlstein,
Condominium Management, in Illinois Condominium Law §4.4 (Ill. Inst. for Cont. Legal Educ.
2000). Or, stated another way, the purpose of section 18.2(d)(2) is to facilitate the ability of unit
owners (other than the developer) to verify that the developer has complied with its duty under
section 9(a) of the Code to pay assessments on unsold units commencing on the date of the sale
of the first unit and complied with its duty under sections 18.2(a) and 18.4(d) of the Code to
collect assessments from unit owners until election of the first unit-owner board. See 765 ILCS
605/9(a), 18.2(a), 18.4(d) (West 2004). Construing section 18.2(d)(2)'s "detailed accounting" to
include (1) the dates on which individual units were sold, (2) the assessments paid for each
individual unit, and (3) the dates on which those assessments were paid does facilitate unit
owners' ability to verify that the developer has complied with its statutory obligations with
respect to the payment and collection of assessments.
In addition to arguing that the documentation which it provided to the Association
requires us to affirm the trial court's order granting it summary judgment, Metro argues that the
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trial court's order must be affirmed because "[the Association's] response and cross-motion in the
underlying proceedings did nothing more than assert that no 'detailed accounting' was made
without pointing to any specific information that was missing from the documents it already
had." We recognize that it is incumbent upon unit owner boards to make clear to developers
what sort of information they believe to be missing from documents initially produced by
developers pursuant to their statutory duty to provide a detailed accounting. In the instant case,
however, we note that the Association did indicate the type of information it believed was
missing from the documents provided by Metro. The Association attached to its response and
motion for summary judgment the affidavit of Michael Franz, then president of the unit-owner
board. In that affidavit, Franz stated that the Association was seeking a "detailed accounting" in
order to determine "whether [Metro] paid assessments on unsold units." In addition, in its reply
in support of its motion for summary judgment, the Association specified that "any detailed
account for the pre-turnover period should include a breakdown of which units were sold, when
they were sold, what assessments were paid for each unit, when the assessments were paid, and
whether [Metro] properly paid assessments for all units during the period prior to the initial
sale." Thus, contrary to Metro's assertion, the Association did identify specific information that
was missing from the documents it already had.
III. Agency
Metro alternatively contends that it was not required to provide the Association with a
detailed accounting because the Association already had constructive knowledge of all the
relevant financial documents pursuant to principles of agency. Specifically, Metro contends that
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the Association is deemed to know everything that its agent knows (see Kuska v. Folkes, 73 Ill.
App. 3d 540, 544 (1979)) and Sudler, the Association's agent, knew everything that any
accounting could provide because it managed the subject property and maintained the financial
information in question during the relevant time period.
Metro's argument relies on the premise that the Association, which employed Sudler as
its agent before the turnover, continued to exist as essentially the same entity with the same
interests following the turnover. We reject this premise as it disregards the fact that the
composition of the board representing the Association (and thus the Association itself)
fundamentally changed upon the turnover. Before the turnover, Metro controlled the board of
directors representing the Association and, on behalf of the Association, entered into a contract
with Sudler to manage the property. At that time, Metro was not simply responsible for
managing the property. Rather, as the developer of the property, it also had an interest in selling
the remaining units. Following the turnover, control of the board representing the Association
responsible for managing the property transferred from Metro to the first unit owners other than
Metro. These unit owners, unlike Metro, were not in the business of converting the property in
which they lived and presumably did not have an interest in immediately selling the units that they
owned. Thus, the entity on whose behalf Sudler served as an agent prior to the turnover was not
the same entity on whose behalf it served following the turnover. In short, prior to the turnover,
Sudler effectively served as Metro's agent and not as the agent of the unit owners comprising the
board of managers following the turnover. Indeed, the first unit-owner-controlled board of
managers did not even exist during the time period for which the Association now seeks an
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accounting. Accordingly, we conclude the Association represented by the post-turnover unit-
owner board of managers cannot be deemed to have knowledge of financial records maintained
by Sudler on behalf of the pre-turnover Association, which was represented by the developer-
controlled board.
In recognition that the composition and interests of condominium associations
fundamentally change upon the turnover, the Act imposes an affirmative duty on a developer to
provide to the first unit-owner-controlled board certain documents and financial information
which the developer-controlled board is responsible for maintaining prior to the turnover. See
765 ILCS 605/18.2 (West 2004). The purpose of the "detailed accounting" requirement
included in section 18.2(d)(2) of the Act, as previously discussed, is to ensure that unit-owner-
controlled boards are able to obtain the documents and information necessary to verify that the
developer properly handled condominium-related financial affairs prior to turnover. Construing
section 18.2(d)(2) to exempt a developer from complying with this statutory duty whenever a
unit-owner-controlled board retains a property manager initially hired by a developer-controlled
board would undermine this purpose. Specifically, such a construction would threaten the ability
of unit- owner-controlled boards to obtain detailed accountings by forcing them to attempt to
retrieve the relevant underlying financial information from property managers who were not
acting directly on their behalf at the time they were gathering and maintaining that information.
Placing such an onus on unit-owner boards was not the intent of the legislature when it enacted
section 18.2(d)(2), and accordingly, we reject Metro's contention that agency principles
effectively exempted it from providing the Association with a detailed accounting.
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CONCLUSION
For the reasons previously discussed, we conclude that Metro did not satisfy its
obligation to provide the Association with a detailed accounting under section 18.2(d)(2) of the
Act and conclude that no reasons exist relieving it of its obligation to do so. Accordingly, we
reverse the trial court's order granting summary judgment on behalf of Metro and denying
summary judgment to the Association and remand for a determination of attorney fees to be
awarded to the Association.
Reversed and remanded.
O'BRIEN, P.J., and GALLAGHER, J., concur.
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