21 Kristin Condominium Ass'n v. Pioneer Engineering & Environmental Services, LLC

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Illinois Official Reports the accuracy and

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Appellate Court Date: 2022.01.03

15:15:28 -06'00'

21 Kristin Condominium Ass’n v. Pioneer Engineering & Environmental

Services, LLC, 2020 IL App (1st) 191868

Appellate Court 21 KRISTIN CONDOMINIUM ASSOCIATION, by Its Board of

Caption Managers, Plaintiff-Appellant, v. PIONEER ENGINEERING &

ENVIRONMENTAL SERVICES, LLC, and ERIC TERMUEHLEN,

Defendants-Appellees.

District & No. First District, First Division

No. 1-19-1868

Filed September 30, 2020

Decision Under Appeal from the Circuit Court of Cook County, No. 17-L-5193; the

Review Hon. Brigid Mary McGrath, Judge, presiding.

Judgment Reversed and remanded.

Counsel on Jeffrey S. Youngerman, Stephen D. Sharp, and Christopher L.

Appeal Gallinari, of Flaherty & Youngerman, P.C., of Chicago, for appellant.

Jeremy P. Kreger and Joseph R. Delehanty, of Stahl Cowen Crowley

Addis LLC, of Chicago, for appellees.

Panel PRESIDING JUSTICE WALKER delivered the judgment of the

court, with opinion.

Justices Pierce and Coghlan concurred in the judgment and opinion.

OPINION

¶1 Owners of condominiums at 21 Kristin Drive in Schaumburg, Illinois, sued Pioneer

Engineering & Environmental Services, LLC (Pioneer), and Eric Termuehlen, an engineer who

worked for Pioneer, for negligently misrepresenting the condition of the condominium

building. The circuit court dismissed the complaint for failure to state a cause of action. We

hold that the owners adequately alleged that Pioneer had a duty to prospective purchasers of

condominium units in the building and that Pioneer negligently misrepresented the condition

of the building in its report. We reverse the circuit court’s judgment and remand for further

proceedings on the complaint.

¶2 I. BACKGROUND

¶3 21 Kristin Developers, LLC (Developers), hired Pioneer Engineering & Environmental

Services, Inc., to complete a Property Condition Assessment (PCA) for the 12-story residential

structure located at 21 Kristin Drive. Pioneer delivered the PCA, dated October 2006, in which

it identified physical deficiencies in the building, in accord with standards set by the American

Society for Testing and Materials (ASTM). Pioneer stated:

“The ASTM standard was developed to provide current owners, prospective

buyers, lending institutions or other interested parties with qualified professional

judgments concerning the presence or likely presence of conspicuous defects or

material deferred maintenance of a subject property’s material systems components or

equipment. The scope of this PCA includes a review of documents associated with the

subject property, interviews with persons knowledgeable about the physical condition

of the subject property, and a visual inspection of the site and any associated structures

and other improvements.

*** [T]he information contained within this PCA has been compiled in such a

manner that meets or exceeds the recommended practices established by ASTM

Standard Practice E 2018-99. The purpose of this report is to assist the Client in

determining the condition of the building, in addition to establishing an estimate of

replacement costs for the common areas of the subject property.”

¶4 Pioneer informed Developers of its findings:

“The garage shows evidence of extensive recent concrete repairs to the deck

topping and the ‘twin-tee’ [structural deck] panels. The garage structure still indicates

evidence of some water infiltration on the underside of the ‘twin-tee’ panels. The

structural condition of the garage is generally fair. Additional concrete repairs will be

necessary in an on-going basis to provide a waterproof parking environment and

prevent further degradation to the structure. ***

***

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*** The approximate age of the roofing membrane is estimated to be 10 years. ***

Some evidence of ponding water is present in the form of algae on the ballast. ***

Some small areas of ballast removal are present around the perimeter of the building

where potential historical repairs have been made.

The general condition of the roofing system is good. *** With proper maintenance,

the Remaining Useful Life (RUL) of the roofing membrane is estimated to be 15 years.

***

Pioneer warrants that the findings and conclusions contained herein have been

promulgated in accordance with ASTM Standard Practice ***. No assessment can

eliminate the uncertainty regarding the potential for physical deficiencies in connection

with a property. The PCA is designed to reduce, but not eliminate, uncertainty

regarding the potential for physical deficiencies in connection with a property.

*** Any cost estimates associated with this PCA are intended to be opinions of

probable costs. These costs should be construed as preliminary budgets. Actual costs

will vary depending on the type and design of the suggested remedy, the quality of

materials and installation, the type of equipment or manufacturer selected, the quality

and scheduling of the actual work performed, market conditions at the time the work is

performed, and various other factors.

This report has been prepared for the sole use of the Client identified in the report

and cannot be relied upon by other persons or entities without the permission of

Pioneer. The observations and conclusions contained herein are limited by the scope

and intent of the work mutually agreed upon by the Client and Pioneer, and the work

actually performed. Pioneer believes the findings and conclusions provided in this

report are reasonable. However, no warranties are implied or expressed. Pioneer

appreciates the opportunity to be of service to you on this project. We hope this

information meets your needs at this time.”

¶5 Developers sold many residential units, and the purchasers formed the 21 Kristin

Condominium Association (Association). In May 2017 the Association filed a complaint

against Pioneer, alleging that Pioneer operated as a successor liable for the torts of Pioneer

Engineering & Environmental Services, Inc., and Pioneer Engineering & Environmental

Services, Inc., negligently misrepresented the condition of the building. The Association

alleged:

“Developers and Kristin provided a condominium disclosure statement that

contained a copy of the Property Condition Assessment to prospective purchasers of

units in the Condominium to comply with various laws including [the Condominium

Property Act,] 765 ILCS 605/22 [(West 2006)].

*** Pioneer and Termuehlen knew that the Property Condition Assessment was

being provided in connection with a conversion of the property by Kristin Developers

into a condominium. *** Pioneer and Termuehlen provided information in the Property

Condition Assessment for the specific use of prospective buyers to rely on in the

purchase of units in the Condominium.

*** Pioneer and Termuehlen negligently made the following false statements and

omissions concerning the condition of the property in the Property Condition

Assessment:

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*** Pioneer and Termuehlen stated that the Roofing had an Expected Life of 25

years and a Remaining Useful Life of 15 years when the condition of the roofing was

such that the roofing required remediation in the amount of $626,535.

*** Pioneer and Termuehlen stated that the Elevator Modernization had an

Expected Life of 20 years and a Remaining Useful Life of 20 years when condition of

the elevators was such that the elevators required remediation in an amount in excess

of $600,000 ***.

*** Pioneer and Termuehlen stated that the parking structure concrete had a

Remaining Useful Life of 5 years, when the condition of the parking structure concrete

was such that the parking structure concrete required remediation in the amount of

$336,592.”

¶6 On May 9, 2019, the circuit court dismissed the complaint with prejudice for failure to state

a claim for relief. See 735 ILCS 5/2-615 (West 2018). The Association filed a timely notice of

appeal.

¶7 II. ANALYSIS

¶8 We review de novo the dismissal of a complaint for failure to state a cause of action.

Marshall v. Burger King Corp., 222 Ill. 2d 422, 429 (2006). We assume the truth of all well-

pleaded allegations of the complaint, and we construe those allegations in the light most

favorable to the plaintiff. King v. First Capital Financial Services Corp., 215 Ill. 2d 1, 11-12

(2005). “[A] cause of action should not be dismissed pursuant to section 2-615 unless it is

clearly apparent that no set of facts can be proved that would entitle the plaintiff to recovery.”

Marshall, 222 Ill. 2d at 429.

¶9 On appeal, the Association contends that it stated a cause of action for negligent

misrepresentation. To state a claim for negligent misrepresentation, the Association must

allege facts that could support findings that “(1) defendant is in the business of supplying

information for the guidance of others in their business dealings; (2) defendant provided

information that constitutes a misrepresentation; and (3) defendant supplied the information

for guidance in the plaintiff’s business dealings.” Tolan & Son, Inc. v. KLLM Architects, Inc.,

308 Ill. App. 3d 18, 27 (1999).

¶ 10 Pioneer does not contest the adequacy of allegations that it supplies information for the

guidance of others in business dealings. Pioneer contends that it had no duty to the Association

or its members because it did not sell the units. The Association relies on section 552 of the

Restatement (Second) of Torts as authority for finding that Pioneer had a duty to prospective

purchasers of units in the condominium even though Pioneer did not itself sell the units.

Restatement (Second) of Torts § 552 (1977); Harkala v. Wildwood Realty, Inc., 200 Ill. App.

3d 447, 456 (1990). Section 552 provides:

“One who, in the course of his business, profession or employment, or in any other

transaction in which he has a pecuniary interest, supplies false information for the

guidance of others in their business transactions, is subject to liability for pecuniary

loss caused to them by their justifiable reliance upon the information, if he fails to

exercise reasonable care or competence in obtaining or communicating the

information.” Restatement (Second) of Torts § 552(1) (1977).

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¶ 11 The section limits liability to losses suffered “(a) by the person or one of a limited group

of persons for whose benefit and guidance he intends to supply the information or knows that

the recipient intends to supply it.” Restatement (Second) of Torts § 552(2)(a) (1977).

¶ 12 Comments to section 552 show the intention to reach transactions similar to the transaction

at issue here:

“[I]t is not required that the person who is to become the plaintiff be identified or known

to the defendant as an individual when the information is supplied. It is enough that the

maker of the representation intends it to reach and influence *** a group or class of

persons, distinct from the much larger class who might reasonably be expected sooner

or later to have access to the information and foreseeably to take some action in reliance

upon it. It is enough, likewise, that the maker of the representation knows that his

recipient intends to transmit the information to a similar person, persons or group.”

Restatement (Second) of Torts § 552 cmt. h (1977).

¶ 13 Pioneer argues that the circuit court correctly dismissed the complaint because the

Association seeks to hold Pioneer liable for a violation of the Condominium Property Act (Act)

(765 ILCS 605/1 et seq. (West 2006)), and the Act provides only for causes of action against

developers. The Association cited section 22 of the Act in support of its claim that Pioneer

knew Developers would use the report to persuade prospective purchasers to buy units in the

condominium. Section 22 required Developers to present to prospective purchasers

“an engineer’s report furnished by the developer as to the present condition of all

structural components and major utility installations in the condominium, which

statement shall include the approximate dates of construction, installation, major

repairs and the expected useful life of such items, together with the estimated cost (in

current dollars) of replacing such items.” 765 ILCS 605/22(e)(4) (West 2006).

The Association does not ask the court to find Pioneer liable for violating the Act. It asks the

court to hold Pioneer liable for breaching its common law duties, as established in section 552

of the Restatement (Second) of Torts, to the prospective purchasers who relied on Pioneer’s

report when deciding whether to purchase units in the condominium.

¶ 14 Pioneer argues that the members of the Association could not reasonably rely on Pioneer’s

report because Pioneer wrote in the report, “This report has been prepared for the sole use of

the Client identified in the report and cannot be relied upon by other persons or entities without

the permission of Pioneer.” But Pioneer allegedly knew Developers intended to use the report

to inform prospective purchasers about the condition of the building. A prospective purchaser

reading the clause in Pioneer’s report, supplied by Developers to all prospective purchasers,

would reasonably conclude that the prospective purchaser had Pioneer’s permission to rely on

their report. See Kelley v. Carbone, 361 Ill. App. 3d 477, 480 (2005). We find that the

complaint adequately alleges facts that could support a finding that Pioneer knew Developers

would use its report for sales of condominium units to the purchasers who became members

of the Association, and therefore, in accord with section 552, the complaint adequately alleges

that Pioneer supplied the report to provide guidance to the prospective purchasers in their

business dealings.

¶ 15 For the remaining element of the cause of action, Pioneer argues that its statements cannot

qualify as misrepresentations because it only expressed its opinion about the condition of the

property. See Neptuno Treuhand-Und Verwaltungsgesellschaft MBH v. Arbor, 295 Ill. App.

3d 567 (1998). The court in Schrager v. North Community Bank, 328 Ill. App. 3d 696, 704

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(2002), explained that a court may find that an ostensible opinion constitutes an actionable

misrepresentation:

“As a general rule, the law will not support a misrepresentation claim predicated on

an opinion; however, an exception exists where the circumstances suggest that a

plaintiff may have justifiably relied on the opinion as though it was a statement of fact.

[Citation.] ‘ “Wherever a party states a matter which might otherwise be only an

opinion but does not state it as the expression of the opinion of his own but as an

affirmative fact material to the transaction, *** the statement clearly becomes an

affirmation of the fact within the meaning of the rule against fraudulent

misrepresentation.’ ” Heider v. Leewards Creative Crafts, Inc., 245 Ill. App. 3d 258,

266 (1993), quoting Perlman v. Time, Inc., 64 Ill. App. 3d 190, 197 (1978). ‘Thus, the

general rule is that it is not “the form of the statement which is important or controlling,

but the sense in which it is reasonably understood.” ’ West v. Western Casualty &

Surety Co., 846 F.2d 387, 394 (7th Cir. 1988), quoting W. Keeton, Prosser & Keeton

on Torts § 109, at 755 (5th ed. 1984). ‘Whether a statement is one of fact or of opinion

depends on all the facts and circumstances of a particular case.’ ”

¶ 16 The court in Power v. Smith, 337 Ill. App. 3d 827, 832-33 (2003), considered the question

of what circumstances justify a plaintiff in relying on a defendant’s assertions as statements of

fact:

“Sometimes *** the expression of an opinion may carry with it an implied assertion

that the speaker knows facts that justify it. Such an assertion is to be implied where the

defendant holds himself out or is understood as having special knowledge of the matter

that is not available to the plaintiff, so that his opinion becomes in effect an assertion

summarizing his knowledge. ‘ “Thus the ordinary man is free to deal in reliance upon

the opinion of an expert jeweler as to the value of a diamond.” ’ Duhl [v. Nash Realty,

Inc.], 102 Ill. App. 3d [483,] 490 [(1981)], quoting W. Prosser, Handbook of the Law

of Torts § 109, at 726 (4th ed. 1971). In Duhl, the court upheld a fraud count

complaining about a real estate broker’s opinion, following an appraisal, of the value

of certain real estate. [Citation.]

***

Although there is broad language in some of the cases, assurances as to future

events are generally not considered misrepresentations of fact. [Citation.] The

exceptions are limited to recognized situations such as where a realtor appraises a

house.”

¶ 17 The Power court used several questions to help determine whether assertions count as

actionable misrepresentations:

“Were [the] representations here similar to representations of value made by a

realtor after an appraisal? Or were they more similar to the representations one partner

makes to another in deciding to take on a new client or product line ***? *** Did [the

defendant] have special knowledge of the matter that was not available to [the

plaintiff]?” Power, 337 Ill. App. 3d at 833.

¶ 18 Applying the Power questions here, we find Pioneer’s representations similar to a realtor’s

representations of the value of real estate and not at all like representations one partner makes

to another about an idea for new business. Pioneer reported on the building’s condition from

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an engineering perspective, using its special knowledge not shared by prospective purchasers.

Under Schrager and Power, the report includes actionable statements of fact and not mere

opinions.

¶ 19 Pioneer contends that qualifications it put into its report relieve it of any possible liability.

It said in its report:

“Any cost estimates associated with this PCA are intended to be opinions of

probable costs. These costs should be construed as preliminary budgets. Actual costs

will vary ***.

No assessment can eliminate the uncertainty regarding the potential for physical

deficiencies in connection with a property. The PCA is designed to reduce, but not

eliminate, uncertainty regarding the potential for physical deficiencies in connection

with a property. ***

Due to the limited nature of the work, there is a possibility that conditions may exist

which could not be identified within the scope of the assessment, or which were not

apparent at the time of report preparation.”

¶ 20 Pioneer did not guarantee any exact price for repairs to the roof and the parking garage.

Pioneer did, however, make representations about the physical state of the building in 2006,

and nothing in the cited clauses relieves it of liability if it made those representations

negligently. The fact that Pioneer expressed its observations about the building by referring to

the remaining useful life of the structure does not shield Pioneer from liability. See Arlington

Pebble Creek, LLC v. Campus Edge Condominium Ass’n, 232 So. 3d 502, 505 (Fla. Dist. Ct.

App. 2017).

¶ 21 III. CONCLUSION

¶ 22 The Association made a claim in 2017 that Pioneer made negligent misrepresentations in

a 2006 report. The Association adequately alleged that Pioneer had a duty to prospective

purchasers because Pioneer knew Developers would use its report to persuade prospective

purchasers to buy units in the building. The Association stated a cause of action by adequately

alleging facts that could support a finding that Pioneer negligently misrepresented the

condition of the building. We reverse the dismissal of the complaint and remand for

proceedings in accord with this order.

¶ 23 Reversed and remanded.

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