Ruiz v. Cal-Ful Condominium Ass'n

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Appellate Court Date: 2020.05.26

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

Appellate Court GONZALO RUIZ and DINA RUIZ, Plaintiffs-Appellants, v.

Caption CAL-FUL CONDOMINIUM ASSOCATION, an Illinois

Not-for-Profit Corporation; CALIFORNIA COMMONS

RESIDENTIAL CONDOMINIUM ASSOCIATION, an Illinois

Not-for-Profit Dissolved Corporation; MARIA ARCOS; RACHEL

OWENS; and OMAR R. CASTRO, Defendants (Cal-Ful

Condominium Association, Maria Arcos, Rachel Owens, and Omar R.

Castro, Defendants-Appellees).

District & No. First District Sixth Division

No. 1-18-1734

Filed September 20, 2019

Rehearing denied October 18, 2019

Decision Under Appeal from the Circuit Court of Cook County, No. 13-CH-20579; the

Review Hon. Anna H. Demacopoulos, Judge, presiding.

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

Counsel on Marty Schwartz and Tyler Manic, of Schain, Banks, Kenny &

Appeal Schwartz, of Chicago, for appellants.

David T. Brown and Lucas Sun, of Kaufman Dolowich & Voluck,

LLP, of Chicago, for appellees.

Panel JUSTICE CUNNINGHAM delivered the judgment of the court, with

opinion.

Justices Connors and Harris concurred in the judgment and opinion.

OPINION

¶1 This case arises out of a dispute between two condominium unit owners and the

condominium board of directors regarding the directors’ exercise of their fiduciary duty.

Plaintiffs-appellants Gonzalo and Dina Ruiz, the unit owners, appeal the circuit court of Cook

County’s dismissal of certain counts of their complaint against defendant-appellee Cal-Ful

Condominium Association and the court’s entry of summary judgment in favor of

codefendants-appellees Maria Arcos, Rachel Owens, and Omar R. Castro, members of the

condominium board of directors.

¶2 On appeal, the Ruizes argue that the court erred in granting summary judgment for the

directors based on the directors’ defense of equitable estoppel. The Ruizes further argue that

the court erred in dismissing count II of their complaint, seeking attorney fees from the Cal-Ful

Condominium Association for the failure to state a claim.

¶3 Finding that the Ruizes were not estopped from bringing their breach of fiduciary duty

claim as a matter of law, but that they did not state a claim for attorney fees, we affirm the

circuit court of Cook County in part, reverse in part, and remand for further proceedings.

¶4 I. BACKGROUND

¶5 The following facts are taken from the Ruizes’ third amended complaint. Gonzalo

purchased the buildings located at 2353-63 North California Avenue and 2757 West Fullerton

Avenue in Chicago in 1985. In 1994, Gonzalo, as the developer, converted the buildings into

two condominium associations, one commercial and one residential. The commercial

association had 3 units, while the residential association had 10. In December 1994, the Ruizes

recorded declarations identifying California Commons Commercial Condominiums (CCC)

and California Commons Residential Condominiums (CCR) as the associations for the

commercial and residential properties, respectively. (CCR was incorporated; CCC was not.)

The Ruizes were the beneficiaries of a land trust that owned the three commercial units.

¶6 In 2001, CCR was involuntarily dissolved for failing to file annual reports with the Illinois

Secretary of State. Rather than reinstate the dissolved association, the Ruizes incorporated the

Cal-Full Condominium Association 1 (CFCA). On paper, CFCA served as the association only

for the residential condominiums, while CCC served as the association for the commercial

units. In practice, however, CFCA acted as an association for both the residential and

commercial units in the following ways: (1) there was only one board of directors for both

associations, and unit owners voted for directors without distinguishing between the two

associations, (2) the associations did not have separate unit owner meetings, (3) the

associations shared a budget and bank accounts, (4) the directors collected and commingled

1

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

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assessments from the owners of both the residential and commercial units, and (5) there was

one insurance policy for the building.

¶7 Gonzalo served on the board of directors of CFCA until 2006. In 2007, Maria Arcos,

Rachel Owens, and Omar R. Castro (collectively, directors) joined the board of directors and

remained on the board until 2014. All three owned residential units in the building.

¶8 In 2007, the Ruizes altered the first page of the 1994 CCR declaration, which was

originally captioned “The California Commons Residential Condominiums” to read “The

Cal/Ful Condominiums Association, Residential and Commercial.” The Ruizes recorded the

2007 declaration with the recorder of deeds against the commercial units. Significantly, none

of the substantive terms of the 1994 CCR declaration were changed; the legal description of the

property in the 2007 declaration includes only a description of the residential units. According

to the Ruizes, they made this alteration to comply with certain requirements promulgated by

the United States Department of Housing and Urban Development, so that it would continue to

provide mortgage loans to residential condominium purchasers at the building.

¶9 Also in 2007, Gonzalo asked Arcos to distribute a notice to all unit owners that referred to

the “California Fullerton Condominium Association” as including “13 condominiums of

which 10 are residential and 3 are commercial.”

¶ 10 Based on the 2007 notice and declaration as well as the Ruizes’ own representations, the

directors managed, controlled, and made expenditures for both the commercial and residential

associations between 2007 and 2014. In other words, they believed the association of which

they were directors—CFCA—governed both the commercial and residential units.

¶ 11 In January 2011, a fire occurred, causing damage to both commercial and residential units

in the buildings. As noted supra ¶ 6, both the residential and commercial units shared a single

policy of property insurance issued by Travelers Insurance Company of America (Travelers).

In February 2012, Travelers provided the directors with an estimate of damages that it would

cover for the loss under the policy. That estimate allocated $51,500 to repair the damages to the

common elements of the commercial units. The directors approved the estimate and agreed to

settle the claim for that amount. Shortly after the fire, the directors authorized the demolition of

the commercial units.

¶ 12 This litigation commenced in September 2013, when Gonzalo filed his first complaint

against only “Cal-Full Condominium Association,” seeking to compel the production of books

and records. In both his first complaint and his verified amended complaint, filed in August

2014, Gonzalo asserted that the “Cal-Full Condominium Association” was governed by the

2007 declaration. It was not until the filing of his second amended complaint in August 2015

that Gonzalo acknowledged that there were two condominium associations, although he

continued to maintain that they operated as one entity. Also in the verified second amended

complaint, Gonzalo named CCR and the directors as defendants for the first time in addition to

CFCA.

¶ 13 At the same time, the directors learned through their management company that there were

two associations for the building. They allowed CFCA to dissolve in 2015 and reinstated CCR,

which is the successor in interest to CFCA.

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¶ 14 In their third amended complaint filed in October 2016, at issue here, the Ruizes raised six

counts. 2 Counts I, V, and VI were dismissed and are not part of this appeal. Count II sought

attorney fees from CFCA and CCR for failing to produce certain books and records pursuant to

section 19 of the Condominium Property Act (Act). 765 ILCS 605/19 (West 2016). Counts III

and IV alleged breach of fiduciary duty by the directors for settling with Travelers for $51,500

and authorizing the demolition of the commercial units. Specifically, the Ruizes alleged that

the amount offered by Travelers to repair the commercial units was grossly inadequate and the

directors breached their fiduciary duty by accepting it. Further, they alleged that the directors

failed to provide the Ruizes with the entire $51,500 to repair the units. With regard to the

demolition, the Ruizes alleged that it was a breach of fiduciary duty for the directors to

authorize the demolition of the commercial units prior to investigating whether the demolition

was necessary, obtaining the Ruizes’ permission, or verifying that the insurance policy would

cover the cost of repair and replacement.

¶ 15 In November 2016, the defendants moved to dismiss the complaint pursuant to section

2-615 of the Code of Civil Procedure. 735 ILCS 5/2-615 (West 2016). The court granted the

motion as to counts II, V, and VI in February 2017. (The Ruizes voluntarily dismissed count I.)

With regard to count II, the court found that the Ruizes had not adequately pled bad faith as

required to sustain an action for attorney fees pursuant to section 19(e) of the Act. 765 ILCS

605/19(e) (West 2016).

¶ 16 One year later, in November 2017, the directors moved for partial summary judgment on

counts III and IV of the complaint on the basis that the Ruizes were equitably estopped from

asserting a breach of fiduciary duty. (The circuit court permitted the directors to reserve all

other defenses.) Following a hearing in February 2018, the court granted the directors’ motion.

The court concluded that equitable estoppel applied as a matter of law, noting that the Ruizes

knowingly and fraudulently misled the directors into believing there was one association

governing the commercial and residential units and requiring them to act as fiduciaries for the

commercial association. The court further found that the directors would be prejudiced if the

Ruizes were allowed to deny the truth that there were two associations and that the directors

had no obligation to assume fiduciary responsibilities for the commercial units.

¶ 17 The court denied the Ruizes’ motion for reconsideration in June 2018, and the Ruizes

timely appealed from the circuit court’s dismissal of count II of their complaint and the court’s

entry of summary judgment in favor of the directors on counts III and IV.

¶ 18 II. ANALYSIS

¶ 19 We note that we have jurisdiction to review this matter, as the Ruizes filed a timely notice

of appeal following the denial of their motion for reconsideration. Ill. S. Ct. R. 301 (eff. Feb. 1,

1994); R. 303 (eff. July 1, 2017).

¶ 20 We turn first to the Ruizes’ challenge to the court’s entry of summary judgment in favor of

the directors. Summary judgment is appropriate only when “ ‘the pleadings, depositions, and

admissions on file, together with the affidavits, if any, show that there is no genuine issue as to

any material fact and that the moving party is entitled to a judgment as a matter of law.’ ” 1010

Lake Shore Ass’n v. Deutsche Bank National Trust Co., 2015 IL 118372, ¶ 20 (quoting 735

2

Gonzalo added Dina as a plaintiff for the first time in the third amended complaint without leave of

court. The defendants maintain they have reserved their rights on this issue.

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ILCS 5/2-1005(c) (West 2008)). All supporting materials are strictly construed against the

movant and in favor of the opposing party. Mashal v. City of Chicago, 2012 IL 112341, ¶ 49.

We review de novo an order granting summary judgment. Nationwide Financial, LP v.

Pobuda, 2014 IL 116717, ¶ 24.

¶ 21 The directors’ motion for summary judgment was based entirely on the theory that the

Ruizes were equitably estopped, as a matter of law, from claiming a breach of fiduciary duty.

In order to raise a successful defense of equitable estoppel, the party claiming estoppel must

show (1) the other party misrepresented or concealed material facts, (2) the other party knew,

at the time the representations were made, that those representations were false, (3) the party

claiming estoppel did not know of the falsity of the representations when they were made or

when they were acted upon, (4) the other party intended or reasonably expected the

representations to be acted upon by the party claiming estoppel, (5) the party claiming estoppel

reasonably relied upon the representations in good faith to his detriment, and (6) the party

claiming estoppel has been prejudiced by his reliance on the representations. In re Parentage

of Scarlett Z.-D., 2015 IL 117904, ¶ 25. Succinctly stated,

“where a person by his or her statements and conduct leads a party to do something that

the party would not have done but for such statements and conduct, that person will not

be allowed to deny his or her words or acts to the damage of the other party.” Geddes v.

Mill Creek Country Club, Inc., 196 Ill. 2d 302, 313 (2001).

¶ 22 We agree with the Ruizes that equitable estoppel has no application to this case.

Fundamentally, the Ruizes are not repudiating the fact that they told the directors that one

association governed both the commercial and residential units in the building. They admit in

their pleading that in practice, if not in fact, the building was governed by a single association.

A basic precept of estoppel is that a party may not deny the effect of his conduct or

representation if to do so would cause prejudice to the party claiming estoppel. See Scarlett

Z.-D., 2015 IL 117904, ¶ 25. The directors here do not point to any denial or repudiation by the

Ruizes.

¶ 23 Significantly, the Ruizes do not allege that the directors should not have exercised their

fiduciary duty on behalf of the commercial units. To the contrary, they accept that their actions

induced the directors to act as fiduciaries. Their lawsuit is based on the allegation that the

directors breached that duty. Needless to say, the directors’ reliance on the Ruizes’

representations did not lead them to (allegedly) breach their fiduciary duties; it led them only to

exercise those duties in the first place. And contrary to the directors’ contention, they suffered

no detriment merely from undertaking those fiduciary duties. 3 For these reasons, we conclude

that the trial court erred in applying equitable estoppel to bar the Ruizes from proceeding on

their causes of action for breach of fiduciary duty. We therefore reverse the entry of summary

judgment in favor of the directors.

¶ 24 We turn next to the Ruizes’ challenge to the trial court’s dismissal of count II of their

complaint. A motion to dismiss pursuant to section 2-615 tests the legal sufficiency of a

complaint based on defects apparent on its face. Simpkins v. CSX Transportation, Inc., 2012 IL

110662, ¶ 13. The court must accept as true all well-pleaded facts as well as all reasonable

3

At oral argument, counsel for the directors maintained that that assuming fiduciary responsibilities

for the commercial, as well as the residential units, subjected the directors to an increased risk of suit,

but this is too speculative to qualify as a legal detriment.

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inferences drawn from those facts. Id. Our review of a trial court’s order granting or denying a

2-615 motion is de novo. Patrick Engineering, Inc. v. City of Naperville, 2012 IL 113148, ¶ 31.

¶ 25 Here, the trial court dismissed the Ruizes’ claim seeking attorney fees for the association’s

alleged failure to produce “books and records” based on its finding that the Ruizes failed to

allege bad faith pursuant to section 19(e) of the Act. 765 ILCS 605/19(e) (West 2016).

¶ 26 The parties initially dispute which version of the Act applies. Prior to 2018, the Act

provided, in relevant part, that a party who prevailed in an enforcement action to compel

examination of, among other things, books and records of account, was not entitled to attorney

fees unless the court found that the directors of the association acted in bad faith. 765 ILCS

605/19(e) (West 2016). In January 2018, the Act was amended to exclude “books and records”

from the bad faith requirement (i.e., a party seeking attorney fees for an association’s failure to

produce books and records no longer needs to prove the directors acted in bad faith in failing to

make those documents available). 765 ILCS 605/19(e) (West 2018). The Ruizes urge us to

hold that the 2018 version of the Act applies, while the association maintains that the earlier

version is applicable.

¶ 27 Determining whether a current or prior version of a statute is applicable to a cause of action

ordinarily requires a retroactivity analysis as set forth in Commonwealth Edison Co. v. Will

County Collector, 196 Ill. 2d 27, 38 (2001). Here, however, the Ruizes do not argue that the

2018 Act is applicable retroactively to 2016, when they filed their third amended complaint.

Rather, the Ruizes argue that the association’s conduct giving rise to their claim is ongoing and

therefore the most current version of the Act applies. We find no merit to this contention.

¶ 28 In their third amended complaint, the Ruizes did not seek the production of the missing

records, but only attorney fees for the association’s past failure to produce them. And that

failure occurred in 2013, when Gonzalo made his initial request. While the association may

have persisted in its failure to produce the books and records—an allegation that finds limited

support in the record—this was not the basis for the Ruizes’ claim so as to establish an ongoing

violation of the Act. Accordingly, we find that the earlier version of the Act is applicable.

¶ 29 Having determined that the pre-2018 Act is applicable to the Ruizes’ cause of action, we

turn to the merits of the circuit court’s decision dismissing count II. It is necessary to begin by

setting forth the documents the Act requires the board of directors to “keep and maintain”:

“(1) the association’s declaration, bylaws, and plats of survey, and all amendments

of these;

(2) the rules and regulations of the association, if any;

(3) if the association is incorporated as a corporation, the articles of incorporation

of the association and all amendments to the articles of incorporation;

(4) minutes of all meetings of the association and its board of managers for the

immediately preceding 7 years;

(5) all current policies of insurance of the association;

(6) all contracts, leases, and other agreements then in effect to which the

association is a party or under which the association or the unit owners have obligations

or liabilities;

(7) a current listing of the names, addresses, and weighted vote of all members

entitled to vote;

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(8) ballots and proxies related to ballots for all matters voted on by the members of

the association during the immediately preceding 12 months, including but not limited

to the election of members of the board of managers; and

(9) the books and records of account for the association’s current and 10

immediately preceding fiscal years, including but not limited to itemized and detailed

records of all receipts and expenditures.” 765 ILCS 605/19(a) (West 2016).

¶ 30 The Act provides that attorney fees are available for any member of the association who

prevails in an enforcement action to compel examination of the records described in

subsubsections (1) through (5). 765 ILCS 605/19(b) (West 2016). With respect to the

documents described in subsubsections (6) through (9), the Act also permits recovery of

attorney fees, but only upon a court finding that the directors acted in bad faith in denying the

member’s request for the documents. 765 ILCS 605/19(e) (West 2016).

¶ 31 In his demand letter of 2013, Gonzalo expressed concern for the deteriorating condition of

the condominium and sought to determine whether there was “waste, mismanagement, or

dissipation” of financial resources. To that end, he made a general demand for “books and

records” of the association and specifically requested the documents described in

subsubsections (1) through (4), (6), and (9) of subsection (a) of the Act. He also requested

“[f]inancial and accounting records related to income and expenses,” “code violations,” and

“annual reports.”

¶ 32 The Ruizes argue that, pursuant to the Act, they were not required to plead bad faith to state

a cause of action for attorney fees for the association’s failure to produce the documents falling

within subsubsections (1) through (4). But count II of their third amended complaint did not

allege that they were not provided with the documents referenced in subsubsections (1)

through (4): it sought attorney fees only for the failure to produce books and records. The

count itself is captioned “Attorney’s Fees for Failure to Produce Books and Records.” And the

Ruizes specifically alleged that they had not been provided with “tax returns, financial

statements, check ledgers, cancelled checks, a general ledger, a disbursement letter, or a cash

receipts journal.” These documents fall within the catch-all of subsubsection (9), which lists

“itemized and detailed records of all receipts and expenditures” among “books and records of

account.” Accordingly, we conclude that the court did not err in finding that the Ruizes were

required to plead bad faith to sustain their cause of action for attorney fees.

¶ 33 The only question that remains is whether the Ruizes sufficiently pled bad faith. Illinois is

a fact-pleading jurisdiction; plaintiffs are required to set forth the facts that give rise to their

cause of action. See Schal Bovis, Inc. v. Casualty Insurance Co., 314 Ill. App. 3d 562, 574

(1999). This applies to all elements of a plaintiff’s claim. Id. “[N]otice pleading, conclusions of

law, and conclusions of fact are insufficient.” Johnson v. Matrix Financial Services Corp., 354

Ill. App. 3d 684, 696 (2004).

¶ 34 Here, the Ruizes alleged that the association’s failure to provide them with access to its

books and records was “willful, vexatious, and without a proper purpose.” This is a

quintessential conclusion of law. See, e.g., Oravek v. Community School District 146, 264 Ill.

App. 3d 895, 898 (1994) (“The bare characterization of certain acts as wilful and wanton

misconduct is not sufficient to withstand a motion to dismiss because such misconduct must be

manifested by facts alleged in the complaint.”). They did not allege facts showing how the

association acted willfully or vexatiously, nor did they plead facts demonstrating that the

association’s failure to turn over records was without a proper purpose. Instead, the Ruizes

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argue that the association’s failure to produce the books and records within 30 days of

Gonzalo’s request is necessarily indicative of bad faith. Were we to accept this contention, we

would read the requirement of bad faith out of the statute entirely, as any failure to produce

records would constitute bad faith, rendering the requirement meaningless. This we must

avoid. See Brucker v. Mercola, 227 Ill. 2d 502, 514 (2007) (“Each word, clause and sentence

of the statute, if possible, must be given reasonable meaning and not rendered superfluous.”).

¶ 35 Because the Ruizes failed to allege facts demonstrating bad faith on the part of the

association, we affirm the circuit court’s dismissal with prejudice of count II of the Ruizes’

third amended complaint.

¶ 36 III. CONCLUSION

¶ 37 For the foregoing reasons, we affirm the dismissal of count II of the Ruizes’ complaint,

reverse the circuit court of Cook County’s entry of summary judgment in favor of the directors

on counts III and IV, and remand the matter for further proceedings in accordance with this

ruling.

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

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