In a ruling that is favorable to "real estate owned" (REO) owners dealing with exorbitant fees charged by condominium and home owners associations, the Appellate Court of Illinois, First District, recently held that the Illinois Condominium Property Act provides an implied cause of action against a condominium property manager, as well as the condominium association or its board of directors, based on allegations that the property manager charged excessive fees for the production of information required to be disclosed under the statute.
A copy of the opinion is available at: Link to Opinion
Section 22.1 of the Condominium Property Act requires unit owners to provide nine categories of documents and information concerning the condominium and its unit owners' association to prospective purchasers. Id. The principal officer or "such other officer as specifically designated" must provide the requested information within 30 days of the request and may charge a "reasonable fee covering the direct out-of-pocket cost of providing such information and copying" to the unit seller for providing the information. Id. § 22.1(b)-(c).
In this case, a property management company (Agent) was designated to provide the documents and information required by Section 22.1(a). When the plaintiff condominium unit sellers (Sellers) entered into a contract with prospective purchasers, they notified Agent of their intent to sell their unit and were provided with a standard form to request documents. The form listed various categories of documents each with a price next to it. The total fee for the documents requested by Sellers was $245.
Sellers alleged that this was not a "reasonable fee covering the direct out-of-pocket cost of providing such information." § 22.1(c). Sellers further argued as they were unable to obtain the information and documents from anyone other than Agent, they were "beholden" to Agent and had no choice but to pay the fee. Sellers alleged Agents actions to have violated the Illinois Condominium Property Act and the Illinois Consumer Fraud and Deceptive Practices Act.
Agent moved to dismiss arguing that no implied private right of action existed in favor of Sellers under Section 22.1 because the purpose of the section is to protect prospective purchasers, not sellers; that section 22.1(c) did not govern the fees property management companies providing services to condominiums could charge, as its unambiguous language mentioned only what may be charged for providing information; and that Sellers failed to state a cause of action for a violation of the Illinois Consumer Fraud and Deceptive Practices Act.
The trial court denied the motion to dismiss and held that an implied cause of action in favor of Seller existed under section 22.1.
The trial court found that the Illinois Condominium Property Act contains protections for buyers and sellers, as "[t]oday's buyer becomes tomorrow's seller." The trial court further stated Section 22.1 imposed "substantial obligations on sellers to secure the provision of certain documents from management, but in turn offer[ed] them a shred of protection against price-gouging." Finally, the trial court noted that a unit seller was by definition a unit owner and that other implied statutory causes of action had been recognized in favor of unit owners.
The trial court next rejected the reasoning in Horist v. Sudler & Co., 941 F.3d 274, 279-80 (7thh Cir. 2019), in which the federal court of appeals concluded that the purpose of Section 22.1 was for the protection of purchasers only.
The trial court reasoned that the federal appellate court had read the decisions it relied on too narrowly as "permitting no other purpose to be read in to the statute" than protecting the purchasers and that the court of appeals decision was likely based on hesitancy of federal courts to recognize "novel state law claims," which the court found this claim to be.
Finally, the trial court found that the claim could be brought against Agent as Landau v. Landau, 409 Ill. 556, 564 (1951) recognized that an agent may be held responsible for breaching a duty owed by a principal where the agent "'takes some active part in violating some duty the principal owes to a third person.'"
Thus, the trial court denied the motion to dismiss. Agent then filed a motion seeking to have the trial court certify the above-mentioned question of law to the state appellate court. The motion was granted, and this appeal ensued.
The state Appellate Court first looked to the plain language of the statute, stating implication of a private right of action is appropriate if four factors are met: "(1) the plaintiffs are members of the class for whose benefit the statute was enacted, (2) the plaintiffs' injury is one the statute was designed to prevent, (3) a private right of action is consistent with the underlying purpose of the statute, and (4) implying a private right of action is necessary to provide an adequate remedy for violations of the statute." Metzger v. DaRosa, 209 Ill.2d. 30, 36 (2004).
The Appellate Court found that the plain language of the statute required them to reject Agent's argument that the purpose of the statute was only for the benefit or protection of potential purchasers.
Although the primary purpose of the statute may be to protect potential purchasers, the Appellate Court reasoned, the statute also has the purpose of benefiting condominium unit owners who wish to sell their units. A unit owner who wants to sell their unit would be significantly hindered if they had no legal method to acquire the information from the party in possession of it to provide to a potential buyer.
As such, the Appellate Court found Section 22.1 to protect unit owners who want to sell by ensuring that they have a statutory mechanism to obtain the information from the association to provide in connection with a sale.
The Appellate Court continued, finding that Section 22.1(c) was designed to prevent disputes between unit owners and associations or boards regarding fees and to protect all parties in the process by specifying that an association may charge for copying and providing documents and providing general parameters of what the amount of that charge may be. The Appellate Court noted that the specification that only a direct out-of-pocket expense may be charged was especially indicative of the legislatures intent to protect sellers needing to obtain the information.
After determining that Sellers were among the class of people the statute was designed to protect, the Appellate Court moved on to the second prong, finding that Sellers alleged injury that the Agent charged an "excessive and unreasonable fee" of $245.00 was an injury that the statute was designed to protect against.
The Appellate Court, relying on the above reasoning, also determined a private right of action was consistent with the underlying purpose of Section 22.1 and that without an implied private right of action in favor of a seller, the prohibition on charging excessive fees would be ineffective.
Having found the necessary elements met to imply a private right of action in favor of a seller who is charged an excessive or unreasonable fee to receive required documents or information, the Appellate Court turned to the question of agency.
The Appellate Court stated that the plain language of Section 22.1 contained no mentioned of agents acting on behalf of unit owners' associations or boards of directors, but that the Illinois Condominium Association Act separately grants the board of managers the ability to "engage the services of a manger or managing agent." Id. at §18(a)(5).
The Appellate Court agreed with the trial court's reasoning regarding agency and saw no reason why this would not be one of the services for which the board of managers may engage a managing agent under 18(a)(5).
The Appellate Court further held "[w]here a property manager, as part of the services for which it is engaged as an agent by a condominium association, is delegated and agrees to perform the duties of an association or board of managers under section 22.1, it cannot be delegated or agree to perform those duties as agent in a way that the association or board would be prohibited from doing as principal." The Agent, having agreed to act as agent for the owner's association, could be held liable if it took an active part in violating statutory duty that its principal owes to a third party. Landau. 409 Ill. At 564.
Thus, the Appellate Court found that the Illinois Condominium Property Act provided an implied cause of action in favor of a condominium unit seller against a property manager, as well as the condominium association or its board of directors, based on allegations of excessive fees charged for the production of information required to be disclosed to a prospective buyer under that statute.
Ralph T. Wutscher
Maurice Wutscher LLP
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