2800 Lake Shore Drive Condominium Association, et. al., a case recently decided by the Illinois Appellate Court for the First District, Fifth Division. The First District Appellate Court initially issued its opinion on March 21, 2014 as a Rule 23 order, which meant the court’s opinion was not binding (except in a few very limited circumstances) on any individuals or entities other than the parties involved in this particular case. Attorneys in our office reviewed the original court opinion within days after it was released. At that time, though, our office did not send out mass “alerts” or other e-mail blasts on this case advising association clients that significant changes in the law had been made as a result of Palm because, legally speaking that was not true. We had also learned that the First District Appellate Court was considering publishing the opinion, and therefore deemed it prudent to wait for the First District Appellate Court to make its decision on publication.
The Plaintiff in the case, Mr. Palm, was a board member for his condominium association for six (6) years. In 1999, while not serving on the board, he requested certain documents from the association related to association management. The board did not produce the documents. This led Mr. Palm to sue the association, the board of directors and the board president. Palm did not seek monetary damages in his lawsuit; rather, he sought declaratory and injunctive relief. In other words, he asked the court to decide certain matters and enter an order directing the association and board members to take certain actions.
Anytime a quorum of the board members gather for the purpose of conducting and/or discussing board business, that is a board meeting which must be open to owners (except for those three (3) limited executive session exceptions provided by statute) and for which owners must be provided prior notice.
As mentioned earlier, Palm claimed the association board members transferred surplus association income into reserves and commingled reserve funds and operating funds. Palm alleged that both of these practices were prohibited by the association’s declaration and therefore the board members breached their fiduciary duty to the owners by taking these actions. What is relevant from this part of the case for other associations is not the court’s interpretation of the specific language of the association declaration in this case, but rather the procedures board members should follow.
The practice engaged in by the defendant board, and which was memorialized in the management agreement between the association and its property management company, was for the property manager to solicit several bids for projects and then to seek the input from a few, but not all, of the board members. Ultimately, certain association contracts were entered into with the approval of less than a majority of the board. The court ruled this practice violated the association’s declaration.
The First District Appellate Court initially issued its opinion on March 21, 2014 as a Rule 23 order, which meant the court’s opinion was not binding (except in a few very limited circumstances) on any individuals or entities other than the parties involved in this particular case.
Every board member owes a fiduciary duty to the owners in his/her respective association. Board members must act in a manner reasonably related to the exercise of their fiduciary duty, and if board members fail to do so the board itself, and the individual board members, may be liable to the owners.