v.
Burke
2022 IL App (1st) 210666-U No. 1-21-0666 FIRST DIVISION September 6, 2022
NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1). ______________________________________________________________________________ IN THE APPELLATE COURT OF ILLINOIS FIRST DISTRICT ______________________________________________________________________________ 4043 S. DREXEL CONDOMINIUM ASSOCIATION, an ) Appeal from the Illinois not-for-profit corporation, ) Circuit Court of ) Cook County. Plaintiff-Appellant, ) ) v. ) ) No. 18 CH 011469 JOSEPH C. BURKE, an individual, GLOBAL ASSETS ) LLC, GLOBAL ASSETS LLC SIX, GLOBAL ASSETS ) LLC SEVEN, GLOBAL ASSETS LLC EIGHT, ) GLOBAL ASSETS LLC NINE, and DDOT4043 LLC, ) Honorable ) Anna M. Loftus, Defendants-Appellees. ) Judge, presiding.
JUSTICE PUCINSKI delivered the judgment of the court. Presiding Justice Hyman and Justice Coghlan concurred in the judgment. ORDER ¶1 Held: The plaintiff-appellant condominium association and the defendants-appellees each filed summary judgment motions seeking declaratory relief as to (1) the validity of the plaintiff’s purported 2017 election of a board of directors, (2) the validity of the plaintiff’s purported amendment to the association’s declaration, and (3) the validity of defendants’ 2018 purported election of a different board of directors. The trial court correctly denied the plaintiff association’s motion for summary judgment, as the record demonstrated the invalidity of both the association’s 2017 election and the declaration amendment. We also affirm the grant of summary judgment for defendants due to plaintiff’s lack of standing to maintain the action, No. 1-21-0666 given the invalidity of plaintiff’s purported board. We thus affirm both appealed- from orders. ¶2 In this dispute over control of a condominium association, plaintiff 4043 S. Drexel Condominium Association (the Association) appeals from the trial court’s order denying the Association’s motion for summary judgment on count I of its second amended complaint, as well as the subsequent order granting summary judgment on that count to defendants Joseph C. Burke, Global Assets LLC, Global Assets LLC Six, Global Assets LLC Seven, Global Assets LLC Eight, Global Assets LLC Nine, and DDOT4043 LLC. In the underlying motions for summary judgment, the parties sought declaratory relief regarding three issues raised in count I: (1) the validity of the Association’s purported election of board members in November 2017; (2) the validity of the Association’s amendment to the declaration purporting to reduce the number of board members, and (3) the validity of defendants’ purported August 2018 election of board members. ¶3 For the following reasons, we conclude that the Association’s purported board election in November 2017 was not valid because it was not properly noticed or conducted at a meeting of unit owners, as required by the Association’s declaration. Similarly, the Association’s purported amendment to the declaration was invalid because it was never presented in writing to the unit owners or subject to a vote. We thus affirm the trial court’s September 2020 order denying summary judgment to the Association. With respect to the June 2021 order granting summary judgment to defendants, the invalidity of the Association’s purported 2017 board election means the Association lacks standing to maintain the instant action. We thus affirm summary judgment for defendants on that basis, without needing to independently assess the validity of defendants’ purported 2018 election of a new board of directors. We thus affirm both appealed-from orders, although our decision does not impact the ability of the condominium unit owners to raise similar claims in a derivative action.
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¶4 BACKGROUND
¶5 The Association is a not-for-profit corporation whose members own residential
condominium units in the 4043 S. Drexel Condominiums, a 12-unit building in Chicago. The Association was formed under a Declaration of Condominium Ownership and of Easements, Restrictions, Covenants and By-Laws for the 4043 S. Drexel Condominiums (the declaration) recorded on August 24, 2006.
¶6 Defendant Burke purchased a condominium unit in 2006. Burke serves as an officer and agent for the remaining corporate defendants, Global Assets LLC, Global Assets LLC Six, Global
Assets LLC Seven, Global Assets LLC Eight, Global Assets LLC Nine, and DDOT4043 LLC, which have purchased a number of other condominium units. The defendants collectively own
eight of the 12 units in the condominium. [1] At the time the instant litigation commenced in 2018, defendants held 49.54% of the ownership interests in the condominium. After defendants acquired an additional unit in October 2019, their collective ownership interest increased to 56.42%. Some or all of the defendants’ units have been rented out by defendants to non-owner tenants.
¶7 Relevant Provisions of the Declaration and Bylaws Contained Therein ¶8 The declaration reflects that it was executed by Standard Bank & Trust Company
(identified as the “Declarant”) in March 2006 and was recorded with the Cook County Recorder’s office on August 24, 2006. The declaration identifies the “Developer” as Queen Condominiums of 4043 S. Drexel, Inc.
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¶9 The declaration states that “Articles 5 and 6 hereof shall constitute the By-Laws of the Association.” The provisions in Article 5 are particularly pertinent to this appeal.
¶ 10 Section 5.1 of the declaration provides that “The direction and administration of the Property shall be vested in the Board of Directors (herein sometimes referred to as the ‘Board’), which shall consist of five (5) persons who shall be elected in the manner hereinafter set forth.”
The same section specifies that the initial board of directors shall be chosen by the Declarant or Developer, “until the initial meeting of Unit Owners.”
¶ 11 Under section 5.6, “The initial Board of Directors designated by the Declarant or Developer pursuant to section 5.1 hereof shall consist of three (3) directors.” That “initial board” was to serve from the execution of declaration until the election of directors “at the initial meeting held as provided in Section 5.4(b) hereof.” The record does not reflect whether the Declarant or Developer ever selected an initial board of directors.
¶ 12 Under section 5.4(b), the “initial meeting of the Unit Owners” “shall be held no later than the first to happen of (i) sixty 60 (days) after the date the Declarant has sold and delivered its deed
for at least seventy-five (75%) of the Unit Ownerships or (ii) three (3) years from the date of the recording of this Declaration.” Section 5.6(a) provides that “[a]t the initial meeting ***, the Voting
Members shall elect the Board” that shall serve until the first annual meeting.
¶ 13 Section 5.4(b) specifies that after the initial meeting, “there shall be an annual meeting of Unit Owners” on a date that may be “may be designated by written notice of the Board delivered to the Unit Owners.” Section 5.6(a) provides that “[a]t the first annual meeting five (5) Board members shall be elected.”
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¶ 14 Under section 5.4(c), “[s]pecial meetings of the Unit Owners maybe [sic] called at any time after the initial meeting.” Section 5.4(a) also specifies that “Matters to be submitted to the Unit
Owners at special membership meetings shall be submitted by the Board.”
¶ 15 Section 5.6(a) elsewhere provides that “[v]acancies in the Board *** shall be filled by a vote of the Voting Members at the meeting at which such vacancy occurs, the next annual meeting or a special meeting of the Unit Owners called for such purpose.” The same section states that
“[a] meeting of the Unit Owners shall be called for purposes of filling a vacancy on the Board no later than (30) days following the filing of a petition signed by Voting Members with twenty (20%) of the votes of the Association requesting such a meeting.”
¶ 16 History of the Association
¶ 17 Notwithstanding the provisions of the declaration, the record does not reflect whether an
initial meeting of unit owners was held within 60 days after the declaration was recorded in 2006, or whether annual meetings were conducted in subsequent years. Nor does the record reflect that
a five-member board of directors was ever elected by unit owners prior to the commencement of this litigation. Until 2018, only three persons (or fewer) were ever identified as “directors” at a given time.
¶ 18 In March 2008, Burke filed “Articles of Incorporation” for the Association with the State of Illinois that identified three directors: Burke, Gregg Devlin, and Karen Berge. Between 2009 and 2016, Burke caused to be filed with the State annual reports identifying himself as one of only three directors. [2] However, there is apparently no record as to when or how any directors were
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of the Association, “the Association did not maintain minutes of Member-Owner meetings or Association board meetings from the Association’s inception in 2008” until 2016.
¶ 19 Origin of the Dispute Between Burke and Other Unit Owners
¶ 20 In the years preceding this litigation, conflicts arose between Burke and the other unit owners regarding management of the condominium, its finances, and Burke’s rental of units he controlled to third-party tenants. Ludlow, who resided in a unit owned by her sister Benita Cathey and brother-in-law Eric Cathey, communicated with Burke regarding these issues. [3] According to an affidavit submitted by Ludlow, from 2008 and 2016, Burke “and/or his associates acquired seven of the twelve units, all for rental purposes, even though the Association’s declaration limited the number of rental units allowed to four.”4 Ludlow assisted “in an effort to work with Burke to improve the management” of the condominium, as the “Association was in debt and the building’s
common areas were deteriorating.” According to Ludlow, “[a]lthough Burke had been the President of the Association for several years, the Association held no owner meetings, conducted no owner votes, and maintained no detailed financial records other than bank statements.”
¶ 21 The Purported April 2016 Election of Three Directors
¶ 22 In April 2016, Burke sent an email to Ludlow and to the other unit owners that proposed a meeting to elect a three-person board of directors. He said:
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“[W]e have set the next owners meeting for April 23, 2016 at 11:00 a.m. in Ms. Ludlow’s (unit 104). The purpose of this meeting will be to vote in the 3 members of the board. *** Once the 3 members
of the board are elected, those board members will vote on the positions of President, Treasurer and Secretary each will hold.”
¶ 23 The meeting apparently occurred on April 23, 2016, as the record reflects the parties’ understanding that a three-person board was elected at that time. On April 25, 2016, Ludlow sent an email to Burke and Darren Doss reflecting that they had been elected as the three board members at the meeting, with Doss as “President”, Burke as “Treasurer”, and Ludlow as
“Secretary.” Ludlow indicated that they had agreed to gather financial records, including the “12-
month history of assessments received [and] balances owed”, the “2016 budget balance sheet”, the Association’s 2016 bank statements, and a “[d]etailed record of receipts and expenditures for fiscal year 2016.” Ludlow requested that Burke, as Treasurer, provide those records by May 6, 2016.
¶ 24 According to Ludlow, the “relationship between Burke, [Benita and Eric Cathey] and myself deteriorated due to Burke’s failure to provide complete books and records regarding the management of the Association.” The record includes minutes from a “Board meeting” attended by Burke, Doss, and Ludlow on July 20, 2016. The minutes state that the attendees “expressed their desire for more transparency” from Burke as to “how the Association finances were being managed and requested detailed financial records would [sic] support a broader picture regarding the financial history of the Association from the date the Treasurer assumed authority.”
¶ 25 The record reflects that by December 2016, the Association engaged counsel, who contacted Burke about providing financial records. In a December 2016 email to the Association’s counsel, Burke stated: “As I discussed with your clients, the items they requested, beyond the bank
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statements, do not exist.” In the same email, Burke indicated that he was one of three members of the board, and he affirmatively stated that there was no prior board:
“I am not the President and/or Secretary (nor have I been) of the association. Those positions are held by Priscilla Ludlow
(Secretary) and Darren Doss (President) which I have cc’d here. I am currently the Treasurer pursuant to an initial election held earlier this year to form the association’s board. The building did not have a board prior to that election.”
¶ 26 The Unit Owners’ Prior Derivative Lawsuit Against Burke
¶ 27 In 2017, Benita and Eric Cathey filed a derivative action against Burke and Global Assets
LLC on behalf of the Association, case no. 2017 CH 5220. Other unit owners (Doss, Sheila
Robinson, Ebony Tiggs, and Joseph Shine) eventually joined as plaintiffs. According to Ludlow’s
affidavit, the suit was based on Burke’s “breach of fiduciary duty and misappropriation of Association assets.” According to an affidavit submitted by Burke in the instant case, the prior lawsuit alleged that he “was not aggressive enough in collecting assessments from the delinquent owners of units that were not owned by me.”
¶ 28 Ludlow and Burke Resign from the April 2016 Board
¶ 29 On June 13, 2017, Ludlow resigned as a director. On October 10, 2017, Burke sent an email to Doss stating that “[e]ffective immediately, I resign my position as treasurer on the condo board.”
He told Doss: “As the President and the only remaining member of the board, please notify the owners where to send their association dues going forward.”
¶ 30 The November 2017 Unit Owners’ Meeting
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¶ 31 On October 20, 2017, Ludlow and Doss sent an email to the other condominium unit owners, including Burke, stating that an “Owners’ Meeting of the 4043 S. Drexel Condominiums”
would be held on November 4, 2017. The email attached an agenda which identified one of the items as “Governance and Election of Board of Directors.”
¶ 32 On November 4, 2017, several members attended a meeting, either in-person or telephonically. The record on appeal contains written meeting minutes, as well as an audio recording of that meeting. The minutes to the meeting identify the “participants” as Burke, Eric and Benita Cathey, Doss, Ludlow, Shine, and Tiggs. The audio recording reflects that Ludlow moderated the meeting and that certain unit owners participated telephonically. [5]
¶ 33 Ludlow expressed the need for a “new elected board.” At one point, an attendee mentioned
Burke’s resignation and referred to Doss as the “only board member” remaining.
¶ 34 Ludlow raised the topic of a potential amendment to the declaration to reduce the number of directors from five to three. At one point, Ludlow asked “[a]re we all in consensus” with respect to changing the number of board members. The recording indicates that a number of persons (who did not identify themselves) responded in agreement. However, the recording does not reflect that
any vote was taken. A short time later, Ludlow stated there was “a formal motion” to reduce the number of elected board members to three, and Eric Cathey stated that he “second[ed]” the motion.
When an unidentified person asked whether there was a need to vote on the change, Ludlow
responded that if a motion is made by a member and is seconded by another member, then the Board has “final decision.” Ludlow stated that Doss was the only board member, that a motion was made and seconded, and “Darren [Doss] accepted which means it’s passed.”
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¶ 35 Elsewhere during the meeting, Ludlow stated that she would distribute ballots to elect board members, and that voting would remain open for a number of days.
¶ 36 The written minutes for the November 4, 2017 meeting reference the “Treasurer’s
resignation” and state that the “[r]emaining Board Director, Darren Doss will oversee the Association until the conclusion of the next election.” The minutes also state that a “[m]otion presented to reduce the number of elected Board Members from five (5) members to three (3) members was supported and passed.”
¶ 37 The November 2017 Election of Board Members
¶ 38 On the afternoon of November 4, 2017, the Association sent an e-mail to unit owners stating: “As discussed during today’s Owner’s Meeting, the election of the Board [of] Directors
*** is now open. Please submit your candidacy for one of the three open positions on the Board by tomorrow, Sunday, November 5 at 5:00 PM.”6 The following day, the Association sent an e- mail to unit owners that attached ballots, stating that Eric Cathey and Doss were the only two candidates for the three board positions. That e-mail instructed that the election “will be closed on
Friday, November 10, 2017 at 5:00 PM CT and results will be reported shortly thereafter.” On
November 10, the Association e-mailed owners to report that Eric Cathey and Doss were elected, as “five (5) verified and validated ballots were cast representing a 50.46% voting percentage, and both candidates received an equal percentage of votes.” Thus, all unit owners other than defendants cast ballots in the November 2017 election.[7]