Appellate court ruling on Palm is informative
In the recent case of Palm v 2800 Lake Shore Drive Condominium Association, the Fifth Division of the First District Appellate Court of Illinois issued an order concerning the validity of many common association practices. While not binding precedent, the case nonetheless signals the appellate court's thinking.
The case involves a lawsuit filed by a unit owner challenging conduct of the board of managers of a condominium association.
Initially, it must be noted the order in Palm was issued under Supreme Court Rule 23. This means the ruling may not be cited as precedent by any future party and is binding only on the parties to the case. However, the order is instructive as to how Illinois courts, particularly in the First District, might rule on the issues presented.
Therefore, the case should not be ignored by Illinois condominium associations, and boards should consider the guidance provided in the ruling when handling the affairs of the association. Also, portions of the Palm order are specific to the governing documents for the defendant association.
The appellate court order covers a wide variety of issues. The court's conclusion is startling on some issues, and confirms what should have been common practice on others. Let me summarize some of the issues here.
Most notably, the order provides that the phrase "conducting board business" in Section 2(w) of the Illinois Condominium Property Act, defining a "board meeting," encompasses discussions by a gathering of a quorum of the board, and includes activities by a board in workshops. This was startling and is an expansion of what was otherwise the understanding in the industry as to what constitutes a board meeting.
Further, the court opined that not only must all board voting occur at meetings open to owners, so must all board discussion or consideration of association matters, except for discussion or consideration of the three specified exceptions set forth in Section 18(a)(9) of the condominium act. Accordingly, the court stated that notice must be provided for, and owners permitted to attend, any gathering of a quorum of the board where association business will be discussed.
The court confirmed votes on matters permitted to be discussed in executive session must be taken at meetings open to owners.
Not surprisingly, the appellate court stated that email voting or written canvassing of board members to make decisions is not permitted under Section 18(a)(9) of the act. These decisions must be made at meetings of the board open to owners. This impacts decisions even as routine as whether or not to waive an association's right of first refusal.
The ruling calls into question the use of board appointed "commissions" to do the board's business in the absence of express authority in the declaration, and notes that any business of the board must necessarily be conducted by the entire board.
Whether to proceed with or to defend litigation is association business that must be voted on by the board at meetings of the board open to owners. The ruling also provides that the board breached its fiduciary duty by transferring surplus income to the association's reserve account instead of crediting it against unit owners' future assessments, as required by the declaration.
The association's declaration required that all meetings of the board be mailed to owners no later than 48 hours prior to such meeting. The association's practice was to mail notice of board meetings to nonresident owners, but to deliver such notices to resident owners by leaving the notices in front of the unit owners' doors. Notices, based on the language of the declaration, had to be mailed to owners and not merely left at the owners' doors. The court found the board breached its fiduciary duty in failing to mail all notices of board meetings.
The sky is not falling as the result of this case. However, associations need to consult with their attorneys to discuss whether and to what extent their operations should be reviewed and potentially modified to address the current thinking of the First District Appellate Court.
• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in Buffalo Grove. Send questions for the column to him at CondoTalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.