Wolinsky v. Kadison
70 Ill. Dec. 277, 114 Ill. App. 3d 527, 449 N.E.2d 151 (1983)
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Rule of Law:
A condominium association's board of directors owes a fiduciary duty to its members to strictly comply with the procedures in its bylaws, and its exercise of a right of first refusal must be reasonable and non-discriminatory. A prospective purchaser has standing to sue for breach of this duty and for discrimination if the board improperly exercises its right of first refusal to block a sale.
Facts:
- Debra Rae Wolinsky, an owner of unit 4D at the Ambassador House Condominium, was a member in good standing of the association.
- In late August 1978, Wolinsky entered into a contract to purchase unit 21F in the same condominium building.
- Shortly thereafter, Wolinsky contracted to sell her existing unit, 4D.
- The condominium management reported to the board that Wolinsky was an unmarried female who planned to occupy unit 21F with her children.
- In late September 1978, the condominium's board of directors notified Wolinsky that it was exercising its right of first refusal to acquire unit 21F.
- The board exercised this right without obtaining the affirmative vote of two-thirds of the total ownership of the common elements, a procedure required by the association's bylaws for the purchase of units on behalf of all owners.
- Following the board's action, the seller of unit 21F terminated the sales contract with Wolinsky.
Procedural Posture:
- Plaintiff Debra Rae Wolinsky sued the Ambassador House Condominium Association, its board of directors, and management companies in an Illinois trial court.
- Wolinsky filed a three-count amended complaint alleging unreasonable restraint on alienation, breach of fiduciary duty, violation of a Chicago anti-discrimination ordinance, and wilful and wanton misconduct.
- All defendants except one moved to dismiss the complaint for failure to state a cause of action.
- The trial court granted the defendants' motion and dismissed Wolinsky's entire complaint.
- Wolinsky, as the appellant, appealed the dismissal to the Appellate Court of Illinois, First District; the defendants are the appellees.
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Issue:
Does a condominium board's exercise of its right of first refusal give rise to a valid cause of action for breach of fiduciary duty and discrimination when the board allegedly fails to follow its own voting procedures and acts based on the prospective purchaser's marital status?
Opinions:
Majority - Justice Rizzi
Yes, a condominium board's exercise of its right of first refusal gives rise to a valid cause of action if it is procedurally improper or discriminatory. First, the court held that Wolinsky, as the prospective purchaser who lost the property, had a substantial, real interest in the controversy and therefore had standing to sue. Second, the court determined that the board's right of first refusal must be exercised reasonably. Third, the court found that the declaration and bylaws must be read together, meaning the bylaw's requirement for a two-thirds vote of all owners applied to the board's decision to exercise its right of first refusal. Board members owe a fiduciary duty to the association's members, and this duty requires strict compliance with the bylaws; failure to secure the required vote constituted a breach of that duty. Finally, the Chicago condominium ordinance prohibits denying the right to purchase a unit based on sex or marital status, and exercising a right of first refusal to block a sale for such a reason is a violation of that ordinance for which a prospective purchaser may seek damages.
Analysis:
This decision is significant for establishing that a prospective purchaser, not just the seller, has standing to challenge a condominium board's exercise of its right of first refusal. It solidifies the legal principle that condominium board members are fiduciaries who must strictly adhere to the procedural requirements laid out in their governing documents, and that failure to do so constitutes a breach of their duty. The case also affirms that anti-discrimination ordinances apply to the use of a right of first refusal, preventing boards from using this power as a pretext for unlawful discrimination against protected classes.
