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FIFTH DIVISION
DECEMBER 23, 2004

No. 1-03-3556

Plaintiff, the board of managers of Chestnut Hills Condominium Association, appeals fromentry of an order of the circuit court of Cook County staying the proceeding of its claims in countsI, II, and IV of its complaint against defendant, Pasquinelli, Inc., pending submission of all mattersto arbitration. On appeal, plaintiff contends that the trial court erred in staying all matters subjectto arbitration where the allegations of counts I, II and IV of plaintiff's complaint are not subject tomandatory arbitration. For the following reasons, we reverse the judgment of the trial court andremand this matter for reconsideration consistent with this opinion.

The following facts are relevant to this appeal. Plaintiff, Chestnut Hills CondominiumAssociation (the Association), is the managing board of a 19-building, 70-unit residentialcondominium development located in Burr Ridge, Illinois. Pasquinelli, Inc. (Pasquinelli),developed and sold the condominium units of Chestnut Hills to individual owners pursuant to adocument entitled "Standard Land and Building Contract" (Purchase Contract). The PurchaseContract contained the following language:

"PURCHASER HAS READ AND UNDERSTOOD THE TERMSOF THE SAMPLE COPY OF THE LIMITED WARRANTY,INCLUDING ANY PROVISION THAT MAY REQUIRE ALLDISPUTES THAT ARISE UNDER THE RWC LIMITED WARRANTY TO BE SUBMITTED TO BINDING ARBITRATION."

The "Limited Warranty" referred to in the Purchase Agreement sets forth its coverage for thecommon elements of a condominium as follows:

"CONDOMINIUM COVERAGE: This Limited Warranty shall onlyapply to warranted common elements. Warranted common elementsare those portions of the defined electrical, heating, ventilation,cooling, plumbing and structural systems which serve two (2) ormore residential units, and are contained wholly within a residentialstructure. *** Examples of common elements which are coveredby this Limited Warranty are hallways, meeting rooms and otherspaces wholly within the residential structure designated for the useof two (2) or more units. Examples of common elements which arenot covered under this Limited Warranty are club houses,recreational buildings and facilities, exterior structures, exteriorwalkways, decks, balconies, arches or any other non-residentialstructure which is part of the condominium." (Emphasis in original.)

The Limited Warranty further provides in pertinent part as follows: "This Limited Warranty isseparate and apart from your contract and/or sales agreements with your Builder." A claim underthe warranty begins with a "request for warranty performance." The Limited Warranty sets forththe following procedure for dealing with requests for warranty performance:

"Within thirty (30) days following the Administrator's receipt ofproper notice of request for warranty performance, the Administrator may review and mediate your request by communicating withyou, your Builder and any other individuals or entities who theAdministrator believes possess relevant information. If, after thirty(30) days, the Administrator has not been able to successfullymediate your request, or at any earlier time when the Administratorbelieves that your Builder and you are at an impasse, then theAdministrator will notify you that your request has become anUnresolved Warranty Issue."

An "Unresolved Warranty Issue" is defined as follows:

"All requests for warranty performance, demands, disputes,controversies and differences that may arise between the parties tothis Limited Warranty that cannot be resolved among the parties. An Unresolved Warranty Issue may be a disagreement regarding:

a. the coverages in this Limited Warranty

b. an action performed or to be performed by any partypursuant to this Limited Warranty

c. the cost to repair or replace any item covered by thisLimited Warranty."

The Limited Warranty requires binding arbitration of disputes of any unresolved warranty issues.An owner begins the arbitration process "by giving the Administrator written notice of your [sic]request for arbitration of an Unresolved Warranty Issue."

On February 18, 2003, the Association filed a four-count complaint against Pasquinellialleging that on or after February 18, 1999, the Association learned of the existence of certaindefects in design, material or workmanship or both, relating to siding, roofing grading-exteriordrainage, balconies, masonry, exterior wood rot, peeling paint, concrete sidewalks, stoops anddriveways, and a built-in TV antenna system.

In count I, the Association alleged breach of the implied warranty of habitability arising outof the Purchase Contract. In count II, the Association alleged breach of the implied warranty ofgood workmanship. Count III contained allegations of breach of the express warranty forconstructing the common elements and buildings with one or more of the defects delineated above,and count IV alleged breach of contract for failure to construct the buildings in substantialcompliance with the feature sheet and specifications and for failure to install built-in TV antennasystems, among other things.

On May 30, 2003, Pasquinelli filed a motion to dismiss counts I through IV of theAssociation's complaint pursuant to section 2-615 of the Illinois Code of Civil Procedure (735ILCS 5/2-615 (West 2002)) or, in the alternative, to stay proceedings as to counts III and IVpending submission to arbitration. The Association filed a motion opposing Pasquinelli's motion todismiss, therein conceding that the terms of the Limited Warranty require binding arbitration forclaims made under the Limited Warranty and withdrawing count III. The Association maintainedthat counts I, II and IV were not subject to the arbitration provision of the Limited Warrantybecause the Association sought relief under distinct legal theories.

On October 31, 2003, the trial court issued an order dismissing count III and staying theproceedings related to counts I, II, and IV pending submission of the claims to arbitration. Thistimely appeal followed.

On appeal, the Association contends that the trial court erred in staying the proceedingsrelated to counts I, II, and IV of its complaint, pending submission of the claims to arbitration.

Initially, the parties dispute the standard of review.

The Association argues that because the trial court made no factual findings but merelystayed the proceedings pending arbitration, the order is reviewable de novo. Weiss v. WaterhouseSecurities, Inc., 335 Ill. App. 3d 875, 885, 781 N.E.2d 1105 (2002); Bass v. SMG, Inc., 328 Ill.App. 3d 492, 765 N.E.2d 1079 (2002).

Pasquinelli responds that the standard of review of an interlocutory order granting ordenying a motion to compel arbitration is whether the trial court abused its discretion. Rosen v.SCIL, LLC, 343 Ill. App. 3d 1075, 799 N.E.2d 488 (2003); Peregrine Financials & Securities v.Hakakha, 338 Ill. App. 3d 197, 788 N.E. 2d 263 (2003). Pasquinelli argues that the de novostandard applies only where the arbitration agreement has been legally construed by the trial court,i.e., where the trial court finds that the arbitration provision is unconscionable. Rosen, 343 Ill.App. 3d at 1079-80. Pasquinelli concludes that because the trial court did not legally construe thearbitration provision, its order must be reviewed only for an abuse of discretion.

The Association replies that the court in Peregrine, in fact, applied a de novo standard ofreview; the trial court made no findings of facts but, rather, ruled as a matter of law:

"The instant case is before us as an interlocutory appeal.Normally, such appeals are reviewed under an abuse of discretionstandard to determine whether the trial court was correct in grantingor denying the relief requested. Feldheim v. Sims, 326 Ill. App. 3d302, 308 (2001). 'A motion to compel arbitration is a prayer forinjunctive relief that is treated similarly to a preliminary injunction ora restraining order, and the grant or denial of such motion is reviewable as an interlocutory appeal, subject to an abuse of discretionstandard of review.' Feldheim, 326 Ill. App. 3d at 308-09. However, here, the trial court's order mandating that the arbitration beheld in Cook County was made in the absence of any findings as tofactual issues. Rather, the trial court's ruling was based upon itsconclusion that, as a matter of law, section 4 of the Federal Arbitration Act required that the arbitration be held in Cook County.Because this ruling was clearly one of law, and the relevant underlying facts are not in dispute, a de novo standard of review isappropriate. See Federal Signal Corp. v. SLC Technologies, Inc.,318 Ill. App. 3d 1101, 1105-06 (2001)." Peregrine, 338 Ill. App. 3dat 266-67.

We agree with the Association that our standard of review is de novo. The record does not showthat the trial court conducted any hearing or heard any testimony in support of Pasquinelli'scombined motions but, rather, ruled as a matter of law that the complaint was subject tomandatory arbitration. Because the trial court made no findings of fact, we review this matter denovo.

On appeal, the Association contends that the only agreement between unit owners andPasquinelli containing an arbitration clause is the Limited Warranty and that the parties arerequired to arbitrate only claims made under the Limited Warranty.

At the outset, we note that Pasquinelli persists in arguing for arbitration of count III,despite the fact, acknowledged by Pasquinelli, that the Association voluntarily withdrew count IIIand that the trial court entered an order dismissing count III. We find that count III is notincorporated into the complaint for further consideration by the trial court, the Association havingwithdrawn count III and not amended its complaint to reincorporate the count, and the trial courthaving entered an order allowing its withdrawal. See, e.g. Barnett v. Zion Park District, 171 Ill.2d 378, 384, 665 N.E.2d 808 (1996); W.W. Vincent & Co. v. First Colony Life Insurance Co.,351 Ill. App. 3d 752, 756, 814 N.E.2d 960 (2004). We therefore decline to address any argumentregarding the arbitration of count III of the Association's complaint.

In Donaldson, Lufkin & Jenrette Futures, Inc. v. Barr, 124 Ill. 2d 435, 530 N.E.2d 439(1988), our supreme court explained when it is appropriate for the circuit court to determine theissue of arbitrability:

"Where the language of the arbitration agreement is clear, and it isapparent that the dispute sought to be arbitrated falls within thescope of the arbitration clause, the court should decide the arbitrability issue and compel arbitration. [Citations.] Similarly, if it isapparent that the issue sought to be arbitrated is not within the ambitof the arbitration clause, the court should decide the arbitrabilityissue in favor of the opposing party, because there is no agreementto arbitrate. [Citations.] 'Thus, the arbitrability issue emerges asessentially one of giving effect to the parties' expressed intentionabout the use of arbitration.' [Citation.] The paramount factor indetermining the parties' intention is the scope of the arbitrationclause in the contract." Donaldson, 124 Ill. 2d at 445, 530 N.E.2d439.

While arbitration is a favored method of dispute resolution, this court has consistently cautionedthat an agreement to arbitrate is a matter of contract. Parties to an agreement are bound toarbitrate only those issues they have agreed to arbitrate, as shown by the clear language of theagreement and their intentions expressed in that language, and that an arbitration agreement willnot be extended by construction or implication. Salsitz v. Kreiss, 198 Ill. 2d 1, 13, 761 N.E.2d724 (2001); Flood v. Country Mutual Insurance Co., 41 Ill. 2d 91, 94, 242 N.E.2d 149 (1968).
The Association argues that its claims for breach of the implied warranty of habitability,breach of the implied warranty of good workmanship and materials and breach of the contract toconstruct are not claims that require arbitration. These claims arise out of the Purchase Contract,rather than the Limited Warranty; the Limited Warranty is not incorporated into the PurchaseContract by reference and there is no arbitration agreement.

In order for a contract to incorporate all or part of another document by reference, thereference must show an intention to incorporate the document and make it part of the contract.Claims arising out of one agreement are not subject to an arbitration clause contained in a separateagreement. Wilson v. Wilson, 217 Ill. App. 3d 844, 853, 577 N.E.2d 1323, 1329 (1991). Therecord shows that the Purchase Contract contains no arbitration agreement, and that the PurchaseContract refers only to the existence of the Limited Warranty:

"PURCHASER HAS READ AND UNDERSTOOD THE TERMSOF THE SAMPLE COPY OF THE LIMITED WARRANTY,INCLUDING ANY PROVISION THAT MAY REQUIRE ALLDISPUTES THAT ARISE UNDER THE RWC LIMITEDWARRANTY TO BE SUBMITTED TO ARBITRATION."

Thus, the Purchase Contract does not incorporate the Limited Warranty.

Pasquinelli's insistence that the Limited Warranty is "incorporated into the PurchaseContract" is without merit. The Limited Warranty specifically provides that the: "LimitedWarranty is separate and apart from your contract and/or sales agreements with your Builder." Asthere is no arbitration clause in the Purchase Contract, we find that any claims made pursuant tothe Purchase Contract are not subject to binding arbitration.

Pasquinelli argues in the alternative that the Associations' claims fail because theAssociation seeks recovery for the same construction and other defects under alternate legaltheories, and that all of the factual allegations of the Association's complaint fall within the LimitedWarranty's coverage for "warranted common elements."

In support, Pasquinelli relies on J&K Cement Construction, Inc. v. Montalbano Builders,Inc., 119 Ill. App. 3d 663, 456 N.E.2d 889 (1983). There, the parties disputed whether anagreement to arbitrate existed. Montalbano noted that paragraph 22 of the typewritten "StandardContract Agreement" initialed by the parties stated: "All claims, disputes and other matters inquestion arising out of, or relating to this Agreement, or the breach thereof, shall be decided by arbitration, pursuant to the Rules established by the Northern Illinois Home Builders Associationfor the arbitration of such disputes." Montalbano, 119 Ill. App. 3d at 669. Montalbano arguedthat this clause demonstrates each party agreed to arbitration. The Falbos responded that theparties' written agreement actually contained an additional arbitration clause with a different set ofgoverning rules, and thus, the parties could not have reached agreement on a specific arbitrationprocedure. The court held that while the contract does refer to two arbitration clauses, and whilethese two clauses appear to conflict, the language of the second clause incorporated by referenceinto the general conditions of the parties' contract stated that it becomes operative only if theparties do not establish an alternative procedure. The court held that parties established analternative arbitration procedure and thus, the parties did agree to one form of dispute resolution. Montalbano 119 Ill. App. 3d at 669. Montalbano is inapposite. Montalbano did not hold that all claims must be arbitrated"because of common factual allegations" but, rather, that the parties agreed to arbitrate all claimsunder the one contract entered into between them. By contrast, the parties here entered into twoseparate agreements: the Purchase Contract and the Limited Warranty. The Purchase Contractcontains no arbitration provision.

As quoted above, the Limited Warranty sets forth coverage for the common elements of acondominium as follows:

"CONDOMINIUM COVERAGE: This Limited Warranty shall onlyapply to warranted common elements. Warranted common elementsare those portions of the defined electrical, heating, ventilation,cooling, plumbing and structural systems which serve two (2) ormore residential units, and are contained wholly within a residentialstructure. ** * Examples of common elements which are coveredby this Limited Warranty are hallways, meeting rooms and otherspaces wholly within the residential structure designated for the useof two (2) or more units. Examples of common elements which arenot covered under this Limited Warranty are club houses,recreational buildings and facilities, exterior structures, exteriorwalkways, decks, balconies, arches or any other non-residentialstructure which is part of the condominium." (Emphasis in original.)

The common elements of the condominium are defined by the "Declaration of CondominiumOwnership for Chestnut Hills Condominium Association Condominiums" (Declaration) as follows:

"'Common Elements' means all portions of the Property except theUnits, including the Limited Common Elements, unless otherwiseexpressly specified herein. The common elements include withoutlimitation, and of the following items located at the Property: theland, foundations, walls, entrances and exits, hallways (excepthallways situated entirely within a Unit and serving only such unit),common meter room, mailboxes, roof, master television antennasystem, if any, pipes, ducts, flues, shafts , electrical wiring andconduits (except pipes, ducts, flues, shafts, electrical wiring andconduits situated entirely with a Unit and serving only such Unit),public utility lines, structural parts of the Building, outside walks anddriveways, private streets, recreational facilities located on theProperty, if any, all parking areas and landscaped cul-de-sac islands,and all other portions of the Property except the individual Units. Structural columns located within the boundaries of a Unit shall bepart of the Common Elements."

The factual allegations of the Association's complaint seek redress for a series of defects which arenot defined as "covered common elements" under the Limited Warranty and which are notconsidered "common elements" under the Declaration. Therefore, the Association has allegedfacts in its complaint that are not subject to arbitration.

Pasquinelli further argues that the Association has waived any issues regarding impliedwarranty of habitability as alleged in count II by paragraph 9 of the Purchase Contract. Paragraph9 of the Purchase Contract provides, in part:

"CONSTRUCTION WARRANTY. EXCEPT AS OTHERWISEEXPRESSLY PROVIDED IN THIS CONTRACT, SELLERHEREBY EXCLUDES ANY AND ALL WARRANTIES,EXPRESS OR IMPLIED (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF HABITABILITY, MERCHANTABILITY, QUALITY OR FITNESS FOR APARTICULAR PURPOSE), WITH RESPECT TO THERESIDENCE AND THE PROPERTY."

In Paragraph 13 of the complaint, the Association alleged:

"13. Paragraph 9 of the Purchase Contract was not broughtto the attention of prospective purchasers. In fact, Pasquinelli, Inc.Acknowledged the unit owners' rights under express and impliedwarranties in a letter dated February 1, 2000. A true and correctcopy of the February 1, 2000 letter is attached hereto as Exhibit 3."

The letter referred to above states in pertinent part:

"This is in response to your letter of 12/23/99, regarding aconstruction repair agreement for Chestnut Hills. Pasquinelli, Inc.feels it would be redundant to sign a separate agreement for theserepairs. There is an expressed [sic] and implied warranty, whichalready exists and addresses all items listed."

Our supreme court recognizes that a warranty of habitability is "implied as a separatecovenant between the builder-vendor and the vendee because of the unusual dependent relationshipof the vendee to the vendor." Petersen v. Hubschman Construction Co., 76 Ill. 2d 31, 41, 389N.E.2d 1154 (1979). The burden required for waiver of that right is very high: "Although theimplied warranty of habitability is a creature of public policy, we do not consider a knowingdisclaimer of the implied warranty to be against the public policy of this State. However, we dohold that any such a disclaimer must be strictly construed against the builder-vendor." Petersen, 76Ill. 2d at 43.

Subsequent cases follow the standard set forth in Peterson for disclaimer as follows: (1) aconspicuous provision (2) which fully discloses the consequences of its inclusion (3) that was, infact, the agreement of the parties. Herlihy v. Dunbar Builders Corp., 92 Ill. App. 3d 310, 317, 415N.E.2d 1224 (1980); Colsant v. Goldschmidt, 97 Ill. App. 3d 53, 56, 421 N.E.2d 1073, 1076(1981) ("A disclaimer does not negate an implied warranty unless it is brought to the attention ofthe buyer and agreed to by him.") In order to disclaim the implied warranty of habitability, thewords "implied warranty of habitability" must be used in the disclaimer and brought to thepurchasers' attention. Board of Managers of the Village Centre Condominium Ass'n, Inc. v.Wilmette Partners, 198 Ill. 2d 132, 141, 760 N.E.2d 976 (2001).

The high burden required for waiver was met in Breckenridge v. Cambridge Homes, Inc.,246 Ill. App. 3d 810, 616 N.E.2d 615 (1993). There, the seller of property brought a waiversimilar to the one in the present case to the attention of the purchasers. The purchasers admittedthat they read the language of the disclaimer and understood what they were doing when theywrote their initials next to the disclaimer paragraph. In addition, the disclaimer provision inBreckenridge specifically set forth the consequences of waiving the warranty. Thus this courtfound that the purchasers waived their warranty of habitability.

By contrast, the record in the present case does not show an effective waiver of theimplied warranty of habitability. There is no evidence that Pasquinelli called the purchasers'attention to paragraph 9 as in Breckenridge, or instructed the purchasers to specifically initial theprovision. Finally, the provision fails to set forth the consequences of the waiver of the impliedwarranty of habitability.

We find that the Association has not waived any implied warranties of good workmanshipand materials through paragraph 9 of the Purchase Contract. Thus, the allegations of count II ofthe Association's complaint alleging breach of good workmanship is not waived.

Finally, we address the procedural posture of Pasquinelli's section 2-615 motion to dismisscounts I, II and IV of the Association's complaint..

A section 2-615 motion attacks the sufficiency of a complaint for failure to state a cause ofaction upon which relief can be granted. 735 ILCS 5/2-615 (West 2002). On consideration of asection 2-615 motion, the trial court examines only (1) the facts apparent from the face of thecomplaint; (2) matters of which the court may take judicial notice; and (3) judicial admissions inthe record. Mt. Zion State Bank & Trust v. Consolidated Communications, Inc., 169 Ill. 2d 110,115, 660 N.E.2d 863 (1995). Exhibits attached to the complaint must also be considered, andwhere inconsistent, exhibits control over the factual allegations of the pleading. Matters of proofare not to be considered in examining a motion to dismiss pursuant to section 2-615. Lipinski v.Martin J. Kelly Oldsmobile, Inc., 325 Ill. App. 3d 1139, 759 N.E.2d 66 (2001).

The record shows that the trial court did not rule on Pasquinelli's section 2-615 motionafter entering the order staying counts I, II and IV. Therefore, the section 2-615 motion to dismissremains pending. Having concluded that counts I, II and IV are not properly subject to arbitration,we hold as follows: (1) the stay that operates as an injunction preventing the Association fromproceeding with its case is hereby vacated; and (2) this matter is remanded to the trial court toallow the Association to amend its complaint and thereafter address Pasquinelli's section 2-615motion to dismiss.

For all of the reasons stated above, we reverse the judgment of the trial court, vacate thestay order, and remand this matter for further proceedings consistent with this opinion.

Reversed and remanded.

GALLAGHER and NEVILLE, JJ., concur.