Willmschen v. Trinity Lakes Improvement Assoc.

Case Date: 12/27/2005
Court: 2nd District Appellate
Docket No: 2-05-0343 Rel

No. 2--05--0343


IN THE



APPELLATE COURT OF ILLINOIS



SECOND DISTRICT


ROBERT WILLMSCHEN, RONALD
CULLUM, PETER HLEPAS, MARK
KASCHUBE, and JAMES CAMPISE,

Plaintiffs-Appellants,

v.

TRINITY LAKES IMPROVEMENT
ASSOCIATION and THE BOARD OF
DIRECTORS OF TRINITY LAKES
IMPROVEMENT ASSOCIATION,

Defendants-Appellees.

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Appeal from the Circuit Court
of Du Page County.


 

No. 03--CH--1434

 

Honorable
Edward R. Duncan, Jr.,
Judge, Presiding.




PRESIDING JUSTICE O'MALLEY delivered the opinion of the court:

Plaintiffs, Robert Willmschen, Ronald Cullum, Peter Hlepas, Mark Kaschube, and JamesCampise, are homeowners in the Trinity Lakes Estates subdivision in Oakbrook (Trinity Lakes). They filed a four-count complaint in the circuit court of Du Page County against defendants, theTrinity Lakes Improvement Association (Association) and its board of directors (Board), allegingthat defendants breached certain covenants by failing to properly maintain two lakes, portions ofwhich were part of Trinity Lakes' common areas. Plaintiffs, whose homes bordered the lakes, furtheralleged that the lakes were both a private and a public nuisance. Defendants filed a combined motionpursuant to sections 2--615 and 2--619 of the Code of Civil Procedure (Code) (735 ILCS 5/2--615,2--619 (West 2004)) to dismiss plaintiffs' second amended complaint. Plaintiffs appeal from thecourt's order granting the motion and dismissing the complaint with prejudice. We affirm in part,reverse in part, and remand for further proceedings.

According to plaintiffs' second amended complaint, Trinity Lakes was developed in the1970s and consists of about 200 single-family properties. Trinity Lakes is on the shores of two lakesknown as Upper and Lower Mayslake. In connection with the development of the subdivision, thelakes were excavated to remove sediment and vegetation, and they serve to prevent flooding and soilerosion by acting as water drainage, detention, and retention facilities. Trinity Lakes' "Declarationof Covenants, Conditions, and Restrictions" (declaration) identifies portions of the lakes as commonareas. The declaration further provides that the Association is responsible for maintenance of thecommon areas. However, according to plaintiffs, the condition of the lakes deteriorated dramaticallysince the Association was established. The lakes had come to be filled with sediment and noxiousvegetation and algae. According to the complaint, the lakes were an eyesore, produced foul odors,and were hazardous to those who might intentionally or accidently enter the water.

A few years before the lawsuit was filed, the Board, as then constituted, formed a committeeto investigate the condition of the lakes and retained an environmental firm to study the problem. The firm compiled a written "vegetation management plan" (VMP). The VMP suggested that theintroduction of nutrients into the lakes due to runoff from construction sites and fertilized lawns wasthe major factor contributing to the overgrowth of vegetation in the lakes. The VMP proposedremedial measures including dredging the lakes to increase their depth and to remove nutrient-richsediments, removing undesirable vegetation and replacing it with more appropriate aquatic plants,reducing nutrient levels in the water, and monitoring compliance with appropriate erosion controlmeasures. However, the Association did not undertake these measures, and plaintiffs initiated thislitigation.

Counts I and II alleged that the Association (count I) and the Board (count II) had breachedcovenants pertaining to maintenance of the lakes. In both counts, plaintiffs sought (1) ordersrequiring defendants to comply with the maintenance provisions of the declaration and (2)declaratory judgments clarifying defendants' obligations under those provisions. Counts III and IV,both of which were directed against the Association, asserted theories of private and public nuisance,respectively. As noted, defendants filed a combined motion to dismiss under sections 2--615 and2--619 of the Code. Under section 2--619, defendants sought dismissal of counts I, II, and III, on thebasis that plaintiffs had suffered no special injury distinct from the injury to other homeowners andtherefore lacked standing to sue. Defendants similarly argued that plaintiffs lacked standing as tocount IV, alleging a public nuisance, because they had suffered no special injury different from thatsuffered by the public. Under section 2--615, defendants moved to dismiss counts I, II, and III, forfailure to state a cause of action. Defendants contended that those counts were defeated by thebusiness judgment rule. As to count III--the private nuisance count--defendants additionallycontended that the claim was legally insufficient because plaintiffs had failed to allege thatdefendants were responsible for creating the vegetation problem in the lakes. Defendants alsomoved to strike the prayers for declaratory relief in counts I and II. After the trial court granted themotion to dismiss, plaintiffs filed a timely notice of appeal.

Initially, we review the principles governing motions to dismiss under sections 2--615 and2--619 of the Code. A section 2--615 motion attacks the legal sufficiency of the complaint. Suburban 1, Inc. v. GHS Mortgage, LLC, 358 Ill. App. 3d 769, 772 (2005). In reviewing thesufficiency of the complaint, the court must accept as true all well-pleaded facts in the complaint andall reasonable inferences that can be drawn from those facts. Suburban 1, 358 Ill. App. 3d at 772. A section 2--619 motion admits the legal sufficiency of the complaint, but raises defects, defenses,or other affirmative matters that appear on the face of the complaint or are established by externalsubmissions and that defeat the action. Lyons v. Ryan, 324 Ill. App. 3d 1094, 1100-01 (2001). Lackof standing may be raised under section 2--619. Lyons, 324 Ill. App. 3d at 1101. Generally, adismissal under either section is reviewed de novo. Lyons, 324 Ill. App. 3d at 1101.

The first issue is whether plaintiffs' breach of covenant and private nuisance claims wereproperly dismissed pursuant to section 2--615 of the Code because the business judgment ruledefeats those claims. In sum, defendants' argument is that awarding the relief requested by plaintiffswould interfere with the Board's decision as to how to handle the problem with the lakes. Defendants argue that because the decision was made in the exercise of the Board's sound businessjudgment, the courts should not interfere with it. As defendants correctly note, the businessjudgment rule is a presumption that officers and directors of a corporation make decisions on aninformed basis, in good faith, and with the best interests of the corporation at heart. Ferris ElevatorCo. v. Neffco Inc., 285 Ill. App. 3d 350, 354 (1996). The principal cases cited by defendantsillustrate that the business judgment rule comes into play where mismanagement is the gravamenof the cause of action. See Ferris Elevator Co., 285 Ill. App. 3d at 354 (in shareholder's derivativesuit against directors who surrendered corporation's license to operate as a grain dealer and a grainwarehouse, business judgment rule created presumption that decision was an informed one andshareholder-plaintiff alleging injury to the corporation was required to put forth evidence to thecontrary); Miller v. Thomas, 275 Ill. App. 3d 779, 787-89 (1995) (business judgment rule appliedto board of director's refusal of shareholder demand to bring a lawsuit against certain present andformer directors of the corporation); Stamp v. Touche Ross & Co., 263 Ill. App. 3d 1010, 1018(1993) (business judgment rule applied in lawsuit by liquidator of insolvent insurance companyagainst certain directors of the company); Adams v. Meyers, 250 Ill. App. 3d 477, 485 (1993)(because business judgment rule limited judicial review of decisions of a condominium association'sboard of managers, plaintiff unit owners had "tangible and substantial legal interests in beingrepresented by a duly elected board" and thus had standing to challenge election procedures). Thus,had plaintiffs brought suit under a theory that the Board's inattention to the condition of the lakes wasinjurious to the interests of the Association, the business judgment rule certainly would apply.

In Ferris, Miller, Stamp, and Adams, relief was sought for mismanagement per se; none ofthe cases involved an independent cause of action against the corporation under a contract or torttheory or otherwise. While courts ordinarily will not interfere with management decisions on thebasis of their wisdom or lack thereof, the business judgment rule does not afford a corporation carteblanche to behave unlawfully. Hence, we agree with the observation of a court from a sister statethat "it may be good business judgment to walk away from a contract, [but] this is no defense to abreach of contract claim." Dinicu v. Groff Studios Corp., 257 A.D.2d 218, 222-23, 690 N.Y.S.2d220, 223 (1999). By the same reasoning, though it may also be good business judgment to ignorea public or private nuisance, this is no defense to an action seeking an otherwise proper remedy.

Counts I and III of plaintiffs' complaint seek recovery from the Association, not the Board. Count I essentially sounds in contract, while count III asserts a private nuisance theory. For thereasons set forth above, the business judgment rule does not dictate dismissal of these counts. CountII of the complaint, however, sought relief from the Board for breach of covenant. Under thecommon law, a corporation is a legal entity that exists separate and distinct from its shareholders,officers, and directors, who are not, as a general rule, liable for the corporation's obligations. In reEstate of Wallen, 262 Ill. App. 3d 61, 68 (1994). Section 108.70 of the General Not For ProfitCorporation Act of 1986 (805 ILCS 105/108.70 (West 2002)) provides that an officer or director ofa not-for-profit corporation exempt from taxation under 501(c) of the United States Internal RevenueCode (26 U.S.C.