Wolinsky v. Kadison

Illinois Appellate Court, First District, Sixth Division · 2013 · Property

PropertyCondominiumsBreach of fiduciary dutyBusiness judgment ruleDiscrimination ordinancePrejudgment interestcondominium associationboard of directors

Facts

The plaintiff, an unmarried woman living in the building, offered to buy Unit 21F for $118,000. The condominium board exercised the association's right of first refusal without obtaining the two-thirds owner vote required by the bylaws, bought the unit itself, and then sold it to another buyer. Shortly afterward, the plaintiff bought another two-bedroom unit, Unit 7B, for a substantially higher price, and the board did not exercise the right of first refusal as to that purchase. The plaintiff sued, alleging breach of fiduciary duty and discrimination under the Chicago condominium ordinance.

Issue

Whether the association was liable for breach of fiduciary duty when its board exercised the right of first refusal without the bylaw-required vote, and whether the business judgment rule or lack of proximate cause defeated that claim. The court also addressed whether the discrimination claim was properly dismissed, whether punitive damages and a jury trial were available, whether a special representative should have been appointed for deceased defendants, and whether summary judgment on prejudgment interest was proper.

Rule

To establish breach of fiduciary duty, a plaintiff must show the existence of a fiduciary duty, breach, and damages proximately caused by the breach. The business judgment rule protects directors only when they exercise due care and become sufficiently informed in making an independent business decision; it does not protect directors who fail to use due care. Equitable prejudgment interest may be awarded in a breach of fiduciary duty case when necessary to make the injured party whole. Under section 2-1008(b)(2), the 90-day substitution period runs from suggestion of death on the record, not from a party's knowledge of the death.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Chicago, the board of Lakefront Terrace Condominium had authority to exercise a right of first refusal only after approval by 70% of unit owners under the bylaws. Without taking that vote, the board blocked Nina Patel's contract to buy a two-bedroom unit, citing concerns about her finances, and two months later allowed her to buy a different two-bedroom unit in the same building for a higher price.

If Nina sues the association for breach of fiduciary duty, which is the strongest argument against the association's reliance on the business judgment rule?

Explanation. The majority held that the business judgment rule protects directors only when they exercise due care and become sufficiently informed to make an independent business decision. A board that disregards a required voting procedure in the bylaws has not shown due care, and later allowing the same person to buy a similar but more expensive unit undermines the claim that the earlier action reflected protected business judgment. (Derived from Wolinsky v. Kadison (n.d.).)