When the Appellate Court’s decision came down, the Chicago Tribune called it a "ground-breaking decision that "has stunned the condominium community nationwide." So will the Illinois Supreme Court overturn the Second District’s controversial decision in Spanish Court Two Condominium Association v. Carlson? Based on the oral argument last week, it’s difficult to be certain; several members of the Court seemed at least somewhat conflicted, and the Court heavily questioned both sides. Our detailed summary of the facts and lower court decisions in Spanish Court is here. Our preview of the oral argument is here.
The defendant in Spanish Court stopped paying her monthly assessments for her condominium association in August 2009. She stopped paying special assessments around the same time. So the plaintiff condo board sued her for possession of the unit and the unpaid assessments. The defendant filed an answer, affirmative defenses and a counterclaim. Her defenses and counterclaim made virtually the same allegations – she’d stopped paying the assessments because the Board of the condo association had quit fixing the common areas, per the maintain-and-repair covenant in the condo articles. Specifically, the plaintiff had supposedly stopped fixing the roof – thus the leaking into the plaintiff’s unit – and certain brickwork above her unit. The Circuit Court struck the defenses and counterclaim, holding that they were not "germane" to the plaintiff’s action under the Forcible Entry and Detainer Act. The Appellate Court reversed in part, holding that although defendant’s counterclaim had to be severed, her defenses were germane, analogizing the claim to permissible defenses by renters under the Forcible Entry Act.
Counsel for the condo board began the argument by pointing out that the Second District had conceded that it was placing itself in a "small minority" by its decision. Condominiums survive through assessments, counsel argued, and without them all the residents’ investments are imperiled. Counsel predicted chaos in the condominium industry absent reversal. Justice Burke asked what remedy a condominium owner had if the board failed to meet its responsibilities, and counsel responded that the owner could sue the board members. Justice Garman asked which affirmative defenses were "germane," and counsel responded that all defenses which went to ability to pay or flaws in the underlying agreement were. Justice Thomas asked whether counsel’s argument was primarily based on public policy, and counsel responded that the relevant policies were embedded in the Illinois Condominium Property Act. Counsel argued that the important issue was whether the Forcible Entry and Detainer Act would continue to be a summary proceeding designed to decide possession quickly or not. Justice Freeman asked whether it was important to get all possible claims before the courts as soon as possible, and counsel pointed out that a party always had an injunction action available if time was of the essence. Justice Freeman suggested that the alternative remedy would take significantly longer, and counsel responded that courts sometimes recognize the need for expedition, and there are tools available to achieve it. Justice Thomas suggested that the Appellate Court had apparently limited the permissible defenses to flaws which made the unit uninhabitable. Counsel responded that there had been no showing that the unit was uninhabitable. Counsel should bring the claim as one for breach-of-fiduciary-duty in a separate case, counsel argued. Justice Thomas pointed out that in fact, the Appellate Court had held that the counterclaim wasn’t germane because it only sought damages, not possession. Counsel responded that the allegations were exactly the same in the counterclaim and defenses with the exception of the final paragraph seeking a remedy. Justice Karmeier observed that the Forcible Entry and Detainer Act gave counsel a powerful remedy, and asked whether the individual would have the right to present defenses if the suit was a simple one for damages. Counsel responded that if any action was outside the Affordable Care Act, then the defendants could bring any defense they chose to bring.
Counsel for the resident argued that public policy adequately answered the question presented. Justice Thomas asked whether there was a difference between a landlord/tenant relationship and the relationship between the Board and the condo residents. When counsel responded that the Board-resident relationship was solely contractual, Justice Thomas asked whether the contract was between the owner and all other owners. When counsel agreed it was not, Justice Thomas asked whether the owners’ interests all rose or fell together. Counsel reiterated that the contractual relationship itself was bilateral, between the association and the owner. Justice Garman pointed out that an owner could participate in management, but counsel argued that his client was helpless to affect repairs to the common elements that might affect her unit, particularly after being shut out of the process. Justice Burke asked whether the purpose of assessments was defeated by allowing the defenses, since the owners collectively use those funds to maintain the common elements. Counsel suggested that the problem was with the particular board, not the law. He argued that if residents are not allowed to raise these issues in a Forcible Entry and Detainer Act suit, the only alternative was a two to four year court battle. When counsel stated that the leak problem had begun in 2007, Justice Thomas asked why the defendant hadn’t sued then. Counsel responded that the resident had attempted to resolve the matter informally, but had been unable to do so. There was no public policy reason, counsel argued, why this situation should be treated any differently than any other contractual relationship: if a party breached, it was not entitled to enforcement. Justice Thomas asked whether the resident’s position was limited to purported breaches which make the unit uninhabitable. Counsel responded that the Appellate Court had not limited the holding that much; any material breach could be raised as a defense to the action, just the same as any other contract. Justice Thomas asked whether, if the Appellate Court had tossed the defenses but severed and preserved the counterclaim, the possession action would have been stayed while the counterclaim was tried. Counsel responded that the resident would have been forced to pay while pursuing her remedy. Justice Thomas wondered whether it was practical to slow down Forcible Entry actions with such issues, given the number of such actions there are. Counsel responded that the only issue would be breach of contract, and the proof should take no more than a day or two. Besides, if the Association obtained a finding of no breach in the Forcible Detainer Act lawsuit in connection with the resident’s defenses, the separate counterclaim would be cut off, thus saving judicial resources. Counsel concluded by arguing that the Appellate Court’s holding promotes performance and mutuality, and is consistent with the general Illinois law of contract.
Counsel for the Board argued in rebuttal that both the declaration and articles, and indeed, the Forcible Entry and Detainer Act remedy itself were designed for the benefit of all owners. Counsel repeated the point that the resident’s proposed result would amount to withholding the funds needed for necessary repairs and other aspects of the Association’s operations. Counsel argued that there was no incentive for board members not to make repairs, since they were owners too, and thus investors in the building. Counsel argued that the Forcible Entry and Detainer claim didn’t divest fee simple ownership from the owner, merely possession. In closing, counsel argued that even a meritorious defense couldn’t be permitted to imperil the functioning of the entire Association.
We expect a decision in Spanish Court within two to four months.