Condo Associations' Standing Can Be Challenged By Defendants
Apparently defendants in an action brought against them by a condominium association can now challenge the ability of the board to bring the action even if the entity named in the suit is just the association.
We haven’t seen the pleadings, and the opinion only states that the “complaint was filed by the Association’s board of directors.” However, the named plaintiff in the caption is the association and not the board of directors on behalf of the association and the trial court docket reflects the association as the party as well.
In River Plaza Homeowner’s Association v. Healey et al. (1st Dist. Doc. No. 1-07-1281), .gif)
The suit was brought to stop the proposed construction of a multi-unit condominium by an existing multi-unit condominium building next door to the construction site. As we said, the opinion states that the named plaintiff is the association for the existing condominium, but the board of directors brought the suit. The defendants challenged the standing of the board of directors to bring the suit because the board had not gotten the 2/3’s vote of the association’s members required by the condo’s by-laws for the board to bring suit on behalf of the association. The trial court dismissed the case and all the parties apparently agreed that the suit could be brought if the vote were taken and 2/3 majority voted to sue. The plaintiff appealed the issue. (other issues were also raised by defendants on appeal based on the trial court’s dismissal, but they are not the topic of the opinion nor the topic we are addressing).
The opinion is about the standing of the board to bring the suit, but another word is used once in the opinion to describe the case. On page 12 of the opinion the court says “In the case at bar, the trial court dismissed the complaint due to the board’s legal incapacity to bring this suit on behalf of the Association.” (our emphasis). Again, this leads us to believe there was something in the pleadings that led to this result, but the Association is the only named entity and the board is not implicated by the caption.
In addressing the issue of whether or not defendants had the ability to challenge the standing of the board, the court cited a case about the exclusive authority of the board to bring a suit in a case where unit owners had attempted to intervene and bring their own suit when a condo board was already bringing a suit on behalf of an association. Board of Directors of Kennelly Square Condominium Ass'n v. MOB Ventures, LLC, 359 Ill.App.3d 991, 836 N.E.2d 115 (1 Dist. 2005).
However, in Kennelly, the matter raised by defendants was the impropriety of the unit owners individual suits when Section 9.1(b) of the Illinois Condominium Property Act (765 ILCS 605/1 et seq.) gave the Association the right to bring the action and the ability to enforce the rights of the unit owners exclusive of the unit owners individual suits. The court reasoned that this was proper given the language of 9.1(b) and the public policy result that no defendant should be made to defend piecemeal litigation if suits could be maintained by every unit owner and the Association.
There appears to be no such implication in this suit, rather, the court has allowed defendants who are neither parties to a contract (the condo declaration and its by-laws), third-party beneficiaries of a contract or who have been given a statutory right, to enforce the terms of the agreement.
This doesn’t seem right. If ABC corporation’s rights have been infringed and a suit is brought in which ABC is the named plaintiff against a defendant -- would the defendant in such a case have a right to say that because ABC’s corporate by-laws contain a provision that requires that before a suit be brought in the name of ABC a 2/3 vote of the shareholders must be obtained and the 2/3 vote has not been obtained therefore a suit cannot be filed against the defendant? Aren’t the shareholders of ABC the only parties who have the ability to challenge whether or not the conditions of the by-laws have been met. How could a third-party, without any stake in ABC contest whether or not ABC followed the by-laws.
Again, the use of the term “incapacity” on page 12 is interesting. Black’s law dictionary defines “representative capacity” as “The position of one standing or acting for another, esp. through delegated authority.” The laws give the condo association the status of a not-for-profit entity and it must be registered as such, it has the ability to sue and be sued, but the court here looks to the fact that the board of the association seems to have directed that the association bring suit without attaining a 2/3 vote. It appears that what the court is doing is stating that because the authority was not given, the association has no capacity to bring suit... but standing is the doctrine that they invoke when the board apparently directed that suit be brought and even though the association has standing and it is the named entity, not the board. Perhaps some strange application of the ultra vires doctrine is being applied stating that unlike other corporations, a condo association must show that it complied with its by-laws before asserting the rights that any other corporation would have... but that's not addressed in the opinion.
Apart from the idea that we do not know what was in the pleading that brought the issue of the board bringing the suit on behalf of the association into question, or why, when the association is the named party, a capacity/authority/standing issue can be raised about the board not achieving a 2/3 vote, some real issues arise from this opinion:
- Does it only apply to associations or will defendants be allowed to challenge the standing of a corporation if the corporation has a rule in its charter or operating agreement that contains a clause stating that before an action can be brought on behalf of the corporation, a vote of the shareholders must be taken?
- Does this mean that in pleadings both corporations and associations must state that authority has been granted to bring the suit or that no such clause requiring authority exists or does the burden first fall to the defendants to discover such a provision and attempt to enforce it? – if so, is Illinois at odds with Federal Rule 9(a)(1) which specifically addresses the capacity/authority argument apart from rules regarding standing.
The lack of information in the opinion leads us to the narrow conclusion that from now on in condominium cases it may be best to plead that the condo association’s by-laws for bringing suit have been met or to challenge standing based on such a requirement if you are defending against such an association
