21 Kristin Condominium Ass'n v. Pioneer Engineering & Environmental Services, LLC

2020 IL App (1st) 191868

• Court: Appellate Court of Illinois
• Decided: September 30, 2020
• Docket: 1-19-1868
• Status: Published

Opinion

2020 IL App (1st) 191868 No. 1-19-1868 September 30, 2020

First Division

______________________________________________________________________________ IN THE APPELLATE COURT OF ILLINOIS FIRST DISTRICT ______________________________________________________________________________ 21 KRISTIN CONDOMINIUM ASSOCIATON, by ) Appeal from the its Board of Managers, ) Circuit Court of ) Cook County. Plaintiff-Appellant, ) ) No. 17 L 5193 v. ) ) Honorable PIONEER ENGINEERING & ENVIRONMENTAL ) Brigid Mary McGrath, SERVICES, LLC and ERIC TERMUEHLEN, ) Judge Presiding. ) Defendant-Appellant/Appellee. )

PRESIDING JUSTICE WALKER delivered the judgment of the court, with opinion. Justices Pierce and Coghlan concurred in the judgment and opinion.

OPINION

¶1 Owners of condominiums at 21 Kristin Drive in Schaumburg, Illinois, sued Pioneer

Engineering & Environmental Services, LLC, and Eric Termuehlen, an engineer who worked for

Pioneer, for negligently misrepresenting the condition of the condominium building. The circuit

court dismissed the complaint for failure to state a cause of action. We hold that the owners September 30, 2020

adequately alleged that Pioneer had a duty to prospective purchasers of condominium units in the

building, and that Pioneer negligently misrepresented the condition of the building in its report.

We reverse the circuit court’s judgment and remand for further proceedings on the complaint.

¶2 I. BACKGROUND

¶3 21 Kristin Developers, LLC (Developers), hired Pioneer Engineering & Environmental

Services, Inc., to complete a Property Condition Assessment (PCA) for the 12-story residential

structure located at 21 Kristin Drive. Pioneer delivered the PCA, dated October 2006, in which it

identified physical deficiencies in the building, in accord with standards set by the American

Society for Testing and Materials (ASTM). Pioneer stated:

“The ASTM standard was developed to provide current owners, prospective buyers,

lending institutions or other interested parties with qualified professional judgments

concerning the presence or likely presence of conspicuous defects or material deferred

maintenance of a subject property’s material systems components or equipment. The scope

of this PCA includes a review of documents associated with the subject property,

interviews with persons knowledgeable about the physical condition of the subject

property, and a visual inspection of the site and any associated structures and other

improvements.

*** [T]he information contained within this PCA has been compiled in such a manner

that meets or exceeds the recommended practices established by ASTM Standard Practice

E 2018-99. The purpose of this report is to assist the Client in determining the condition of

the building, in addition to establishing an estimate of replacement costs for the common

areas of the subject property.”

¶4 Pioneer informed Developers of its findings:

-2- September 30, 2020

“The garage shows evidence of extensive recent concrete repairs to the deck topping

and the ‘twin-tee’ [structural deck] panels. The garage structure still indicates evidence of

some water infiltration on the underside of the ‘twin-tee’ panels. The structural condition

of the garage is generally fair. Additional concrete repairs will be necessary in an on-going

basis to provide a waterproof parking environment and prevent further degradation to the

structure. ***

***

*** The approximate age of the roofing membrane is estimated to be 10 years. ***

Some evidence of ponding water is present in the form of algae on the ballast. *** Some

small areas of ballast removal are present around the perimeter of the building where

potential historical repairs have been made.

The general condition of the roofing system is good. *** With proper maintenance,

the Remaining Useful Life (RUL) of the roofing membrane is estimated to be 15 years.

Pioneer warrants that the findings and conclusions contained herein have been

promulgated in accordance with ASTM Standard Practice ***. No assessment can

eliminate the uncertainty regarding the potential for physical deficiencies in connection

with a property. The PCA is designed to reduce, but not eliminate, uncertainty regarding

the potential for physical deficiencies in connection with a property.

*** Any cost estimates associated with this PCA are intended to be opinions of

probable costs. These costs should be construed as preliminary budgets. Actual costs will

vary depending on the type and design of the suggested remedy, the quality of materials

and installation, the type of equipment or manufacturer selected, the quality and scheduling

-3- September 30, 2020

of the actual work performed, market conditions at the time the work is performed, and

various other factors.

This report has been prepared for the sole use of the Client identified in the report and

cannot be relied upon by other persons or entities without the permission of Pioneer. The

observations and conclusions contained herein are limited by the scope and intent of the

work mutually agreed upon by the Client and Pioneer, and the work actually performed.

Pioneer believes the findings and conclusions provided in this report are reasonable.

However, no warranties are implied or expressed. Pioneer appreciates the opportunity to

be of service to you on this project. We hope this information meets your needs at this

time.”

¶5 Developers sold many residential units, and the purchasers formed the 21 Kristin Condominium

Association (Association). In May 2017 the Association filed a complaint against Pioneer Engineering

& Environmental Services, LLC, alleging that Pioneer Engineering & Environmental Services,

LLC, operated as a successor liable for the torts of Pioneer Engineering & Environmental Services,

Inc., and Pioneer Engineering & Environmental Services, Inc., negligently misrepresented the

condition of the building. The Association alleged:

“Developers and Kristin provided a condominium disclosure statement that

contained a copy of the Property Condition Assessment to prospective purchasers

of units in the Condominium to comply with various laws including [the Illinois

Condominium Property Act (Act),] 765 ILCS 605/22 [(West 2006)].

*** Pioneer and Termuehlen knew that the Property Condition Assessment

was being provided in connection with a conversion of the property by Kristin

Developers into a condominium. *** Pioneer and Termuehlen provided

-4- September 30, 2020

information in the Property Condition Assessment for the specific use of

prospective buyers to rely on in the purchase of units in the Condominium.

*** Pioneer and Termuehlen negligently made the following false statements

and omissions concerning the condition of the property in the Property Condition

Assessment:

*** Pioneer and Termuehlen stated that the Roofing had an Expected Life of

25 years and a Remaining Useful Life of 15 years when the condition of the roofing

was such that the roofing required remediation in the amount of $626,535.

*** Pioneer and Termuehlen stated that the Elevator Modernization had an

Expected Life of 20 years and a Remaining Useful Life of 20 years when condition

of the elevators was such that the elevators required remediation in an amount in

excess of $600,000 ***.

*** Pioneer and Termuehlen stated that the parking structure concrete had a

Remaining Useful Life of 5 years, when the condition of the parking structure

concrete was such that the parking structure concrete required remediation in the

amount of $336,592.”

¶6 On May 9, 2019, the circuit court dismissed the complaint with prejudice for failure to state

a claim for relief. See 735 ILCS 5/2-615 (West 2018). The Association filed a timely notice of

appeal.

¶7 II. ANALYSIS

¶8 We review de novo the dismissal of a complaint for failure to state a cause of action.

Marshall v. Burger King Corp., 222 Ill. 2d 422, 429 (2006). We assume the truth of all well-

-5- September 30, 2020

pleaded allegations of the complaint, and we construe those allegations in the light most favorable

to the plaintiff. King v. First Capital Financial Services Corp., 215 Ill. 2d 1, 12 (2005). “[A]

cause of action should not be dismissed pursuant to section 2-615 unless it is clearly apparent that

no set of facts can be proved that would entitle the plaintiff to recovery.” Marshall, 222 Ill. 2d at

429.

¶9 On appeal, the Association contends that it stated a cause of action for negligent

misrepresentation. To state a claim for negligent misrepresentation, the Association must allege

facts that could support findings that “(1) defendant is in the business of supplying information for

the guidance of others in their business dealings; (2) defendant provided information that

constitutes a misrepresentation; and (3) defendant supplied the information for guidance in the

plaintiff's business dealings.” Tolan and Son, Inc. v. KLLM Architects, Inc., 308 Ill. App. 3d 18,

28 (1999).

¶ 10 Pioneer does not contest the adequacy of allegations that it supplies information for the

guidance of others in business dealings. Pioneer contends that it had no duty to the Association or

its members because it did not sell the units. The Association relies on section 552 of the

Restatement (Second) of Torts as authority for finding that Pioneer had a duty to prospective

purchasers of units in the condominium even though Pioneer did not itself sell the units.

Restatement (Second) of Torts § 552 (1977); Harkala v. Wildwood Realty, Inc., 200 Ill. App. 3d

447, 456 (1990). Section 552 provides:

“One who, in the course of his business, profession or employment, or in any

other transaction in which he has a pecuniary interest, supplies false information

for the guidance of others in their business transactions, is subject to liability for

-6- September 30, 2020

pecuniary loss caused to them by their justifiable reliance upon the information, if

he fails to exercise reasonable care or competence in obtaining or communicating

the information.” Restatement (Second) of Torts § 552 (1977).

¶ 11 The section limits liability to losses suffered “(a) by the person or one of a limited group

of persons for whose benefit and guidance he intends to supply the information or knows that the

recipient intends to supply it.” Restatement (Second) of Torts § 552 (1977).

¶ 12 Comments to section 552 show the intention to reach transactions similar to the transaction

at issue here:

“[I]t is not required that the person who is to become the plaintiff be identified

or known to the defendant as an individual when the information is supplied. It is

enough that the maker of the representation intends it to reach and influence *** a

group or class of persons, distinct from the much larger class who might reasonably

be expected sooner or later to have access to the information and foreseeably to

take some action in reliance upon it. It is enough, likewise, that the maker of the

representation knows that his recipient intends to transmit the information to a

similar person, persons or group.” Restatement (Second) of Torts § 552 (1977),

comment h.

¶ 13 Pioneer argues that the circuit court correctly dismissed the complaint because the

Association seeks to hold Pioneer liable for a violation of the Act, and the Act provides only for

causes of action against developers. The Association cited section 22 of the Act in support of its

claim that Pioneer knew Developers would use the report to persuade prospective purchasers to

buy units in the condominium. Section 22 required Developers to present to prospective

-7- September 30, 2020

purchasers “an engineer's report furnished by the developer as to the present condition of all

structural components and major utility installations in the condominium, which statement shall

include the approximate dates of construction, installation, major repairs and the expected useful

life of such items, together with the estimated cost (in current dollars) of replacing such items.”

765 ILCS 605/22(e) (West 2006). The Association does not ask the court to find Pioneer liable

for violating the Act. It asks the court to hold Pioneer liable for breaching its common law duties,

as established in section 552 of the Restatement, to the prospective purchasers who relied on

Pioneer’s report when deciding whether to purchase units in the condominium.

¶ 14 Pioneer argues that the members of the Association could not reasonably rely on Pioneer’s

report because Pioneer wrote in the report, “This report has been prepared for the sole use of the Client

identified in the report and cannot be relied upon by other persons or entities without the permission of

Pioneer.” But Pioneer allegedly knew Developers intended to use the report to inform prospective

purchasers about the condition of the building. A prospective purchaser reading the clause in Pioneer’s

report, supplied by Developers to all prospective purchasers, would reasonably conclude that the

prospective purchaser had Pioneer’s permission to rely on their report. See Kelley v. Carbone, 361 Ill.

App. 3d 477, 480 (2005). We find that the complaint adequately alleges facts that could support

a finding that Pioneer knew Developers would use its report for sales of condominium units to the

purchasers who became members of the Association, and therefore, in accord with section 552,

the complaint adequately alleges that Pioneer supplied the report to provide guidance to the

prospective purchasers in their business dealings.

¶ 15 For the remaining element of the cause of action, Pioneer argues that its statements cannot

qualify as misrepresentations, because it only expressed its opinion about the condition of the

property. See Neptuno Treuhand-Und Verwaltungsgesellschaft MBH v. Arbor, 295 Ill. App. 3d

-8- September 30, 2020

567 (1998). The court in Schrager v. North Community Bank, 328 Ill. App. 3d 696 (2002),

explained that a court may find that an ostensible opinion constitutes an actionable

misrepresentation:

“As a general rule, the law will not support a misrepresentation claim

predicated on an opinion; however, an exception exists where the circumstances

suggest that a plaintiff may have justifiably relied on the opinion as though it was

a statement of fact. *** ‘ “Wherever a party states a matter which might otherwise

be only an opinion but does not state it as the expression of the opinion of his own

but as an affirmative fact material to the transaction, *** the statement clearly

becomes an affirmation of the fact within the meaning of the rule against fraudulent

misrepresentation.' " Heider v. Leewards Creative Crafts, Inc., 245 Ill. App. 3d 258,

266 (1993), quoting Perlman v. Time, Inc., 64 Ill. App. 3d 190, 197 (1978). ‘Thus,

the general rule is that it is not “the form of the statement, which is important or

controlling, but the sense in which it is reasonably understood.” ‘ West v. Western

Casualty & Surety Co., 846 F.2d 387, 394 (7th Cir.1988), quoting W. Keeton,

Prosser and Keeton on Torts § 109, at 755 (5th ed. 1984). ‘Whether a statement is

one of fact or of opinion depends on all the facts and circumstances of a particular

case.’ "

¶ 16 The court in Power v. Smith, 337 Ill. App. 3d 827, 832-33 (2003), considered the question

of what circumstances justify a plaintiff in relying on a defendant’s assertions as statements of

fact:

-9- September 30, 2020

“Sometimes *** the expression of an opinion may carry with it an implied

assertion that the speaker knows facts that justify it. Such an assertion is to be

implied where the defendant holds himself out or is understood as having special

knowledge of the matter that is not available to the plaintiff, so that his opinion

becomes in effect an assertion summarizing his knowledge. ‘Thus, the ordinary

man is free to deal in reliance upon the opinion of an expert jeweler as to the value

of a diamond.’ Duhl [v. Nash Realty, Inc.], 102 Ill. App. 3d [483,] 490, quoting W.

Prosser, Handbook of the Law of Torts § 109, at 726 (4th ed.1971). In Duhl, the

court upheld a fraud count complaining about a real estate broker's opinion,

following an appraisal, of the value of certain real estate. ***

Although there is broad language in some of the cases, assurances as to future

events are generally not considered misrepresentations of fact. [Citation]. The

exceptions are limited to recognized situations such as where a realtor appraises a

house.”

¶ 17 The Power court used several questions to help determine whether assertions count as

actionable misrepresentations:

“Were [the] representations here similar to representations of value made by a

realtor after an appraisal? Or were they more similar to the representations one

partner makes to another in deciding to take on a new client or product line ***.

Did [the defendant] have special knowledge of the matter which was not available

to [the plaintiff]?” Power, 337 Ill. App. 3d at 833.

- 10 - September 30, 2020

¶ 18 Applying the Power questions here, we find Pioneer’s representations similar to a realtor’s

representations of the value of real estate, and not at all like representations one partner makes to

another about an idea for new business. Pioneer reported on the building’s condition from an

engineering perspective, using its special knowledge not shared by prospective purchasers. Under

Schrager and Power, the report includes actionable statements of fact, and not mere opinions.

¶ 19 Pioneer contends that qualifications it put into its report relieve it of any possible liability.

It said in its report:

“Any cost estimates associated with this PCA are intended to be opinions of

probable costs. These costs should be construed as preliminary budgets. Actual

costs will vary ***.

No assessment can eliminate the uncertainty regarding the potential for

physical deficiencies in connection with a property. The PCA is designed to reduce,

but not eliminate, uncertainty regarding the potential for physical deficiencies in

connection with a property. ***

Due to the limited nature of the work, there is a possibility that conditions may

exist which could not be identified within the scope of the assessment, or which

were not apparent at the time of report preparation.”

¶ 20 Pioneer did not guarantee any exact price for repairs to the roof and the parking garage.

Pioneer did, however, make representations about the physical state of the building in 2006, and

nothing in the cited clauses relieves it of liability if it made those representations negligently. The

fact that Pioneer expressed its observations about the building by referring to the remaining useful

- 11 - September 30, 2020

life of the structure does not shield Pioneer from liability. See Arlington Pebble Creek, LLC v.

Campus Edge Condominium Ass'n, Inc., 232 So. 3d 502, 505 (Fla. Dist. Ct. App. 2017).

¶ 21 III. CONCLUSION

¶ 22 The Association made a claim in 2017 that Pioneer made negligent misrepresentations in

a 2006 report. The Association adequately alleged that Pioneer had a duty to prospective

purchasers because Pioneer knew Developers would use its report to persuade prospective

purchasers to buy units in the building. The Association stated a cause of action by adequately

alleging facts that could support a finding that Pioneer negligently misrepresented the condition of

the building. We reverse the dismissal of the complaint and remand for proceedings in accord with

this order.

¶ 23 Reversed and remanded.

- 12 - September 30, 2020

No. 1-19-1868

Decision Under Review: Appeal from the Circuit Court of Cook County, No. 17-L-5193; the Hon. Brigid Mary McGrath, Judge, presiding.

Attorneys Jeffrey S. Youngerman, Stephen D. Sharp and Christopher L. for Gallinari, of Flaherty & Youngerman, of Chicago, for appellant . Appellant:

Attorneys Jeremy P. Kreger and Joseph R. Delehanty, of Stahl Cowen for Crowley Addis, LLC, of Chicago, for appellee. Appellee:

- 13 -