FULL DISCLOSURE: The 5 Million Dollar Exposure

  • Posted: October 30, 2014

The 111 East Chestnut Condominium Insider FULL DISCLOSURE: The 5 Million Dollar Exposure  Remember a few years ago when our board president told us that the Association’s lawsuits were, in a word, “frivolous”? Well, then there was two and now there’s five. Add to that a few milestone court decisions, and one is reminded of the words of Stevie Wonder: “Things are gettin’ real crucial up the ole wazoo.” We’re now lookin’ at a 5 plus million dollar exposure.

The following is a roundup of our litigation. As the Association’s official summary has not been updated since May, it’s meant to provide a more in-depth overview of the process, its status, along with a little commentary. EDITOR’S NOTE: The following does NOT offer any opinion regarding the merits of each case.

2013-L-002139: Leading the list is the Norma Williams’ suit. Filed on February 27, 2013, she is seeking compensation for damages incurred as a result of an elevator incident. She got on one of the low-rise elevators here and instead of stopping on her floor it shot up, accelerated and crashed into the elevator shaft ceiling. Her claim is against 111, Draper and Kramer (FirstService Residential) and Otis Elevator.

STATUS: Otis answered and filed their affirmative defenses straight away. D&K and 111 filed their appearance and jury demand but it took them until September 3, 2013 to file an answer. In the interim, discovery was partially allowed and Williams filed her interrogatories in July. Discovery was allowed 111 in December 2013 and we filed for depositions late January. February, Williams responded to the defendant’s interrogatories. And then it appears ALL HELL BROKE LOOSE! Well, on around April 22 of this year, 111 and D&K ganged up to file a cross-claim against Otis. Otis in turn blamed 111 and D&K for “contribution” and in July filed a motion to dismss/strike their crossclaim. A few weeks ago, there was an agreed order to dismiss part of the counterclaim for “contractual indemnity.” Case is continued for case management December 4.

COMMENTARY: From the case file, it looks like Norma is only waiting on who’s gonna pay and how much. As far as insurance is concerned, the jury is out (no pun). If there’s gross negligence, we the homeowners may very well be on the hook. She’s asking for $5 million.

2012-L-008489: Then there’s Connolly’s defamation suit. Filed in July 2012, Connolly alleges various breaches of fiduciary duties and defamation as a result of Milazzo’s and D&K’s alleged campaign to remove him from office.

STATUS: The matter has gone through a number of motions to dismiss and subsequent leaves to amend (three actually). But that phase of the process ended September 19 of this year. The Court finally denied the defendant’s motion to dismiss on the counts for defamation per se, conspiracy and breach of fiduciary duty. There was then a subsequent motion for reconsideration and alternative motion to dismiss. Both were summarily denied. Today, Milazzo answered the complaint.  Case is up for a status hearing next Wednesday, November 5th.

COMMENTARY: First, of note, contrary to rumor, the Association is not on the hook for this one. Connolly sued Milazzo and D&K individually. We are however presently indemnifying the defendants (i.e. paying their defense via insurance).

As far as expectations, the defamation-conspiracy-breach-of-fiduciary-duty combination has the potential to be a triple whammy. By analogy, think of that triplet as akin to your accountant futzing with your taxes to purposely screw you. The fiduciary duty is the highest standard of care at either equity or law.

2013-CH-24832: Then there’s former Board President Michael Boucher’s case. Filed November 4, 2013, his suit was/is against 111 and Anthony Milazzo et al. i.e. the individual board members Serap Brush, Mike Fish, Cheryl Jensen, Ann Marie Del Monico, Glenn Greene and Asia Gajderowicz. Boucher contends that he was illegally fined $500 by the Board for speech that he contends they purposely characterized as “obnoxious.” Boucher insists that that was a ruse and that his fine was a retaliatory slapp by Milazzo & Friends for speaking out against various management practices and board actions. His suit was composed of three counts, i.e. a count for violating his First Amendment Rights, a count for not producing the hearing minutes (as provided by the Condo Act), and a count for breach of fiduciary duty.

STATUS: Attorneys for the Defendant’s Kovitz Shifrin Nesbit (KSN) filed a motion to dismiss last February. Then due to scheduling conflicts, there was a motion to dismiss for want of prosecution. The matter was reinstated. Boucher then amended his complaint last July and KSN filed another motion to dismiss. Boucher responded and KSN replied and the matter was set for oral arguments for October 15. The subsequent Order read: “This matter coming to be heard on defendants’ motion… the Count being fully appraised of the premises of the motion through briefing and oral argument… IT IS HEREBY ORDERED THAT Count I of the Plaintiff’s complaint be dismissed with prejudice and the motion is denied as to Counts II and as to Count III, the motion is granted the association and denied the individual defendants.”

COMMENTARY: The situation needs to be evaluated in two parts, i.e. will he get his $500 back and then will he be reimbursed for his attorney’s fees.

As to the $500, bottom line, we surely do have a rule against obnoxious behavior in common elements. Rule S-49 states: “No obnoxious or offensive activity shall be carried on in any unit or in any common elements, nor shall anything be done therein, either willfully or negligently, which may be or become an annoyance or nuisance to the other Unit Owners or occupants or which disrupts any other Unit Owner’s reasonable use and enjoyment of the Property.”

But we do not have any standard for “obnoxious.” As such, any application of the rule can only be capricious and arbitrary and that’s just not enforceable. Courts don’t like capricious and arbitrary, let alone bad faith and abuse of power.  And it’s the latter that leads to punitive damages.

As to his legal fees, that could be significant. Keep in mind, Boucher hired BIG BAT MEGA LAWYER, Norman Lerum. But his fees already seem a done deal. The Illinois Condo Act provides for legal fees for refusal to provide records.

To quote a former board member (who asked to remain anonymous): “It appears to be only a matter of how much the individual board member defendants are going to pay at this point.  But that could be a long way off.”

2013-CH-24252: Similar to the Boucher matter, a year ago last Tuesday Connolly filed an action subsequent to being fined $1,000 for also supposedly being “obnoxious.” Connolly’s action is also against Anthony Milazzo et. al. His complaint presently includes four counts: Violation of Statutory and Constitutional Rights, Breach of Fiduciary Duty, Civil Conspiracy and Tortuous Interference with a Contract.

STATUS: The matter has survived a few rounds of motions to dismiss. Late June, the Court heard oral arguments and took the case under advisement. In July the Court issued an Order in it repeating that the complaint’s deficiencies were “easily remedied/curable.” “Moreover, it is apparent that a set of facts could be proved the pleadings entitling Connolly to recovery.” Connolly subsequently amended his complaint pursuant to the order August 13. And KSN filed another motion to dismiss September 10.

But that motion has yet to be briefed. At the status hearing held October 8, Connolly asked the Court to consider a “pre-trial conference.” Connolly asked the Court to consider that the defense’s legal fees (i.e. as sponsored by the Association) thus far may very well have exceeded the fine by some forty times. The Judge responded that the Court would consider mediation. Mediation would be facilitated by the Center for Conflict Resolution.  The Court is expected to make a decision on that November 17.  In the meantime, the defendants have asked for a continuance as two of them are presently looking to secure alternative counsel.

COMMENTARY: Connolly’s suit is similar to Boucher’s but with an added twist. Milazzo recently filed a misdemeanor charge against Connolly. The matter was subsequently thrown out nolle prosequi.  “Nolle Pros” is an admission that the charges cannot be proved, that evidence has demonstrated either innocence, or a fatal flaw in the prosecution’s claim, or the district attorney has become convinced the accused is innocent. And that, at the very least, opens Milazzo up to an added count for malicious prosecution.

Anyway, even though it has yet to be so ordered, the Judge has repeatedly underscored the term “Court-Ordered” mediation. Mediation generally enjoys an 80%-85% success rate.

2014-L-001312: Last but not least, there’s the Danielle Meier case. Filed February 7, 2014, Ms. Meier alleges that she slipped and fell on spilled paint on the 7th-floor garage elevator vestibule.

STATUS: The Defendants (111 East Chestnut Condo Association, 111 East Chestnut Garage and Standard Parking) have filed their answer and affirmative defenses. Meier filed her interrogatories and answer to affirmative defenses. Both sides have filed for depositions. Discovery is to be answered by November 13. The next court date is November 17 for a status.

COMMENTARY: Ms. Meier wants $50,000 claiming negligence and that the Defendants together manage the elevator. Defendants pretty much are claiming Ms. Meier had a duty not to slip. Arrrgh.

Bottom line: Hard to tell how it’s all going to turn out. But it surely is a swarm and sure as shootin’ one is gonna sting us.

So what’s a savvy investor’s take away? Actually, it’s a few questions: Is the board managing litigation with our best interest in mind or their own? Could the majority of these matters have been avoided altogether? Why isn’t the board trying to settle? What portion of these, if any, is responsible for the $45,000 extra spend in legal in 2014?  And lastly, considering their propensity for digging holes, what’s pending?

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1 Comment

  1. Evelyn Finn · October 31, 2014 Reply

    I’m not a fan of suing anyone, unless there’s been bodily harm. I’d like to see some of this energy donated to a group like Big Brothers. Men who are highly intelligent and fun could change an underprivileged kid’s life.

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