Court Shields Manager from Class Action over Disclosure Docs Fee

A property management company in Chicago recently faced a class action lawsuit on behalf of community association members who were disgruntled about the fees charged for disclosure documents when selling their units. (Horist v. Sudler & Co.)

The Seventh Circuit Court of Appeals shut down the lawsuit, providing managers some important protection. But, warns Blake Strautins, a partner with the Chicago law firm Kluever & Platt, LLC, “it’s a cautionary tale that there might be some exposure down the line.”

The Disclosures Dispute

As in many states, Illinois condo owners selling their units must provide prospective buyers with certain disclosure documents, including the declaration and bylaws, association rules, and other financial-related documents. The association board must furnish the documents within 30 days of an owner’s written request and is permitted to charge a reasonable fee.

The lawsuit was filed by two condo owners who purchased their disclosure documents from a third-party vendor retained by their manager. One owner paid $240 for a PDF of his documents, and the other paid $365.

They filed a class action lawsuit against both the manager and the vendor, alleging the fee was excessive in violation of the Illinois Condominium Property Act. “It was one of those situations where the attorney is basically just looking for classes to sue,” Strautins says. “The attorney is thinking ‘Can I find a property management company liable here because I know they have deep pockets, unlike the associations?’”

The owners also asserted claims under the state consumer fraud statute. The trial court dismissed the lawsuit, but the owners appealed to the Seventh Circuit.

The Failed Appeal

The Court of Appeals agreed with the lower court. It found that the disclosure provision in the state condo law doesn’t provide a private right of action for owners. Rather, it was designed to protect the interests of condo buyers.

The court also rejected the consumer fraud claim. Illinois courts have held that simply charging too much for goods or services is not, on its own, an unfair practice under the consumer fraud law.

Proceed with Caution

Although the case was thrown out, community association managers aren’t necessarily immune from liability when dealing with pre-sale disclosures.

While the obligation to provide the disclosures lies with the seller, the manager who carries out the task is in essence providing a service to the seller, says Gabriella Comstock, a principal with Keough & Moody, P.C., in Naperville, Ill., who co-wrote the amicus brief submitted in the case by the Illinois Chapter of the CAI.

“By doing this liability may be imposed,” she says. “There still can be liability for a manager who completes these forms but for reasons other than charging a fee.”

According to Strautins, it’s also not out of the question that a buyer could sue over excessive fees — after all, the court found the disclosure provision is intended to protect buyers. “If the seller passed the fee to the buyer, or the plaintiffs’ bar gets creative somehow, I wouldn’t put it past these plaintiffs’ attorneys to go find a condo buyer who will sue.”

In that case, though, the target likely wouldn’t be the manager. “The management company can’t be sued for doing that which is the duty of the association itself, so they’d be suing the association.”