Legal Case Studies: September 2022

Writen by Lisa Harms Hartzler |

Published: August 26, 2022 |

Reading Time: 13 min

Condominium Association fined for failing to submit fire prevention system inspection report

In Village of Downers Grove v. Village Square II Condominium Association, 2022 Il App (2d) 210098, the Village fined the Condominium Association for failing to submit an annual fire prevention system inspection report as required by its Fire Prevention Code. The Village argued that even though the fire prevention system installed in the condo buildings in the 1990’s was grandfathered from having to upgrade to meet the new code, it was still required to be inspected every year.

The condo association argued that it was exempt from having to have a fire prevention system at all because of the way the buildings were constructed. Each unit was separated from the others by a firewall and each had its own entry, with no interior common spaces. Consequently, the association asserted that it did not need to file inspection reports. In addition, the association did not have master keys to any unit. Each unit owner had to authorize entry and the association had difficulty obtaining that approval.

The Village replied that once a fire alarm system was installed and approved, it could not be downgraded and was subject to the annual inspection requirement applicable to all existing buildings.

The appellate court found that even if a building was not required by the Fire Prevention Code to have a fire protection system, once an approved system was in place, the Fire Prevention Code required the system to be tested annually and a report to be submitted to the Village. That Code also made it clear that its annual-testing requirement applied to all approved fire protection systems regardless of whether the building was residential or commercial.

The court also rejected the association’s argument that it was impossible to get permission from each unit owner for inspection. The court was required to apply the ordinance as written and there was no exemption because compliance was difficult. According to the court, that problem was better left to the Village Council, which could change the Fire Prevention Code to address such issues.

Finally, the court found that the Fourth Amendment’s right to be free from unreasonable searches did not apply in this case. The Fourth Amendment applied to searches conducted by the government. The inspection ordinance in this case did not require any Village official to enter the condo units. Rather, it required the unit owners to hire an approved inspector to conduct an inspection and file a report with the Village.

In addition, the court explained that when electing to purchase a condominium, an owner submits to the Illinois Condominium Property Act and agrees to subordinate some of the traditional rights associated with property ownership. One such right the association’s members cede is the right to refuse entry of the board of managers and its agents for the purpose of maintaining the common elements of the buildings. Under section 18.4(j) of the Condominium Property Act, a board of managers has the right “to have access to each unit from time to time as may be necessary for the maintenance, repair, or replacement of any common elements.”  Consequently, the association’s members had no legitimate expectation in keeping a contractor, selected by defendant’s board, from entering their units for the limited purpose of testing the fire protection system.

The court affirmed the trial court’s decision in favor of the Village and upheld a fine of $23,000 against the association.

Oregon Love Letters Law Unenforceable Under Consent Decree

In May a federal district court issued an order prohibiting the Oregon Commissioner of Real Estate and the state Attorney General from enforcing a statute known as the “Love Letters” law. The statute was passed in 2021 and required a seller’s real estate agent to reject any communications, including photographs, other than customary documents required in a transaction, offered by a buyer.

The consent decree was the result of a preliminary injunction issued by the court in Total Real Estate Group, LLC v. Strode, –F.3d– (Mar. 3, 2022, D. Oregon). The court ruled that the plaintiff real estate groups were likely to succeed in their suit alleging the statute was an infringement of the First Amendment right to free speech. The consent decree ended the litigation in favor of the plaintiffs.

The term “love letters” refers to “notes, letters, and pictures that buyers may submit along with their offers to purchase in order to create an emotional connection between sellers and buyers — especially when significant competition exists on a given property.” The real estate commission interpreted permitted “customary documents to mean only disclosure forms, sales agreements, counteroffer(s), addenda, and reports.”

In passing the statute, the State of Oregon sought to stop discrimination in home ownership based on protected class status including race, color, religion, sex, sexual orientation, national origin, marital status, or familial status. The sponsor of the bill stated that in his opinion the practice of providing love letters that reveal personal characteristics of potential buyers “perpetuates systemic issues of bias in real estate transactions.”

While the court acknowledged the laudable goal of preventing discrimination, it also noted the plaintiffs’ concerns that the statute could lead clients to claim that real estate agents were not fulfilling their ethical and fiduciary duty to “disclose material facts known by the seller’s agent.” The plaintiff offered testimony that the practice of sending love letters also allowed agents and their clients to compete with higher offers, including those submitted by investors based on factors unrelated to discrimination.

The court assumed that the statute regulated commercial speech for the purpose of the preliminary injunction and applied the “intermediate scrutiny” standard created by the U.S. Supreme Court in the 1980 case of Central Hudson Gas & Electric Corp. v. Public Service Commission. That standard uses a four-part test for assessing the constitutionality of a restriction on commercial speech:  (1) if the communication is neither misleading nor related to unlawful activity, then it merits First Amendment scrutiny as a threshold matter; (2) in order for the restriction to withstand such scrutiny, the State must assert a substantial interest to be achieved by restrictions on commercial speech; (3) the restriction must directly advance the state interest involved; and (4) it must not be more extensive than is necessary to serve that interest.

The love letters involved here merited First Amendment protection because they were neither misleading nor related to an unlawful activity. Although a seller may later use the information in a love letter as a basis for discrimination, without more, the act of sharing one’s personal characteristics in itself was not unlawful.

The court also found that preventing discrimination was a well-established substantial governmental interest. Although the state did not produce direct evidence linking the practice of sending love letters to discrimination, it presented significant circumstantial evidence supporting a history of discrimination in Oregon housing and expert opinion that love letters would consciously or unconsciously influence sellers’ biases. Accordingly, the court found that Oregon legislators drew a reasonable inference that prohibiting the transmission of love letters through seller’s agents would directly advance the state interest in reducing unlawful discrimination in homeownership.

However, under Central Hudson’s fourth factor, the government must show there is “a reasonable fit between the legislature’s ends and the means chosen to accomplish those ends.” The fit does not need to be perfect or even the single best method to achieve those ends. It must only be one whose scope is narrowly tailored to achieve the legislative objective. In this case, the court found that the government chose an approach that had the effect of significantly limiting truthful, non-misleading speech and that the statute was not “narrowly tailored to achieve the legislative objective of reducing discrimination in housing.”

Because the statute was overinclusive, the court held that the plaintiffs were likely to succeed on the merits of their First Amendment claim and granted a preliminary injunction prohibiting the statute’s enforcement. The parties then agreed to the consent decree to the same effect.

City sign ordinance suit returned to district court for analysis under intermediate scrutiny

The Seventh Circuit Court of Appeals recently ruled on billboard restrictions it had deferred until the U.S. Supreme Court issued its opinion in City of Austin v. Reagan National Advertising. That case, decided this past April, tried to clarify the muddy waters the Supreme Court left after it issued Reed v. Town of Gilbert in 2015.

This case, GEFT Outdoor, LLC v. City of Westfield, 39 F.4th 821 (2022), involved a sign ordinance passed by a city in Indiana. One category in the ordinance’s sign standards completely prohibited certain types of signs, including those on poles and those advertising ideas, products, or services not offered on the same premises (“off-premises” signs). A variance could be requested from the board of zoning appeals, however.

GEFT’s application for a variance to erect an off-site digital billboard was denied. GEFT sued, asserting that the City’s sign ordinance, including its permitting and variance provisions, violated the First Amendment.

The lower court found in favor of GEFT, concluding that much of the City’s ordinance governing sign standards—including its exceptions, permitting scheme, and off-premises ban— regulated speech based on its content and therefore, under Reed v. City of Gilbert, was subject to a strict scrutiny analysis. The lower court held that these aspects of the ordinance could not survive that exacting degree of review because, in the district court’s view, the City could not show the regulations were narrowly tailored to advance the City’s stated interests of enhancing aesthetics and promoting public safety.

Relying on the new guidance provided by the Supreme Court in City of Austin, the Seventh Circuit rejected the district court’s approach, explaining that speech regulation is only content based if it “targets speech based on its communicative content—that is, if it applies to particular speech because of the topic discussed or the idea or message expressed.”  The fact that the City must read a sign to evaluate its conformity with a regulation is not alone determinative— rather, the decisive issue is whether the regulation “singles out any topic or subject matter for differential treatment.”

In City of Austin, the Supreme Court held that the City of Austin had not prohibited any sign based on its political or ideological message and, instead, drew regulatory lines only based on whether a given sign was located on “the same premises as the thing being discussed or not.”  Because “the City’s off-premises distinction required an examination of speech only in service of drawing neutral, location-based lines” and was “agnostic as to content,” the Court concluded that the regulation was content neutral on its face and did not warrant strict scrutiny absent evidence of an impermissible, content-based purpose or justification.

With the City of Austin clarification now available, the Seventh Circuit remanded the case to the district court for an analysis of the pole ordinance under the intermediate standard, which it found to be “not overly demanding” because it does not require a perfect or least restrictive fit. The City only has to show that its pole sign ban furthers its stated interest without burdening substantially more speech than necessary.

The court did also instruct the lower court to review the City’s variance procedures to determine whether there were adequate standards in place to prevent arbitrary decisions.

Dual agent not relieved of all fiduciary responsibilities

In Han v. Stone House Properties, LLC, 170 N.Y.S.3d 25 (2022), the plaintiff seller signed a disclosure form giving informed consent to “a dual agency with designated sales agent” relationship with the defendant real estate firm. The form stated that a dual agent cannot give “undivided loyalty” to the seller or the buyer. The broker designated Nikki Carchetti as the sales agent.

The plaintiff knew about and expressed concern that the prospective buyer was a long-time client of Carchetti and employed Carchetti’s son. Nevertheless, Carchetti did not further disclose to the plaintiff that she had a personal stake in the buyer’s company, that the buyer intended to immediately subdivide the plaintiff’s property and list the parcels for three times what it paid for them, and that Carchetti would be the selling agent for the subdivided parcels. When the plaintiff discovered all of the facts, he sued Carchetti and her firm for breach of fiduciary duty.

The New York appellate court held in this case that the plaintiff’s complaint adequately alleged a breach of fiduciary duty by Carchetti as a dual agent. The dual agency form disclosing the lack of “undivided loyalty” was not enough to completely relieve the broker and selling agent of their fiduciary duties owed to the seller.

The case was remanded to the lower court for a trial. If proven, a breach of fiduciary duty would result in the loss of commissions paid by the seller to the broker and selling agent.

Storm water detention pond was not unambiguously dedicated to city

In Reich v. City of Lake Forest, 2022 IL App (2d) 210515, two residential property owners claimed the City was required to maintain a storm water detention pond located on a portion of their properties under a “common-law dedication.” The City denied any acceptance of responsibility for the pond.

The dedication of property can be either a statutory dedication, which is created by the recording of a plat, or a common-law dedication, which is shown by the grantor’s actions. A statutory dedication is created by recording a specified instrument. A common-law dedication may be made by a written instrument or may be evidenced by acts and declarations without a writing.

A common-law dedication will be effective only if there is: (1) an intention to dedicate the property for public use; (2) acceptance by the public; and (3) unequivocal evidence of the first two elements. The intent to dedicate “may be manifested by a formal dedication or by acts of the donor from which the intent may be so fairly presumed as to equitably estop the donor from denying a donative intent.” Proof that the dedicator intended to dedicate must be “clear, unequivocal, and unambiguous.”

In this case, the original subdivision agreement and the recorded subdivision plat required the developer to construct and dedicate 12 items, including sewers, water mains, sidewalks, streetlights, and parkway trees. The City agreed to accept these dedications. There was no mention of the pond in either the subdivision agreement or the plat. The court concluded that the omission of any reference to the pond was evidence that the developer did not intend to dedicate it to public use.

The plaintiffs argued that the pond was an integral part of the storm sewer system and that the City had required the pond to be constructed before allowing any residences to be built. Consequently, they claimed that the totality of the original subdivision agreement and the recorded subdivision plat implied that the developer must have intended to dedicate the pond and the City must have intended to accept a dedication of the pond.

The court, however, found the plaintiff’s argument unpersuasive, as it suggested that the court could find a common-law dedication by implication. But the law required clear, unequivocal, and unambiguous evidence of donor intent. In this case, the evidence in favor of the plaintiffs was ambiguous at best and more clearly pointed to a lack of intent to dedicate the pond for public use. The plaintiffs failed to clearly, unequivocally, and unambiguously prove donative intent and could not satisfy the factors for common-law dedication.

Without the first factor required for establishing a common law dedication, the court did not even consider whether the City had accepted responsibility for the pond. Judgment in favor of the City was affirmed.

About the writer: Lisa Harms Hartzler is Of Counsel at Sorling Northrup Attorneys in Springfield. She graduated from the American University Washington College of Law in 1978 and began her legal career in Chicago. She has provided legal support for the Illinois REALTORS’ local governmental affairs program since she joined Sorling in 2006 and focuses her practice on municipal law, general corporate issues, not-for-profit health care law, and litigation support.

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