Error of law by 7th Circuit in Horist opinion?

The US Court of Appeals (7^th Cir.) in Horist v. Sudler[1] held that a homeowner has no “right to action” against the management firm and its subcontractors. The issue involved the plaintiff’s charge that the management ( Sudler) charged excessive fees for document disclosure preparation that exceeded the Illinois statute’s limitation on such fees.[2]

The crux of the opinion was based on the Illinois statute that spoke only of restrictions on fees by “the association or its Board of Managers” may charge the unit owner a ‘reasonable fee,’ but the complaint did not involve the HOA or board as a party.” Therefore, the Court reasoned that “The statute doesn’t provide an express private remedy [against the manager], so the plaintiffs advance an argument that a right of action exists by necessary implication,” which was rejected.

In an astounding opinion, to nonlawyer me, at least, the Court held that “This argument [complaint] distorts basic agency law; it is essentially ‘the reverse of vicarious liability’” which is based on respondeat superior doctrine.[3] The Court maintained that,

a court “may not impute a duty the principal owed to a third party to an agent merely acting pursuant to duties it, in turn, owed to the principal.” Id. (applying Illinois law). Put slightly differently, “[w]hile the acts of an agent may be considered to be acts of the principal, acts of the principal are never imputed to the agent. For an agent to be liable in tort to a third party harmed by the agent’s conduct, the agent must breach an independent duty that he owes to the third party.”

In other words, a homeowner cannot sue the HOA manager because there was no contract between the homeowner and manager to create a right to action. This opinion leaves the homeowner out in the cold because the HOA manager is an independent contractor under agency law, and the HOA is not liable for the wrongful acts of the manager-agent.

This makes the Illinois statute restricting disclosure fees by the HOA an empty statute with no meaning. This holding is contrary to statute interpretation doctrine that the legislature does not enact meaningless, empty laws. Furthermore, it sets precedent for a rogue HOA board to delegate functions to the manager to avoid any liability to either the HOA or to the manager!

Missed agency law

Returning to basic agency law that holds that a principal (the HOA) allows another person, the agent (the HOA manager), to act on his or her behalf. However, without the authority as an agent of the HOA the manager has no legal right to bill the homeowner. That right stems from the HOA contract. The agent is subject to the principal’s control and must consent to its instructions. Furthermore, the agent cannot do what its principal cannot do. The Court also missed the fact, for the manager to have a right to bill, there exists an implied contract between the manage and homeowner.

So, either the board consented to the excessive fees by its agent or the agent committed a wrongful act by acting above and beyond its authority to bill for document preparation. If the HOA/board consented, then it was breaking the law on excessive fees; if the manager acted wrongfully then it can indeed be sued.

Additionally, the holding that there is no relationship between homeowner and manager is without merit simply because the manager is standing in for and acting for the HOA. Therefore, the Illinois statute should control although the complaint does not explicitly mention the HOA or board, which should speak for itself. To hold otherwise makes the fundamental legal basis of an agent meaningless.

In an earlier decision by the Illinois appellate court in Friedman,[4] Justice Walker dissented on the question of the status of the manager as an agent of the HOA and therefore the Illinois statute controls – the manager cannot exceed the statutory limitation. Walker agreed with the Landau holding that

An agent may incur liability if “he takes some active part in violating some duty the principal owes to a third person’ . . . . The agent takes an active part in violating the duty the board owes to the owner when it charges an excessive amount for the documents.

Citing Cotton, Walker further argues that

The Condominium Property Act’s purpose of assuring that the owner can obtain the required documents at a limited price “would be completely defeated through a construction of Act that would allow [owners] to be charged more than the reasonable copying and mailing costs if the providers hire others to perform the task of supplying the records.

CAI amicus curiae brief influence

Unfortunately, it appears that the 7^th Circuit court did not entertain above line of argument and followed the same argument advanced by pro-HOA CAI attorneys in its amicus curiae brief, which was accepted by the Court in spite of the plaintiffs’ rejection.[5] The brief “advised” the Court, in part:

The plain language of Section 22.1 of the Condo Act does not provide a private right of action by a selling condominium unit owner against his/her former association’s managing agent or other third-party company.[6]

This nonlawyer strongly believes that the Court’s opinion is an abuse of discretion and an error of law. An appeal should be filed by the plaintiffs.

 

References

[1] Horist v. Sudler et al, No. 18-2150, 7^th Cir. (IL Oct. 21, 2019).

[2] Illinois Condominium Act, Section 22.1.

[3] Vicarious Liability: “a liability that a supervisory party (such as an employer) bears for the actionable conduct of a subordinate or associate (such as an employee) based on the relationship between the two parties.”  Respondeat superior: “A legal doctrine, most commonly used in tort, that holds an employer or principal legally responsible for the wrongful acts of an employee or agent, if such acts occur within the scope of the employment or agency.” “Respondeat superior applies to employees, but not to independent contractors.” Legal Information Institute, Cornell Law School.

^[4] Friedman v. Lieberman Management Services, p 15 -16, No. 18-0059, 2019 IL App (1st) 189959-U.

[5] See also criticism of the role of CAI’s brief in CAI amicus brief continues to assert homeowner representation.

[6] CAI amicus brief, Table of Contents, I(A).