By Steven Dahlman

2-Jul-24 – The Illinois Appellate Court has ruled that a Gold Coast condominium association breached its fiduciary duty of candor by changing rules of voting eligibility in condo board elections but not sharing the rule change with unit owners.

Pat Cohen, a unit owner and former board member, filed a lawsuit in 2018 against the 175 East Delaware Place Homeowners Association, its board of directors, and Barry Bowen, president of the 48-member board.

The 703-unit HOA is located at John Hancock Center. Board members serve two-year terms, staggered so that 24 board members are elected every year.

Cohen’s lawsuit was over the 2017 board election in which she was a candidate running for re-election. She amended her complaint in 2019 to include a dispute over the 2019 election.

Cohen lost the lawsuit but appealed to the Illinois Appellate Court, which partially reversed the judgement.

In the 2019 election, with candidates running for 24 seats on the board, Cohen says she received the 25th highest number of votes and should have been elected when one of the winning candidates, Stefan Edlis, died on election day. Instead of selecting her to fill the position, the board left it open.

Cohen alleged election fraud but the Appellate Court ruled the condo board’s decision in 2019 to declare the deceased candidate elected and leave his seat vacant was protected under the business judgement rule. The rule protects directors of a corporation from lawsuits as long as their decisions are made in good faith, with the care that a reasonably prudent person would use, and with the reasonable belief they are acting in the best interests of the corporation. As the decision was based on legal advice from the association’s attorney, David Sugar, there was no evidence, said the court, of bad faith or gross negligence.

However, the court did side with Cohen over the 2017 election in which a vote for Cohen was invalidated, resulting in her losing the election.

The ballot was disqualified because the unit was owned through a land trust, and the unit owner, Gary Bernstein, had not followed new voting procedures of which he had not been told.

The recorded owner of the unit is a land trust of which Bernstein, who has lived in the 81st floor unit since 2007, is the sole beneficiary. This resulted in the name on the ballot not being the same as the verified owner of the unit, and Sugar, apparently without trying to first contact Bernstein for clarification, advising the board to not count the ballot. It was undisputed that the loss of Bernstein’s vote was enough to keep Cohen off the board.

Cohen says she was not allowed to closely watch votes being counted, or be present during vote challenges, otherwise, she says she could have confirmed that Bernstein owned his unit because she was the real estate agent who sold the unit to him.

Invalidating the Bernstein vote, said the Appellate Court, was also protected by the business judgement rule.

“If all candidates were allowed to see who voted for whom, the ‘secret’ ballot procedure set forth in section 18(b)(10) [of the Illinois Condominium Property Act] would cease to be ‘secret,’” wrote Justice Mary Ellen Coghlan (right) on May 28, 2024, on behalf of a three-justice panel.

“Here, Cohen was allowed to be present in close proximity to the election judge to confirm that the votes were being tabulated and not altered or destroyed. We find, as did the trial court, that this satisfies the requirements of section 18(b)(10),” wrote Coghlan.

But the court agreed with Cohen that the board had breached its fiduciary duty of “utmost candor” to unit owners by failing to inform those who owned their units through a land trust of the procedures they needed to follow to have their votes counted.

The association’s property manager, Jennie Kobzarev, told the trial court that for the beneficial owner of a land trust to be recognized as the owner, the trustee of the land trust must provide written confirmation that voting rights for the unit have been delegated to the beneficial owner.

Kobzarev told the trial court that although the rule has been in effect since 2016, the annual election notice sent to unit owners does not inform them of the rule. Bernstein testified that he was not informed of the issue with his eligibility to vote in board elections until September 9, 2020, when he received an email from Kobzarev.

The case has been remanded to Circuit Court for further proceedings.