Appeal from the Iowa District Court for Johnson County, Paul D. Miller, Judge.
Tenants appeal from the district court's order denying their motions for certification of a class and for partial summary judgment and declaratory judgment.
Christopher Warnock, Iowa City, and Christine Boyer, Iowa City, for appellants.
Robert M. Hogg and James W. Affeldt of Elderkin & Pirnie, P.L.C., Cedar Rapids, for appellees.
Heard by Eisenhauer, C.J., and Potterfield and Tabor, JJ.
Tenants appeal from the district court's order denying their motions for certification of a class and for partial summary judgment and declaratory judgment. They argue the key issue is whether tenants have a right to a legal lease, a lease free from prohibited provisions, under Iowa Code chapter 562A (2011), or whether landlords can include prohibited provisions in their leases so long as the prohibited provisions are not enforced. Tenants claim the trial court erroneously ruled "chapter 562A requires some type of enforcement before relief can be obtained by a tenant." We reverse and remand.
I. Background Facts and Proceedings.
In September 2011, residential tenant Brooke Staley filed a petition against Tracy Barkalow, TSB Holdings, LLC, and Big Ten Property Management, LLC (TSB). Staley alleged TSB's standard lease provisions applicable to a large number of tenants violated the Iowa Uniform Residential Landlord and Tenant Act (IURLTA), Iowa Code chapter 652A. "The IURLTA generally defines the legal rights and obligations of a landlord and tenant." Lewis v. Jaeger, 818 N.W.2d 165, 178 (Iowa 2012). Subsequently, additional plaintiffs were added: Tyler Lammer Shelby Burdette,  Dylan Thiemann, Dakota Thomas, and Bradley Pollpeter.
A. Certification of a Class.
On October 3, 2011, tenants filed a motion requesting certification of a class with plaintiffs Staley and Lammer serving as class representatives. The proposed class consisted of tenants with the TSB standard lease.
A district court may certify a class action if tenants meet four basic requirements: (1) numerosity—the class is so numerous or so constituted that joinder is impractical; (2) a common issue of law or fact exists; (3) certification should be permitted for the fair and efficient adjudication of the controversy; and (4) the representative parties will protect the class's interest fairly and adequately. Iowa R. Civ. P. 1.261, 1.262(2).
Tenants asserted class certification was appropriate to address TSB's standard leases'
illegal indemnity and exculpatory clauses, clauses that illegally require tenants to pay for maintenance and repair of the premises, illegal automatic cleaning clauses, provisions that make tenants responsible for vandalism by third parties, and even clauses forcing tenants to pay rent when [TSB] has kept them out of the possession of the premises.
Tenants argued the inclusion of these lease provisions is illegal. Further, class certification would efficiently dispose of numerous claims "whose basis for recovery is almost identical, differing only in the amount of damages" with the key evidence being the standard lease, identical for all tenants, and the leases' identical violations of Iowa landlord tenant law.
In March 2012, TSB acknowledged: "Plaintiffs are all present or past tenants with essentially the same lease, and TSB currently has approximately [eighty] current tenants with the same or substantially similar leases." This lease lists Tracy Barkalow as the manager, states "owner is an Iowa licensed real estate broker, " and provides in paragraph "9. Tenant Obligation. Tenants shall . . . comply with all applicable building, housing, and zoning codes, and with Chapter 562A of the Code of Iowa (Residential Landlord Tenant Act)."
In its resistance to class certification, TSB argued because of the fact-specific nature as to how the allegedly illegal lease provision may have been enforced against the individual class members, common questions of law or fact do not predominate over individual issues. Specifically, the "inclusion of allegedly illegal provisions in the lease agreement, without enforcement, does not give rise to an action for damages."
TSB also argued tenants have failed to show a class action is the most appropriate means of adjudication because the IURLTA provides tenants with adequate remedies and easy access to small claims court. "Because Iowa Code section 562A.11(2) limits a tenant's damages to not more than three months periodic rent and reasonable attorney's fees in addition to actual damages, it would be the rare case where the damages . . . would exceed the small claims jurisdiction."
B. Partial Summary Judgment and Declaratory Judgment.
Also on October 3, 2011, tenants filed a motion for partial summary judgment and declaratory judgment and asked the court to declare, as a matter of law, that the challenged lease provisions are illegal. Tenants argued the IURLTA protects the interests of tenants from the inclusion of illegal lease provisions and not just enforcement. Tenants relied on Iowa Code section 562A.9(1), stating "landlord and tenant may include in a rental agreement, terms and conditions not prohibited by this chapter or other rule of law." Additionally, tenants quoted section 562A.11, entitled "prohibited provisions in rental agreements":
1. A rental agreement shall not provide that the tenant or landlord:
a. Agrees to waive or to forego rights or remedies under this chapter . . .;
b. Authorizes a person to confess judgment on a claim arising out of the rental agreement;
c. Agrees to pay the other party's attorney fees; or
d. Agrees to the exculpation or limitation of any liability of the other party arising under law or to indemnify the other party for that liability or the costs connected therewith.
2. A provision prohibited by subsection 1 included in a rental agreement is unenforceable. If a landlord willfully uses a rental agreement containing provisions known by the landlord to be prohibited, a tenant may recover actual damages sustained by the tenant and not more than three months' periodic rent and reasonable attorney fees.
Iowa Code § 562A.11 (emphasis added). Tenants asserted the italicized language clearly makes the inclusion of prohibited provisions in a rental agreement actionable, even without enforcement, if the landlord's inclusion was willful and knowing.
Tenants argued support for their interpretation is found in the Iowa legislature's utilization of language similar to the Uniform Residential Landlord and Tenant Act's (URLTA) "prohibited provisions" section,  and in the comment to the URLTA's "prohibited provisions" section:
Rental agreements are often executed on forms provided by landlords, and some contain adhesion clauses, the use of which is prohibited by this section . . . . The official comment to [section 2.415 of the Uniform Consumer Credit Code] states "This section reflects the view of the great majority of states in prohibiting authorization to confess judgment." Similarly, clauses attempting to exculpate the landlord from tort liability for his own wrong have been declared illegal by statutes in some states . . . . Such provisions, even though unenforceable at law, may nevertheless prejudice and injure the rights and interests of the uninformed tenant who may, for example, surrender or waive rights in settlement of an enforceable claim against the landlord for damages arising from the landlord's negligence.
. . . The right to recover attorney's fees against the tenant . . . must arise under the statute, not ...