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Kline v. Southgate Property Management, LLC

Supreme Court of Iowa

May 19, 2017

DANIEL KLINE, FRANK SORIES, and AMARIS McCANN, Appellees,
v.
SOUTHGATE PROPERTY MANAGEMENT, LLC, Appellant.

         Appeal from the Iowa District Court for Johnson County, Patrick R. Grady, Judge.

         A landlord appeals a district court's ruling on summary judgment that certain lease provisions are prohibited under the Iowa Uniform Residential Landlord and Tenant Act and that certified a class of tenants.

          James W. Affeldt and Nicholas J. Kilburg of Elderkin & Pirnie, P.L.C., Cedar Rapids, until withdrawal, and then Stephen J. Holtman and Lisa A. Stephenson of Simmons Perrine Moyer Bergman, PLC, Cedar Rapids, for appellant.

          Christopher Warnock of The Iowa Tenants' Project, Iowa City, and Christine Boyer of The Iowa Tenants' Project, Iowa City, for appellees.

          Thomas H. Walton and Matthew R. Eslick of Nyemaster Goode, P.C., Des Moines, for amici curiae Landlords of Iowa, Inc. and Greater Iowa Apartment Association.

          HECHT, JUSTICE.

         Three tenants brought this action against their landlord after their leases expired. The tenants, alleging they represent a class of similarly situated residential tenants, claim the landlord is liable for damages under the Iowa Uniform Residential Landlord and Tenant Act (the Act) because the landlord's leases included several provisions known by the landlord to be prohibited provisions. The district court granted summary judgment in favor of the tenants, declaring that the challenged lease provisions violate the Act and certifying a class of tenants. On interlocutory appeal, the landlord contends (1) the lease provisions are not prohibited under the Act; (2) the tenants have no claim for damages because even if the lease provisions are prohibited, the landlord did not enforce them; and (3) the district court erred in certifying the class of tenants. Upon review, we conclude some, but not all, of the challenged lease provisions are prohibited under the Act, and we find no abuse of discretion in the district court's certification of a class of plaintiff tenants.

         I. Background Facts and Proceedings.

         Daniel Kline, Frank Sories, and Amaris McCann are former residential tenants of properties owned or managed by SouthGate Property Management, LLC. Kline and Sories entered into a rental agreement with SouthGate on July 27, 2012, for a lease term that ended on July 28, 2013. McCann entered into a residential agreement with SouthGate on August 1, 2012, for a lease term that ended on July 28, 2014.

         SouthGate's leases included provisions imposing fees, charges, and liquidated damages against the tenants in the event of various occurrences. Paragraph 3 prescribed a charge of $25 if a tenant's check was returned for insufficient funds. Paragraph 4 established a charge of $50 per month for each new tenant added after the term of the lease began. Paragraph 9 assessed a handling fee of $50 for each utility bill received or paid by SouthGate as a consequence of a tenant's failure to take responsibility for the obligation and established a $50 utility reconnection charge in the event the tenant's delinquency precipitated a termination of utility service. Paragraph 12 set a charge for maintenance calls caused by a tenant's negligence at the "current rate per hour plus trip charge" as determined by SouthGate. A liquidated damage assessment of $500 was prescribed in paragraph 15 for keeping an unauthorized pet on the premises. An administrative fee of $300 was imposed in paragraph 19 if a tenant assigned or sublet the premises. Paragraph 22 of the lease established a daily rate of $300 per day for tenants holding over and also required the tenants to pay "any damages" resulting from the holdover. An acceleration clause in paragraph 27 provided the tenant would immediately owe rent for the entire term of the lease in the event of an early termination.

         Additional fees were prescribed by SouthGate's Building and Property Rules.[1] Rule 10 charged tenants for "lockout service calls" at the rate of $45 per call during business hours and $85 per call at other times. Rule 11 established a fee of $15 for replacement keys and rule 12 imposed a charge of $25 for each violation of the lease or the building and property rules.

          The leases also limited a tenant's remedies in the event SouthGate was unable to deliver possession on the first day of the lease term. Paragraph 11 provided as follows:

Subject to other remedies at law, if Landlord, after making a good faith effort, is unable to give Tenant possession at the beginning of the term, the rent shall be abated on a pro rata basis until possession can be given. The rebated rent shall be accepted by Tenant as full settlement of all damages occasioned by the delay, and if possession cannot be delivered within ten (10) days of the beginning of the term, this Rental Agreement may be terminated by either party given five (5) days written notice.

         The subject of carpet cleaning was also addressed in SouthGate's leases. Property rule 9 provided as follows:

All carpets are professionally cleaned at the end of each tenancy. The departing tenant had professionally cleaned carpet at move-in and the tenant will be charged for professionally cleaned carpet at termination. Any extra painting or carpet cleaning needed to be done will be deducted from Tenant's Rental Deposit.

         Paragraph 30 of the lease established a checklist detailing the condition of the dwelling at the commencement of the lease. This provision provided,

Within three (3) days of the commencement of occupancy, Tenant shall complete and return to Landlord the Apartment Inspection Checklist, Smoke Alarm and Fire Extinguisher checklists (if applicable). If tenant does not within three (3) days complete and return those checklists, Tenant shall be presumed as acknowledging that there are no defects or damages in the Dwelling Unit. Landlord agrees to review the checklists and notify Tenant of any objections within seven (7) days of receipt of completed checklists. If Landlord does not notify Tenant of Landlord's objections within seven (7) days of receipt of completed checklists, Tenant's evaluation shall be deemed accepted by Landlord. These checklists and objections (if any) shall be retained by Landlord.

         The tenants filed this action against SouthGate seeking a declaration that each of the lease provisions mentioned above violated the Act. The tenants' petition requested actual and punitive damages, injunctive relief, and attorney fees. SouthGate's answer denied the leases' provisions violate the Act and raised the statute of limitations as an affirmative defense.

         A. Motion for Partial Summary and Declaratory Judgment.

         The tenants filed a motion for partial summary and declaratory judgment. The motion sought a declaration that the above-mentioned lease provisions imposing charges, fines, penalties, liquidated damages, or other fees are prohibited because SouthGate can recover only actual damages from tenants under the Act. The tenants urged the court for the same reason to enter summary judgment declaring that the lease provision imposing an automatic carpet-cleaning charge violates the Act. The tenants further urged the court to enter judgment declaring paragraphs 11 and 30 of the lease violate section 562A.11(1) of the Act because they purport to waive tenants' rights or remedies pertaining to possession and to a clean, sanitary, and habitable dwelling. In addition, the tenants' motion sought a determination that they did not have to prove the landlord actually attempted to enforce these provisions against them.

         In its resistance to the tenants' motion for partial summary judgment, SouthGate contended the contested provisions are not prohibited under the Act. In the alternative, SouthGate asserted that even if the challenged provisions are prohibited under the Act, the tenants suffered no damages because the provisions were not enforced against them. The landlord further asserted it did not willfully use any prohibited lease provision in violation of section 562A.11(2) because it had no knowledge of the claimed prohibition prior to the execution of the leases at issue in this case. Based on these assertions, SouthGate's resistance to the motion asserted that the tenants' petition presented no justiciable controversy supporting a declaratory judgment.

         SouthGate also filed a motion for summary judgment. It urged dismissal of the petition because all of the challenged lease provisions are compatible with the Act and the tenants therefore suffered no compensable injury as a matter of law.

         B. Motion for Class Certification.

         The tenants also filed a motion requesting they be certified as representatives of a class consisting of all tenants who signed a substantially similar version of SouthGate's standard lease. They requested the court adjudicate for the entire class (1) whether the challenged provisions of SouthGate's standard lease are prohibited by the Act, and (2) whether SouthGate willfully used the lease knowing it contained prohibited provisions. SouthGate resisted the certification of the proposed class of tenants, contending the named plaintiffs are not proper representatives of the class because the challenged lease provisions were not enforced against them and individual questions of fact dominate over common questions across the proposed class.

         C. District Court's Summary Judgment Ruling.

         The district court granted the tenants' motion for partial summary judgment. The court declared that the three categories of lease provisions challenged by the tenants are prohibited under the Act. The court further concluded the lease provisions imposing the fees and charges detailed above were prohibited under the Act because they were set "without any consideration of what [SouthGate's] actual damages and fees would be in each situation." The court also decided SouthGate's carpet-cleaning provision was prohibited under the Act because it automatically imposed a fee on tenants without regard to whether the carpet was clean at the end of the lease term and authorized SouthGate to withhold the expense from the tenants' security deposit without proof that such cleaning was necessary to restore the dwelling unit to its condition at the commencement of the tenancy, ordinary wear and tear excepted.

         The district court's summary judgment ruling also concluded two other lease provisions challenged by the tenants are prohibited under Iowa Code section 562A.11 (2015). First, the court concluded paragraph 11-the rule limiting the tenants' remedy to a pro rata abatement of rent in the event of a delay of possession at the beginning of the lease term- was a prohibited term under section 562A.11(1)(d). Second, the court determined paragraph 30-the rule waiving the tenants' claims of defects in the condition of the dwelling not identified on an apartment-condition checklist and delivered to SouthGate within three days of move-in- constituted a waiver of the tenants' rights prohibited under section 562A.11(1)(a). The court reasoned that these two lease provisions violated the Act because they purported to limit SouthGate's obligations under section 562A.14 (landlord's obligation to supply possession of dwelling unit) and section 562A.15 (landlord's obligation to maintain fit premises). The court also concluded paragraph 30 of the lease was prohibited under the Act because it was calculated to limit SouthGate's liability under the common law for failing to satisfy its duty to protect tenants from reasonably foreseeable harm.[2] The court certified a class of plaintiffs consisting of all of SouthGate's tenants with the same or substantially similar standard leases and lease rules.

         In reaching its summary judgment conclusions, the district court relied on an unpublished decision of our court of appeals in Staley v. Barkalow, No. 12-1031, 2013 WL 2368825 (Iowa Ct. App. May 30, 2013). In Staley, the plaintiffs were tenants who alleged their landlord used several lease provisions prohibited under Iowa Code section 562A.11(1). Staley, 2013 WL 2368825, at *2. The tenants challenged the lease provisions on the grounds they constituted illegal indemnity and exculpatory clauses, required tenants to pay rent even if the landlord failed to deliver possession of the premises at the commencement of the lease term, and illegally required tenants to pay for maintenance and repair of the premises, carpet cleaning, and property damages caused by third-party vandals. Id. at *2-3. The defendant landlord contended it had no liability to the tenants under chapter 562A for lease provisions that were included in the lease but not enforced. Id. at *4-5. The district court denied the Staley tenants' motion for partial summary judgment, concluding the landlord had no liability to the tenants under section 562A.11(2) for including any lease provisions that were not enforced against them, and denied a motion to certify a class of similarly situated plaintiffs. Id. at *5-6. Our court of appeals reversed, concluding a landlord "willfully uses" a lease provision prohibited under the Act by willfully including it in a lease. Id. at *8. The court of appeals also found the district court abused its discretion in refusing to certify the class of tenants. Id. at *12.

         We granted SouthGate's application for interlocutory review.

         II. Scope and Standards of Review.

         Generally, our standard of review for a declaratory judgment ruling depends on whether the action was tried at law or in equity in the district court. When we review a declaratory ruling entered on summary judgment, however, our scope of review is for correction of errors at law. Shelby Cty. Cookers, L.L.C. v. Util. Consultants Int'l., Inc., 857 N.W.2d 186, 189 (Iowa 2014). Summary judgment rulings based on statutory interpretation are reviewed for correction of errors at law. Estate of McFarlin v. State, 881 N.W.2d 51, 56 (Iowa 2016).

         We review a district court's rulings on certification of a class for an abuse of discretion. Kragnes v. City of Des Moines, 810 N.W.2d 492, 498 (Iowa 2012). The district court "enjoys broad discretion in the certification of class action lawsuits." Legg v. W. Bank, 873 N.W.2d 756, 758 (Iowa 2016) (quoting Vos v. Farm Bureau Life Ins., 667 N.W.2d 36, 44 (Iowa 2003)). Iowa's "class-action rules are remedial in nature and should be liberally construed to favor the maintenance of class actions." Anderson Contracting, Inc. v. DSM Copolymers, Inc., 776 N.W.2d 846, 848 (Iowa 2009) (quoting Comes v. Microsoft Corp., 696 ...


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