Baierl v. McTaggert

• Decision Date: 29 May 2001
• Citation: 629 N.W.2d 277,2001 WI 107
• Parties: (Wis. 2001) This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports. Robert J. Baierl, d/b/a Supreme Builders, Plaintiff-Appellant, v. John McTaggart and Susan McTaggart, Defendants-Respondents-Petitioners. 98-3329
• Court: Wisconsin Supreme Court

629 N.W.2d 277 (Wis. 2001)

This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports.

Robert J. Baierl, d/b/a Supreme Builders, Plaintiff-Appellant, v. John McTaggart and Susan McTaggart, Defendants-Respondents-Petitioners.

98-3329

SUPREME COURT OF WISCONSIN

May 29, 2001

July 11, 2001

REVIEW OF A DECISION OF THE COURT OF APPEALS

Source of APPEAL

COURT: Circuit

COUNTY: Milwaukee

JUDGE: Charles F. Kahn, Jr.

Concurred: CROOKS, J., concurs (opinion filed).

WILCOX, J., joins concurrence.

SYKES, J., dissents (opinion filed).

PROSSER, J., joins dissent.

ATTORNEYS: For the defendants-respondents-petitioners there were briefs by David R. Sparer, Jason H. Klimowicz and King Street Law Collective, Inc., Madison, and oral argument by David R. Sparer.

For the plaintiff-appellant there was a brief by Thomas L. Frenn, Roy H. Nelson and Petrie & Stocking S.C., Milwaukee, and oral argument by Thomas L. Frenn.

An amicus curiae brief was filed by Teel D. Haas, assistant legal counsel, Wisconsin Department of Agriculture, Trade and Consumer Protection, and oral argument by Teel D. Haas.

An amicus curiae brief was filed by Laurence J. Dupuis, Jeffrey R. Myer, Mark A. Silverman and Legal Action of Wisconsin, Inc., Milwaukee, on behalf of Legal Action of Wisconsin, Inc.REVIEW of a decision of the Court of Appeals. Reversed.

¶1. ANN WALSH BRADLEY, J.

The defendant-tenants, John and Susan McTaggart (McTaggarts), seek review of a published decision of the court of appeals reversing the circuit court's grant of summary judgment in their favor.¹ The McTaggarts assert that the landlord-plaintiff, Robert Baierl (Baierl), d/b/a Supreme Builders, may not enforce a residential lease that includes a provision which is specifically prohibited by Wis. Admin. Code §ATCP 134.08(3) (Apr. 1993). The circuit court agreed and invalidated the lease, concluding that the provision violated §ATCP 134.08(3).

¶2. We determine that because the lease includes a provision in violation of §ATCP 134.08(3), the landlord, Baierl, may not enforce the lease against the tenants. Holding the lease unenforceable by the landlord not only advances the intent underlying §ATCP 134.08(3), but prevents the objectives of the regulation from being wholly undermined. Accordingly, summary judgment was properly granted in the McTaggarts' favor and we reverse the decision of the court of appeals.

I

¶3. The controlling facts are not in dispute. In July 1996, the McTaggarts entered into a residential lease with Baierl. Under the lease, the McTaggarts agreed to rent an Oconomowoc apartment owned by Baierl for a period of one year. The lease was to run from August 1, 1996, to July 31, 1997.

¶4. The lease documents consisted of a standard form residential lease and several addenda. Important to our discussion is Addendum A, which contained the following provision purportedly requiring the tenant to indemnify the landlord for all costs and attorneys fees incurred in enforcing the lease agreement:

In the event that Supreme Builders shall be obliged to commence legal action in order to enforce the terms and conditions of any portion of this lease and amendment, the tenant shall be liable to Supreme Builders for all Supreme Builders' costs, disbursements and expenses incurred including, without limitation, reasonable attorney fees incurred.

The provision in the lease is in direct violation of Wis. Admin. Code §ATCP 134.08(3), which prohibits as an unfair trade practice the inclusion of any clause requiring a tenant to pay a landlord's attorneys fees and costs:

ATCP 134.08 Prohibited rental agreement provisions. No rental agreement may:

...

(3) Require payment, by the tenant, of attorney's fees or costs incurred by the landlord in any legal action or dispute arising under the rental agreement. This does not prevent the recovery of costs or attorney's fees by a landlord or tenant pursuant to a court order under ch. 799 or 814, Stats.

Wis. Admin. Code §ATCP134.08(3) (Apr. 1993).²

¶5. In November 1996, the McTaggarts informed Baierl that they would be vacating the apartment in January 1997, prior to the expiration of the lease term. The following January, the McTaggarts vacated the apartment and moved to Ohio for employment reasons. At that time, the McTaggarts instructed Baierl to deduct the January 1997 rent from the security deposit they had paid upon leasing the apartment.

¶6. Subsequent to the McTaggarts' premature departure from the apartment, Baierl deducted costs for damages and the January rent from the McTaggarts' security deposit. Unable to re-rent the apartment, Baierl then withheld the remainder of the deposit and sought to enforce the lease. After unsuccessfully demanding payment, Baierl brought this action in Milwaukee County Circuit Court to collect damages under the lease.

¶7. In response, the McTaggarts asserted that the lease was void and unenforceable on the grounds that the inclusion of the provision requiring the tenants to pay attorneys fees and costs violated §ATCP 134.08(3). The McTaggarts also counterclaimed that Baierl wrongfully retained their security deposit under §ATCP 134.06³ to satisfy rent for which they had no liability under the void lease. Accordingly, they sought double damages and costs and attorneys fees under Wis. Stat. §100.20(5) (1995-96).⁴

¶8. Upon the McTaggarts' motion, the circuit court granted summary judgment in their favor. The circuit court concluded that because the inclusion of that provision was prohibited by §ATCP 134.08(3), the entire lease was void. As a consequence of the invalidation of the lease, the court awarded damages to the McTaggarts in the amount of the security deposit remaining after deduction of the January 1997 rent and other uncontested deductions. Pursuant to Wis. Stat. §100.20(5), the court doubled these damages and awarded the McTaggarts reasonable attorneys fees.

¶9. After unsuccessfully seeking reconsideration of the circuit court's grant of summary judgment, Baierl appealed. In a divided decision, the court of appeals reversed. Baierl v. McTaggart, 2000 WI App 193, 238 Wis.2d 555, 618 N.W.2d 754. The majority explained that under common law contract principles, as expressed in Simenstad v. Hagen, 22 Wis.2d 653, 126 N.W.2d 529 (1964), a contract containing an illegal provision may nonetheless be enforced if severance of the illegal provision would not defeat the primary purpose of the contract. 2000 WI App 193, ¶¶7-8. The court concluded that the purpose of the lease could be satisfied absent the illegal clause. Id. at ¶10. It then examined the equities of this case and determined that given the McTaggarts' breach, the equities favored Baierl. Id. at ¶11 & ¶13.

¶10. The dissent argued that the illegal lease provision could not merely be severed and the remainder of the contract enforced. Id. at ¶23-31 (Schudson, J., dissenting). To do so, the dissent maintained, undermines the protection provided to consumers by Wis. Admin. Code ATCP ch. 134 and removes the deterrent effect of §ATCP 134.08(3). Id.

II

¶11. We review a grant of summary judgment applying the same methodology as employed by the circuit court. Grams v. Boss, 97 Wis.2d 332, 337-39, 294 N.W.2d 473 (1980). Summary judgment is appropriate if the record reveals no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Wis. Stat. § 802.08(2).

¶12. As a general matter, Wisconsin courts seek to enforce contracts deliberately made by the parties rather than set them aside. Burstein v. Phillips, 154 Wis. 591, 594, 143 N.W. 679 (1913). However, the preference for enforcing bargains may give way where a contract "violates a statute, rule of law, or public policy." Continental Cas. Co. v. Wisconsin Patients Comp. Fund, 164 Wis.2d 110, 117, 473 N.W.2d 584 (Ct. App. 1991).

¶13. In the present case it is undisputed that the inclusion of this lease provision, requiring the tenant to indemnify the landlord for costs and attorneys fees incurred in enforcing the lease, is a violation of Wisconsin law. The Department of Agriculture, Trade and Consumer Protection (Department) has exercised its rule-making authority under Wis. Stat. §100.20(2)(a) and specifically determined that the inclusion of such a clause in a residential lease is an unfair trade practice. The conduct of inserting the clause into a lease constitutes the violation and is punishable by law. Under §100.26(3), a person who "neglects or fails to obey any regulation or order" promulgated under §100.20 is subject to a fine and potential imprisonment. Wis. Stat. §100.26(3).

¶14. The sole disputed question before us is whether Baierl may enforce the lease in light of the illegal inclusion of this lease provision.⁵ This presents us with a question of law. We review such questions independently of the legal conclusions reached by the circuit court and the court of appeals. Deutsches Land, Inc. v. City of Glendale, 225 Wis.2d 70, 79-80, 591 N.W.2d 583 (1999).

¶15. In addressing whether Baierl may enforce the lease, the parties have staked out two divergent positions grounded in Wisconsin case law. On the one hand, Baierl, like the court of appeals majority, relies on the rule of severability articulated in Simenstad v. Hagen, 22 Wis.2d 653. InSimenstad the court determined that a contract may survive if an illegal clause can be severed from the remainder of the contract without defeating the primary purpose of the bargain. Id. at 662. Baierl argues that here the lease may be enforced, notwithstanding the illegal provision, because that provision is a nonessential clause that is properly severable from the remainder of the lease.

¶16. On the other hand, the McTaggarts advance that a violation of an administrative regulation promulgated under §100.20 results in the unenforceability of a contract. They rely on two cases where that result was obtained. In ...