Dawson v. Goldammer, 2004AP2507.
| Decision Date | 26 July 2006 |
| Docket Number | No. 2004AP2507.,No. 2004AP3335.,2004AP2507.,2004AP3335. |
| Citation | 2006 WI App 158,722 N.W.2d 106 |
| Parties | J. Dale DAWSON and Gudrun Dawson, Plaintiffs-Respondents,<SMALL><SUP>†</SUP></SMALL> v. Robert J. GOLDAMMER and Eileen K. Goldammer, Defendants-Appellants. |
| Court | Wisconsin Court of Appeals |
On behalf of the defendants-appellants, the cause was submitted on the briefs of David R. Sparer of Herrick & Kasdorf, L.L.P., Madison.
On behalf of the plaintiffs-respondents, the cause was submitted on the brief of Robert G. Pyzyk and Matthew R. Jelenchick of Niebler, Pyzyk, Klaver & Wagner L.L.P., Menomonee Falls.
A nonparty brief was filed by Nelle R. Rohlich and John S. Greene, assistant attorneys general, and Peggy A. Lautenschlager, attorney general.
A nonparty brief was filed by Mark A. Silverman of Legal Action of Wisconsin, Inc., Milwaukee.
Before SNYDER, P.J., and BROWN and ANDERSON, JJ.
¶ 1
In Dawson v. Goldammer, 2003 WI App 3, ¶ 1, 259 Wis.2d 664, 657 N.W.2d 432 (Dawson I), we held that a tenant may seek enforcement of a rental agreement that includes an attorney's fees provision in violation of WIS. ADMIN. CODE § ATCP 134.08(3) (Oct.2004).1 We now hold that when a tenant seeks enforcement of such a lease, the tenant can sever the attorney's fees provision and enforce the remainder of the lease.2 We therefore reverse that portion of the trial court's judgment awarding landlords J. Dale and Gudrun Dawson attorney's fees. However, we affirm the trial court's rulings on all other disputed grounds.
¶ 2 Although a fair amount of procedural history accompanies this case, the facts central to the severability issue are straightforward. In 1995, the Dawsons leased a parcel of property to Robert J. and Eileen K. Goldammer under a written four-year agreement denominated a "farm lease." The parcel is located partly in the town of Jackson in Washington county and partly in the town of Cedarburg in Ozaukee county. The lease made time of the essence with regard to rent payments on the first of each month and provided that if the full rent was not paid by the tenth of the month, the Dawsons could immediately terminate the lease upon written notice to the Goldammers. Rent for the first four-year term was set at $1500 per month. Under the terms of the lease, the Goldammers had two renewal options of four years each. Furthermore, the lease contained a provision requiring the Goldammers to "pay and discharge all costs and attorney's fees and expenses that shall arise from enforcing any of the covenants of this lease by the lessor."4
¶ 3 The Goldammers exercised the first renewal option, which extended the lease until December 2003. Under the renewal terms, the Goldammers owed rent of $1750 per month. The Goldammers alleged that numerous problems with the property arose, including a damaged barn and septic system problems, and claimed a $200-per-month rent abatement. The Dawsons disputed these allegations but accepted the reduced rent payments from January 2000 until April 2000. As of May 2000, the Dawsons began rejecting the reduced rent. The Goldammers opened an escrow account and began depositing rent payments to that account. The Goldammers advised the Dawsons that when they were ready to accept the rent payments, the Goldammers would make payment from the escrowed funds.
¶ 4 Litigation ensued. On August 24, 2000, the Dawsons filed an action for declaratory judgment seeking a declaration that the lease had been violated by the Goldammers and had therefore terminated by its own terms. The Goldammers denied nonpayment of rent, filed a number of counterclaims, and requested a jury trial. On June 20, 2001, the Dawsons moved for summary judgment. The circuit court held that the Goldammers had paid the July 2000 rent in a timely manner. The court also determined that the parties had entered into an implied stipulation agreement, which required the Goldammers to deposit the rent into an escrow account pending the outcome of the case and that the Goldammers were obligated to pay monthly rent of $1550 beginning in July 2000.
¶ 5 The circuit court sua sponte raised and relied upon Baierl v. McTaggart, 2001 WI 107, 245 Wis.2d 632, 629 N.W.2d 277, to rule that the attorney's fees provision in the lease agreement violated WIS. ADMIN. CODE § ATCP 134.08(3), and rendered the lease unenforceable by either party, leaving the parties with a month-to-month tenancy. The Dawsons then gave the Goldammers notice terminating the month-to-month tenancy. The Goldammers did not vacate, and the Dawsons followed with an eviction action.
¶ 6 The Goldammers appealed the circuit court's determination that the lease was null and void. In a published opinion, we held that a tenant may seek enforcement of a lease that includes an attorney's fees provision in violation of WIS. ADMIN. CODE § ATCP 134.08(3). However, we rejected the Goldammers' contention that Baierl not only permitted them to enforce the lease but also prevented the Dawsons from asserting their rights under the lease.
[W]hile a landlord cannot seek damages for abandonment of a lease that has an ATCP violation, a tenant who seeks to prospectively enforce the lease has waived his or her rights pursuant to Baierl in the event of a breach on the part of the tenant. Accordingly, we conclude that by seeking to enforce the lease, the Goldammers are reaffirming the terms of the lease and the Dawsons' reciprocal right to enforce those provisions.
Dawson I, 259 Wis.2d 664, ¶ 11, 657 N.W.2d 432.
¶ 7 After our decision was released, the Dawsons amended their complaint, pursuing a declaration that the lease was void, an eviction, and money damages. The Goldammers realleged a previously filed counterclaim. The Dawsons moved to strike the counterclaim for discovery violations and, based upon the totality of the circumstances presented at the motion hearing, the trial court granted the Dawsons' motion. The Dawsons moved for summary judgment on their declaratory judgment action. The court granted the Dawsons' motion, terminating the lease and evicting the Goldammers. The circuit court also granted the Dawsons' money judgment and ordered the Goldammers to pay the Dawsons' "actual attorneys' fees, costs and disbursements in an amount to be determined hereafter." Subsequently, the court appointed a receiver.
¶ 8 The primary disputed question in this case is whether a tenant who opts to enforce a lease containing an illegal attorney's fees provision can sever the provision and enforce the remainder of the lease or whether the tenant must abide by the lease in its entirety. The Dawsons argue that once the Goldammers elected to enforce the lease, they did so at their own peril and are now subject to the attorney's fees clause. The Goldammers contend that simply because they have chosen to enforce the lease containing the illegal attorney's fees provision, does not mean that they are precluded from invoking the rule of severability. We agree with the Goldammers.
¶ 9 The question before us is one of severability, which requires an examination of the controlling administrative regulation and the intent underlying the provision. It therefore presents us with a question of law. See Baierl, 245 Wis.2d 632, ¶ 14, 629 N.W.2d 277. We review such questions independently of the legal conclusions reached by the circuit court. See id.
¶ 10 In Baierl, our supreme court held that a landlord who includes an attorney's fees provision in a residential lease, which is specifically prohibited by WIS. ADMIN. CODE § ATCP 134.08(3), may not enforce the terms of a lease against tenants who had prematurely abandoned the rental property. Baierl, 245 Wis.2d 632, ¶¶ 2, 5, 629 N.W.2d 277. The court determined that the inclusion of the prohibited provision did not render the contract a legal nullity because then "not even the tenants could enforce the lease." Id., ¶ 20. Rather, the landlord could not enforce the lease because he could not sever the attorney's fees provision from the lease as a whole. Id., ¶ 40.
¶ 11 According to the court, the rule of severability holds 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., ¶ 15 (). However, our supreme court explained, the rule of severability was not unconditional. Baierl, 245 Wis.2d 632, ¶ 18, 629 N.W.2d 277. Where the illegality of a contractual provision arises from the violation of a statute, the rule of severability is qualified by the controlling statute. Id. Thus, the court held, even if a lease provision is collateral to the underlying bargain of the lease, the severability analysis requires an examination of the controlling statute or, as in the case, the administrative regulation. Id.
¶ 12 Bearing these principles in mind, the court reasoned that to allow the landlord to enforce the lease would completely defeat the objectives of WIS. ADMIN. CODE § ATCP 134.08(3). Baierl, 245 Wis.2d 632, ¶¶ 20, 40, 629 N.W.2d 277. The court characterized landlord-tenant relations as "an area fraught with consumer protection concerns." Id., ¶ 25. According to the court, regulatory objectives of § ATCP 134.08(3) include "enforcement of private legal rights ... in the realm of landlord-tenant relations" and alleviation of the inherent inequality of bargaining power that exists between landlords and tenants. Baierl, 245 Wis.2d 632, ¶¶ 25, 31, 629 N.W.2d 277. In enacting the regulation, the Department of Agriculture, Trade and Consumer Protection sought to prevent tenants from being intimidated into forgoing their legal rights due to the fear that they would be forced to bear the landlord's litigation expenses. Id., ¶ 30. The court concluded that allowing a landlord to sever the illegal attorney's fees provision and enforce the...
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