Kline v. Southgate Prop. Mgmt., LLC

• Decision Date: 19 May 2017
• Docket Number: No. 15-1350,15-1350
• Parties: Daniel KLINE, Frank Sories, and Amaris McCann, Appellees, v. SOUTHGATE PROPERTY MANAGEMENT, LLC, Appellant.
• Court: Iowa Supreme Court

895 N.W.2d 429

Daniel KLINE, Frank Sories, and Amaris McCann, Appellees,

v.SOUTHGATE PROPERTY MANAGEMENT, LLC, Appellant.

No. 15-1350

Supreme Court of Iowa.

Filed May 19, 2017

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 the district court's certification of a class of plaintiff tenants is procedurally flawed. Accordingly, we affirm in part, reverse in part, and remand.

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...