IN THE SUPREME COURT OF IOWA No. 15–1350
Filed May 19, 2017
Amended August 1, 2017
DANIEL KLINE, FRANK SORIES, and AMARIS McCANN,
Appellees,
vs.
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.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
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. 2
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. 3
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 4
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.
1Paragraphs 33 and 37 of SouthGate’s leases incorporated several attachments including “Building and Property Rules” consisting of twelve paragraphs on a single page. Iowa Code section 562A.18 authorizes landlords to adopt written rules concerning use and occupancy of the premises. Iowa Code § 562A.18 (2015). 5
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 6
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 7
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 8
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
2The district court concluded the question of whether SouthGate willfully used
lease provisions known to be prohibited would have to be tried. See Caruso v. Apts. Downtown, Inc., 880 N.W.2d 465, 474 (Iowa 2016) (interpreting Iowa Code section 562A.11(2) as requiring “actual knowledge” that a lease provision was illegal). Having concluded the tenants’ motion for summary judgment should be granted, the district court denied SouthGate’s motion for summary judgment. 9
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. 10
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 N.W.2d 318, 320
(Iowa 2005)). A district court abuses its discretion when its “grounds for
certification are clearly unreasonable.” Id.
III. Analysis.
We first address SouthGate’s contention that the district court
erred in interpreting the word “uses” in section 562A.11(2) in a way that
permits a tenant to recover damages against a landlord who knowingly
included, but did not attempt to enforce, a prohibited provision in a
rental agreement. We then turn to SouthGate’s alternative contention
that even if the district court correctly interpreted section 562A.11(2), we
must still reverse the summary judgment ruling because none of the 11
rental agreement provisions challenged by the tenants in this case are
prohibited under section 562A.11(1). Lastly, we address SouthGate’s
assertion that the district court abused its discretion in certifying a class
of tenants in this action.
A. Standing. SouthGate casts its challenge to the district court’s
interpretation of the word “uses” in section 562A.11(2) as a question of
standing. 3 Noting that the lease terms of Kline, Sories, and McCann
ended before this litigation was commenced, SouthGate posits that the
tenants can assert no imminent threat of future injury arising from the
enforcement of any lease provision. Because it is undisputed that
SouthGate made no attempt to enforce the challenged lease provisions
against the named plaintiffs, SouthGate argues the summary judgment
record is devoid of evidence of any injurious effect necessary to sustain
standing to sue. Accordingly, SouthGate suggests, the tenants’ claims in
this case are purely hypothetical or academic—not concrete and
justiciable.
The tenants take a distinctly different view. They claim their
standing to sue SouthGate under section 562A.11(2) does not turn on
the landlord’s attempt to enforce prohibited provisions of their rental
agreements or on proof of actual damages. The tenants contend they
have standing to sue SouthGate under the statute as a consequence of
SouthGate’s alleged inclusion of known prohibited provisions in their
rental agreements—even if SouthGate made no attempt to enforce those
provisions.
3The standing argument is alternatively pressed by SouthGate under theories of ripeness and mootness. Because we conclude the theories of ripeness and mootness are unmeritorious for the same reasons as the argument based on standing, we do not address them separately in this opinion. 12
We have characterized the standing doctrine as a self-imposed rule
of judicial restraint. Hawkeye Bancorporation v. Iowa Coll. Aid Comm’n,
360 N.W.2d 798, 802 (Iowa 1985). The doctrine limits the work of courts
to those cases in which plaintiffs have a “sufficient stake in an otherwise
justiciable controversy to obtain judicial resolution of [their] controversy.”
Citizens for Responsible Choices v. City of Shenandoah, 686 N.W.2d 470,
475 (Iowa 2004) (quoting Birkhofer ex rel. Johannsen v. Birkhofer, 610
N.W.2d 844, 847 (Iowa 2000)). The sufficiency of the tenants’ stake in
this case therefore turns on (1) whether they assert a specific personal or
legal interest in the litigation and (2) whether that interest has been
injuriously affected. See id.
Typically, we have applied the doctrine of standing in public rights
cases, where we require the citizen to demonstrate “some personal
injury.” Godfrey v. State, 752 N.W.2d 413, 424 (Iowa 2008). This case
does not involve litigation against the state or a political subdivision, but
rather against a private party based on a statutory cause of action. Our
assessment of the nature of the tenants’ right to proceed with the
litigation therefore must focus on the scope of the cause of action as
enacted by the legislature in section 562A.11(2). 4 The parties offer
4The landlord cites us to the recent United States Supreme Court decision in
Spokeo, Inc. v. Robins, 578 U.S. ___, 136 S. Ct. 1540 (2016), which it urges us to follow. In Spokeo, someone ran a search under the plaintiff’s name on the defendant’s “people search engine” and received inaccurate information. Spokeo, 578 U.S. at __, 136 S. Ct. at 1544. The plaintiff thereafter brought a putative class action against the defendant under the Federal Fair Credit Reporting Act (FCRA). Id. The district court dismissed the plaintiff’s case for lack of Article III standing, but the Ninth Circuit reversed, finding that a violation of the plaintiff’s statutory rights under the FCRA was sufficient in and of itself to confer standing. Id. at ___, 136 S. Ct. at 1544–45. The Supreme Court reversed and remanded, reasoning, Congress’[s] role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right. Article 13
distinctly divergent interpretations of the word “uses” in section
562A.11(2). The tenants assert a landlord “uses” a rental agreement
including a prohibited provision when the agreement forms the basis of a
landlord–tenant relationship. Thus, under the tenants’ interpretation,
SouthGate used rental agreements containing prohibited provisions
within the meaning of section 562A.11(2) even though it took no
affirmative steps to enforce them. In sharp contrast, SouthGate
contends a landlord “uses” a rental agreement for purposes of the statute
only if it attempts to enforce a prohibited provision against a tenant and
thereby causes actual damages. Because it did not attempt to enforce
any of the challenged provisions against Kline, Sories, or McCann,
SouthGate contends the tenants were not injuriously affected and
therefore have no standing to sue in this case.
We conclude section 562A.11(2) is ambiguous because reasonable
persons could disagree as to the meaning of “uses” in this context. See
IBP, Inc. v. Harker, 633 N.W.2d 322, 325 (Iowa 2001). In interpreting a
statute, our primary objective is to determine the legislature’s intent.
Branstad v. State ex rel. Nat. Res. Comm’n, 871 N.W.2d 291, 295 (Iowa
2015). We determine the legislature’s intent by assessing the language
used in the statute, the statute’s purpose, and the consequences of
possible interpretations. Des Moines Flying Serv., Inc. v. Aerial Servs.
___________________________ III standing requires a concrete injury even in the context of a statutory violation. Id. at ___, 136 S. Ct. at 1549. The Supreme Court instructed the Ninth Circuit to determine on remand “whether the particular procedural violations alleged in this case entail a degree of risk sufficient to meet the concreteness requirement.” Id. at ___, 136 S. Ct. at 1550. We are not persuaded that the Article III limit on Congress’s power to authorize private litigation in the federal courts identified in Spokeo applies to the same extent when the general assembly authorizes private litigation in Iowa courts. 14
Inc., 880 N.W.2d 212, 220 (Iowa 2016). When interpreting a statute, we
consider a statute in its entirety, not just isolated words or phrases.
Schadendorf v. Snap–On Tools Corp., 757 N.W.2d 330, 337 (Iowa 2008).
Because the word “uses” is undefined in the Act, we assign it its
common, ordinary meaning in the context in which it is used. Bank of
Am., N.A. v. Schulte, 843 N.W.2d 876, 880 (Iowa 2014).
The Act—a comprehensive reform of residential landlord–tenant
law—was adopted in 1978. 1978 Iowa Acts, ch. 1172 (codified as
amended at Iowa Code ch. 562A). 5 In adopting the landmark reform
measure, the general assembly prescribed in some detail the obligations
owed by landlords and tenants to each other. See Iowa Code
§§ 562A.12–.15 (landlord obligations); id. §§ 562A.17–.20 (tenant
obligations). The reform measure also delineated the remedies that are
available to landlords and tenants for breaches of their respective
obligations. Id. §§ 562A.27–.33 (landlord remedies); id. §§ 562A.21–.26
(tenant remedies).
The general assembly included in the Act a statement of the
purposes and policies underlying the new Code chapter:
a. To simplify, clarify, modernize and revise the law governing the rental of dwelling units and the rights and obligations of landlord and tenant; and
b. To encourage landlord and tenant to maintain and improve the quality of housing.
c. To ensure that the right to the receipt of rent is inseparable from the duty to maintain the premises.
Iowa Code § 562A.2(2).
5The history of landlord–tenant law antedating the adoption of the Act was well- chronicled in De Stefano v. Apts. Downtown, Inc., 879 N.W.2d 155 (Iowa 2016), and will not be repeated here. 15
Professor Lovell published an exhaustive review of the Act shortly
after its adoption. See Russell E. Lovell, The Iowa Uniform Residential
Landlord and Tenant Act and the Iowa Mobile Home Parks Residential
Landlord and Tenant Act, 31 Drake L. Rev. 253 (1981) [hereinafter
Lovell]. He noted that the Act provided needed specifics for implementing
the warranty of habitability recognized earlier by this court in Mease v.
Fox, 200 N.W.2d 791 (Iowa 1972), and provided additional rights and
protections for tenants as well. Lovell, 31 Drake L. Rev. at 263. Included
among those additional protections for tenants is section 562A.11, a
provision expressly prohibiting certain categories of rental agreement
provisions and authorizing remedies for its violation. It states,
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 provided that this restriction shall not apply to rental agreements covering single family residences on land assessed as agricultural land and located in an unincorporated area;
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. This provision is a remedial feature of the reform
legislation that was designed, as Professor Lovell has explained, “to
ensure that the new protections afforded . . . tenants [were] not lost 16
through the contracting process.” Lovell, 31 Drake L. Rev. at 288.
SouthGate advances an interpretation of section 562A.11(2) that would
require tenants to prove actual damages arising from attempted
enforcement of a prohibited provision. Under this interpretation, the
tenants’ remedy for mere inclusion of a prohibited provision in a rental
agreement is the defense of unenforceability under section 562A.11(1).
Because the general assembly authorized the more consequential
remedy of actual damages in the second sentence of section 562A.11(2)
against a landlord who “uses” a rental agreement including a prohibited
provision, SouthGate contends we should conclude “uses” refers to more
culpable conduct than mere inclusion of a prohibited term. In
particular, SouthGate posits that the second sentence means a landlord
“uses” a rental agreement with a prohibited provision only by attempting
to enforce the prohibited provision and causing a tenant’s actual
damage. We are not convinced.
It seems unlikely to us that the availability of the distinct remedial
alternatives authorized in the first and second sentences of section
562A.11(2) turns on whether the landlord has attempted to enforce a
prohibited provision. The defense of unenforceability granted in the first
sentence of the section seems to presuppose that the general assembly
was contemplating a scenario in which a landlord has attempted to
enforce a prohibited provision.
We think it more likely that the general assembly prescribed
different remedies in the first and second sentences of section 562A.11(2)
as a means of addressing the degree of a landlord’s subjective culpability.
The defense of unenforceability was chosen as the remedy in the first
sentence for tenants against landlords who mistakenly or innocently
include prohibited provisions in their rental agreements. The 17
consequence-of-damage remedies authorized in the second sentence is
reserved for the more culpable conduct of landlords who willfully and
knowingly use prohibited provisions.
We also think it apparent that the general assembly’s choice of the
word “uses” in the second sentence of section 562A.11(2) was intended to
address a broader range of landlord conduct than is reached by the word
“included” in the previous sentence. Although “uses” in this context
obviously subsumes the conduct of attempting to enforce a prohibited
provision, we believe it also encompasses the separate egregious act of
inserting such a provision in a rental agreement with knowledge that it is
prohibited. In his early exegesis of the Act, Professor Lovell presaged
that section 562A.11 would authorize a remedy at law “against a
landlord who include[s] a prohibited provision in the lease, whether or
not the landlord [sought] to enforce that provision against the tenant.”
Lovell, 31 Drake L. Rev. at 292–93. Standing alone, the defense of
unenforceability will not accomplish excision of prohibited provisions
from residential rental agreements. See id. at 291–92. “There was
further concern that without the prospect of other remedial sanctions,
there would be some unscrupulous landlords who would continue to
insert prohibited provisions in their leases and exploit those provisions
against unsuspecting tenants.” Id. at 292. For these reasons, we
conclude section 562A.11(2) authorizes a claim for damages against a
landlord, even in the absence of an attempt to enforce a prohibited
provision. This interpretation best comports with the general assembly’s
directive that we liberally construe chapter 562A. 6
6It is noteworthy that Iowa’s language is similar to that in the 1972 Uniform Residential Landlord and Tenant Act, which provided, “If a landlord deliberately uses a rental agreement containing provisions known by him to be prohibited, the tenant may 18
In furtherance of its standing argument, SouthGate also contends
proof of actual damages is a prerequisite for the recovery of additional
damages of “not more than three months’ periodic rent” under section
562A.11(2). SouthGate focuses here on the phrase “a tenant may
recover actual damages . . . and not more than three months’ periodic
rent” within the second sentence of the section and asserts it means a
tenant may not recover the latter without the former. We reject this
interpretation of the phrase, however, because we have already
determined the section authorizes a damage remedy against landlords
who knowingly include prohibited provisions in their leases even in the
absence of any attempt to enforce them. Consistent with this
understanding, we conclude the conjunctive connection in the subject
phrase permits a recovery of not more than three months’ periodic rent
even if no actual damages are pled and proved.
Analogizing the “not more than three months’ periodic rent”
formulation to a punitive damage award, SouthGate calls our attention to ___________________________ recover in addition to his actual damages an amount up to [3] months’ periodic rent and reasonable attorney’s fees.” Unif. Residential Landlord & Tenant Act § 1.403, 7B U.L.A. 313 (2006). The official comment explains, 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. Id. § 1.403 cmt., 7B U.L.A. 314. This language suggests that the drafters of the uniform act understood the term “uses” to have a relatively broad meaning. In fact, when Oregon enacted its version of the uniform act, it modified this sentence seemingly to achieve the meaning sought by the landlord in this case: “If a landlord deliberately uses a rental agreement containing provisions known by the landlord to be prohibited and attempts to enforce such provisions, the tenant may recover in addition to the actual damages of the tenant an amount up to three months’ periodic rent.” Or. Rev. Stat. Ann. § 90-245(2) (West, Westlaw current through emergency legis. through ch. 13 of 2017 Reg. Sess.) (emphasis added). 19
the principle that punitive damages are generally not recoverable in the
absence of actual damages. See Syester v. Banta, 257 Iowa 613, 627,
133 N.W.2d 666, 675 (Iowa 1965). Although that principle is well-
established, we conclude it does not constrain the general assembly’s
choice to provide a remedy other than actual damages as an alternative
for tenants who have suffered no actual damage arising from an
attempted enforcement of a prohibited provision, but nonetheless seek a
remedy for their landlord’s egregious inclusion of the provision.
SouthGate contends our decision in D.R. Mobile Home Rentals v.
Frost, 545 N.W.2d 302 (Iowa 1996) (per curiam), should lead us to
conclude the tenants claims must fail because they cannot prove actual
damages. In that case, a tenant abandoned a rented dwelling. Id. at
303. The landlord sued for damages under Iowa Code section 562A.32
after the rental agreement was terminated, seeking a judgment for
unpaid rent for the period between the abandonment and termination
and for the cost of removing debris left on the premises by the tenant.
Id. at 303–04, 306. The district court entered judgment for the landlord
and the tenant appealed. Id. at 304. On appeal, we reversed the
judgment for rent because the landlord failed to prove it made any effort
to rent the dwelling as required under Iowa Code section 562A.29(3) after
the tenant abandoned it. Id. at 305. We also reversed the judgment for
the cost of removing the debris because the landlord “did not present
evidence that Frost’s debris was removed.” Id. at 306.
SouthGate’s contention that Frost supports its position that proof
of actual damages is a prerequisite for tenants seeking a damage remedy
under section 562A.11(2) is off the mark. Although we reversed the
judgment for damages in Frost for lack of proof of actual damages, we did
so because the landlord brought that action under section 562A.32. Id. 20
at 306; see also Iowa Code § 562A.32 (“If the rental agreement is
terminated, the landlord may have a claim for possession and for rent
and a separate claim for actual damages for breach of the rental
agreement and reasonable attorney fees . . . .”). That section makes no
provision for a remedial alternative to actual damages in posttermination
actions brought by landlords like the one available to tenants under
section 562A.11(2). Accordingly, Frost is distinguishable and not helpful
to our analysis.
For all of these reasons, we reject SouthGate’s contention that the
tenants lack standing to press their statutory claims for damages under
section 562A.11(2). Thus, we now turn to SouthGate’s argument that
the district court erred in concluding that provisions in the rental
agreement assessing the challenged charges and fees are prohibited
B. Fees, Charges, and Liquidated Damages Provisions. The
district court concluded all of the challenged fees, charges, and
liquidated damage provisions in the leases are prohibited under the Act
“because they were set without any consideration of what the landlord’s
actual damages and fees would be in each situation.” The court reached
this conclusion because it believed our decision in Frost required it.
SouthGate asserts reversal is required on this issue because the fees,
charges, and liquidated damages provisions challenged by the tenants in
this case are not prohibited under either chapter 562A or law
supplementing the chapter. See id. § 562A.3.
Although chapter 562A imposes some specific restraints on the
content of residential rental agreements, the statute does not completely
displace freedom of contract. This is made evident in section 562A.9(1),
which provides, 21 The landlord and tenant may include in a rental agreement, terms and conditions not prohibited by this chapter or other rule of law including rent, term of the agreement, and other provisions governing the rights and obligations of the parties.
Iowa Code § 562A.9(1).
As we have already noted, some specific categories of provisions
are expressly prohibited under the Act. For example, provisions waiving
rights and remedies established in chapter 562A are banned, as are
those confessing judgment, those exculpating, limiting, or indemnifying
another party’s liability, and those agreeing to pay another party’s
attorney fees. See Iowa Code § 562A.11(1). Unconscionable provisions
are also prohibited. Id. § 562A.7. Beyond these express prohibitions,
however, landlords and tenants are free to form residential rental
contracts consistent with chapter 562A and the principles of law and
equity supplementing it. Id. § 562A.3.
Upon review, we conclude the district court erred in declaring that
the fees, charges, and liquidated damages provisions in paragraphs 3
(charge for checks returned for insufficient funds), 4 (charge for new
tenants added to the lease after term begins), 9 (fee for utility bill
received or paid by landlord because tenant failed to arrange transfer of
account), 12 (charge for maintenance calls caused by tenant’s
negligence), 15 (liquidated damages for unauthorized pet), 19 (fee for
assigning or subletting), 22 (per diem fee for holding over), and 27 (rent
acceleration clause for early termination) of the rental agreement and
rules 10 (charge for lockout service calls), 11 (fee for replacement keys),
and 12 (charge for lease violations) are categorically prohibited as a
matter of law. We find no basis for determining these provisions are
categorically prohibited under section 562A.11(1). Accordingly, they are 22
appropriately classified as “other provisions governing the rights and
obligations of the parties” under section 562A.9(1). Id. § 562A.9(1).
The tenants nonetheless urge affirmance of the district court’s
declaration because the challenged fees, charges, and liquidated damage
amounts are not “actual damages” recoverable by landlords. In support
of this argument, the tenants cite our decision in Frost. Frost, 545
N.W.2d 302. But as our discussion of Frost in our analysis of the
standing issue reveals, the landlord’s posttermination action in that case
was not brought to enforce fees, charges, or liquidated damage
provisions. The landlord in Frost instead brought a posttermination
action under section 562A.32 for unpaid rent and damages for the cost of
removing debris left by the tenant who had abandoned the dwelling
before the end of the lease term. Id. at 303–04. We reversed the
judgment against the tenant because the landlord failed to prove it met
its statutory obligation to attempt to rent the dwelling during the interim
between the tenant’s abandonment of the property and the end of the
lease term, and because the record lacked substantial evidence of the
expense, if any, incurred by the landlord in removing the tenant’s debris.
Id. at 305. Thus, we reject the tenants’ contention that our decision in
Frost established a rule that fees, charges, or liquidated damage
provisions in rental agreements are categorically prohibited.
We conclude the summary judgment declaring the fees, charges,
and liquidated damages are categorically prohibited provisions must be
reversed. We emphasize, however, that the district court did not decide
whether any of the fees, charges, and liquidated damage provisions
challenged in this case by the tenants are unconscionable under section
562A.7 or unenforceable penalties under any other principle of law or 23
equity supplementing the Act. See id. §§ 562A.7, .9(1). Accordingly,
those issues remain for resolution in proceedings on remand.
C. Delayed Possession Provision. Paragraph 11 of the rental
agreements provides,
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 rebated 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 giving five (5) days written notice.
The district court found this provision is prohibited under section
562A.11(1)(d) because it constitutes an exculpation or limitation of the
landlord’s liability arising under law.
SouthGate contends the district court erred in concluding this is a
prohibited provision. Noting the provision commences with “subject to
other remedies at law,” SouthGate posits the tenants’ right to refuse the
rent abatement as a make-whole remedy and instead file an action for
damages is not foreclosed. Although the provision does track section
562A.11(1)(d) in abating the obligation to pay rent during the delay and
permitting the tenants to terminate the rental agreement upon five days’
written notice, we find it falls completely off the statutory rails in limiting
SouthGate’s damage exposure to the abatement remedy “as full
settlement of all damages.” The provision cannot be saved in our view by
the ambiguous introductory phrase “[s]ubject to other remedies at law”
as it otherwise clearly purports to attempt to limit SouthGate’s liability
and the tenants’ remedy for damages sustained as a consequence of the
delay under section 562A.22. See id. § 562A.22(1)(b) (allowing tenants to
elect to sue for possession and recover damages); id. § 562A.22(2) 24
(authorizing recovery of actual damages and reasonable attorney fees if
landlord’s failure to deliver possession is willful and not in good faith).
We conclude the district court correctly declared paragraph 11 is a
prohibited provision under section 562A.11.
D. Carpet-Cleaning Provision. The district court concluded the
carpet-cleaning provision found in rule 9 of SouthGate’s rental
agreement is prohibited because it provides for automatic cleaning
whether the carpet needs cleaning or not and because the rule permits
the landlord to avoid its obligations under section 562A.12(3). See id.
§ 562A.12(3) (requiring landlord within thirty days to return the rental
deposit or furnish to the tenant a written statement showing the specific
reason for withholding any portion of the rental deposit and detailing the
reasons for which withholding is permitted). SouthGate contends the
district court erred on this issue because the record demonstrates that
the provision is not automatically invoked against tenants. The
summary judgment record reveals, for example, that no amount was
withheld from the security deposits of Kline, Sories, or McCann for carpet
cleaning. SouthGate further contends that even if the carpet-cleaning
provision were invoked against a tenant, no violation of section
562A.12(3)(a)(2) would occur because the cleaning of carpets is a
measure calculated to restore the dwelling unit to its condition at the
commencement of the tenancy. See id. § 562A.12(3)(a)(2) (authorizing
withholding from the rental deposit such amounts as are reasonably
necessary “[t]o restore dwelling unit to its condition at the
commencement of the tenancy, ordinary wear and tear excepted”).
We recently addressed the enforceability of a carpet-cleaning
provision in a residential rental agreement. See De Stefano v. Apts.
Downtown, Inc., 879 N.W.2d 155 (Iowa 2016). In De Stefano, we 25
acknowledged that Iowa Code section 562A.12 “clearly authorizes the
deduction of carpet-cleaning costs from rental deposits if necessary to
restore the dwelling unit to the condition at the commencement of the
tenancy, beyond the ordinary wear and tear.” Id. at 186. We clarified,
however, that a landlord cannot “impose an automatic carpet-cleaning
fee and deduct such charges from a rental deposit.” Id.
We conclude the district court erred in declaring SouthGate’s rule
9 is a prohibited provision under section 562A.12(3). The rule is not
reasonably understood as a provision for effecting an automatic
withholding of the cost of carpet cleaning from security deposits. It is
instead a provision establishing a benchmark for the condition of the
carpet—a clean carpet—at the commencement of each tenancy from
which subsequent assessments of ordinary wear and tear can be
measured. We believe it is significant that the first two sentences of rule
9 do not purport to authorize the automatic withholding of the cost of
such regular cleaning from the tenant’s security deposit. See id. (leaving
room for the possibility that “a landlord may be able to impose a
nonrefundable charge on tenants for automatic carpet cleaning” not
affecting the rental deposit). Indeed, as we have already indicated, the
summary judgment record reveals no withholding for regular carpet
cleaning was claimed by SouthGate from the security deposits of Kline,
Sories, or McCann.
We acknowledge that the third sentence of rule 9 authorizes a
deduction from the rental deposit for any “extra painting or carpet
cleaning needed to be done.” This sentence does not render the rule
categorically infirm in our view because the word “extra” distinguishes
the cleaning referenced here from the regular carpet cleaning described
in the preceding two sentences. Any attempted withholding of the cost of 26
such “extra” cleaning from the rental deposit would be subject to the
requirement that SouthGate prove the cleaning was reasonably
necessary “[t]o restore the dwelling unit to its condition at the
commencement of the tenancy, ordinary wear and tear excepted.” Iowa
Code § 562A.12(3)(a)(2).
We conclude rule 9 is not categorically prohibited under the Act.
Accordingly, we reverse on this issue.
E. The Apartment-Inspection Checklist. The district court
declared paragraph 30 of the lease is a prohibited provision because it
constitutes a limitation or exculpation of SouthGate’s liability to exercise
ordinary care for the safety of its tenants and its statutory obligation to
provide and maintain a fit dwelling under section 562A.15(1). SouthGate
contends the district court erred in interpreting the apartment-checklist
provision in paragraph 30 as an agreement to waive or forego rights or
remedies or an agreement to exculpate or limit the landlord’s liability for
defects in the premises. The provision accomplishes none of those
prohibited ends, SouthGate asserts, and it instead serves a protective
function for tenants. In documenting defects of the dwelling at the
outset of the tenancy, tenants diminish the risk that they will be blamed
for any preexisting damages. Furthermore, SouthGate contends, the
checklist provision advances the salutary interests of both parties to the
lease in documenting the condition of the premises and facilitating the
prompt repair of any defects from the outset of the tenancy.
The tenants contend the district court got it right because the
consequence of a failure to timely complete and return the form is
onerous—a presumption arises under paragraph 30 that the tenant
acknowledges there are no defects or damage in the dwelling unit at the
outset of the tenancy. The tenants characterize the checklist provision 27
as a thinly veiled device calculated by SouthGate to avoid liability for
defects in the dwelling in violation of section 562A.11(1)(a) and (d) in the
event tenants overlook a defect and fail to list it or fail to return the form
to SouthGate within three days after occupancy of the dwelling begins.
We find SouthGate’s arguments more persuasive on this point. We
view paragraph 30 as a procedural device to promote documentation of
the condition of the dwelling at the outset of the landlord–tenant
relationship. The checklist is a means of focusing the attention of both
parties on any defects when occupancy begins so that any documented
defects may be known and repaired if necessary by SouthGate. We find
persuasive SouthGate’s assertion that the checklist device serves in part
to shield tenants from responsibility for preexisting conditions or defects
in the dwelling. Although the contents of the checklist—or the absence
of a checklist if the tenant fails to prepare and return it—might well have
evidentiary significance in the event SouthGate claims the tenant caused
damage to the dwelling, we conclude the evidence falls short of an
agreement to waive or forego rights or remedies prohibited under section
562A.11(1)(a) or an agreement to exculpate or limit SouthGate’s liability
under the law. Accordingly, we conclude the district court erred in
declaring paragraph 30 of the rental agreement is a prohibited provision.
F. Certification of the Class. SouthGate argues the district
court made both procedural and substantive errors in certifying the class
of tenants. In ruling on the tenants’ motion to certify the class, the
district court cited the decision of the court of appeals in Staley. In that
case, discussed above in this opinion, the appellate court directed the
district court to certify a class of tenants challenging provisions of a
residential rental agreement. Staley, 2013 WL 2368825, at *10.
SouthGate contends the district court in this case relied solely on the 28
certification decision in Staley and assumed—without performing an
independent analysis and making findings of fact as to the substantive
criteria for class certification—that certification is appropriate in this
case.
The tenants have the burden of establishing that the proposed
class meets the prerequisites for certification. Vos, 667 N.W.2d at 45.
An order certifying a class “shall state the reasons for the court’s ruling
and its findings on the facts listed in rule 1.263(1).” Iowa R. Civ. P.
1.264(2). In summary fashion, the district court found this case
presents “nearly identical class certification facts” to those in Staley and
ordered certification here. SouthGate contends the court’s summary
disposition of the certification issue without the predicate factual
determinations mandated by our procedural rules constitutes an abuse
of discretion.
SouthGate also criticizes the district court’s description of the class
“consisting of all of the Defendants’ tenants with the same or
substantially similar standard leases and lease rules.” SouthGate
contends this description is flawed because it lacks a time limitation and
leaves too much ambiguity arising from the phrase “substantially
similar.” These uncertainties are so profound, in SouthGate’s view, as to
constitute an abuse of discretion.
We conclude the class certification is procedurally flawed in the
absence of the required findings and must be reversed. Our ruling
should not be understood, however, as a determination that the grounds
for certification of a class cannot be established in this case. On
remand, the court should make the findings required under rule
1.263(1). At that time, if the court’s findings support the certification of
a class, the court will also have an opportunity to address any issues 29
raised by SouthGate with respect to uncertainty in the description of the
class.
IV. Conclusion.
We affirm the district court’s declaration that paragraph 11 of
SouthGate’s rental agreement constitutes a prohibited provision. We
reverse the district court’s declaration that the other lease and rule
provisions are categorically prohibited. We also reverse the class
certification ruling and remand for further proceedings.