IN THE IOWA DISTRICT COURT IN AND FOR JOHNSON COUNTY

Transcription

1 IN THE IOWA DISTRICT COURT IN AND FOR JOHNSON COUNTY NABIHAH AHMED, ET AL ) PLAINTIFFS, ) CASE NO. SC ) SMALL CLAIMS vs. ) ) SECOND TRACY BARKLOW, ET AL, ) HEARING DEFENDANTS. ) MEMORANDUM ******************************************** COME NOW Plaintiffs Nabihah Ahmed and Fawwaz Ahmed by and through their attorney, Christopher Warnock, and submit their Second Hearing Memorandum, in response to Defendants Trial Memorandum and the points raised by Defendants and this Honorable Court at trial. I. FREEDOM OF CONTRACT? Implicitly or explicitly the majority of the arguments made by Defendants in their trial memorandum rest on the doctrine of freedom of contract. 1 What was gradually recognized in the 1920s and especially in the 1930s and 1940s, after the Great Depression and New Deal, was that freedom of contract only meant true liberty when both parties were of approximately equal bargaining power, Standard contracts are typically used by enterprises with strong bargaining power. The weaker party, in need of the goods or services, is frequently not in a position to shop around for better terms, either because the author of the standard contract has a monopoly (natural or artificial) or because all competitors use the same clauses. His contractual intention is but a subjection more or less voluntary to terms dictated by the stronger party, terms whose consequences are often understood only in a vague way, if at all. F Kessler, Contracts of Adhesion--Some thoughts about Freedom of Contract (1943) 43 Columbia Law Review 629, Trial Memorandum at 10, note original is unpaginated. 1

2 In a landmark 1972 case, Mease v. Fox, the Iowa Supreme Court made clear the shortcomings of freedom of contract for landlords and tenants, The frequent inequality in bargaining power was acknowledged: where housing is in short supply the potential lessee is in no position to dicker about even the most basic necessities. Mease v. Fox 200 N.W.2d 791, 795 (Iowa 1972). A one of the key goals of the Uniform Residential Landlord and Tenant Act, ( URLTA ) codified at Iowa Code Chapter 562A and effective in Iowa after 1979, was to Equalize the bargaining positions of landlords and tenants. Whether they live in luxury apartments or hovels, renters in most states are powerless in negotiations with their landlords The Uniform Residential Landlord and Tenant Act is designed to improve the bargaining position of tenants. 2 The basic bargaining inequality of landlord and tenants is exacerbated in Iowa City. Most tenants are undergraduates of the University of Iowa, typically years old. Many are renting for the first time. Many, if not the majority of tenants move every year. A significant portion of students graduate each year and leave Iowa City, making it difficult for them to effectively assert their rights as tenants. Plaintiffs counsel has noted that many students are intimidated by the thought of filing suit against their landlord, even when assisted by counsel. Landlords, on the other hand, are highly experienced, operating businesses in various corporate forms and not at all intimidated by the prospect keeping security deposits, sending cases to collection or filing suit against their tenants. 2 Uniform Law Commission, Residential%20Landlord %20and%20Tenant%20Act 2

3 Landlords are long term residents of Iowa City and have easy access to the courts. Iowa City is unusual in that one landlord, the Clark Family, whose standard lease was used by the Landlord and is at issue in this case, dominates the rental market. Several thousands students literally have no choice but to sign this standard lease due to this rental monopoly. As Iowa City landlords have realized, only a tiny percentage of tenants will seek the only redress available, a small claims case, no matter what the landlord does. Not only does this awareness of the disparity in power shape the specific provisions of the URLTA, but it also informs courts how to define unconscionability in landlord tenant cases, codified at Iowa Code 562A.7, The 250 legal experts who are [National Conference of Commissioners on Uniform State Laws] members recognize that even the most careful research will not uncover every possibility for unequal bargaining. Therefore, provisions are included in the Uniform Act for courts to decide if an action by either landlord or tenant is unconscionable. If a court finds that a rental agreement or action is unconscionable, or one-sided, it may right the wrong at once. 3 Remedies that fail to take this great disparity of power into account will inevitably fail. For example, the standard lease used by Landlord in the instant case is filled with small print and difficult to read. It also appears that tenants do not have an opportunity to read the lease carefully or seek advice regarding it. However, requiring landlords to provide larger print leases or give tenants an opportunity to read the lease would do little or nothing in practical terms to assist tenants. A landlord could easily reproduce the same woefully biased lease in 14 3 Emphasis supplied, Residential%20Landlord%20and %20Tenant%20Act 3

4 point font and require tenants to sign a form certifying that they had an opportunity to read the lease and consult with counsel, as unlikely as it is that a 20 year old has a lawyer. Yet the problematic lease provisions are untouched as the major Iowa City landlords do not permit tenants to negotiate individual clauses of their leases, insisting that tenants take it or leave it. Instead, in order to ensure adherence to law, the individual clauses of the standard Iowa City lease need to be carefully examined by the courts and where illegal provisions are found they should be explicitly struck down. The key clauses to scrutinize are those that impose illegal costs, fees and charges on tenants. Iowa City tenants have no ability to change these clauses, only the courts can restore the balance to landlord tenant relations. II. LIQUIDATED OR ACTUAL DAMAGES? The key issue presented in this case is the $150 charged for leaving a window open. As the Landlord stated at trial this was a fine for open window on 11/22/ Under Landlord s standard lease, section 42(a) $150 is charged to all apartments with open windows when the heat is on. 5 At trial the Landlord stated and Defense Counsel argued in its opening, reserved till closing, that he had fined the Tenants $150 because they had repeatedly left the window open. 6 4 Explanation of security deposit charges, Defense Exhibit E. 5 Lease, Defense Exhibit A. A clearer version of Landlord s standard lease is attached as Exhibit B. While not 100% identical this clearer version is not offered as evidence, but merely as assistance to the Court in deciphering the actual lease. 6 This was disputed by Mr. Ahmed who testified that the window was only left open once for twenty minutes which resulted in the fine. 4

5 As the Tenants noted in its first Hearing Memorandum, contractual penalties are unenforceable. 7 However, in its trial memorandum, Landlord now argues that the $150 represents not a fine, but liquidated damages. 8 Landlord further asserts that $150 was a reasonable amount of liquidated damages because of the potential for damage if pipes were to freeze due to the window being open. 9 However, as the evidence shows, there were no damages and thus Landlord received a $150 windfall. While there is case law to support Landlord s contention that actual damages are irrelevant, this clearly is inequitable and other Iowa cases do not permit recovery when a damages set by a liquidated damage clause exceed actual damages and become a penalty. The Iowa Supreme Court has held, The fact the instrument contains a recital that the sum therein named is agreed upon as liquidated damages is not necessarily controlling as to its legal effect. Sanders v. McKim, 138 Iowa 122, 124, 115 N.W. 917, 918 (1908). The court will look into all the circumstances and give effect to such an agreement only so far as equity and good conscience will permit; and if the sum stipulated is out of reasonable proportion to the loss or injury actually sustained or reasonably to be anticipated, it will be treated as a penalty. Independent Sch. Dist. v. Dudley, 195 Iowa 398, 403, 192 N.W. 261, 263 (1923); Elzey v. City, 172 Iowa 643, , 154 N.W. 901, 902 (1915). Applying these principles to the facts before us, we conclude the damages provided in the agreement are out of all proportion to the actual damages, if any there were. Engel v. Vernon, 215 N.W.2d 506 at (Iowa 1974). However, statutory as well as common contractual considerations must also be considered. The Iowa Supreme Court has held that under the URLTA, that when a lease is breached a landlord may only recover their actual damages, 7 Plaintiff s Hearing Memorandum at Trial Memorandum at 7. 9 Trial Memorandum at 8. 5

6 we agree with [the tenant] that the landlord is not entitled to recover if no evidence substantiates that actual damage has been sustained. Section 562A.32 provides the landlord "may have a claim... for actual damages for breach of the rental agreement." (Emphasis added.) Even though the aim of the small claims statute is "to secure adjudication of demands for limited amounts quickly, simply, and inexpensively," Roeder, 321 N.W.2d at 4, "[j]udgment shall be rendered, based upon... a preponderance of evidence." Iowa Code (4). Here, the landlord did not present any testimony or other evidence to support the value of its demand for debris removal. In fact, the landlord did not present evidence that Frost's debris was removed. Absent evidence that actual damages were sustained, it was error to award any sum for debris removal. Emphasis supplied, D.R Mobile Home Rentals v. Frost, 545 N.W.2d 302 at 34-5 (Iowa 1996). Landlord attempts to distinguish D.R Mobile Home Rentals by arguing that this case only involves a question of proof and has nothing to do with actual damages. 10 While this is obviously contradicted by the holding in D.R Mobile Home Rentals, let us go further and examine what the URLTA itself says about actual damages. The provision cited, 562A.32, states, 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's fees as provided in section 562A.27. (Emphasis supplied). Section 562A.27 regulates a landlord s remedies if a tenant fails to comply with the rental agreement or the tenant s obligations under 562A.17 which include cleaning and not damaging the premises. What makes clear is that a landlord is limited to recovering actual damages for the tenant s breach of the lease or other statutory obligations. 10 Trial Memorandum at 8. 6

7 The URLTA repeatedly limits both landlords and tenants to actual damages. Five separate sections limit tenants to actual damages 11, three sections limit landlords to actual damages 12 while 562A.35 limits both landlords and tenants to actual damages. The requirement of actual damages is pervasive in the URLTA. It is imposed on all parties and is fair and equitable. Finally, while charging more than actual damages is clearly facially illegal under the URLTA, it is also unconscionable. The great disparity in bargaining power could hardly be more obvious when a landlord can force a tenant to pay $150, whether as an explicit penalty or disguised as liquidated damages, without any actual cost or damage to the landlord. It is very telling that Landlord makes no argument whatsoever in its trial memorandum that the charges were fair or equitable under the circumstances. Instead Landlord merely asserts, without any supporting authority, that since the tenants signed the lease and agreed to its provisions that ipso facto, the lease cannot be unconscionable. 13 Once again, for Landlord, freedom of contract reigns as the supreme principle of law. If tenants are to have any effective relief with regard to the myriad of excessive fees, penalties, illegal charges and damages found in Iowa City leases, it can only be through requiring that landlords recover only their actual, proven damages in case of a breach of the lease or the tenant s statutory obligations. Not looking at the objective circumstances of a lease provision and accepting the landlord s subjective A.11, 562A.12, 562A.22, 562A.26 & 562A A.29, 562A.32, 562A Trial Memorandum at

8 characterization of a charge would simply allow landlords to continue to reap these windfall profits. Iowa City landlords are already adjusting their leases to circumvent possible court rulings. For example, Landlord in the instant case uses an older version of the Clark standard lease which at 54 states that If pets on the property a penalty of $600 per pet plus $20 per day will be charged for each violation. 14 The newest permutation of the Clark lease has tinkered with the language of the 54 pet clause, which now states, Tenants agree to an administrative fee of $200 to address the matter, plus $20 a day for each violation. 15 By calling what was and clearly continues to be a penalty, an administrative fee or re-characterizing a penalty as liquidated damages, local landlords are feverishly searching for the magic words that will pass legal muster and allow them to continue to charge a wide variety of fees that grossly exceed their actual damages. This raises one further point. Landlord at trial asserted that he could charge for his time and the time of his employees as damages. Tenants would note that they are not permitted to charge for their time in dealing with Landlord and that in any case, Landlord s costs for employees are incurred whether or not any breach of the lease has taken place. Charging these ordinary costs of business as damages represent a windfall for Landlord who has now profited from a breach, both illegal at common law and unconscionable. 14 Lease, Defense Exhibit A

9 III. ACCORD & SATISFACTION Our next example of the disparity in bargaining power between landlords and tenants is accord and satisfaction. As this Honorable Court queried at trial and Landlord notes in his trial memorandum 16, an accord and satisfaction must be knowing on the part of both parties. Yet at trial when questioned by Plaintiffs Counsel, Landlord stated he had no idea what the legal effect was of writing paid in full on all his security deposit refund checks. Similarly, Mr. Ahmed, a tenant and the payee of the check, testified that he had no idea what paid in full on the check meant. The Landlord further testified that he had mailed only the refund check and the security deposit withholding statement to Mr. Ahmed. The writing paid in full on the check is ambiguous and no further explanation of the consequences of negotiation was provided to Tenant. Furthermore, it is questionable if Landlord actually intended the check as an accord and satisfaction. Thus, it is obvious on the facts of the instant case that no accord and satisfaction took place. However, Tenants strongly urge this Honorable Court not to rest on the facts of this case. If accord and satisfaction for tenants initial security deposit refunds is not condemned by this court, Iowa City landlords will have gained a new tool to gouge their tenants. This is a perfect example of a situation where knowledge is futile when a strong disparity of power exists. Counsel has absolutely no doubt that if landlords were to send out security deposit refund checks with a complete explanation of accord and satisfaction so that tenants were fully aware that in accepting whatever pittance the landlord chose to 16 Defendants Trial Memorandum at

10 give them that they were waiving all rights, that they would overwhelmingly do so. Not because they were freely accepting this choice, but because of their incredibly weak position vis a vis their landlord. Instead, Tenants ask this Court to invalidate any use of accord and satisfaction, knowing or otherwise, for the initial payment of security deposit refunds by landlords pursuant to 562A.12(3). Under this section of the URLTA landlords have a statutory duty to return what are legally the tenants funds, held in escrow, within 30 days. To allow accord and satisfaction is to allow landlords to put additional, onerous conditions on the fulfillment of their statutory obligation to return the tenants deposit. Using accord and satisfaction the landlord can say in effect, I agree that I owe you X dollars, but I will only give what is required by law if you waive all your rights. Tenants further note that the unconscionability provision, 562A.7 of the URLTA has specific application here, A settlement in which a party waives or agrees to forego a claim or right under this chapter or under a rental agreement was unconscionable at the time it was made, the court may refuse to enforce the settlement, enforce the remainder of the settlement without the unconscionable provision, or limit the application of an unconscionable provision to avoid any unconscionable result. Iowa Code 562A.7(b). Once again, the drafters of the URLTA specifically took into consideration inequitable bargaining power, in this case, with regard to settlements. Thus as an alternative or in addition to finding accord and satisfaction for the initial security deposit refund facially illegal, Tenants also assert that they are unconscionable Tenants do not assert that a subsequent accord and satisfaction, made after the initial refund is facially illegal, however the courts should carefully scrutinize any settlement and in particular, any accord and satisfaction in a landlord tenant context due to the imbalance of power of the parties. 10

11 IV. ILLEGAL $75 CHARGE TO RETURN DEPOSIT Tenants lease ended July 26, The evidence, including the undisputed testimony at trial of both Landlord and Tenant Fawwaz Ahmed was that the security deposit refund and withholding statement were not received by the Tenants until October, It is clear from the s exchanged between Landlord and Tenants 19 and the testimony at trial that Landlord s initial security deposit check either was not mailed or was lost in the mail and the initial check was never cashed. There is no evidence that the loss of the check was the fault of the Tenants who had provided their mailing address. When informed by Tenants, more than 30 days after their lease ended, that they had not received either the refund check or the security deposit withholding statement, as required by Iowa Code 562A.12, Landlord insisted that Tenants pay $75 to get either the refund check or the withholding statement. A week after Tenants filed suit in October, far beyond the 30 day legal limit, Landlord finally partially returned their deposit and a security deposit withholding statement. As noted in Tenant s first hearing memorandum, 20 Landlord clearly illegally withheld Tenant s deposit and statement and should be fined $200 punitive damages under 562A.12(7). 18 Lease, Defendants Exhibit A. 19 Plaintiffs Exhibit Plaintiffs first Hearing Memorandum at

12 V. REAL PARTY IN INTEREST? Landlord is definitely scraping the bottom of the barrel by arguing real party in interest. First, Fawwaz Ahmed, whom Landlord identifies as the real party in interest, 21 was added to the case on the day of trial. Secondly, as Landlord correctly points out, a real party in interest must, demonstrate an injury to a legally protected right. Pillsbury Co. Inc. v. Wells Dairy, 752 NW 2 nd 430 at 31 (Iowa 2008). 22 In the instant case, the original plaintiff, Nabihah Ahmed, was a tenant of Landlord on the same lease with her brother Fawwaz Ahmed. If we examine the lease, we note that Ms. Ahmed is listed as a tenant on the lease, signed her initials to every page of the lease and signed the lease itself along with her brother. 23 At the evidence at trial established, Ms. Ahmed lived in the unit as a tenant for the entire lease term. As a tenant and a party to the lease, Ms. Ahmed is injured by a breach of the lease by Landlord. Similarly, the URLTA states, Tenant means a person entitled under a rental agreement to occupy a dwelling unit to the exclusion of another. Iowa Code 562A.6(14). Ms. Ahmed is clearly a tenant under the URLTA and as such has statutory rights which the Plaintiffs claim have been violated. Landlord argues as follows, Fawwaz Ahmed, the person named in the lease as deposit holder and to whom the security deposit was to be paid, and not Nabihah Ahmed, is the owner of the rights, remedies and benefits to recover the security deposit. No 21 Defendants Trial Memorandum at Cited in Defendants Trial Memorandum at Lease, Defense Exhibit A. 12

13 evidence was presented that the rights to recover the security deposit or any portion of it where assigned to Nabihah Ahmed. 24 What Landlord assumes without evidence or legal support is that because Mr. Ahmed is the security deposit holder that Ms. Ahmed assigned her rights as a tenant to him. The lease merely states, Tenants shall pay to Landlord $850 as a security deposit for the full and faithful performance of each and all of the terms and conditions of the lease. Security Deposit Holder Fawwaz Ahmed (TO WHOM THE DEPOSIT WILL BE RETURNED). 25 Under the lease the sole function of the security deposit holder is to receive the security deposit back from the landlord at the termination of the tenancy. There is no mention of any assignment of rights by other tenants nor does Landlord cite any precedent supporting the idea that the mere appointment of a security deposit holder works an automatic and complete assignment of all rights. With no assignment of rights by Ms. Ahmed, she clearly remains a real party in interest. Furthermore, it is highly questionable whether even a lease containing an explicit assignment of tenants rights to anyone, security deposit holder or otherwise, would pass muster under the URLTA. Section 562A.11 states that a rental agreement shall not provide that a tenant, agrees to waive or forego rights or remedies under this chapter Iowa Code 562A.11(1). To forego is lose or lose the right to something. 26 Landlord argues in this case that Ms. Ahmed lost all her rights as a tenant because of the appointment of a security deposit holder. That the assignment was to another tenant is immaterial as, under Landlord s argument, her rights have been lost. This clearly illegal under the URLTA. Thus if Landlord is correct and the mere appointment of a security 24 Defendants Trial Memorandum at Lease, Defense Exhibit A, emphasis in original

14 deposit holder causes a tenant to lose their rights, then Landlord has included a prohibited provision in his lease and is subject to punitive damages. VI. CLEANING & REPAIR This Honorable Court has seen the evidence presented at trial and had a chance to evaluate the credibility of the Tenants and Landlord. Neither the $100 refrigerator repair or the $61.25 for cleaning were justified. First, the Tenants testified honestly and straightforwardly that cleaning was unnecessary and that they had not been negligent with regard to the refrigerator. This Honorable Court certainly had an opportunity to observe Landlord s testimony and can drawn its own conclusions as to his veracity. Tenants would note that despite being served with a subpoena for all records, Landlord failed to provide an actual bill from the cleaning service he allegedly used, thus failing to independently substantiate any cost for cleaning. Further, as noted at trial the repairs made to the refrigerator were done by Iowa City Maintenance. Iowa City Maintenance is a fictitious name of Apts Downtown, Inc., the main Clark Family rental management company. 27 At trial Landlord claimed he did not know if Iowa City Maintenance was owned by the Clarks, a highly questionable proposition given that Landlord is a business associate of the Clarks 28, uses their lease and is represented by their counsel. As argued at trial, the bill from Iowa City Maintenance is not an arms length, third party transaction, and without independent corroboration or eyewitness 27 Iowa Secretary of State, Business Entities database 28S %28ibe4usr030bvvfm5fvjdo5ek%29%29/names.aspx 28 Tracy Barkalow, Bryan Clark, Jeffrey Clark and Joseph Clark, are all owners of Outside Properties, LLC., a local landholding entity. See Certificate of Organization, Iowa Secretary of State, Business Entities database uhdw455oxo21u2a %29%29/filings.aspx 14

15 testimony, should not be accepted as evidence. Thus no charges for cleaning or repair should be sustained by this Honorable Court. Landlord appears to be under the mistaken impression that Tenants argument with regard to repair and cleaning relies on the concept of normal wear and tear, Plaintiffs assertion that that definition of normal wear and tear 29 Normal wear and tear is not at issue in this case. Nevertheless, Landlord argues that the URLTA taken as a whole means that the legislature, did not intend to make it unlawful for a landlord to require the tenant to clean the apartment to its, condition at the commencement of the tenancy, 30 allowing landlords to charge for cleaning and repair due to normal wear and tear. All that contradicts this conclusion is the plain language of 562A.12, The landlord may withhold from the rental deposit only such amounts as are reasonably necessary To restore the dwelling unit to its condition at the commencement of the tenancy, ordinary wear and tear excepted. (emphasis supplied). Iowa Code 562A.12(b). 29 Emphasis supplied, Defendants Trial Memorandum at Defendants Trial Memorandum at

16 VII. CONCLUSION It is hardly surprising that Iowa City landlords have used their greater power, experience and position to force a wide variety of lopsidedly favorable lease provisions on their tenants. These are exactly the circumstances that brought about the adoption of the URLTA. A key purpose for the very existence of the URLTA is to prevent landlords from profiting from their unequal bargaining position. Tenants stipulated that they signed and thus, by operation of law, agreed to all of the provisions of Landlord s lease. But the fact of this agreement is not conclusive as the lease is filled with illegal provisions, in particular multiple penalty and excessive damages clauses. These illegal and unconscionable provisions are not binding and should not only be not be enforced, but rather condemned. The entire lease is before this Honorable Court and Tenants encourage the Court to read it carefully and to strike down any objectionable provisions. A list of the sections containing what Tenants consider to be illegal fines, penalties or excessive damages is attached as Appendix A as well as a clearer and larger, but slightly different version of Landlord s standard lease, not offered as evidence but to assist the Court in deciphering the actual lease, is attached as Appendix B. 16

17 Respectfully submitted, CHRISTOPHER WARNOCK AT Center Street Iowa City, IA (319) ATTORNEY FOR PLAINTIFF CERTIFICATE OF SERVICE The undersigned hereby certifies that a true copy of this document was served on March 8, 2013, via upon all attorneys of record who have not waived their right to service and/or pro se parties at their respective addresses as shown herein: James Affeldt Elderkin and Pirnie, P.L.C. 115 First Avenue SE P.O. Box 1968 Cedar Rapids, IA jaffeldt@elderkinpirnie.com Attorney for Tracy Barkalow, et al Christopher Warnock 17