Lenora Caruso v. Apts. Downtown, Inc.

IN THE SUPREME COURT OF IOWA
No. 14–1783
Filed May 6, 2016
LENORA CARUSO,
Appellee,
vs.
APTS. DOWNTOWN, INC.,
Appellant.
Appeal from the Iowa District Court for Johnson County,
Douglas S. Russell, Judge.
A landlord appeals and a tenant cross-appeals a district court
ruling affirming in part and reversing in part a small claims court
decision in a residential landlord–tenant dispute. AFFIRMED IN PART,
REVERSED IN PART, AND REMANDED.
James W. Affeldt and Robert M. Hogg of Elderkin & Pirnie, P.L.C.,
Cedar Rapids, for appellant.
Christopher S. Warnock and Christine E. Boyer of Iowa Tenants’
Project, Iowa City, for appellee.
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APPEL, Justice.
This is a case under the Iowa Uniform Residential Landlord and
Tenant Act (IURLTA). The district court affirmed a magistrate’s
determination in small claims court that the landlord violated the
IURLTA by attempting to pass the cost of an interior door repair onto the
tenants and by requiring tenants to automatically pay for the cost of
carpet cleaning upon the termination of the lease. The district court also
affirmed the magistrate’s award of damages for bad-faith retention of a
rental deposit. Additionally, the district court affirmed the magistrate’s
award of two months’ rent payments for knowing use of lease provisions
prohibited by the IURLTA. While the district court awarded tenant
attorneys’ fees, the district court reduced the amount to keep the total
recovery below the $5000 jurisdictional limit of small claims court.
Many of the issues raised in this appeal were identical or similar to
those decided in De Stefano v. Apts. Downtown, Inc., ___ N.W.2d ___
(2016). In addition, however, this appeal involves a different claim—
namely, whether the landlord knowingly used provisions in its lease that
violated the IURLTA, thereby entitling the tenant to an award of up to
three months’ rent under Iowa Code section 562A.11(2) (2011).
For the reasons expressed below, on the landlord’s appeal we
affirm the district court in all respects except on the issue of a knowing
use of provisions violating the IURLTA and bad-faith retention of the
rental deposit. We conclude the record does not contain sufficient
evidence to support a knowing violation and therefore reverse the
judgment of the district court on this issue. We also conclude there was
insufficient fact-finding on the issue of bad-faith retention of the rental
deposit and so remand the case to the district court for the development
of the record.
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With respect to the tenant’s cross-appeal challenging the district
court’s limitation of attorneys’ fees in small claims actions, we reverse
the district court based on our holding in De Stefano and remand the
case to the district court for recalculation of permissible attorneys’ fees.
I. Factual Background and Proceedings.
Lenora Caruso and two others rented a three-bedroom apartment
from Apts. Downtown (Apartments Downtown) starting in August 2010.
Upon entering into the lease, the tenants paid a $1270 rental deposit.
The lease between the tenants and the landlord was a standard form
utilized by the landlord. The lease contained the same automatic carpet-
cleaning provisions that was at issue in De Stefano. Specifically,
paragraph 37(e) provided,
The carpets throughout the building are professionally
cleaned each time apartments turn over occupancy. Tenants
agree to a charge starting at $95 (efficiency) not to exceed
$225 (6+ bedrooms) being deducted from the deposit for
professional cleaning at the expiration of the Lease.
In addition, the lease contained a provision related to certain repairs.
Paragraph 33(a) read, “Unless the Landlord is negligent, Tenants are
responsible for the cost of all damages/repairs to windows, screens,
doors, carpet, and walls, regardless of whether such damage is caused by
residents, guests or others.”
After the lease ended and the tenants moved out in July 2012, the
landlord deducted $904.33 from the rental deposit. Specifically, it
deducted $134 as an automatic carpet-cleaning charge, $105 in other
cleaning charges, $40 to replace drip pans, and $625.33 for “past due
rent and fees.” The past due rent and fees included $199.33 for
replacement of an interior door, which the tenants refused to pay, and
monthly penalties totaling $400 for failure to pay for the door.
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Caruso filed a small claims action. Among other claims, the tenant
alleged the landlord unreasonably failed to return the rental deposit and
willfully used a rental agreement with known prohibited provisions. In
addition to damages, the tenant sought punitive damages and an award
of attorneys’ fees.
A hearing was held before the magistrate. Both parties offered
testimony and various photographic exhibits related to the condition of
the premises at the termination of the lease. The parties offered
conflicting evidence that related to whether the interior door was
damaged and, if so, to what extent. With respect to the carpets, the
tenant’s evidence suggested that great efforts were made to clean the
premises, including the carpets, and that the premises were in pristine
condition at the conclusion of the lease. The landlord’s evidence
suggested that the carpet was stained, that the drip pans were dirty, and
that the premises were not generally clean when inspected by the
landlord.
After receipt of the evidence, the magistrate found that the
automatic carpet-cleaning provision was “in violation of § 562A.12 and is
unconscionable.” The magistrate further found that the automatic
cleaning provision required the tenant to forgo her rights under Iowa
Code section 562A.7(2) by preventing the tenant from contesting the
need for the cleaning and by failing to require the landlord to meet its
burden of proof in showing that the cleaning was necessary. The
magistrate further found, as a matter of fact, that the landlord failed to
show that the carpet was damaged beyond ordinary wear and tear. The
magistrate also found that the amounts for cleaning charges should not
have been withheld from the tenant’s rental deposit.
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On the question of door repair, the magistrate found, as a matter
of fact, that the damage to the door, if any, was not caused by the
tenants, their guests, or visitors. The magistrate held that under Iowa
Code section 562A.15 the landlord was required to maintain the
premises in a fit and habitable condition. The magistrate found that the
provision holding the tenant liable for repairs prevented the tenant from
challenging the assessed cost. As a result, the magistrate concluded the
provision seeking to automatically asses the tenants for the repair of the
door abdicated the landlord’s responsibilities, evaded the landlord’s
obligations, and therefore was unconscionable and unenforceable. As a
result of her ruling on the door issue, the magistrate found the landlord
could not lawfully withhold $40 per month, or $400 total, in penalties
arising from nonpayment of the door repair from the rental deposit.
The magistrate next considered whether the tenant was entitled to
punitive damages for bad-faith retention of the rental deposit and an
award of two months’ rent for willfully using provisions in its rental
agreement that violated the IURLTA. The magistrate awarded the
tenants $200 for bad-faith retention of the rental deposit. The
magistrate further found the landlord willfully used a rental agreement
that contained two provisions known by the landlord to be prohibited
under Iowa Code section 562A.11. As a result, the tenant was awarded
an additional two months’ rent in the amount of $2770. In addition to
the total of $3874.33 awarded to the tenant, the magistrate awarded
attorneys’ fees in the amount of $1200 for attorney Christine Boyer and
$2400 for attorney Christopher Warnock.
The landlord appealed the small claims judgment to the district
court. The district court first addressed issues related to the award of
attorneys’ fees by the magistrate. The district court determined the
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amount of attorneys’ fees needed to be reduced to keep the total award
within the $5000 jurisdictional limit for small claims. The district court
then affirmed the magistrate’s conclusion that the provisions of the lease
related to the repair of the door and the automatic carpet cleaning
violated Iowa Code section 562A.12(3).
The district court determined these provisions deprived the tenant
of the opportunity to require the landlord to show, by a preponderance of
the evidence, that the charges were necessary to restore the dwelling unit
to its condition at the commencement of the tenancy and were not the
result of ordinary wear and tear. As a result, the district court
determined that paragraph 37(e) of the lease imposing an automatic
carpet-cleaning charge was illegal. The district court further credited the
factual findings of the magistrate that the apartment was clean at the
conclusion of the lease.
The district court also found that paragraph 33(a) of the lease,
which shifted the cost of the door repair to the tenant, was unlawful.
First, the district court noted that the magistrate “was in the best
position to consider the credibility of witnesses at the time of trial” and
that the district court gives deference to magistrates’ credibility
determinations. The magistrate, the district court concluded,
clearly did not find credible the testimony offered by
[Apartments Downtown] regarding the requirement that
[Apartments Downtown] show the fees they assessed for
cleaning were based on actual damage to the apartment.
This includes [Apartments Downtown’s] claim that there was
damage to the bathroom door.
Moreover, even if there was some question as to whether the bathroom
door was damaged, the cost-shifting provision was prohibited. According
to the district court, this provision was prohibited because Apartments
Downtown was “not required to show actual damage before seeking
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payment from the tenant.” The district court concluded “[t]here [was] not
sufficient evidence in the record to show that actual damage was
sustained by [Apartments Downtown] based on the claimed damage to
the door.”
The district court further found the landlord willfully used a rental
agreement containing provisions known by the landlord to be prohibited
in violation of Iowa Code section 562A.11(2). The district court noted
there was evidence that the landlord was familiar with the IURLTA and
specifically Iowa Code section 562A.11. The district court thus
concluded the magistrate’s assessment of two months’ rent due to willful
use in the rental agreement of provisions prohibited by the IURLTA
should be upheld on appeal.
The district court also affirmed the magistrate on the question of
bad-faith retention of the rental deposit under Iowa Code section
562A.12(7). The district court concluded, at a minimum, that there was
a bad-faith retention based on the inclusion of an automatic carpet-
cleaning fee provision in the lease. The district court also found there
was bad faith in the defendant’s assertion that the apartment was not
sufficiently cleaned when it was vacated.
On appeal, the landlord challenges several aspects of the district
court judgment. First, the landlord claims that the district court
judgment should be reversed because the small claims court lost
jurisdiction when it awarded attorneys’ fees and damages that exceeded
the small claims court’s monetary limit of $5000. Second, the landlord
asserts there was no evidence that the landlord had actual knowledge
any provision of the lease was prohibited under the IURLTA. Third, the
landlord asserts the provision of its lease that related to door repair was
not prohibited because it was agreed upon by the parties and addresses
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only payment for repairs, not the obligation to make repairs. Fourth, the
landlord claims the carpet-cleaning provision was not prohibited because
it was agreed upon by the parties and because it benefits tenants by
ensuring carpets are cleaned at the start of the tenancy. Finally, the
landlord asserts the district court erred by upholding the $200 award for
bad-faith retention of the rental deposit.
The tenant cross-appealed, claiming the district court erred by
reducing the amount of attorneys’ fees awarded by the magistrate to
bring the total award in the case within the $5000 subject matter
jurisdiction of the small claims court. The tenant argues that attorneys’
fees are costs that are not included in the calculation of the amount in
controversy for purposes of small claims jurisdiction.
II. Standard of Review.
“In a discretionary review of a small claims decision, the nature of
the case determines the standard of review.” GE Money Bank v. Morales,
773 N.W.2d 533, 536 (Iowa 2009). Our review of small claims actions
tried at law is for corrections of errors at law. Midwest Check Cashing,
Inc. v. Richey, 728 N.W.2d 396, 399 (Iowa 2007). “A review of statutory
construction is at law.” GE Money Bank, 773 N.W.2d at 536. The
district court’s factual findings, however, are binding upon the court if
supported by substantial evidence. Barnhill v. Iowa Dist. Ct., 765 N.W.2d
267, 272 (Iowa 2009).
III. Discussion.
A. Small Claims Jurisdiction. We first address the questions the
parties present to us regarding the relationship between attorneys’ fees
awarded under the IURLTA and the small claims jurisdictional limit of
$5000. We considered a similar attorneys’ fees issue in De Stefano, ___
N.W.2d at ___, concluding that attorneys’ fees are not included for
9
purposes of determining whether the award exceeds the $5000
jurisdictional threshold of small claims court. Id. at ___. Our holding in
De Stefano is dispositive on the issue. As a result, we reject the
landlord’s argument that the small claims court lost jurisdiction when it
awarded attorneys’ fees which, when combined with damages under the
IURLTA, exceeded the $5000 jurisdictional limit for small claims. We
therefore reverse the district court on this issue and remand the case to
the district court to determine the appropriate amount of appellate
attorneys’ fees in this case.
B. Legality of Automatic Cleaning Deposit. In De Stefano, we
considered the legality under the IURLTA of an automatic cleaning
charge identical to the provision in this lease. In De Stefano, we noted
that Iowa Code section 562A.12(3) authorizes only three grounds for
withholding amounts from the rental deposit. Id. at ___. We noted the
problem with an automatic carpet-cleaning provision is that it generates
a deduction from the rental deposit even if none of the conditions of Iowa
Code section 562A.12(3) are met. Id. at ___. We emphasized that a
rental deposit is not designed to serve as an advance payment of
amounts that will always be due under the lease. Id. at ___.
As with the attorneys’ fee issue, our holding in De Stefano is
dispositive of the question of whether the automatic cleaning charge is
unlawful under the IURLTA. We affirm the district court on this issue.
C. Legality of the Door-Repair Provision. In this case, with
respect to the door-repair issue, the magistrate held that
[Iowa Code] Section 562A.15 requires the landlord, not the
tenant to maintain fit premises, including making all repairs
and doing whatever is necessary to put and keep the
premises in a fit and habitable condition. The written
provision that the tenant is liable for “repairs” removes the
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obligation of the landlord to maintain fit premises and
assesses the cost of upkeep of the premises to the tenant.
The district court affirmed the trial court. It noted that
the clause in the lease requiring the tenants in this case to
pay for the allegedly damaged door is illegal. Under the
terms of the lease, [the landlord] is not required to show
actual damage before seeking payment from the tenant for
repair of items such as doors. There is not sufficient
evidence in the record to show that actual damage was
sustained by [the landlord] based on the claimed damage to
the door.
The landlord first contends that the door-repair provision of
paragraph 33(a) of the lease is not unlawful as found by the district court
for a narrow reason. The landlord argues that Iowa Code section
562A.9(1) generally authorizes a landlord to enter into a rental agreement
with a tenant including any terms and conditions not prohibited by the
statute or other rule of law. The landlord argues that the statute
prohibits only a few narrow categories. See Iowa Code § 562A.11(1)(a)–
(d).
The landlord recognizes, and for purposes of the appeal accepts,
that it has statutory responsibilities under Iowa Code section 562A.15.
This Code provision includes the duty of the landlord to maintain the
premises in a fit and habitable condition. Id. § 562A.15(1)(b). The
landlord does not claim that the repair of the door in this case does not
implicate the duty to maintain the premises in a fit and habitable
condition. The landlord instead only argues that the duty to maintain
the premises in a fit and habitable condition simply means that the
landlord has a duty to make sure that necessary repairs are made.
Under the landlord’s theory of Iowa Code section 562A.15(1)(b), the
landlord had a duty to make the repairs, but may shift the financial
responsibility of those repairs to the tenant in a lease agreement.
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In addition to this narrow legal point, the landlord on appeal
questions the factual findings of the district court. According to the
landlord, the evidence overwhelmingly showed that the door had been
damaged by someone in the Caruso’s apartment and needed repair.
Apartments Downtown argues even if it failed in its factual presentation
to the trial court, that does not mean the repair provision of paragraph
33(a), which required the tenant to pay for the cost of damage to the
door, is illegal, but only that it does not apply under the facts and
circumstances of this case.
The tenant first responds that she testified the door was not
damaged and offered photographs supporting her position. Further, the
tenant notes that this court should be deferential to the factual findings
below. See State v. Carter, 696 N.W.2d 31, 36 (Iowa 2005). On legal
issues, the tenant, like the landlord, points to Iowa Code section 562A.15
as making landlords responsible for repair and maintenance. Like the
landlord, the tenant assumes that repair of the door was required under
Iowa Code section 562A.15. The tenant argues, however, that the
landlord does not discharge its statutory duty by performing the repair
and shifting the cost onto the tenant.
The tenant concedes, however, that under Iowa Code section
562A.17(6), a tenant has a duty to “[n]ot deliberately or negligently
destroy, deface, damage, impair or remove a part of the premises or
knowingly permit a person to do so.” But in order for such costs to be
withheld from the rental deposit, the tenant cites Mastland, Inc. v. Evans
Furniture, Inc., for the proposition that the landlord may keep the rental
deposit only “if the damages beyond ordinary wear and tear result from
the deliberate or negligent acts of the tenant, or the tenant knowingly
permits such acts.” 498 N.W.2d 682, 687 (Iowa 1993). According to the
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tenant, the repair provision in the rental agreement makes the tenant
responsible for all repairs, no matter what the cause.
Based on the issue as framed by the parties, the landlord cannot
prevail. In De Stefano, we concluded that a landlord cannot shift the
financial costs of repairs necessary to comply with its duty of fitness and
habitability under Iowa Code section 562A.15 to the tenant. ___ N.W.2d
at ___. In this appeal, the landlord does not claim that the door repair is
outside the scope of its mandatory statutory duty. We take no view on
the question of whether a landlord could shift the cost of a repair or
damage through its lease that was not within the scope of the landlord’s
duty imposed by Iowa Code section 562A.15.
In any event, we note the district court also found that “[t]here is
not sufficient evidence in the record to show that actual damage was
sustained by [the landlord] based on the claimed damage to the door.”
Although not artfully phrased, the district court in effect, in its de novo
review of the record, concluded the landlord had failed to sustain its
claim for damages to the door based on the record developed by the
parties. Sunset Mobile Home Park v. Parsons, 324 N.W.2d 452, 454 (Iowa
1982) (analyzing the district court’s de novo review on the record
established in small claims proceeding). In light of the testimony of the
tenant that she and her cotenants were unaware of any damage to the
door other than a slight coming or pulling apart, we conclude that the
district court’s factual determination is supported by substantial
evidence.
D. Willfully Using a Lease Provision Prohibited by the IURLTA.
1. Introduction. In this case, the district court determined the
landlord willfully used provisions in its lease that the landlord knew to be
prohibited under the IURLTA. As the above discussion demonstrates, we
13
agree with the district court that the two provisions of the lease at issue
were in fact prohibited. The question remains, however, whether on the
record developed before the magistrate and reviewed by the district court,
the tenant met its burden to show that the landlord willfully used “a
rental agreement containing provisions known by the landlord to be
prohibited.” Iowa Code § 562A.11(2) (emphasis added). In order to
answer this question, we must first decide what legal standard to apply.
Once we determine what that legal standard is, we must then canvass
the facts to determine whether the district court’s determination is
supported by substantial evidence.
2. Legal standard for willfully using a lease provision known by the
landlord to be prohibited. Iowa Code section 562A.11(2) prohibits a
landlord from “willfully us[ing] a rental agreement containing provisions
known by the landlord to be prohibited” under the IURLTA. The landlord
argues this language establishes a requirement of actual, subjective
knowledge on the part of the landlord that the specifically challenged
lease provisions are prohibited. The tenant does not disagree, but
asserts that circumstantial evidence in the record is sufficient to support
a factual finding that the landlord actually knew the automatic carpet-
cleaning and repair-deduction provisions of the lease violated the rental-
deposit provisions of Iowa Code section 562A.12(3).
There is little doubt that the use of the term “known” in the statute
requires actual knowledge. State v. Leckington, 713 N.W.2d 208, 214
(Iowa 2006). Actual knowledge may be established by direct proof, of
course, but it also may be established by circumstantial evidence
sufficient to infer the person’s mental state. State v. Lewis, 514 N.W.2d
63, 66 (Iowa 1994). In order to prove actual knowledge through
circumstantial evidence, however, the evidence must be sufficient to
14
draw a conclusion that a reasonable person simply could not have
known otherwise. Wold v. Lacey, 182 N.W.2d 130, 132 (Iowa 1970).
Actual knowledge thus can be established by circumstantial evidence
only in rare cases. Id.
3. Application of legal standard to facts of this case. The record
contains no direct evidence that the landlord had actual knowledge that
paragraphs 33(a) and 37(e) violated Iowa Code section 562A.12(3).
Instead, the record at best contains circumstantial evidence. Joseph
Clark, a landlord representative, testified that he was familiar “for the
most part” with the IURLTA and that he was familiar with the nonwaiver
provisions of Iowa Code section 562A.11. He was not asked, however,
whether he knew that the automatic carpet-cleaning or repair-deduction
provisions violated the rental-deposit protection provisions of the
IURLTA. There was evidence that an attorney drafted the lease, thereby
at least implying some reliance on counsel to ensure the provisions of the
lease were lawful.
Until De Stefano, there has been no authoritative Iowa court case
on the validity under the IURLTA of automatic deductions from rental
deposits such as those in this case. In De Stefano, we noted there was
some authority from at least one other jurisdiction sustaining an
automatic carpet-cleaning deduction from what appeared to be a rental
deposit. ___ N.W.2d at ____ (citing Shaeffer v. Murphy, 640 P.2d 857
(Ariz. 1982)). We noted in De Stefano that rent is broadly defined under
the IURLTA to include “a payment to be made to the landlord under the
rental agreement,” id. at ___ (quoting Iowa Code § 562A.6(9)), and that
rent could be deducted from rental deposits under Iowa Code section
562A.12(3)(a)–(c), id. at ____. There is no evidence in the record that the
landlord ever considered whether the automatic carpet-cleaning or
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repair-deduction provisions conflicted with the procedural requirements
of Iowa Code section 562A.12(3).
The tenant argues that the landlord is sophisticated and must
have known the automatic deductions from the rental deposit violated
Iowa Code section 562A.12(3). The record developed in the small claims
court on the level of sophistication of the landlord is limited. The nature
of the lease documents, the existence of multiple employees to tend to
the landlord’s business, and the use of counsel to draft the lease
documents certainly suggest that the landlord is not an amateur.
Yet, actual knowledge is a very high standard. On the record in
this case we do not think there is substantial evidence to support a
finding of actual knowledge that the automatic repair-deduction and
carpet-cleaning provisions of the lease violated Iowa Code section
562A.12(3) beyond speculation that the landlord, as a sophisticated
party, must have known the provisions were illegal. See Barbour–Amir v.
Comcast of Ga./Va., 772 S.E.2d 231, 234 (Ga. Ct. App. 2009) (holding
actual knowledge cannot be based on speculation and conjecture). We
reverse that portion of the district court decision finding willful use of
provisions “known by the landlord” to be prohibited under the IURTLA.
We therefore vacate the district court’s award of two months’ rent under
Iowa Code section 562A.11(2).
In the future, of course, landlords will face a different environment
if automatic deductions similar to those contained in the lease are
utilized. We have now unambiguously held in De Stefano and in this
case that such lease provisions violate Iowa Code section 562A.12(3).
The existence of our precedent alone, however, will not prove actual
knowledge of illegality in a future case, but it will be a circumstance to be
considered by the fact finder in making that determination.
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E. Bad-Faith Retention of Rental Deposit. Iowa Code section
562A.12(7) provides that the bad-faith retention of a deposit by a
landlord shall “subject the landlord to punitive damages not to exceed
two hundred dollars in addition to actual damages.” The burden of
showing bad-faith withholding of a security deposit rests with the tenant.
Lewis v. Jaeger, 818 N.W.2d 165, 187 (Iowa 2012).
In this case, the district court determined the landlord violated
Iowa Code section 562A.12(7) by withholding the security deposit in bad
faith. The district court’s determination was based upon the district
court’s view that the automatic cleaning provision was unlawful and
that, in fact, the premises in this case were very clean and in pristine
condition at the close of the term of the lease.
In De Stefano, we considered whether the imposition of an
automatic carpet-cleaning charge amounted to bad faith under Iowa
Code section 562A.12(7). We emphasized that Apartments Downtown’s
position shows a basic misunderstanding of the nature of a security
deposit under the IURLTA. De Stefano, ___ N.W.2d at ___. Nonetheless,
we concluded that the proper standard for determining bad faith under
Iowa Code chapter 562A.12(7) is “dishonesty in fact.” Id. at ___. As
discussed in De Stefano, bad faith thus requires actual, subjective
dishonesty. Id. at ___.
We think there is not substantial evidence in the record to support
a conclusion that the landlord acted with dishonesty in fact by including
the unlawful provisions in the form leases utilized in this case. Although
it is not clear that the district court or the magistrate utilized the correct
legal standard for bad faith, a remand is not necessary as we conclude as
17
a matter of law that the evidence is insufficient to support a penalty
based upon this theory.
The district court and the magistrate, however, relied on a second
rationale for its bad-faith finding, namely, that the apartment was in fact
in clean, if not pristine, condition at the close of the lease. While the
district court characterized the landlord’s actions as being in bad faith, it
is not clear what standard the district court employed in making that
determination. Did the district court regard the landlord’s position as
dishonest in fact with totally contrived evidence, or merely mistaken?
Based on our review of the record, we think this question is in a different
posture than the bad-faith theory based upon the use of illegal contract
terms. Before we review the question, we need more precise fact-finding
by the district court using the proper standard of bad faith. Therefore,
we remand the case to the district court to determine whether the tenant
was entitled to a statutory penalty under Iowa Code section 562A.12(7) of
$200 on the theory that the landlord’s factual defense at the hearing was
dishonest in fact, thereby entitling the tenant to the punitive damages
penalty under the statute.
IV. Conclusion.
For all of the above reasons, the decision of the district court on
the appellant’s appeal is affirmed in part and reversed in part. On the
appellee cross-appeal, the decision of the district court is reversed and
the case remanded to the district court for further proceedings to apply
the dishonesty-in-fact bad-faith standard to determine whether the
tenant is entitled to $200 penalty under Iowa Code section 562A.12(7).
The case is also remanded for a determination of the proper amount of
attorneys’ fees, including appellate attorneys’ fees, to be awarded under
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the IURLTA. Costs are assessed seventy-five percent to Apartments
Downtown and twenty-five percent to Caruso.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
All justices concur except Mansfield, Waterman, and Zager, JJ.,
who concur in part and dissent in part.
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#14–1783, Caruso v. Apts. Downtown
MANSFIELD, Justice (concurring in part and dissenting in part).
I agree with Parts III.B, D, and E of the court’s opinion. I dissent
from Part III.A for the reasons stated in my concurrence in part and
dissent in part in De Stefano v. Apts. Downtown, Inc., ___ N.W.2d ___, ___
(Iowa 2016) (Mansfield, J., concurring in part and dissenting in part). I
also dissent from Part III.C for the following reasons.
In this case, the tenants occupied the apartment from August 5,
2010, to July 30, 2012. The lease here, like the lease in De Stefano,
required the tenants to pay for damage to doors unless the landlord was
at fault. Midway through the tenancy, in July 2011, the landlord
conducted a routine maintenance inspection and found that an interior
bathroom door was coming apart, allegedly because it had been kicked.
The landlord replaced the door and charged the tenants $199.33. The
tenants objected to the charge. The landlord provided a photograph
showing the damage. The dispute was never resolved, and the cost of the
door plus late fees was ultimately deducted from the tenants’ security
deposit when they moved out a year later.
At trial there was conflicting testimony as to whether this
bathroom door had been damaged. The tenants said one thing; the
landlord’s representatives said another. The small claims court found it
unnecessary to resolve that dispute. It determined the deduction from
the security deposit was improper in any event because
[t]he evidence presented by Defendant Apartments
Downtown, Inc. regarding the damage to the bathroom door,
was insufficient to prove that the problems with the door, if
any, were caused by the Plaintiff, another tenant, or a guest
or visitor of the Plaintiff or other tenants.
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It also found that the lease improperly required “the tenant to make all
repairs to all doors, no matter what the cause.”
These portions of the small claims court’s ruling were quoted
verbatim in the district court’s ruling. However, the district court went
further. It added that “[the small claims court] also clearly did not find
credible the testimony offered by Defendants . . . . that there was damage
to the bathroom door.” Thus, the district court stated, “There is not
sufficient evidence in the record to show that actual damage was
sustained by Defendant based on the claimed damage to the door.”
I disagree with the small claims court’s interpretations of the lease
and landlord–tenant law, as described above. Read in context, the lease
does not impose strict liability on tenants for all door repairs, regardless
of the reason for the repair, nor did the landlord ever argue for that
interpretation. Paragraph 30 makes the tenants responsible for “all
damages” to the apartment doors, “including random acts of vandalism.”
Paragraph 33(a) makes the tenants responsible for “the cost of all
damages/repairs” to doors, “regardless of whether such damage is
caused by residents, guests or others,” but not if the landlord was
“negligent.” Under a plain reading of these provisions, I think the
tenants are responsible only for “damages”—e.g., a door that breaks
because it is kicked—not for ordinary wear and tear or deterioration due
to the passage of time. True, the word “repairs” is used once, but only
when joined to the word “damages,” in a sentence that refers again later
to “damages.” So, I do not think the lease requires the tenants to replace
a door that simply wears out without being damaged by anybody.
Under the Iowa Uniform Residential Landlord and Tenant Act
(IURLTA), a tenant can be required to bear the cost of interior door
damage that occurs during the tenancy, even if it is unclear who inflicted
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the damage. Unlike the exterior door in De Stefano, this is not a
question of habitability. Therefore, I do not believe Iowa Code section
562A.15 (2011) even applies. Rather, the relevant provision is section
562A.9, which allows the landlord and tenant to “include in a rental
agreement, terms and conditions not prohibited by this chapter or other
rule of law.” Iowa Code § 562A.9(1). It is certainly reasonable, in my
view, for a tenant to be required to pay for the wrecking of an interior
door during the lease term, without requiring the landlord to prove who
wrecked the door.
The majority nonetheless affirms the tenant’s recovery of the door-
repair charges here for two reasons. First, it faults the landlord for
making only the broader argument that it could charge the door-repair
costs to the tenants whether the issue was one of habitability or not, i.e.,
the argument the court rejects today in De Stefano. In the majority’s
view, to preserve error, the landlord also needed to make the narrower
argument that it could charge the door-repair costs in this case because
there was no issue of habitability. My colleagues have a point, but the
landlord did not have the benefit of De Stefano until now. In deciding
appeals, we often do not accept an appellant’s argument in its entirety,
but only under terms we set forth in our decision. See State v. Iowa Dist.
Ct., 828 N.W.2d 607, 617 n.7 (Iowa 2013). I would follow that approach
here.
In addition, the majority upholds the district court’s factual finding
that the landlord did not prove actual damage to the door. I agree that
the district court’s factual findings based upon its review of the small
claims record should be upheld if supported by substantial evidence.
See Hyde v. Anania, 578 N.W.2d 647, 648 (Iowa 1998) (“If the [small
claims] action is a law case, we review the district judge’s ruling on
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error.”). However, in this case, the district court appears not so much to
have made a finding as to have misread what the small claims court
actually did. Contrary to the district court’s statement, the small claims
court did not determine there was insufficient credible evidence of door
damage; rather, it declined to address the issue because it did not need
to. Thus, it remains an open question for me whether the bathroom door
was, in fact, damaged as alleged by the landlord. I would remand for a
determination of that issue.
For the foregoing reasons, I concur in part and dissent in part.
Waterman and Zager, JJ., join this concurrence in part and
dissent in part.