Robert J. Baierl v. John McTaggart

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2001 WI 107 SUPREME COURT OF WISCONSIN Case No.: 98-3329 Complete Title of Case: Robert J. Baierl, d/b/a Supreme Builders, Plaintiff-Appellant, v. John McTaggart and Susan McTaggart, Defendants-Respondents-Petitioners. REVIEW OF A DECISION OF THE COURT OF APPEALS 2000 WI App 193 Reported at: 238 Wis. 2d 555, 618 N.W.2d 754 (Published) Opinion Filed: Submitted on Briefs: Oral Argument: Source of APPEAL COURT: COUNTY: JUDGE: JUSTICES: Concurred: July 11, 2001 May 29, 2001 Circuit Milwaukee Charles F. Kahn, Jr. CROOKS, J., concurs (opinion filed). WILCOX, J., joins concurrence. SYKES, J., dissents (opinion filed). PROSSER, J., joins dissent. Dissented: Not Participating: ATTORNEYS: For the defendants-respondents-petitioners there were briefs by David R. Sparer, Jason H. Klimowicz and King Street Law Collective, Inc., Madison, and oral argument by David R. Sparer. For the plaintiff-appellant there was a brief by Thomas L. Frenn, Roy H. Nelson and Petrie & Stocking S.C., Milwaukee, and oral argument by Thomas L. Frenn. An amicus curiae brief was filed by Teel D. Haas, assistant legal counsel, Wisconsin Department of Agriculture, Trade and Consumer Protection, and oral argument by Teel D. Haas. An amicus curiae brief was filed by Laurence J. Dupuis, Jeffrey R. Myer, Mark A. Silverman and Legal Action of Wisconsin, Inc., Milwaukee, on behalf of Legal Action of Wisconsin, Inc. 2 2001 WI 107 NOTICE This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports. No. 98-3329 STATE OF WISCONSIN : IN SUPREME COURT Robert J. Baierl, d/b/a Supreme Builders, FILED Plaintiff-Appellant, v. JUL 11, 2001 John McTaggart and Susan McTaggart, Cornelia G. Clark Clerk of Supreme Court Madison, WI Defendants-RespondentsPetitioners. REVIEW of a decision of the Court of Appeals. ¶1 ANN WALSH BRADLEY, J. The Reversed. defendant-tenants, John and Susan McTaggart (McTaggarts), seek review of a published decision of the court of appeals reversing the circuit court's grant of summary judgment in their favor.1 that the Supreme landlord-plaintiff, Builders, may not Robert enforce a The McTaggarts assert Baierl (Baierl), residential lease d/b/a that includes a provision which is specifically prohibited by Wis. Admin. Code § ATCP 134.08(3) (Apr. 1993). 1 The circuit court Baierl v. McTaggart, 2000 WI App 193, 238 Wis. 2d 555, 618 N.W.2d 754 (reversing judgment of Circuit Court for Milwaukee County, Judge Charles F. Kahn, Jr., presiding). No. 98-3329 agreed and invalidated the lease, concluding that the provision violated § ATCP 134.08(3). ¶2 We provision determine in that violation of because § ATCP the lease 134.08(3), includes the a landlord, Baierl, may not enforce the lease against the tenants. Holding the lease unenforceable by the landlord not only advances the intent underlying § ATCP 134.08(3), but prevents the objectives of the regulation from being wholly undermined. Accordingly, summary judgment was properly granted in the McTaggarts' favor and we reverse the decision of the court of appeals. I ¶3 1996, The controlling facts are not in dispute. the McTaggarts Baierl. Under the entered lease, into the a residential McTaggarts agreed In July lease to with rent an Oconomowoc apartment owned by Baierl for a period of one year. The lease was to run from August 1, 1996, to July 31, 1997. ¶4 The residential discussion provision lease lease is documents and several Addendum purportedly consisted A, addenda. which requiring of the a Important contained tenant standard to the to form our following indemnify the landlord for all costs and attorneys fees incurred in enforcing the lease agreement: In the event that Supreme Builders shall be obliged to commence legal action in order to enforce the terms and conditions of any portion of this lease and amendment, the tenant shall be liable to Supreme Builders for all Supreme Builders' costs, disbursements and expenses incurred including, without limitation, reasonable attorney fees incurred. 2 No. 98-3329 The provision in the lease is in direct violation of Wis. Admin. Code § ATCP 134.08(3), which prohibits as an unfair trade practice the inclusion of any clause requiring a tenant to pay a landlord's attorneys fees and costs: ATCP 134.08 Prohibited rental agreement provisions. No rental agreement may: . . . (3) Require payment, by the tenant, of attorney's fees or costs incurred by the landlord in any legal action or dispute arising under the rental agreement. This does not prevent the recovery of costs or attorney's fees by a landlord or tenant pursuant to a court order under ch. 799 or 814, Stats. Wis. Admin. Code § ATCP 134.08(3) (Apr. 1993).2 ¶5 In November 1996, the McTaggarts informed Baierl that they would be vacating the apartment in January 1997, prior to the expiration of the lease term. McTaggarts vacated employment reasons. the apartment The following January, the and moved to Ohio for At that time, the McTaggarts instructed Baierl to deduct the January 1997 rent from the security deposit they had paid upon leasing the apartment. ¶6 Subsequent to the McTaggarts' premature departure from the apartment, Baierl deducted costs for damages and the January rent from the McTaggarts' security deposit. Unable to re-rent the apartment, Baierl then withheld the remainder of the deposit and sought to enforce the lease. 2 After unsuccessfully demanding All subsequent references to Wis. Admin. Code § ATCP 134.08(3) are to the April 1993 version in effect at the time the lease was entered. 3 No. 98-3329 payment, Baierl brought this action in Milwaukee County Circuit Court to collect damages under the lease. ¶7 In response, the McTaggarts asserted that the lease was void and unenforceable on the grounds that the inclusion of the provision requiring the tenants to pay attorneys fees and costs violated counterclaimed § ATCP 134.08(3). that Baierl wrongfully The McTaggarts retained their also security deposit under § ATCP 134.063 to satisfy rent for which they had no liability under the void lease. Accordingly, they sought double damages and costs and attorneys fees under Wis. Stat. § 100.20(5) (1995-96).4 ¶8 Upon the McTaggarts' motion, the circuit court granted summary judgment in their favor. The circuit court concluded that because the inclusion of that provision was prohibited by § ATCP 134.08(3), the entire lease was void. As a consequence of the invalidation of the lease, the court awarded damages to the McTaggarts in the amount of the security deposit remaining after deduction of the January 1997 rent and other uncontested 3 Wisconsin pertinent part: (3) SECURITY landlord may only for the . . . 2. Unpaid responsible, Admin. Code § ATCP 134.06(3)(a) states, in DEPOSIT WITHHOLDING; RESTRICTIONS. (a) A withhold from a tenant's security deposit following: rent for which the tenant subject to s. 704.29, Stats. is legally Wis. Admin. Code § ATCP 134.06(3)(a)2 (June 1999). 4 All subsequent references to the Wisconsin Statutes are to the 1995-96 volumes unless otherwise noted. 4 No. deductions. doubled Pursuant to damages and these Wis. Stat. awarded § 100.20(5), the 98-3329 the McTaggarts court reasonable attorneys fees. ¶9 After unsuccessfully seeking reconsideration of the circuit court's grant of summary judgment, Baierl appealed. In a divided decision, the court of appeals reversed. Baierl v. McTaggart, 2000 WI App 193, 238 Wis. 2d 555, 618 N.W.2d 754. The majority explained that under common law contract principles, as expressed in Simenstad v. Hagen, 22 Wis. 2d 653, 126 N.W.2d provision 529 may (1964), nonetheless a contract be containing enforced if an severance illegal of the illegal provision would not defeat the primary purpose of the contract. purpose 2000 WI App 193, ¶¶7-8. of the lease clause. Id. at ¶10. could be The court concluded that the satisfied absent the illegal It then examined the equities of this case and determined that given the McTaggarts' breach, the equities favored Baierl. ¶10 Id. at ¶11 & ¶13. The dissent argued that the illegal lease provision could not merely be severed and the remainder of the contract enforced. Id. at ¶23-31 (Schudson, J., dissenting). To do so, the dissent maintained, undermines the protection provided to consumers by Wis. Admin. Code ATCP ch. deterrent effect of § ATCP 134.08(3). 134 and removes the Id. II ¶11 We review a grant of summary judgment applying the same methodology as employed by the circuit court. Boss, 97 Wis. 2d 332, 337-39, 294 N.W.2d 473 (1980). 5 Grams v. Summary No. 98-3329 judgment is appropriate if the record reveals no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. ¶12 Wis. Stat. § 802.08(2). As a general matter, Wisconsin courts seek to enforce contracts deliberately made by the parties rather than set them aside. Burstein v. Phillips, 154 Wis. 591, 594, 143 N.W. 679 (1913). However, the preference for enforcing bargains may give way where a contract "violates a statute, rule of law, or public policy." Continental Cas. Co. v. Wisconsin Patients Comp. Fund, 164 Wis. 2d 110, 117, 473 N.W.2d 584 (Ct. App. 1991). ¶13 In inclusion the of this present lease case it is provision, undisputed requiring the that the tenant to indemnify the landlord for costs and attorneys fees incurred in enforcing the Department lease, of is a Agriculture, violation Trade of Wisconsin and Consumer law. The Protection (Department) has exercised its rule-making authority under Wis. Stat. § 100.20(2)(a) and specifically determined that the inclusion of such a clause in a residential lease is an unfair trade practice. The conduct of inserting the clause into a lease constitutes the violation and is punishable by law. § 100.26(3), a person who "neglects or fails to obey Under any regulation or order" promulgated under § 100.20 is subject to a fine and potential imprisonment. ¶14 Wis. Stat. § 100.26(3). The sole disputed question before us is whether Baierl may enforce the lease in light of the illegal inclusion of this 6 No. lease provision.5 review such reached by This presents us with a question of law. questions the 98-3329 independently circuit court of and the the legal court We conclusions of appeals. Deutsches Land, Inc. v. City of Glendale, 225 Wis. 2d 70, 79-80, 591 N.W.2d 583 (1999). ¶15 In addressing whether Baierl may enforce the lease, the parties have staked out two divergent positions grounded in Wisconsin case law. On the one hand, Baierl, like the court of appeals majority, relies on the rule of severability articulated in Simenstad v. Hagen, 22 Wis. 2d 653. In Simenstad the court determined that a contract may survive if an illegal clause can be severed from the remainder of the contract without defeating the primary purpose of the bargain. Id. at 662. Baierl argues that here the lease may be enforced, notwithstanding the illegal provision, because that provision is a nonessential clause that is properly severable from the remainder of the lease. ¶16 violation On of the an other hand, the administrative McTaggarts regulation advance that a promulgated under § 100.20 results in the unenforceability of a contract. They rely on two cases where that result was obtained. In Perma- Stone Corp. v. Merkel, 255 Wis. 565, 39 N.W.2d 730 (1949), this court declared a home repair contract void where a roofing and 5 At oral argument, Baierl clarified that he did not dispute the circuit court's calculation of damages, but rather only the legal premise on which they were awarded. Accordingly, because we ultimately agree with the circuit court that Baierl may not enforce the lease provisions, we need not revisit the circuit court's calculation of damages. 7 No. 98-3329 siding contractor had required a customer to sign a judgment note as part of the contract, in violation of an administrative regulation directed at that industry. Similarly, in Huff & Morse, Inc. v. Riordon, 118 Wis. 2d 1, 345 N.W.2d 504 (Ct. App. 1984), the court of appeals concluded that an automobile repair shop's violation of a regulation requiring a written estimate prior to repair rendered a contract invalid and prevented the shop from collecting under the contract. ¶17 that Having examined both parties' arguments, we conclude neither party's proposition. the position is tenable as an absolute Both positions fail to give due consideration to principle that is ultimately controlling: the intent underlying the statute or regulation that was violated. The rule of severability announced in Simenstad is not ¶18 unconditional. Where the illegality of a contractual provision arises from the violation of a statute, the rule of severability is qualified by the controlling statute. See Simenstad, 22 Wis. 2d at 661 ("unless this result is prohibited by statute"). Thus, even if a lease provision is collateral to the underlying bargain of the lease, the severability analysis requires an examination of the controlling statute or, as in this case, the administrative regulation. ¶19 The McTaggarts' position also sweeps too broadly. A violation of a regulation promulgated under § 100.20 does not result in per se unenforceability of a contract. We have explained that it is "grave error" to assert that all contracts in violation of a statute are 8 unenforceable. Chapman v. No. Zakzaska, 273 controlling regulatory Wis. 64, analysis violation 66, in 76 N.W.2d determining renders a 537 (1956). whether contract a Inc. v. Crowley, 57 Wis. 2d 106, unenforceable 117, The statutory intent underlying the provision that was violated. Sons, 98-3329 or is the Vic Hansen & 203 N.W.2d 728 (1973); Posnanski v. Hood, 46 Wis. 2d 172, 181, 174 N.W.2d 528 (1970) (applying whether legislative violation renders intent lease analysis to unenforceable); determine cf. Huff & Morse, Inc., 118 Wis. 2d at 10 (examining "major purpose" behind administrative regulation). ¶20 Moreover, the McTaggarts' arguments the question of whether the lease is "void." have focused on We do not view the question as whether the lease is void, i.e., a legal nullity, because in such case no party could enforce the lease. Where a statute is intended to protect one party to a contract, that party may seek enforcement notwithstanding the violation of the statute enacted for their protection. of Contracts § 179 cmt. c (1981). Thus, the question in this case is not whether the lease is void. tenants could enforce the lease. See Restatement (Second) If it were, not even the The question is one of the enforceability of the lease by Baierl in light of the intent underlying the regulation at issue. ¶21 Because it is ultimately the intent underlying the regulation that dictates whether the clause is severable and or whether the inclusion of the clause renders the entire contract unenforceable, we must examine § ATCP 134.08(3). rules and regulations are construed 9 in the Administrative same manner as No. statutes. 98-3329 Moonlight v. Boyce, 125 Wis. 2d 298, 303, 372 N.W.2d 479 (Ct. App. 1985). It is fundamental that we must favor a construction of a statute or regulation which will fulfill the intent of the statute or regulation over one which defeats its manifest object. Shands v. Castrovinci, 115 Wis. 2d 352, 356, 340 N.W.2d 506 (1983). Where one of several interpretations of a statute or regulation is possible, the court must ascertain the underlying intent from the language in relation to the subject matter, history, and object intended to be accomplished. Id. ¶22 We look first to the language of § ATCP 134.08 to determine whether the regulatory violation renders the entire lease unenforceable or whether the illegal clause is properly severable. insight An examination of the language provides important into the nature of the regulatory prohibition. The regulation is entitled "Prohibited rental agreement provisions" and states that "no rental agreement may require" the tenant to be obligated incurred in 134.08(3). for the enforcing landlord's the lease. costs Wis. and attorneys Admin. Code fees § ATCP The language of § ATCP 134.08(3) indicates that the prohibited act is the inclusion of a clause claiming to obligate the tenant to reimburse the landlord's costs and attorneys fees. ¶23 The § 100.20, also prohibition prohibits language in of provides § ATCP "[u]nfair the insight 134.08(3). methods practices in business." enabling of into statute, the Section competition nature 100.20 and Wis. Stat. § 100.20(1). 10 Wis. of Stat. the generally unfair trade The Department No. is given 134.08, Stat. the to mandate proscribe § 100.20(2). of promulgating specific Thus, unfair not only rules, trade is the such 98-3329 as § ATCP practices. Wis. inclusion of the provision at issue a prohibited act under § ATCP 134.08(3), but it is also properly denominated an unfair trade practice. ¶24 While we are able to glean much from the language of the regulation and statute, ultimately § ATCP 134.08 is silent as to the effect of a violation on a residential lease. This silence renders the regulation ambiguous as to its effect, if any, on a lease that violates its provisions. v. Goode, 219 Wis. 2d 654, 664, 579 See Forest County N.W.2d 715 (1998). Accordingly, we turn to the subject matter, history, and object of the regulation to further ascertain the Department's intent. ¶25 The subject matter of § ATCP 134.08, and ATCP chapter 134 in general, reflects the Department's foray into the realm of residential landlord-tenant relations, an area fraught with consumer protection concerns. Courts have long acknowledged an inherent inequality of bargaining power between landlords and tenants. See, e.g., Javins v. First Nat'l Realty, 428 F.2d 1071, 1080 (D.C. Cir. 1970). As one court has explained: Clearly, landlords have greater bargaining power than tenants in residential leases. A tenant must live somewhere. The tenant has no meaningful choices. He can accept this landlord or go to another landlord who charges the same rent and asks the tenant to sign the same standard form lease. Taylor v. Leedy & Co., 412 So. 2d 763, 766 (Ala. 1982). Thus, when examining the history and object of § ATCP 134.08(3), we bear in mind that the Department 11 regulates against this No. backdrop. Its regulations residential tenant's are limited an attempt bargaining to 98-3329 alleviate power. With the § ATCP 134.08, the Department has sought to do this by prohibiting as unfair trade practices the inclusion of certain provisions in residential leases. ¶26 We next examine the history of § ATCP 134.08(3). history is well-documented and confirms that the That Department sought not only to prevent a source of unfairness to residential tenants, but also sought the more particularized goal of preventing tenants from being intimidated into forgoing their legal rights. ¶27 The Department promulgated § ATCP 134.08 following an extensive study of Wisconsin landlord-tenant relations at the request of the Agriculture, Report to legislature. Trade the and Joint Consumer Committee Legislature (Dec. 1, 1978). at which landlord See and Wisconsin Protection, on Finance Department of Landlord-Tenant of the Wisconsin After holding fact-finding hearings tenant representatives testified, the Department found that among the areas in need of regulation were written lease provisions commonly found in residential leases. Id. at 11. The Department identified certain objectionable provisions, the inclusion of which could be considered unfair trade practices. that require a Id. at 61-62. tenant to pay Among these were provisions all attorneys fees and costs incurred by the landlord in a dispute between the two parties. Id. 12 No. ¶28 98-3329 In concluding that such clauses could be subject to regulation, the Department noted that residential leases are not usually negotiated documents. contracts, Id. at 60. but standard pre-printed form The Department also focused on witness testimony explaining that the inclusion of objectionable clauses in these form leases, whether or not they are enforced, has the consequence of intimidating tenants into forgoing their legal rights. Id. at 61. The Department placed emphasis on the following testimony: "The general problem with respect to lease provisions is not only the concessions that they force from tenants but also the extent to which they intimidate tenants from pursing their rights. In other words, many lease provisions have been found to be void because they are either unconscionable or unconstitutional; but their existence in a lease continues to have an unjust effect because tenants believe them to be valid. As a result, tenants either concede to unreasonable requests of the landlords or fail to pursue their own lawful rights." Id.6 ¶29 The Department also noted testimony from some landlords who explained that these objectionable provisions were not enforced, problems. and therefore caused the tenant no serious Id. at 62. The Department concluded that this fact, if true, merely aggravated the unfairness of these objectionable provisions: 6 The quoted testimony was that of Attorney Robert Anderson, Legal Action of Wisconsin, Legislative and Administrative Representation Program. 13 No. 98-3329 If [these provisions are not actually enforced], however, there can be no explanation for the inclusion of the provisions in the rental agreement, unless they are intended solely for the purpose of intimidation. This purpose, far from legitimizing the provisions, merely compounds the alleged unfairness. Id. at 62. ¶30 The final factor that we examine is the object of the regulation. intended by We are § ATCP § ATCP 134.08. able to 134.08(3) accurately from the identify the documented object history of The regulation was intended not only to prevent the extraction of the concession of reimbursed attorneys fees and costs from tenants by landlords, but also to prevent the chilling require effect the that payment the of inclusion attorneys tenant's assertion of legal rights. of fees a clause and claiming costs has to on a The Department relied on and was persuaded by the fact that, although the clause may be unenforceable, tenants who read such a clause in a residential lease will forgo pursuing their rights under the lease out of fear that they will be forced to bear the landlord's litigation expenses. ¶31 This regulatory objective is of particular import in light of the overall statutory and regulatory scheme established to encourage private enforcement of legal rights. The enforcement of private legal rights is a significant goal in the realm of landlord-tenant relations. As this court explained in Shands v. Castrovinci, 115 Wis. 2d 352, 340 N.W.2d 506 (1983), the legislature encourages private litigation by tenants to enforce their legal rights through the attorneys fees and double 14 No. damages provisions of Wis. Stat. § 100.20(5). 98-3329 Private legal actions by tenants not only enforce the individual rights of the tenant, but general," allow tenants enforcing the administrative code. to serve tenant as rights Id. at 358. "private preserved attorneys under the In Shands, we also explained that enforcement of the administrative code through individual actions serves a deterrent effect, curbing impermissible conduct by landlords. Id. Such private action is a necessary backup to state enforcement actions given the limited resources available to the state that prevent state actions against every violator. Id. ¶32 As Shands makes clear, private tenant actions are an integral part of the enforcement of ATCP ch. 134. The prohibition of lease provisions tending to intimidate tenants from taking action to enforce their rights must be viewed as part of the overall legislative and regulatory scheme described in Shands. ¶33 Having examined the subject matter, history, and object of § ATCP 134.08(3) to determine the intent underlying the regulation, containing the we conclude prohibited that provision enforcement would not of only a lease fail to advance the goals of § ATCP 134.08(3), but would undermine them entirely. ¶34 the The Department sought to eliminate such clauses and intimidation of tenants that unenforceable clauses poses. clause to be severed and the However, the were remainder 15 inclusion of we the to of such allow the lease to be No. enforced, neither of those goals would be 98-3329 advanced. The prohibited clauses, the inclusion of which constitutes an unfair trade practice, would continue to appear in leases. would have little incentive their practice. A to omit such clauses could insert the landlord Landlords and change clauses with relative impunity, knowing that the court will merely ignore this unfair trade practice by severing the clause. ¶35 Not only would landlords likely suffer no consequences from the violation, but they would also reap the unfair benefit of the clause's inclusion the potential intimidation that such a clause poses. By the undeterred inclusion of such clauses, tenants may continue to be intimidated into forgoing their legal rights. Thus, the Department's goal of eliminating tenant intimidation would be frustrated. ¶36 Allowing the clause to be severed and the remainder of the lease to be enforced by the landlord also undercuts the effectiveness of the private enforcement contemplated under the regulatory scheme. In other contexts, we have relied upon the existence of administrative enforcement proceedings to conclude that certain legal violations are to be enforced solely by the governmental agency and not by a tenant through invalidation of a lease. Posnanski, 46 Wis. 2d at 181-82. However, in the present context, we cannot ignore that "[p]rivate tenant actions constitute an enforcement mechanism reinforcing that justice department." Shands, 115 Wis. 2d at 358-59. of concerns the Department's permitting a landlord to regarding enforce 16 a tenant lease of the In light intimidation, containing the No. 98-3329 prohibited provision counteracts the larger goal of encouraging tenant enforcement of the administrative code to deter unlawful conduct on the part of landlords and to enforce public rights. See Shands, 115 Wis. 2d at 358. ¶37 Given the effect that severance of the illegal clause and enforcement of the remainder of the lease would have on the policy goals of the Department, we conclude 134.08(3) did not intend such a result. included lease provision cannot remainder of the lease enforced. lease would defeat the that § ATCP Thus, the illegally merely be severed and the Because the enforcement of the objectives of the regulation, we determine that the illegal inclusion of the provision renders the contract unenforceable by Baierl. ¶38 Finally, we note that Baierl is not being made victim of an obscure regulatory provision of which he could not be expected to be aware. Section ATCP 134.08 has been in existence since 1980, and its terms are made known to the public through Department publications. See Wisconsin Department of Agriculture, Trade & Consumer Protection, The Wisconsin Way: A Guide for Landlords and Tenants 17, 28 (Aug. 1999). ¶39 On the other hand, we also acknowledge that the McTaggarts failed to live up to the terms of their bargain. Nevertheless, Department. such as the controlling factor is the intent of the That intent does not exclusively address tenants the obligations. McTaggarts who abandon their contractual Rather, that intent speaks to the tenants from whom the courts potentially will never hear tenants who, in the 17 No. 98-3329 determination of the Department, will forgo their legal rights when faced with a provision that states that they responsible for their landlord's litigation costs. those tenants that the intent of § are It is for ATCP 134.08(3) must be effectuated. III ¶40 In sum, we determine that a landlord who includes a provision specifically prohibited by Wis. Admin. Code § ATCP 134.08(3) in a residential lease may not enforce the terms of that lease. Having examined the underlying intent of § ATCP 134.08(3), we determine that allowing the enforcement of such a lease would not only fail to advance the intent of that regulation, but would undermine its objectives completely. We thus conclude that the circuit court properly granted summary judgment in the McTaggarts' favor. Accordingly, we reverse the decision of the court of appeals. By the Court. The decision reversed. 18 of the court of appeals is No. ¶41 N. PATRICK CROOKS, J. (concurring). 98-3329.npc I agree with the majority's decision and write separately to make two additional points. First, the majority opinion should be a clarion call to landlords across the state to review their residential lease forms and ensure that they comply with Wis. Admin. Code § ATCP 134.08, so as not to have their leases inadvertently invalidated as a result of noncompliance. ¶42 Second, I write separately to emphasize that nothing in the majority's opinion forecloses a landlord from pursuing non-contract remedies, residential Admin. lease Code recognized be § ATCP that e.g., found invalid 134.08. where meruit,7 quantum because Wisconsin there has been it violates courts a should have violation a Wis. long of a regulation, such as the one we have here, there may be recovery based upon quantum meruit. In Zbichorski v. Thomas, 10 Wis. 2d 625, 626, 103 N.W.2d 536 (1960), the defendant claimed that the contract she had with the plaintiff to replace the siding on her house with aluminum siding, and to do other work, was illegal. The claimed illegality was based upon a violation of a Wisconsin Department of Agriculture regulation, which required that contracts involving the sale of siding should be in writing, and 7 Quantum meruit is defined as a "claim or right of action for the reasonable value of services rendered." Black's Law Dictionary 1255 (7th ed. 1999). Black's also notes that "[q]uantum meruit is still used today as an equitable remedy to provide restitution for unjust enrichment. It is often pleaded as an alternative claim in a breach-of-contract case so that the plaintiff can recover even if the contract is voided." Id. 1 No. 98-3329.npc that a correct copy should be left with the customer. 627. Id. at This court indicated that the plaintiff may be able to recover from the defendant based upon a claim of quantum meruit, even if it was determined that the contract was illegal. 626-27. Id. at The court of appeals has concluded that quantum meruit may be available as a means for an auto repair shop to recover for repairs done, even though the shop failed to comply with a Wisconsin Department of Agriculture 118 Similarly, Wis. 2d quantum 1, 345 meruit N.W.2d could requiring the See Huff & Morse, Inc. v. shop to provide a written estimate. Riordon, regulation 504 (Ct. provide a App. 1984). landlord whose residential lease is invalid with the means to bring a claim for recovery of rent owed. ¶43 Here, after the circuit court concluded that the lease was void, the court found that quantum meruit was proper. The court also found that, as a result, Baierl was entitled to the payment of rent through the end of January, 1997, and payment for other miscellaneous items. (See R. at 31:27.) Indeed, the McTaggarts did not contest the payment of rent for the time they lived in the apartment, or the payment of the other items, which were deducted from their security deposit. ¶8. They only contested Baierl's See majority op. at attempt to withhold the remainder of their deposit as rent for those months after they vacated the apartment. Quantum meruit was properly applied here, and it is worth reiterating that the majority's decision today does not bar such recovery. ¶44 For the reasons stated herein, I respectfully concur. 2 No. ¶45 98-3329.npc I am authorized to state that Justice JON P. WILCOX joins this opinion. 3 98-3329.dss ¶46 DIANE dissent. The S. SYKES, consumer J. I (dissenting). protection code respectfully provides protection against unfair trade practices by, among others, landlords. The majority opinion allows the tenants in this case to use the code not as a shield against an unfair trade practice landlord, but as a sword to escape legal responsibility for breaching their lease, and worse, as a means of by their enriching themselves in the process. ¶47 According to the majority, even though the McTaggarts inexcusably early, they walked are out on entitled their to 1) lease more avoid than liability six for months their intentional breach of lease; and 2) recover from their landlord double their security deposit, plus costs and actual attorneys' fees. In other words, the tenants intentionally inflicted a financial loss on the landlord, and the court says the landlord is not only precluded from recovering but is in fact required to pay the tenants who committed the breach in the first place, and who suffered no financial loss at all. ¶48 Surely the law does not allow, much less compel this bizarre result. This is nothing but a game of legal "gotcha." An enterprising tenants' attorney, his clients clearly in the wrong, scoured the fine print in the lease and found an obscure, absolutely unessential but nevertheless prohibited clause, and on that basis succeeded in persuading the trial court and five members of this court to deny enforcement of the entire lease, rather than simply invalidate the prohibited clause. the tenancy was month-to-month, 1 and the This means McTaggarts win a 98-3329.dss windfall judgment of twice their security deposit, costs, and actual attorneys' fees. ¶49 Yes, the lease contains an addendum, which contains a clause, which contains a provision purporting to require the tenant to pay costs and attorneys' fees if the landlord ever had to take the tenant to court to enforce the lease. It is clause number 17 (of 27) in Addendum A (there is also a "B" and a "C2"), and it is definitely prohibited by the consumer code, Wis. Admin. Code § ATCP 134.08(3)(Apr. 1993). The landlord would never be able to enforce such a provision in a court of law. Indeed, the landlord did not try to enforce it in this case. ¶50 How this insignificant little clause buried in a six- page lease provides an excuse for the tenants' flagrant breach of lease much less a basis for them to recover when they have suffered no loss whatsoever is beyond me. I agree with the court of appeals' conclusion that, because the prohibited clause is nonessential, does not relate to the primary purpose of the bargain, and was not the result of moral turpitude, it can be severed, and the rest of the lease survives its severance. is, in fact, the common law rule, as reflected in Restatement of Contracts: § 603 UNESSENTIAL ILLEGAL PROVISION A bargain that is illegal only because of a promise or a provision for a condition, disregard of which will not defeat the primary purpose of the bargain, can be enforced with the omission of the illegal portion by a party to the bargain who is not guilty of serious moral turpitude unless this result is prohibited by statute. Recovery is more readily 2 This the 98-3329.dss allowed where there has been part performance of the legal portion of the bargain. Restatement of the Law of Contracts § ¶51 603 (1932). ¶51 We cited and applied this rule of severability in Simenstad v. Hagen, 22 Wis. 2d 653, 126 N.W.2d 529 (1964). Simenstad is factually distinguishable, but I see no reason why the common law rule of severability that it applied should not also apply here. primary This particular clause is unrelated to the purposes and conditions of the lease, and therefore Perma-Stone Corp. v. Merkel, 255 Wis. 565, 39 N.W.2d 730 (1949), and Huff & Morse, Inc. v. Riordon, 118 Wis. 2d 1, 345 N.W.2d 504 (Ct. App. 1984), are distinguishable. ¶52 statutes denying There or nothing rules that enforcement §§ 100.20(2) and § ACTP 134.08. unfair is trade incarceration. the precludes of (5), in the text the applicable or authorizes severability entire 100.26(3) of lease. (1995-96); See Wis. Wis. Stat. Admin. Code The statutes provide for public remedies for practice Wis. violations, Stat. including § 100.26(3). The fines and statutes also specify a private remedy (suit for double damages, costs and reasonable attorneys' fees), but only for persons "suffering pecuniary loss because of [an unfair trade practice] violation." Wis. Stat. however, § 100.20(5). on enforceability the of issue a The statutes of how contract. a The and rules violation question, are silent, affects the therefore, is whether the lease as a whole, or just the prohibited provision, is unenforceable by the landlord. 3 98-3329.dss ¶53 that I am not persuaded by the rationale of the majority applying context the would common defeat law the rule purpose of of severability the in regulatory this scheme. Severance of the prohibited clause does not exacerbate unequal bargaining power between landlords and tenants, increase landlord intimidation of tenants, or produce a chilling effect on the assertion of tenants' rights. See majority op. at ¶¶25- 30. ¶54 Landlords prosecuted tenants by the who commit state and suffer pecuniary conduct. loss unfair sued as by a trade practices their tenants result of the can when be the landlord's The majority opinion accurately notes the so-called "private attorneys general" function of the private right of action under ¶¶31-32. the consumer protection code. Majority op. at But here, the tenants caused a pecuniary loss, they did not suffer one themselves. The McTaggarts did not sustain any financial loss because of the landlord's inclusion of the illegal attorneys' fees provision in the lease. even knew it was there. I doubt they The landlord never sought or threatened to enforce it. The "loss" only arises if the McTaggarts are allowed the to invalidate use the entire security deposit. attorneys' lease, fees thus clause requiring as a return basis of to their This case represents creative lawyering, but bad precedent. ¶55 Under the circumstances of this case, the court should enforce the contract minus the prohibited clause in a way that is consistent with its terms, with the law and the facts, with 4 98-3329.dss logic and with common sense. It declines to do so. I would affirm the court of appeals. ¶56 I am authorized to state that Justice DAVID T. PROSSER joins this dissenting opinion. 5 98-3329.dss 1

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