In 2001, the Wisconsin Supreme Court noted that courts have long acknowledged the inequality of bargaining power between landlords and tenants. In the case Baierl v. McTaggart, the Supreme Court held that a residential rental agreement was void if it contained provisions prohibited by the Wisconsin Department of Agriculture, Trade and Consumer Protection’s administrative code rules (ATCP).
Then in 2007, the Wisconsin Legislature codified this ruling at Wis. Stat. § 704.44. This history – and precedent – were seemingly ignored in the Supreme Court’s recent decision in Koble v. Marquardt.
While the Court of Appeals opinion was far from perfect, the Supreme Court’s decision overturning it has swung too far in the other direction to the detriment of Wisconsin tenants.
What the Court of Appeals Actually Said
The Court of Appeals decision was fairly mundane. It analyzed the Wisconsin statutes as written and applied them to the case at hand. When the statutes stated that a residential lease containing any of the listed provisions was void, the Court of Appeals treated the lease as void. There were two unusual parts of the decision – the decision to treat a 5-day notice terminating the tenancy as subject to the WCA and the remedy awarded to Marquardt for the void lease.
As the language of the statutes is mirrored in the ATCP, Ms. Marquardt’s attorney brought a claim for violating Wisconsin’s unfair trade practices statute, § 100.20. This statute – not the WCA – allows any person suffering pecuniary loss to recover twice that loss plus attorney fees. Then drawing parallels to the WCA, Marquardt’s attorney argued that his client’s pecuniary loss was every payment she made to Koble.
Since Koble did not offer a response to this argument, the Court of Appeals took the usual action of not developing an argument for a party and treated the issue as conceded. Ms. Marquardt was awarded twice the amount she had paid in rent to Koble during her tenancy as a result.
What That Looked Like in Practice
While the implication may have been that tenants could get a windfall under this decision, the reality did not bear this out. The Court of Appeals decision was that this remedy was for Marquardt’s pecuniary loss. The decision did not establish this as the automatic recovery for any tenant bringing such a suit. Most cases brought seeking this remedy were dismissed with little to no recovery – especially when the plaintiff contested it.
How this is a Consumer Protection Issue
The real threat to consumers was not what was at issue in Koble. In Koble, Ms. Marquardt claimed that the notice terminating tenancy she received was a prohibited attempt to collect a debt under the Wisconsin Consumer Act.
Notices issued under Chapter 704 of the Wisconsin Statutes are not the real consumer issue, however. The real issue is when a tenancy ends, and there is a dispute over whether anything is still owed. Some landlords – particularly large out-of-state landlords – will send the account to collection companies, which report these debts to credit reporting agencies.
The totals in collections are often inflated with fees not authorized by the lease or charges the tenant is not responsible for. Since these debts appear on a tenant’s credit report, they can affect not only housing, but access to credit and employment as well.
Take for, example Ms. R.,[1] who vacated her apartment after her lease term ended in November 2019. Shortly after moving, Ms. R. was contacted by a collection agency hired by her former landlord, alleging a debt of more than $1,500.
When she requested verification of the debt, she was shocked to learn the landlord had charged her an assortment of fees not authorized by the lease, rent for months after the lease ended and she moved out, and weather-related damages to the unit she had reported to the landlord. After removing the charges she did not owe, Ms. R. would have owed less than $100 to her landlord. Ms. R. contested the amount in collection for years before she was referred to our office at the Legal Aid Society of Milwaukee.
In addition to the stress of spending years fighting a debt she didn’t owe, Ms. R. also was denied housing opportunities and had restricted access to credit during that time because the collection company was reporting this debt to the credit bureaus.
Was this a Housing Issue?
Much ink has been spilled about the parade of horribles that will ensue if this decision were to remain intact. Most of these pieces bemoan the effect this will have on the housing market and housing prices in particular. What they are short on is evidence.
While it is true that residential rental prices have gone up and more rental units have been purchased by large out-of-state landlords, there has been no evidence presented showing this is the result of Koble. Especially since these trends began prior to the Court of Appeals decision and are seen outside Wisconsin.
What the Supreme Court Did
In their decision overturning the Court of Appeals, the Supreme Court swung beyond the framework that existed prior to the Court of Appeals decision. In spite of a statutory mandate to interpret the provisions of the WCA broadly to protect consumers from unfair and deceptive practices, the Court’s first act was to insist on a narrow, literal interpretation of the Act. By removing residential leases from the coverage of Ch. 427 of the Wisconsin Consumer Act, the Court not only created a subset of collection accounts not subject to Wisconsin’s collections law; it also removed the only avenue to pursue the bad actor in these situations. While the federal Fair Debt Collection Practices Act allows a consumer to act against third-party collection companies; the WCA allows a consumer to pursue the owner of the debt directly for their bad acts – an out-of-state landlord who inflated a former tenant’s balance with impermissible fees before sending it to collections, for example.
Next, the Court addressed the issue of the void rental agreement. While the elephant in the room was the Court’s reversal of the remedy permitted by the Court of Appeals, it is a less remarked upon section of the decision that is truly radical.
In their analysis rejecting Marquardt’s damages theory, the Court decreed without analysis that a tenant with a void and unenforceable lease is actually a “periodic tenant.” Over 25 years of precedent and statute finding these agreements void and unenforceable has been altered to say these agreements are partially enforceable.
This flies in the face of not only the clear language of the statute and precedent, like Baierl v. McTaggart, dealing directly with residential leases, but long-established principles of contract law dealing with the enforcement of void agreements.
The Court in Baierl ruled that a landlord with a void lease is entitled to rent on the basis of quantum meruit – and they may even recover additional unpaid rent on the same theory.
While the previous rule allowed landlords to retain what they already collected and potentially recover more, the rule put forward here establishes the right to recover more as a matter of right. This ruling assumes the only aspect of value a tenant receives from a rental agreement is in the right to possession. A tenant who may have accepted a higher rent for the security from unexpected rent increases or 30-day notices, may find themselves stripped of those protections, while paying the same rent. Without even mentioning the previously existing rule, the Supreme Court has diluted a significant protection for tenants in Wisconsin.
Endnotes
[1] Information relating to former client’s case used with the express permission of the client.