Golt v. Phillips

COLE, Judge. Certiorari was granted in this case to resolve three issues: (1) whether the leasing of an unlicensed dwelling unit constitutes an unfair or deceptive act under Maryland’s Consumer Protection Act (CPA); (2) whether the trial judge abused his discretion in allowing a landlord’s incurred liability to constitute actual damages that could be withheld ⁵ from a tenant’s security deposit; and (3) whether the trial judge abused his discretion in not awarding treble damages and attorney’s fees to the tenant when no finding of a reasonable basis for withholding the tenant’s security deposit was made. We shall summarize the facts necessary to place these issues in proper focus. In August 1983, Appellant, John Golt, an elderly, disabled retiree, with the aid of his daughter-in-law, responded to an advertisement placed in the East Baltimore Guide by Phillips Brothers and Associates (Phillips Brothers), a partnership owned by Appellees.

The advertisement offered to rent a furnished apartment for $135.00 per month plus utilities. The gas and electric bill for the entire building was to be paid by the tenant on the second floor of the building, and the tenant living in the advertised apartment was to reimburse the second floor tenant for Vi of the monthly bill. In addition, ¼ of the water and sewer service bill was to be paid as additional rent. Upon inspection of the apartment, Golt and his daughter-in-law discovered that it was in need of cleaning and repairing.

After receiving assurances that the necessary work would be done, Golt and his daughter-in-law signed a month-to-month lease, paid the rent for August, and also paid a $200.00 security deposit. When Golt moved into the apartment, he learned that the toilet facilities were located outside of his apartment and that he would have to share them with another tenant. Some of the repairs he requested before he took possession, and others requested after taking possession, were not completed. After repeating his requests and getting no response, Golt called the Baltimore City Department of Housing and Community Development, which in response to Golt’s complaint, inspected the premises on October 19, 1983.

The housing inspector discovered that Phillips Brothers did not have the necessary license or inspection to operate the building as a multiple dwelling. Additional Baltimore City housing code violations, including the lack of toilet facilities in Golt’s apartment, defective ⁶ door locks, and the lack of fire exits and fire doors, were found by the inspector. The Department issued violation notices ordering Phillips Brothers to correct the enumerated violations and to either obtain a proper license or discontinue the use of the building as a multiple family dwelling. The housing inspector stated that simply removing one tenant would not abate the multiple family dwelling violation; the cooking unit in one of the three apartments would have to be removed.

Phillips Brothers sent an eviction notice to Golt on October 24, 1983. The notice informed Golt that his apartment was not properly licensed and was being illegally rented. Golt was therefore ordered to vacate the premises by January 1, 1984. No other tenant was ordered to vacate.

Golt moved to another apartment in early November and returned his keys to Phillips Brothers approximately ten days after moving. The new apartment was rented for three months at a cost of $234.00 per month. When Golt requested the return of his $200.00 security deposit, Phillips Brothers informed him that it was withholding $173.00: $135.00 for November 1983 rent, $22.50 for estimated water and sewer charges, and $15.60 for the October gas and electric charges. The second floor tenant paid the gas and electric bill for October, but did not receive reimbursement from either Golt or Phillips Brothers.

Golt rejected Phillips Brothers tender of the balance of his deposit, and brought suit in District Court. Appellees counterclaimed for additional rent and other monies allegedly due. The District Court held that Phillips Brothers had improperly withheld $135.00 for rent for November 1983, because the dwelling unit was unlicensed and therefore illegal to rent. The court further found that Golt had been overcharged $1.50 for water and sewer use.

The District Court denied any relief under the CPA, however, because Golt inspected the dwelling unit before entering the lease agreement and thus “knew what the premises looked like.” No findings were made as to whether the eviction was retali ⁷ atory or whether the amounts withheld from the security deposit by Appellees were done reasonably. Golt appealed to the Circuit Court for Baltimore City, and, following argument, that court dismissed the appeal. 1 We then granted Golfs petition for a writ of certiorari. Appellant argues that advertising and renting an unlicensed apartment is a violation of the CPA. 2 Appellant further argues that because contracts made by unlicensed businesses are void, he has a right to restitution for rent paid under the void and illegal lease, as well as a right to recover consequential damages incurred in being forced to vacate. In addition, Appellant argues that the trial judge abused his discretion by allowing Appellees to retain part of the security deposit despite the showing that Appellees had not actually paid any expenses.

Finally, Appellant contends that, in light of Appellees’ wrongful withholding of a portion of the security deposit, the trial judge abused his discretion in denying treble damages and attorney’s fees. Appellees respond to Appellant’s first argument by claiming that Appellant’s inspection of the apartment before renting insulates Appellees from liability under the CPA. Appellees also contend that Phillips Brothers is liable to a third party for Golfs pro rata share of the October gas and electric bill and water and sewer charges, and thus actual damages were suffered. Lastly, Appellees argue that no ⁸ bad faith in withholding a portion of the security deposit was shown and the award of treble damages and attorney’s fees is merely discretionary.

I We will begin our analysis by examining the CPA. In 1973, the Maryland General Assembly enacted the CPA and stated that “consumer protection is one of the major issues which confront all levels of government, and that there has been mounting concern over the increase of deceptive practices in connection with sales of merchandise, real property, and services and extension of credit.” Maryland Code (1983 Repl.Vol.), § 13-102(a) of the Commercial Law Article. The legislature found the then existing consumer protection laws inadequate, id. § 13-102(a)(2), and thus enacted the CPA to “set certain minimum statewide standards for the protection of consumers across the State.” Id. § 13-102(b)(1). The legislature concluded that “it should take strong protective and preventive steps to investigate unlawful consumer practices, to assist the public in obtaining relief from these practices, and to prevent those practices from occurring in Maryland.” Id. § 13-102(b)(3).

The CPA specifically prohibits any person from engaging in unfair and deceptive procedures in the rental or offer for rental of consumer realty. Id. § 13-303(1) and (2). The mandates of this law therefore squarely apply to the rental agreement between Golt and Phillips Brothers. It is with this backdrop in place that we examine Appellant’s allegations of CPA violations.

The CPA provides a nonexclusive list of unfair and deceptive trade practices. Section 13-301, in pertinent part, states: Unfair or deceptive trade practices include any: (1) False, falsely disparaging, or misleading oral or written statement, visual description, or other representation of any kind which has the capacity, tendency, or effect of deceiving or misleading consumers; ⁹ (2) Representation that: (i) Consumer ... realty ... have a sponsorship, approval, accessory, characteristic ... which they do not have; * * * si« * # (3) Failure to state a material fact if the failure deceives or tends to deceive. In our view, advertising and renting an unlicensed dwelling violates § 13-301(1), (2), and (3). Implicit in any advertisement and rental of an apartment is the representation that the leasing of the apartment is lawful.

Baltimore City Code, Art. 13, § 1101 (1983 Repl. Vol.), expressly prohibits the operation of any multiple family dwelling without a license or temporary certificate. As Phillips Brothers had neither a license nor a temporary certificate, it violated the City Code. Phillips Brothers could not provide Golt with the unimpeded right to possession during the lease term.

Consequently, Phillips Brothers advertisement and rental of the apartment was a “misleading ... statement ... or other representation of any kind which has the capacity, tendency, or effect of deceiving or misleading consumers.” Maryland Code (1983 Repl.Vol.), § 13-301(1) of the Commercial Law Article. Furthermore, such a representation is in essence a representation that the “realty ... [has] a sponsorship, approval ... [or] characteristic ... which [it does] not have,” id. § 13-301(2) — namely, licensing for operation as a multiple family dwelling. It makes no difference that Appellees did not expressly state that the premises were properly licensed; such a basic prerequisite to any lease agreement is implied. For consumer protection purposes, the meaning of any statement or representation is determined not only by what is explicitly stated, but also by what is reasonably implied.

Spiegel, Inc. v. Federal Trade Commission, 411 F.2d 481, 483 (7th Cir.1969); Aronberg v. Federal Trade Commission, 132 F.2d 165, 167 (7th Cir. ¹⁰ 1942); In the Matter of Seekonk Freezer Meats, Inc., 82 F.T.C. 1025 , 1054 (1973). 3 Finally, Phillips Brothers also violated § 13-301(3) of the CPA, which states that the failure to disclose a material fact, which deceives or tends to deceive, is an unfair or deceptive trade practice. The lack of proper licensing is a material fact that Phillips Brothers failed to state. In addition, failure to disclose this fact deceived Golt or at least had the tendency to deceive consumers. An omission is considered material if a significant number of unsophisticated consumers would attach importance to the information in determining a choice of action.

See, e.g., Charles of the Ritz Distributors Corp. v. Federal Trade Commission, 143 F.2d 676, 679-80 (2d Cir.1944); Gulf Oil Corp. v. Federal Trade Commission, 150 F.2d 106, 109 (5th Cir. 1945); cf. Restatement (Second) of Torts, § 538 (1977) (Under common law fraud, a fact is deemed material if a reasonable person would attach importance to its existence in determining his choice of action.). In our view, the lack of proper licensing for an apartment under most circumstances is a material fact that any tenant would find important in his determination of whether to sign a lease agreement. and move into the premises. Phillips Brothers asserts in defense that it was unaware that its building was unlicensed for multiple family use. Ignorance of the law, however, is no defense.

A landlord must be held to be aware of all laws concerning the validity of leasing its premises. Furthermore, none of the applicable CPA sections requires the landlord to have knowledge of the falsity or intent to deceive. Section 13-301(1) requires only a “[f]alse, falsely disparaging or misleading statement”; § 13-301(2) requires only a “repre ¹¹ sentation”; and § 13-301(3) prohibits a “failure to state a material fact.” Cf. § 13-301(9) (which requires “[deception, fraud, false pretense, false premise, misrepresentation, or knowing concealment ... with the intent that a consumer rely on the same ... ”). In other words, § 13-301(1), (2), and (3) does not require scienter on the part of the landlord; the subsections require only a false or deceptive statement that has the capacity to mislead the consumer tenant.

Appellees also contend that because Appellant viewed the apartment before agreeing to lease the premises, Appellees made no misrepresentation in violation of the CPA. This defense, however, is ineffective. Simply viewing an apartment cannot inform a prospective tenant that the premises are unlicensed. Therefore, at the time Golt signed the lease, he cannot be said to have had knowledge that the premises was not licensed.

Under similar facts and law, the Connecticut Supreme Court recently held that a landlord violated the Connecticut Unfair Trade Practices Act (CUTPA), Conn.Gen.Stat. §§ 42-110a to 42-110q (1981), by renting apartments and collecting rents therefor without first obtaining the proper licensing. Conaway v. Prestia, 191 Conn. 484 , 464 A.2d 847 (1983). The CUTPA, like the Maryland