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When Should a Court Award Treble Damages Under UTPCPL?

Posted By Cliff Tuttle | December 2, 2017

No. 1,362

E.S. MANAGEMENT v. GAO et al., 2017 PA Super 362 (November 15, 2017

Image: kasmirscan.com

A group of students, all citizens of China, were searching for housing for the 2014-2015 school year at Carnegie Mellon University.  While still overseas, they asked a friend to look at an apartment being advertised by E. S. Management.  E. S. Management emailed the students and told them that they would have to put down a security deposit of $5,785.00 plus a $100.00 application fee to hold the property. A lease was produced, the students were told to sign and return it in two days and one students did sign and return it to E. S. Management. The other three never filled out can application and didn’t sign the lease. A few days after wiring the money, the students decided they did not want the apartment.  Although E.S. Management had never stated what would happen if the students did not rent the apartment, it refused to refund the money.

The students and the aunt of one for them, who had actually provided the security deposit money, sued E.S.for the security deposit and other damages. E.S., in turn, sued the students for the rent for an entire year, alleging breach of contract.  The two cases started in the Magistrate, were appealed to Common Pleas where they were consolidated and heard by arbitrators, then appealed to a judge, with a jury trial.

The  case was tried before a jury who adjudicated claims by both sides under the Landlord and Tenant Act (LTA) and by the students and Aunt under the Unfair Trade Practices Consumer Protection Law (UTPCPL) and various legal theories. The Superior Court summarized the results of the trial as follows:

“The cases proceeded to a consolidated jury trial on the breach of contract claims. At the conclusion of trial, the jury found that no contract existed between the parties and that E.S. Management failed to establish one of the elements of promissory estoppel. The jury, however, did not award damages to either party. Aunt and the Students then requested that they be permitted to poll the jury. The trial court granted their request. Upon being polled, the jurors unanimously indicated that they intended to award and refund Aunt and the Students the security deposit of $5,785.00. The trial court noted that, because Aunt and the Students failed to plead a count for unjust enrichment, the jury was without power to issue an award of quantum meruit.

Immediately after the trial court dismissed the jury, it conducted a bench trial on Aunt and the Students’ remaining claims implicating the UTPCPL and the LTA. Following the bench trial, the trial court concluded that E.S. Management violated the UTPCPL and that Aunt and the Students were entitled to treble damages. Specifically, the trial court found:

[1.] E.S. Management violated the [LTA] provision at 68 P.S. § 250.511a by requiring “a sum in excess of two months’ rent to be deposited in escrow for the payment of damages to the leasehold premises and/or default in rent thereof . . .,” which also is a violation of the provision of the UTPCPL at 73 P.S. § 201-2(4)(xxi);

[2.] E.S. Management’s failure to inform the Students and [Aunt], either verbally or by writing, when it requested the $5,775.00 deposit, that this sum could be forfeited if the Students chose not to rent the [A]partment is a violation of the provision of the UTPCPL at 73 P.S. § 201-2(4)(xxi);

[3.] E.S. Management’s requirement that the Students sign its lengthy lease within only 2 days from the time they received the lease is a violation of the provision of the UTPCPL at 73 P.S. § 201-2(4)(xxi);

[4.] E.S. Management’s false claim that the Students and [Aunt] were responsible for rent for the entire term of the lease and utilities, even though two days after depositing the $5,755.00 they informed E.S. Management they would not be renting the [A]partment, is a violation of the provision of the UTPCPL at 73 P.S. § 201-2(4)(xxi); [and]

[5.] Pursuant to UTPCPL provision at 73 P.S. § 201-9.2, [the trial court] award[s Aunt] and the Students their court costs, including those incurred with the Magisterial District Judge[.]”

In Post trial motions, E. S. Management argued that the LTA and UTPCPL does not govern because the jury had found that there was no lease between the company and the students and their aunt. “In other words, E.S. Management did not have a landlord-tenant relationship with Appellees. E.S. Management also argued that the trial court erred in concluding that the UTPCPL requires more than a two-day review period for residential leases. E.S. Management next argued that the trial court abused its discretion in concluding that E.S. Management violated the UTPCPL when it claimed that Aunt was responsible for rent for the entire term of the lease and utilities. E.S. Management finally argued that the award of treble damages was excessive.”

“In response, Aunt and the Students argued that E.S. Management had waived its claim that the UTPCPL is inapplicable to the dispute at hand because it raised the claim for first time in its post-trial motion. They further argued that the LTA applied through the UTPCPL. Aunt and the Students also argued that E.S. Management’s decision to grant them only two days to review the lease was deceptive conduct under the UTPCPL. In addition, they argued that E.S. Management’s claim that Aunt was liable for rent and utilities was a false and deceptive claim under the UTPCPL. Lastly, Aunt and the Students argued that the award of treble damages was appropriate under the circumstances.”

The trial court denied E.S Management’s post trial motions and the case was appealed to the Superior Court. The Superior Court stated:

“On appeal, E.S. Management raises five issues for our review:

I. Whether the trial court erred in awarding damages under the [UTPCPL], where the jury determined that there was no contract between the parties, as the UTPCPL requires that there must be a ‘purchase or lease’ of goods or services in order to allow a private party claim?

II. Whether the trial court erred in finding that E.S. Management violated the [LTA] and that that violated the UTPCPL?

III. Whether the [trial] court erred in finding the UTPCPL requires more than a two-day review period for a tenant’s review of a residential lease?

IV. Whether the [trial] court erred in finding that E.S. Management made a “false claim” in litigation and that that violated the UTPCPL?

V. Whether the [trial] court erred in its use of discretion in trebling the damages under the UTPCPL?”

The Superior Court agreed with the Appellees that the first issue raised by Appellants need not be addressed because it was raised for the first time in post trial motions. They had never objected to the application of the UTPCPL during the trial, but only for the first time in post trial motions.

The next issue was whether the trial court erred in holding that collection of $5,585 constituted a violation of Section 250.511a(a) of the LTA, which prohibited collecting more than two months rent as a security deposit.

E. S. Management argued that the amount paid included both security deposit and prepaid rent for the last month.  The trial court did not accept that explanation and neither did the Superior Court. “It is disingenuous for E.S. Management to assert that rent paid twelve months before it is due is not for “default in rent.” In other words, collecting the last month’s rent, addition to a security deposit for damages, also constitutes  security deposit.

This leads to the issue whether collecting an amount in excess of two month’s rent as a security deposit violates Section 201-2(4) (xxi) of the UTPCPL, often referred to as the “catch-all.”  It defines “unfair or deceptive acts or practices” under the statute to include “[e]ngaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.” 73 P.S. § 201-2(4)(xxi).

The Superior Court agreed with the trial court that the act of requiring payment of a security deposit in excess of two months rent violated the catchall provision of the UTPCPL. However, the trial court did not hold that a violation of the LTA was automatically a UTPCPL violation. “Instead, [the trial court] found E.S. Management’s conduct in collecting the security deposit was deceptive, which created a likelihood of confusion or misunderstanding in violation of the UTPCPL.”

It quoted the trial court opinion:

“There are two examples of this conduct. First, the lease that E.S. Management emailed to the Students set forth a much smaller security deposit of $1,995.00. Second, an E.S. Management representative disclosed at trial that it required the $3,990.00 “double security deposit” portion from the Students because they were international students without social security numbers and other information available from students who are U.S. citizens. This E.S. Management conduct was deceptive and would confuse someone with good understanding of the English language (the Students struggled to understand and speak English). Therefore, [the trial court] was correct in finding that the $5,785 security deposit required by E.S. Management violated the UTPCPL.”

It also upheld the trial court determination that permitting only two days to sign and return the lease was a deceptive practice. The trial court noted that the provisions regarding proration of utilities within the building were confusing and that the students struggled with the English language.  The lease itself stated:

“TENANT(S) AGREES LANDLORD GAVE TENANT(S) TIME TO REVIEW THIS LEASE. IF THE LEASE TERMS ARE NOT UNDERSTOOD, TENANTS ARE ENCOURAGED TO SEEK THE ADVICE OF ANY ATTORNEY BEFORE SIGNING. BY SIGNING THIS LEASE, EACH TENANT AGREES HE OR SHE HAS READ AND UNDERSTANDS ALL OF THE TERMS AND CONDITIONS OF THIS LEASE WITH ANY ADDED CLAUSES, OR HOUSE RULES. . . .”

“Thus,” the Superior Court stated,”because E.S. Management provided the Students who were residing in China only two days to review a lengthy and complicated lease with the advice of legal counsel, we are constrained to agree with the trial court’s conclusion that such conduct violated Section 201-2(4)(xxi) of the UTPCPL.”

The Superior Court did, however, reverse the UTPCPL award to the Aunt, holding that she was an agent of the students, not a contracting party. “Because Aunt was not a person who purchased or leased any goods or services from E.S. Management, E.S. Management’s claim against her for rent and utility payment, no matter how deceptive and misleading, does not fall within the ambit of the UTPCPL. Accordingly, we reverse the trial court’s conclusion to the contrary.”

As to whether the trial court abused its discretion by awarding treble damages under UTPCPL, the Superior Court upheld the award.  As the Supreme Court stated in Schwartz v. Rockey, 932 A.2d 885 (2008), “courts of original jurisdiction should focus on the presence of intentional or reckless, wrongful conduct, as to which an award of treble damages would be consistent with, and in furtherance of, the remedial purposes of the UTPCPL.”

The trial court opinion justified the award by stating:

“While egregious conduct is not required for an award under the UTPCPL of “three times the actual damages sustained”, [the trial court] did find that E.S. Management’s conduct was egregious. E.S. Management knew that other renters were unlikely as the student rental season “window” had closed. Yet, E.S. Management rushed the Students into submitting the security deposit by telling them it would prevent other prospective tenants from renting the Apartment. But, it never told the Students until after it got the funds that the funds could be forfeited if the Students did not lease the Apartment. Only two days passed between E.S. Management’s receipt of the funds and the Students notifying E.S. Management they would not be renting the Apartment. Thus, E.S. Management attempted to extract $5,785 from the Students because the Apartment was removed from the rental market for two days. There was absolutely no credible evidence that E.S. Management lost the opportunity to rent to others during those two days. E.S. Management provided almost no services in return for the $5,785 and the Students of course, received absolutely nothing in return for it. To [the trial court], this was egregious conduct. In any event, the behavior of E.S. Management in violating the two months’ rent security deposit law, not providing advance disclosure the security deposit would be forfeited, [and] providing only two days for review of the lease . . . constitutes “intentional or reckless, wrongful conduct” that makes [the trial court’s] treble damages award appropriate. Therefore, [the trial court’s] award of treble damages was correct.”

The foregoing decision suggests that the collection of more than two months’ security deposit, in itself, constitutes a UTPCPL violation.  Moreover, the common practice of collecting the last month’s rent is, according to this decision, a disguised security deposit. But the totality of the facts must be taken into account in order to determine whether there has been sufficient deception to invoke UTPCPL and its exemplary damages and attorneys fees.

CLT

NOTE: The author represented the aunt and students during the initial proceeding in this case.

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CLIFF TUTTLE has been a Pennsylvania lawyer for over 40 years and (inter alia) is a real estate litigator and legal writer. The posts in this blog are intended to provide general information about legal topics of interest to lawyers and consumers with a Pittsburgh and Western Pennsylvania focus. However, this information does not constitute legal advice and there is no lawyer-client relationship created when you read this blog. You are encouraged to leave comments but be aware that posted comments can be read by others. If you wish to contact me in privacy, please use the Contact Form located immediately below this message. I will reply promptly and in strict confidence.

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