Landlord can’t obtain attorney fees from security deposit, COA rules

A South Bend landlord is not entitled to double recovery or attorney’s fees from a former tenant’s security deposit, an appellate panel ruled Tuesday. The landlord had taken hundreds from the woman’s deposit to cover its legal fees in a suit it filed against her.  

When former tenant Jacqueline Smith was sued by landlord Laurenz Place LLC for an alleged breach of her lease, both parties came to a settlement agreement. Smith vacated the property without breaching the lease and Laurenz Place returned her security deposit – with $650 less than she had put down.

The landlord sent Smith an itemization of alleged damages and a check for $269 after deductions for apartment maintenance and $450 for attorney’s fees. Smith responded with a complaint of her own, requesting a full refund of her deposit and attorney’s fees, among other things.  

The St. Joseph Superior Court determined Laurenz Place had wrongfully withheld attorney’s fees from Smith’s security deposit and ordered it to refund the $450 and pay her $1,200 in attorney’s fees. However, it awarded Laurenz Place $650 – the equivalent of Smith’s security deposit deduction – and $1,046 in attorney’s fees for pursuing its defense and counterclaim in Smith’s complaint.

Smith’s motion to correct error was then denied, and the trial court entered an order to offset the judgements at the landlord’s request. In her appeal, Smith asserted the small claims court erred in awarding Laurenz Place damages despite its non-compliance with Indiana’s Security Deposits Statute, Indiana Code section 32-31-3 et seq.

Smith also argued there was clear error in awarding the landlord attorney’s fees without a statutory or contractual basis and requested that she be refunded the entirety of her security deposit.

But the Indiana Court of Appeals found Smith was not entitled to a complete refund, finding instead that she owed $100 for unpaid water bills covered under the statute. It noted, however, that the settlement agreement reached by both parties did not obligate Smith to pay Laurenz Place’s attorney’s fees for a claimed breach of the lease.

“The $450.00…was not properly assessed against Smith in this action. As for the legal fees incurred by Laurenz Place in Cause 6813, wherein Laurenz Place was found to have wrongfully reduced Smith’s security deposit, there is neither a contractual or statutory basis for shifting those fees to Smith,” Judge L. Mark Bailey wrote.

“The evidence established that Smith owed Laurenz Place $200.00,” Bailey continued. “The judgment in Smith’s favor awarded Smith the refund of only $450.00 of the $650.00 deducted from her security deposit; accordingly, Laurenz Place has retained the $200.00 Smith owed.

“Laurenz Place is not entitled to double recovery of those items upon its counterclaim and Laurenz Place is not entitled to attorney’s fees from Smith.”

Entry of judgment on Laurenz Place’s counterclaim in Jacqueline Smith v. Laurenz Place LLC, 19A-SC-36 was, thus, reversed.

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