Reference no: EM133411562

Case: RILEY AND v. STONE GATE Court of Appeals of Washington, Division 2 FACTS: Larry Riley formed a rental agreement for a self-storage unit with Iron Gate Self Storage in December 2003. The agreement stated that a maximum of $5,000 of personal property could be stored in the unit and that Iron Gate could only be held liable for up to $5,000. Over the course of the lease, Riley fell behind on payments. From May 2010 to July 2010, Iron Gate sent Riley three past-due notices. In July, Iron Gate sent Riley a notice of auction and the auction occurred seven days later. A bidder paid $2,000 for the contents of Riley's storage unit. Although Iron Gate believed it acted lawfully, Washington state law required auctions in such cases to occur no less than fourteen days before the notice. Two days after the auction, Riley sent Iron Gate a letter asserting that the notice was invalid and the auction should not have occurred. Iron Gate recovered many of the sold auction items by repurchasing them and held them in a storage unit free of charge until Riley retrieved them. However, Riley filed a complaint claiming Iron Gate had violated the Storage Act and the CPA and alleging $1.5 million in damages. ISSUE: Was clause limiting the liability of Iron Gate to $5,000 an illegal exculpatory clause? REASONING: To determine whether Iron Gate's exculpatory clause violated public policy, the court considered six criteria: (1) whether the agreement concerns a situation generally suitable for public regulation; (2) whether Iron Gate performs a service that is of great importance or necessity to the public; (3) whether Iron Gate holds itself out as willing to perform its services for any member of the public who seeks it; (4) whether Iron Gate possesses a decisive advantage in bargaining power over a member of the public who seeks its services; (5) in exercising its superior bargaining power, Iron Gate effectively forces people seeking its services into agreeing to the exculpatory clause; and (6) whether the property of people seeking such services must be placed under control of Iron Gate. The court compared the facts of the case to each criterion. First, Iron Gate is in the self-storage industry, which is in fact a highly-regulated industry. Iron Gate is subject to numerous requirements contained within the Storage Act. Second, Iron Gate's self-storage services are not an essential public service. Third, Iron Gate advertises itself to the general public as willing to rent units to any person who seeks it. Fourth, Iron Gate does not have a advantage in bargaining power because Riley had the freedom to take his business elsewhere if he disagreed with the agreement's provisions. Fifth, Iron Gate did not force Riley into the exculpatory clause. Iron Gate provided Riley with an opportunity to purchase insurance that would cover the entire value of his property, but he chose not to do so. Finally, Riley had exclusive control over his unit and the property within. Riley used his own lock on the unit and Iron Gate was only allowed to enter with written notice, in case of emergency, or if Riley defaulted. In light of the facts, the court concluded that Iron Gate's exculpatory clause did not violate public policy. Per the signed agreement, Iron Gate reasonably believed that the contents of Riley's unit did not exceed $5,000. Thus, Iron Gate is not liable for the $1.5 million in value that the contents of the unit allegedly had. DECISION AND REMEDY: The lower court's finding that the clause did not violate public policy and therefore was not illegal was affirmed in favor of the defendant, and therefore its liability was limited to $5,000. SIGNIFICANCE OF THE CASE: In this case, the court clearly lays out the requirements for an exculpatory clause to violate public policy and explains how the clause in question does not meet these requirements. Thus, this case serves as an excellent illustration of when such a clause is and is not binding.

Questions:

1. Consider the sixth item in the test applied by Washington state courts. In this case, the court asserted Riley had exclusive control of his storage unit because he placed his own lock on the unit and "Iron Gate could only enter the unit with written notice, in the case of an emergency, or if Riley defaulted." Do you think the sixth item in the test could be problematic if applied to apartment renters?

2. Examine the actions of each party leading up to this dispute. Who behaved in a blameworthy fashion, and who in a praiseworthy fashion? What facts from the case and what ethical theories or guidelines support your claim? Now consider each party's stance in the legal dispute. Does either one appear more or less ethical, relative to that party's earlier actions? Why or why not?