Oral Argument Preview: Does the Punitive Damage Cap Apply to a Punitive Damage Award Arising from a Violation of the Landlord-Tenant Statute? Sivit v. Village Green of Beachwood.

Update: On April 2, 205, the Supreme Court of Ohio handed down a merit decision in this case.  Read the analysis here.

Read the analysis of the oral argument here.

On March 11, 2014, the Supreme Court of Ohio will hear oral argument in the case of Carlos Sivit, et al., v. Village Green of Beachwood, L.P., et al, 2013-0586. At issue in this case is whether a landlord can be held liable for faulty wiring in a concealed area and, if so, whether the punitive damage cap applies to any punitive damage awarded.

Case Background

Defendant-appellant Village Green of Beachwood was the owner-developer of the Village Green Apartments, an eleven-building apartment complex located in Beachwood, Ohio, built in the late 1980’s. Beginning in September of 2006, the property was managed by defendant-appellant Forest City Residential Management, Inc. For simplicity, in this post the defendants-appellants shall be referred to as the Landlords.

Over time, the buildings started to fall into disrepair and tenants reported electrical problems and other maintenance issues with the buildings, including noises in the walls, power surges, power outages, constantly blown fuses and light bulbs, and water infiltration.

In 2004, a fire broke out in one of the apartment buildings. Following an investigation, it was determined that the fire originated in the interstitial space between floors and was due to an electrical fault.

In 2006, an engineer inspected the property and found that the buildings were still in a state of disrepair due to poor and deferred maintenance. The engineer found issues with water infiltration, improper venting, mold, insect infestation, failed flooring, and the need for a new roof, gutters, siding, windows and carpet. In addition, the City inspected the buildings and found multiple violations and advised the defendants not to rent or lease the buildings until repairs were made.

In 2007, another fire occurred which engulfed Building Eight, one of the apartment buildings. After an investigation, it was determined that this fire, similar to the previous fire, occurred in the interstitial space between floors. Further, it was determined that the fire ignited due to an electrical fault that was likely caused by a misplaced staple in the wiring. Prior to this fire, tenants complained of the same types of electrical issues and water problems that occurred before the 2004 fire. Shortly before the fire, one of the tenants complained to management that he could smell smoke in his apartment, however, the management did not respond to the complaint.

In a consolidated case, a number of tenants of Building Eight filed suit alleging negligent construction and negligent maintenance in violation of the Ohio Landlord-Tenant Act. At trial, the jury found for the Tenants and awarded $597,326 in compensatory damages (against both defendants on the negligent maintenance claim, and against Village Green on the negligent construction claim) and, subsequently, in a bifurcated trial, $2,000,000 in punitive damages against Village Green.  In addition, the trial judge awarded $1,040,000 to the Tenants for attorney’s fees.

On appeal, the Eighth District Court of Appeals unanimously affirmed. The appeals court held that the punitive damages cap did not apply because the damages arose from the breach of the rental agreement, not from a tort action, and the provisions of the Ohio Landlord Tenant Act violated by the Landlords should be deemed to constitute implied terms of the parties’ rental agreement.  While acknowledging that punitive damages are not ordinarily recoverable in a contact action, the panel noted that punitive damages are recoverable in a civil action alleging a breach of contract where the conduct constituting the breach is also a tort for which punitive damages are recoverable, characterizing the claim as a “hybrid claim” in which the contract claim trumps the tort claim as far as the application of the damages cap is concerned. The full twelve-judge appellate court unanimously declined en banc consideration.

Key Precedent

R.C. 2315.21(A)(1) (“Tort action” means a civil action for damages for injury or loss to person or property but does not include a civil action for damages for breach of contract or another agreement between persons)

R.C. 2315.21(D)(2)(a) (In a tort action, the court shall not enter judgment for punitive damages in excess of two times the amount of the compensatory damages awarded to the plaintiff)

Ohio Landlord-Tenant Act, R.C. 5321.04(A) (A landlord who is a party to a rental agreement shall comply with health and safety codes; make all repairs and keep the premises in a fit and habitable condition; maintain in good and safe working order all electrical fixtures and appliances)

Shroades v. Rental Homes, 68 Ohio St. 2d 20 (1981) (A Landlord’s failure to fulfill her duty of repair under the landlord-tenant act constitutes negligence per se so long as proximate cause and notice of the defective condition are established)

Sikora v. Wenzel, 88 Ohio St. 3d 493 (2000) (A Landlord’s violation of the Ohio Basic Building Code constitutes negligence per se, but a landlord will be excused from liability if he neither knew nor should have known of the defective condition)

Mann v. Northgate Investors, L.L.C., Slip Opinion No. 2014-Ohio-455 (The Landlord Tenant Act extends to all guests on the premises, regardless of their status as an invitee or licensee. Further, any violation of the Act constitutes negligence per se for which the guest can recover damages in a tort action).​

Landlords’ Argument

The Landlords contend that the jury erred in finding liability in this case, but even if they were liable, the punitive damage cap should have applied to the jury award.

First, the Landlords argue that the Tenants claim constitutes a “tort action” as defined in R.C. 2315.21(A)(1) and, therefore, the punitive damage cap applies. For support, the Landlords argue that the legislative intent behind R.C. 2315.21 supports the application of the punitive damage cap, which was to limit, not expand the granting of punitive damages.

Second, the Landlords argue that the trial court erred in allowing the claim for punitive damages because the Tenants failed to prove that the Landlords acted with “actual malice.” For support, the Landlords argue that they could not have acted with actual malice since they did not have actual, subjective knowledge of the condition of the building. Further, they could not have known about a defective condition that existed in between the ceilings since it was concealed from view.

Similarly, the Landlords contend that they could not have acted negligently under R.C. 5321.04 because they did not have either actual or constructive knowledge of the defective condition. The Landlords argue that the electric wiring was not subject to reasonable inspection because it would involve tearing into the walls and ceilings.

Tenants’ Argument

The Tenants argue that the damages awarded by the trial court are proper and that the Landlords had ample notice of the defective condition to show negligence and malice. First, the Tenants argue that a plain language reading of R.C. 2315.21(A) demonstrates that their claim, having resulted from a breach of a landlord-tenant agreement, is exempt from the punitive damage cap. Further, the Tenants argue that there are due process protections against excessive punitive damage awards but the Landlords failed to make the challenge.

Second, the Tenants argue that there was sufficient evidence at trial for a jury to find that the Landlords acted with malice. For support, the Tenants argue that the failure to perform maintenance, resolve complaints of tenants, or budget money for repairs demonstrates a reckless disregard for the safety of the residences of the building.

Lastly, the Tenants argue that violations of R.C.5321.04 constitute negligence per se and that no showing of notice is required for liability to attach. Even if R.C. 5321.04 was not a negligence per se statute, the Tenants argue that Ohio law does not require a landlord to know of the exact defect for liability to attach. Further, the previous fire, the tenant complaints, maintenance reports, inspections, and code violations where sufficient to put the Landlords on notice of the defective condition.

Landlords’ Proposed Proposition of Law No. 1

An action to recover damages for injury to person or property caused by negligence or other tortious conduct is a “tort action” within the meaning of R.C. 2315.21(A), even though the plaintiff’s claim may have arisen from a breach of duty created by a contractual relationship and even though the defendant’s conduct may have constituted both tortious conduct and a breach of contract.

Landlords’ Proposed Proposition of Law No. 2

In order to recover punitive damages against a landlord on the ground that the landlord consciously disregarded the rights and safety of a tenant, the tenant must prove that the specific danger that caused tenant’s injury was a danger of which the landlord had subjective knowledge. The fact that the landlord had knowledge of another danger on the premises is irrelevant if that other danger had no causal connection to the tenant’s injury.

Landlords’ Proposed Proposition of Law No. 3

A landlord cannot be held liable under R.C. 5321.04 for failure to correct defects occurring in electrical wiring of which it was unaware and which were concealed above ceilings or behind walls.

Student Contributor: Cameron Downer

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