Merit Decision: Suit against Landlord Sounds in Tort, Not Contract. Punitive Damages Cap Applies. Sivit v. Village Green of Beachwood, L.P.

Read what happened on remand in this case here and here.

On April 2, 2015, the Supreme Court of Ohio handed down a merit decision in Sivit v. Village Green of Beachwood, L.P., 2015-Ohio-1193. In a unanimous opinion written by Justice Paul Pfeifer, the court held that this suit by a group of tenants against its landlords for violation of certain provisions of Ohio’s Landlord Tenant Act was a tort, and thus the cap on punitive damages codified at R.C. 2315.21(D)(2)(a) applied. Justices Kennedy, French, and Chief Justice O’Connor concurred in judgment only. The case was argued March 11, 2014.

Case Background

This case involves two fires at the Village Green Apartments in Beachwood Ohio. The apartments are owned by Village Green of Beachwood, L.P. and managed by Forest City Residential Management, Inc. (collectively, Village Green).

In 2004 a fire destroyed Building 3 of the Village Green Apartments.  The fire was investigated at the request of the fire department by an experienced fire investigator.  The investigator determined that the fire started between the ceiling of the second story and the floor just above it, as a direct result of construction defects.

On October 23, 2007, another fire broke out in Building 8 of the same complex. The same investigator investigated, and determined the fire started in the space between the floor and ceiling of apartments 210 and 310.

Following this second fire, Carlos Sivit and several other tenants  in the complex (collectively, Sivit) sued Village Green, claiming negligent construction of the complex and maintaining faulty electrical wiring in violation of the Ohio Landlord Tenant Act.

At trial, the fire investigator testified that he was 100 percent certain the fire was caused by “faulty electrical wiring contaminated by water leaks” within the building.  He also detailed numerous National Electric Code violations.

The jury awarded the tenants compensatory damages of $582,146, punitive damages of $2 million, and attorney fees of $1,040,000.

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.

Read the oral argument preview here and an analysis of that argument here.

Key Statutes and  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.)

Moskovitz v. Mt. Sinai Med. Ctr., 69 Ohio St.3d 638, 651, 635 N.E.2d 331 (1994) (“The purpose of punitive damages is not to compensate a plaintiff, but to punish and deter certain conduct.” Punitive damages are appropriate when a defendant acts with “a conscious disregard for the rights and safety of other persons that has a great probability of causing substantial harm.”)

Chester Park Co. v. Schulte (1929), 120 Ohio St. 273, 166 N.E. 186  (paragraph three of the syllabus, set forth the four criteria necessary for a court to order a remittitur: (1) unliquidated damages are assessed by a jury, (2) the verdict is not influenced by passion or prejudice, (3) the award is excessive, and (4) the plaintiff agrees to the reduction in damages.)

Merit Decision

The key issues in the case are whether this was a tort action or a contract claim, and whether the punitive damages cap applied.

Tort or Contract?

Village Green argued this was a tort claim, pure and simple.  The appeals court had concluded this was a kind of hybrid contract/tort claim—contract for the purposes of avoiding the punitive damages claim; tort as the basis for receiving punitive damages.

Noting that counsel for Sivit had conceded in oral argument that this was a tort claim, the court held that this was a tort action:

“The court of appeals concluded that Village Green and Sivit had a contractual agreement, which is true, and that “injurious conduct arising out of the contract is not a tort action,” which is not necessarily true. 2013-Ohio-103, ¶ 59. Certainly, injurious conduct arising between parties to a contract does not always sound in tort, but it can, as in this case. Here, Village Green and Sivit have a contractual agreement, but the harm caused in this case is not the result of a contractual breach; it is the result of a violation of R.C. 5321.04, which imposes negligence per se.”

Once the court decided this was a tort, inevitably, the punitive damages cap applied.

Application of the Cap

While the jury awarded $582, 146 in compensatory damages, the trial court’s judgment entry included additional stipulated compensatory damages of $186,631.95, contingent on a finding of liability.  That brings the compensatory damages to $768,777.95.  The court noted that the punitive damage award of $2,000,000 in the case exceeds, and thus violates, the statutory cap, thus requiring remittitur.

The Remittitur

All courts in Ohio have the power of remittitur.  As my torts students know, in recent times, appellate courts, not just trial courts, have been urged to exercise this power.  The Supreme Court of Ohio itself exercised this power in Dardinger v. Anthem Blue Cross & Blue Shield, also authored by Justice Pfeifer.

The court found remittitur was required here, finding, pursuant to Chester Park Co., that the damages were assessed by a jury, the verdict was not influenced by passion or prejudice, the damages were excessive and the plaintiff must agree to the reduction (unknown here, but the court noted, “we consider the chance that Sivit will refuse remittitur remote given the clear mandate of the statute.”

R.C. 2315.21(D)(2)(a) says that “the court shall not enter judgment for punitive damages in excess of two times the amount of the compensatory damages awarded to the plaintiff.” That means a 2:1 ratio is the maximum.  Although it could have ordered something less than 2:1, the court set the ratio at 2:1 in this case, without any real explanation other than saying that was an appropriate amount to deter the conduct in this case.  That would set the punitive damages at a bit more than 1.5 million dollars. The actual math is to be done by the trial court.

Sufficiency of the Evidence Warranting Punitive Damages

Village Green also argued that to recover punitive damages, the tenants had to prove the landlord had actual subjective knowledge of the exact problem that caused the injury, and that a landlord could not be held liable under the Landlord Tenant Act for dangers of which it was unaware.

The court first found that there was no abuse of discretion in allowing the punitive damages claim to go to the jury, noting that the circumstances surrounding both fires evidenced conscious disregard of code violations affecting health and safety, with a great probability of causing substantial harm.

And while the court agreed with Village Green that it could not be held liable for defects of which it was unaware, it found that there were a multitude of facts from which the jury could find the landlords’ awareness of the likelihood of a fire.

The case was sent back to the trial court to set the exact amount of the punitive damages.

Case Syllabus

None

Concluding Observations

I called this dead on at the time, as “a unanimous decision that this is a tort claim, subject to the punitive damage cap.” As I wrote at the time, I thought the appeals court went off the rails on this one, trying to make it into a hybrid contract/tort action. As I noted, (and have hammered into the heads of my torts students) how historically tenants struggled mightily to get the right to bring tort claims when they had leases. The tenants’ lawyer really overreached with this hybrid argument, I thought, and the landlords’ lawyer likewise downplayed the ongoing notice of very serious problems at that complex.

Student contributor Cameron Downer also called this one, writing, “Looks like a partial win for the Landlords; the punitive damages will be capped. Overall, the justices’ questions showed that they were leaning toward finding a statutory Landlord Tenant violation to be a tort that is subject to the punitive damage cap. ”

 

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