Ohio Supreme Court Upholds Punitive Damages Against Landlord After Apartment Fire, With a Catch (Sivit v. Village Green)

Published April 24, 2015 · Verdicts & Settlements · Ohio Supreme Court

Two years ago I wrote about a Cuyahoga County jury that hit an apartment landlord with $2 million in punitive damages after a fire caused by water-damaged wiring, and about the court of appeals that upheld every dollar of it. That post is here. On April 2, 2015, the Ohio Supreme Court issued the final word in Sivit v. Village Green of Beachwood, L.P., 143 Ohio St.3d 168, 2015-Ohio-1193.

The tenants won on everything that matters: liability, the right to punitive damages, and attorney fees. But the Court cut the punitive award down to the limit set by Ohio's punitive-damages cap. For anyone hurt by a landlord's neglect, the decision is both a vindication and a warning.

The fire, and the one before it

The facts, as the Court recited them, are worth repeating. In 2004 a fire destroyed Building 3 of the Village Green Apartments in Beachwood, a suburb of Cleveland. The fire investigator hired at the fire department's request concluded it started in the space between the second-story ceiling and the floor above, as a direct result of construction defects.

On October 23, 2007, Building 8 burned. The same investigator found the fire started in the same kind of concealed space, between the floor and ceiling of two apartments. He documented National Electrical Code violations: unsecured feeder cables, double-stapled wires, and wires pressed against metal gusset plates with damaged insulation. He also found extensive water infiltration in the building. At trial he testified he was "100 percent certain" the fire was caused by "faulty electrical wiring contaminated by water leaks." A former maintenance supervisor described the walls as "waterlogged."

The displaced tenants sued the landlord and its management company for negligent construction and for failing to maintain the electrical system as required by Ohio's Landlord-Tenant Act. The jury found the landlord liable and awarded $582,146 in compensatory damages, $2,000,000 in punitive damages, and $1,040,000 in attorney fees. The Eighth District affirmed in January 2013. The Supreme Court agreed to hear the landlord's appeal.

What the Court upheld

The landlord made two arguments that, had they succeeded, would have wiped out the punitive award entirely. The Court rejected both.

Punitive damages were properly submitted to the jury. The landlord argued that to get punitive damages, a tenant must prove the landlord knew about the specific danger that caused the injury, and that knowledge of a different hazard elsewhere on the property is irrelevant. The Court did not accept that framing. The 2007 fire had "substantially the same cause" as the 2004 fire. The landlord's conscious disregard of code violations affecting health and safety, in the face of a prior fire from the same cause, was "more than enough" for the jury to find actual malice. The Court repeated its long-standing definition: actual malice includes "a conscious disregard for the rights and safety of other persons that has a great probability of causing substantial harm." A landlord that has already had one building burn from defective wiring and does nothing about the rest of the complex fits that definition.

The landlord cannot hide behind the walls. The landlord's third argument was that it could not be liable under R.C. 5321.04 for wiring defects it did not know about, concealed above ceilings and behind walls. The Court's answer was short: that may be true as a general matter, but it was not this case. There had been a prior fire from the same cause, there was evidence the wiring was faulty, and the walls were waterlogged. The jury had sufficient facts to find the landlord was aware of the likelihood of a fire.

R.C. 5321.04 is the statute that requires every Ohio landlord to comply with building, housing, health, and safety codes and to keep electrical systems in good and safe working order. A violation is negligence per se, meaning the tenant does not have to prove the landlord acted unreasonably, only that the statute was violated and the violation caused the harm. I explained how the same statute protects a tenant's guests in Hurt at a Friend's Apartment Complex?.

The catch: the punitive-damages cap

The landlord's first argument was the one that worked. Ohio's punitive-damages statute, R.C. 2315.21, applies to a "tort action," which it defines as a civil action for damages for injury or loss to person or property, excluding breach-of-contract claims. The court of appeals had reasoned that because the tenants and the landlord had a lease, the case arose out of a contract and the statute did not apply.

The Supreme Court disagreed. A lease does not convert every injury into a contract claim. The harm here came from a violation of R.C. 5321.04, which is negligence per se, which is a tort. The tenants' own lawyer conceded as much at oral argument. So R.C. 2315.21 applied, and with it R.C. 2315.21(D)(2)(a), which provides that a court "shall not enter judgment for punitive or exemplary damages in excess of two times the amount of the compensatory damages awarded to the plaintiff."

The compensatory damages in the trial court's judgment entry were the jury's $582,146 plus $186,631.95 in additional damages the parties had stipulated to. Two times that total is roughly $1.54 million. The Court ordered the $2 million punitive award reduced to that figure and sent the case back to the trial court to set the exact amount. The $1,040,000 in attorney fees was untouched; under R.C. 2315.21(D)(2)(c), fees awarded as part of a punitive-damages claim do not count toward the cap.

What the cap means for injured people

I have written before about when punitive damages are available in Ohio. Sivit is a reminder of the ceiling that sits on top of them.

• Two times compensatory damages is the general limit. No matter how outrageous the conduct, a corporate defendant's punitive exposure is tied to the compensatory award. A tenant whose losses are modest will see a modest punitive award even against a landlord who ignored a prior fire.
• Small employers and individuals have a lower cap. Under R.C. 2315.21(D)(2)(b), the limit for an individual or a small employer is the lesser of two times compensatory damages or ten percent of net worth, up to $350,000.
• The jury is never told. R.C. 2315.21(F) forbids instructing the jury about the cap. The jury in Sivit awarded $2 million believing it would stand; the reduction happened afterward, on paper.
• The cap cuts both ways on strategy. Because punitive damages are capped as a multiple of compensatory damages, proving the full compensatory loss, every dollar of property damage, relocation cost, lost belongings, and injury, is what sets the ceiling on the punishment.

Honest assessment: this is a mixed result. The tenants kept their verdict and will collect well over $1.5 million in punitive damages and fees on top of their compensatory award, and the decision confirms that landlords who ignore known hazards face real punishment. But the General Assembly, not the jury, decided how much punishment is allowed.

Why this matters in Dayton

The Village Green complex is in Cuyahoga County, but the law is statewide and the fact pattern is not unusual. Apartment complexes around Dayton, Kettering, Huber Heights, and Fairborn include buildings that are decades old, with wiring, water intrusion, and deferred maintenance the tenants never see. When a fire, a collapse, or an electrical injury happens, the question that drives the value of the case is what the landlord knew before. Prior fires, prior complaints, prior code citations, insurance-company inspection reports, and maintenance logs are the evidence of "conscious disregard," and they have to be obtained quickly, from the landlord, the fire department, and the city's building department, before they are lost or explained away. Our premises liability practice does exactly that work.