Lompe v. Sunridge Partners, LLC

• Decision Date: 01 April 2016
• Docket Number: No. 14–8082.,14–8082.
• Citation: 818 F.3d 1041
• Parties: Amber Nicole LOMPE, Plaintiff–Appellee, v. SUNRIDGE PARTNERS, LLC; Apartment Management Consultants, LLC, Defendants–Appellants. Chamber of Commerce of the United States of America; American Tort Reform Association; National Federation of Independent Business; National Association of Manufacturers, Amici Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

818 F.3d 1041

Amber Nicole LOMPE, Plaintiff–Appellee,

v.SUNRIDGE PARTNERS, LLC; Apartment Management Consultants, LLC, Defendants–Appellants.

Chamber of Commerce of the United States of America; American Tort Reform Association; National Federation of Independent Business; National Association of Manufacturers, Amici Curiae.

No. 14–8082.

United States Court of Appeals, Tenth Circuit.

April 1, 2016.

Amy F. Sorenson, Snell & Wilmer, LLP, Salt Lake City, UT (Amber M. Mettlerand Douglas P. Farr, Snell & Wilmer, LLP, Salt Lake City, UT, and Patrick J. Murphy, William, Porter, Day & Neville, P.C., Casper, WY, with her on the briefs), for Defendants–Appellants.

Tyson E. Logan, The Spence Law Firm, LLC, Jackson, WY (G. Bryan Ulmer, The Spence Law Firm, LLC, Jackson, WY, and Jonathan S. Massey, Massey & Gail, LLP, Washington, D.C., with him on the brief), for Plaintiff–Appellee.

Kate Comerford Toddand Warren Postman, United States Chamber Litigation Center, Washington, D.C., and Evan M. Tagerand Carl J. Summers, Mayer Brown LLP, Washington, D.C., filed an Amicus brief on behalf of The Chamber of Commerce of the United States of America.

Troy L. Booherand Noella A. Sudbury, Zimmerman Jones Booher LLC, Salt Lake City, UT, filed an Amici brief on behalf of the American Tort Reform Association, National Federation of Independent Business, and National Association of Manufacturers.

Before BACHARACH, EBEL, and McHUGH, Circuit Judges.

I. INTRODUCTION

McHUGH, Circuit Judge.

This appeal challenges the jury's award of punitive damages in a personal injury action. Amber Lompe was exposed to high levels of carbon monoxide (CO) from a malfunctioning furnace in her apartment at the Sunridge Apartments in Casper, Wyoming. Ms. Lompe brought a diversity action in the Federal District Court for the District of Wyoming against Sunridge Partners LLC (Sunridge) and Apartment Management Consultants, L.L.C. (AMC), the owner and the property manager, respectively, of the Sunridge Apartments. The jury found both Defendants liable for negligence and awarded Ms. Lompe compensatory damages totaling $3,000,000 and punitive damages totaling $25,500,000, of which the jury apportioned $3,000,000 against Sunridge and $22,500,000 against AMC.

On appeal, Defendants argue the district court erred in failing to grant their motion for judgment as a matter of law (JMOL) as to punitive damages. Alternatively, they contend the district court's jury instructions on punitive damages were erroneous and the amount of punitive damages awarded against each Defendant was excessive under common law and constitutional standards. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we hold the evidence was insufficient to submit the question of punitive damages to the jury as to Sunridge and the amount of punitive damages awarded against AMC is grossly excessive and arbitrary in violation of the Due Process Clause of the Fourteenth Amendment. Accordingly, we vacate the award of punitive damages against Sunridge and reduce the punitive damages awarded against AMC from $22,500,000 to $1,950,000.

II. JURISDICTION

Before addressing the merits of the issues on appeal, we pause to consider our subject-matter jurisdiction. See Arbaugh v. Y & H Corp., 546 U.S. 500, 514, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006)(holding that federal courts "have an independent obligation to determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any party"). In her Complaint, Ms. Lompe alleged she is a citizen of Wyoming and Defendants are each limited liability companies (LLCs) with principal offices in Utah. In their responsive pleadings, neither Defendant identified the citizenship of each of the members of the respective LLCs. Nevertheless, the district court asserted jurisdiction based on the diversity of citizenship. See 28 U.S.C. § 1332.

But federal courts must treat LLCs as partnerships for purposes of establishing jurisdiction. Americold Realty Trust v. Conagra Foods, Inc., ––– U.S. ––––, 136 S.Ct. 1012, 1015, 194 L.Ed.2d 71 (2016)(affirming the Tenth Circuit's holding that "the citizenship of any 'non-corporate artificial entity' is determined by considering all of the entity's 'members' "); Siloam Springs Hotel, L.L.C. v. Century Sur. Co., 781 F.3d 1233, 1237–38 (10th Cir.2015)("Supreme Court precedent makes clear that in determining the citizenship of an unincorporated association for purposes of diversity, federal courts must include all the entities' members."). Accordingly, to ensure we have jurisdiction over this matter, we requested more information about the citizenship of each of the members of the LLCs. United States v. Battles, 745 F.3d 436, 447 (10th Cir.2014)("It is axiomatic that we are obliged to independently inquire into the propriety of our jurisdiction."). The parties stipulated to supplemental jurisdictional facts showing the members of Sunridge are each citizens of California and the members of AMC are all citizens of Utah. Based on that information, we conclude the district court properly exercised jurisdiction over this matter under 28 U.S.C. § 1332, and we have jurisdiction over this appeal under 28 U.S.C. § 1291.

III. BACKGROUND

Ms. Lompe was a twenty-year-old student at Casper College when she moved into the Sunridge Apartments in September 2010. On February 1, 2011, Ms. Lompe was evacuated from her apartment unit and taken to the hospital after a gas company employee detected high levels of CO emanating from her apartment. Ms. Lompe was treated for acute CO poisoning and as a result of this incident has suffered from various neurological conditions including cognitive deficits, chronic headache, sleep disturbance, and emotional disorders. She has been prescribed a variety of antiseizure, migraine, mood stabilizing, and sleep stabilizing medications. Based on her injuries, Ms. Lompe filed this action against Sunridge and AMC, alleging they violated their duty of care as property owner and manager of the Sunridge Apartments. After the district court denied Defendants' motion for summary judgment, the case proceeded to trial.

A. The Trial

Our review requires a detailed examination of the trial record because Defendants challenge the district court's decisions denying JMOL on punitive damages and affirming the constitutionality of the punitive damages awarded against each Defendant. See Deters v. Equifax Credit Info. Servs., 202 F.3d 1262, 1268 (10th Cir.2000)(explaining we review a district court's denial of a motion for JMOL de novo, "applying the same legal standard as the district court"). Defendants are "entitled to judgment as a matter of law only if all of the evidence, viewed in the light most favorable to the nonmoving party, reveals no legally sufficient evidentiary basis to find for the nonmoving party." Jones v. United Parcel Serv., Inc., 674 F.3d 1187, 1195 (10th Cir.2012)(internal quotation marks omitted). Separately, we must conduct an "exacting" de novo review of the constitutionality of the punitive damages award. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003). We therefore begin with a review of the relevant evidence presented to the jury.

1. Sunridge's Ownership of the Apartments, Relationship with AMC, and Lack of Involvement in Management

In 2007, Mr. Bob Ctvrtlik¹ and his brother Jeff formed Sunridge Partners, LLC to purchase the Sunridge Apartments, an apartment complex in Casper, Wyoming, consisting of ninety-six units. The Ctvrtliks, who reside in Southern California, had seven years of real estate investment experience at the time they purchased the apartments. They considered themselves "passive real estate investors," meaning that they would purchase properties and then hire another company to manage and maintain them.

Before purchasing the Sunridge Apartments, Sunridge obtained a "Property Condition Report" from LandAmerica, which was intended to "observe and document readily visible materials and building system defects which might significantly affect the value of the property, and determine if conditions exist which may have a significant impact on the continued operation of the facility." The report provided a general assessment of the apartment complex, ranking the condition of various components as excellent, good, fair, or poor, including the forced air heating system.

Constructed in 1979, most of the apartments were still heated by the original furnaces when Sunridge purchased the complex in 2007, though some had been replaced. The LandAmerica report identified the heating portion of the complex's broader HVAC system as "forced air gas fired furnaces" and ranked the complex's HVAC system as "fair," meaning that although it was in average or satisfactory condition, "some short term and/or immediate attention is required or recommended, primarily due to the normal aging and wear of the building system, to return the system to a good condition." Although the report did not identify replacing the furnaces as an immediate concern, it recommended the property owner set aside a capital reserve of $153,600 to replace the furnaces on a rolling basis over the course of the next five years.

Sunridge hired AMC as property manager to run the day-to-day operations of the apartments based on Sunridge's previous favorable experience using AMC to manage other properties. The management agreement between Sunridge and AMC required AMC to seek prior written approval from Sunridge before making any purchase over $1,000, except in the case of an emergency. The agreement further provided that if AMC made an emergency expenditure, it must report that purchase to Sunridge within twenty-four hours. AMC was also required to provide a monthly accounting to Sunridge detailing by category the apartment complex's monthly income and expenses. AMC received a fee of 3.4% of the complex's monthly gross income as compensation for its services. The fee was not affected by expenses.

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