Fire and punitive damages

By Paul Pfeifer - Court of Appeals

In 2004, a fire destroyed Building 3 of the Village Green Apartments, located in Beachwood, Ohio. An investigator determined that the fire originated between the ceiling of the second story and the floor just above it as a direct result of construction defects.

Three years later, a fire broke out in another building – Building 8 – of the apartment complex. The investigator – who concluded that the fire originated in the space between the floor and ceiling of apartments 210 and 310 – detailed various National Electric Code violations, including unsecured feeder cables and wires double stapled. There was also extensive infiltration of water within the building.

At trial, the investigator testified that he was 100 percent certain that the fire was caused by “faulty electrical wiring contaminated by water leaks” within the building.

Following the 2007 fire, Carlos Sivit and several other tenants filed suit against Village Green of Beachwood, L.P., and Forest City Residential Management, Inc., claiming that the building had been negligently constructed.

Sivit also claimed that Village Green had negligently maintained electrical wiring in violation of the Ohio Landlord-Tenant Act. After a jury trial, Village Green was found liable. The jury awarded compensatory damages of $582,146, punitive damages of $2,000,000, and attorney fees of $1,040,000.

Village Green appealed, but the court of appeals affirmed the trial court’s verdict. After that, Village Green brought an appeal before us – the Ohio Supreme Court.

Village Green argued that the action brought by Sivit was a tort and thus a different Ohio law – other than the Ohio Landlord-Tenant Act – applied to the case. Broadly defined, a tort is a civil wrong – other than breach of contract – for which a remedy may be obtained, usually in the form of damages.

But 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.” But that’s not necessarily true.

While Village Green and Sivit had a contractual agreement, the harm caused wasn’t the result of a contractual breach; it was the result of a violation of the Landlord-Tenant Act, which constitutes negligence per se.

We concluded that this is a tort action and, therefore, that it is subject to Ohio’s tort law. That law states that “in a tort action,” a “court shall not enter judgment for punitive…damages in excess of two times the amount of the compensatory damages…”

The compensatory-damages awarded by the jury totaled $582,146. The punitive damages awarded totaled $2,000,000, which is more than twice the total compensatory damages. Accordingly, it’s clear that the award of punitive damages is contrary to the mandate in the tort law.

In a case from 1994, our court established that, “The purpose of punitive damages is not to compensate a plaintiff, but to punish and deter certain conduct.” In that 1994 case, we reiterated that an award of punitive damages requires that actual malice be proven, and we defined “actual malice” as either “that state of mind under which a person’s conduct is characterized by hatred, ill will or a spirit of revenge” or “a conscious disregard for the rights and safety of other persons that has a great probability of causing substantial harm.”

We also discussed the difficulty of determining an appropriate amount of punitive damages. As the Tenth District Court of Appeals has noted: “No simple mathematical formula can be applied as to either a minimum or maximum, and there is a wide range between those figures. The decision rests as much on policy considerations as it does anything else and some degree of arbitrariness cannot be totally divorced from the decision, whether made by us or by the jury.”

We therefore ordered reduction of the amount of punitive damages to twice the amount of compensatory damages that were awarded, which we deemed an appropriate amount to deter the conduct at issue in this case.

Village Green also challenged the trial court’s decision to allow the claim for punitive damages to go to the jury. But it’s well established that a reviewing court “will not disturb a decision of the trial court as to a determination of damages absent an abuse of discretion.”

When we reviewed the record, we saw nothing that indicated that the trial court abused its discretion when it allowed the claim for punitive damages to go to the jury. The fire in 2007 had substantially the same cause as the fire in 2004. The circumstances in both fires – the conscious disregard of code violations that affected health and safety – were more than enough for the jury to conclude that Village Green had acted with “a conscious disregard for the rights and safety of other persons that has a great probability of causing substantial harm.”

Given that, we concluded that the trial court’s decision to allow the issue of punitive damages to go to the jury was not an abuse of discretion.

Village Green also argued that it could not be held liable for defects of which it was unaware. But that wasn’t the issue in this case. There had been a previous fire in a different building started by the same cause as this fire.

There were sufficient facts upon which the jury could determine that Village Green was aware of the potential – indeed likelihood – of a fire. The trial court didn’t abuse its discretion in allowing the jury to determine that Village Green had failed to comply with the Landlord-Tenant Act.

In summary, we affirmed the court of appeals – by a seven-to-zero vote – with respect to all issues related to the verdict except the award of punitive damages. We agreed with Village Green that the amount of punitive damages exceeded the limit prescribed by the tort law.

Therefore, we held that punitive damages in the amount of two times the award of compensatory damages is the appropriate amount and sent the case back to the trial court to set the amount of damages.

By Paul Pfeifer

Court of Appeals

Paul E. Pfeifer is a judge in the Ohio Court of Appeals.

Paul E. Pfeifer is a judge in the Ohio Court of Appeals.