Court: Court of Appeals for the Ninth Circuit; September 24, 2004; Federal Appellate Court
An appeal has been made following a jury verdict in a personal injury case involving plaintiff James J. Kuntz, who sustained serious injuries when a metal rod he was removing from a billboard struck an electric transmission line operated by Kootenai Electric Cooperative, Inc. The Cooperative had relocated the transmission line to within eight feet of the billboard a year prior to the incident. Kuntz filed suit in district court, claiming diversity jurisdiction under 28 U.S.C. 1332(a)(1). The jury awarded significant damages against both the Cooperative and Lamar Corporation, which had hired Kuntz for the billboard work.
The Cooperative argues that the district court lacked jurisdiction because it should be considered a partnership or unincorporated association due to its membership structure, which includes residents of Washington, the same state as Kuntz. Additionally, the Cooperative claims sovereign immunity as a federal instrumentality and disputes the denial of its motion for judgment as a matter of law regarding liability for willful or reckless conduct. Kuntz and his family cross-appeal, asserting that the court improperly denied their request to amend the complaint to include a claim for punitive damages. The court affirms the district court's judgment, confirming it has jurisdiction under 28 U.S.C. 1291.
At the time of the incident, Kuntz was an independent contractor working for Lamar to update billboards, including one on Highway 95 in Athol, Idaho, which had a vinyl sign secured by 14 metal rods. The Cooperative, incorporated in Idaho, owned the high voltage Chilco line involved in the accident. It had reconstructed this line, resulting in the conductor nearest to the billboard being positioned eight feet away, which met but did not exceed the National Electric Safety Code’s minimum clearance requirement of seven-and-one-half feet. However, the Cooperative failed to notify Lamar or Kuntz of the new proximity and did not implement any protective measures, and it only measured the clearance distance after the accident occurred.
The Idaho High Voltage Act mandates that contractors working within ten feet of high voltage lines must notify the utility for protective measures to be implemented, as outlined in IDAHO CODE 55-2401 and 55-2405. Kuntz’s contractor, Lamar, failed to provide such notice to the Cooperative, which is a violation of IDAHO CODE 55-2402. This statute prohibits contractors from engaging in activities that could bring them or their equipment closer than ten feet to high voltage lines without proper safety measures. IDAHO CODE 55-2403(1) requires contractors to notify the utility in writing if they need to work closer than permitted.
While Kuntz was changing a billboard sign, a metal rod he was handling either touched or came dangerously close to a high voltage line, resulting in an electrical shock that caused him to fall 40 feet, leading to severe injuries. Kuntz filed a personal injury lawsuit in the Eastern District of Washington against Lamar and the Cooperative, alleging negligence and reckless misconduct, which is significant as it allows for non-economic damages beyond a $400,000 cap set by Idaho law (IDAHO CODE 6-1603).
Before the trial, Kuntz attempted to amend his complaint to include a claim for punitive damages, but the district court denied this motion. During the trial, the Cooperative sought judgment as a matter of law regarding the recklessness claim, which was denied. The jury ultimately awarded Kuntz $19,931,504 in damages, attributing fault as follows: 12% to Kuntz, 38% to Lamar, and 50% to the Cooperative. The Cooperative renewed its motion for judgment as a matter of law, which was again denied, and it subsequently appealed, arguing lack of subject matter jurisdiction due to incomplete diversity and error in denying the recklessness motion. Additionally, the Cooperative claimed entitlement to sovereign immunity as a federal instrumentality. Kuntz also cross-appealed the denial of his motion to add a punitive damages claim.
The Cooperative raises subject matter jurisdiction for the first time on appeal, which is permissible as such challenges cannot be waived. The Cooperative argues that the district court lacked jurisdiction based on three points:
1. Despite being a corporation, the Cooperative operates like an unincorporated association, meaning diversity jurisdiction should consider the citizenship of its individual members rather than the corporation itself.
2. Even if recognized as a corporation, the individual members are the real parties in interest, and their citizenship should determine jurisdiction.
3. As a rural electric cooperative, it is an instrumentality of the United States, which invokes sovereign immunity and bars the suit.
Regarding complete diversity, 28 U.S.C. § 1332(a) necessitates that opposing parties have completely diverse citizenship. The record indicates compliance with this requirement: Kuntz is a citizen of Washington, the Cooperative is incorporated in Idaho with its principal place of business there, and Lamar is a Louisiana corporation. The Cooperative contends its “non-stock, non-profit” structure resembles a partnership or unincorporated association, arguing that some members are Washington citizens, thus challenging the completeness of diversity.
This issue of whether an unconventional corporation should be treated as a standard corporation or like a partnership for diversity jurisdiction is a novel question in this circuit. However, the Seventh and Second Circuits have previously addressed similar issues concerning professional corporations, concluding that they should be categorized as corporations under § 1332 despite lacking certain characteristics of traditional corporations. The focus was on maintaining a straightforward jurisdictional rule for clarity.
A bright line rule aligns with U.S. Supreme Court decisions regarding diversity jurisdiction for unincorporated associations seeking corporate status. In *Carden v. Arkoma Assocs.*, the Court determined that a limited partnership's citizenship is based on all its members, emphasizing the need for legislative clarity over judicial reasoning in matters of entity classification. The Court reaffirmed that decisions on how unincorporated entities should be treated for diversity purposes are better suited for legislative bodies rather than the courts. This principle was echoed in *United Steelworkers of Am. v. R.H. Bouligny, Inc.*, which also distinguished unincorporated labor unions from corporations for jurisdictional purposes. The Supreme Court has consistently upheld a clear distinction between state-incorporated entities and others, advocating for simplicity in jurisdictional rules to avoid unnecessary litigation complications. Consequently, the Cooperative is classified as a corporation for diversity jurisdiction due to its incorporation under Idaho law, rendering it a citizen of Idaho and confirming the district court's jurisdiction under 28 U.S.C. § 1332(a) and (c)(1).
The Cooperative contends that the district court lacked subject matter diversity jurisdiction because its members, rather than the corporate entity itself, are the real parties in interest, with some members being citizens of Washington. Federal courts assess jurisdiction based on the citizenship of the real parties involved, not nominal parties, as established in Navarro Sav. Ass’n v. Lee. Under Idaho law, a corporation is considered a person with rights to sue or be sued, and its members are not personally liable for the corporation's debts or obligations. Therefore, the Cooperative, as a corporate entity, is recognized as the real party in interest, supporting the court's diversity jurisdiction.
Additionally, the Cooperative raises a novel argument regarding sovereign immunity, claiming it is an instrumentality of the United States, which would shield it from being sued unless the U.S. expressly waives its immunity. This argument suggests that the Cooperative qualifies as a "federal agency" under the Federal Tort Claims Act (FTCA), which requires exhaustion of administrative remedies before suing the United States. However, establishing that the Cooperative is a federal instrumentality depends on proving federal control over its operations, a standard not met by merely adhering to federal regulations or receiving federal loans. Such connections do not suffice to classify the Cooperative as a federal agency, as articulated in relevant case law.
The Supreme Court in Logue determined that county jail employees responsible for federal prisoners under a contract with the federal government do not qualify as federal employees under the Federal Tort Claims Act (FTCA), despite adhering to federal regulations. The Court noted that federal funding does not imply federal control over local or state government activities, emphasizing that Congress likely did not intend for sovereign immunity to extend broadly based on federal funding. Tort liability is assessed based on the extent of federal control over an entity's daily operations, and no evidence suggests significant federal oversight of the Cooperative's operations. The Cooperative's argument for immunity relies on a statement from a Fifth Circuit case, Alabama Power Co. v. Ala. Elec. Coop., asserting that rural electric cooperatives are instrumentalities of the U.S. However, this case did not involve tort claims and is thus irrelevant to the Cooperative's argument. The Fifth Circuit’s immunity ruling was specific to antitrust laws and does not apply to tort liability. Previous rulings, such as Lewis, illustrate that recognition as a federal instrumentality for one purpose does not automatically confer that status for tort claims. Consequently, the Cooperative's claim for immunity is rejected.
Kuntz's second amended complaint claims that the Cooperative acted willfully and recklessly, impacting the cap on non-economic damages under Idaho law, which is set at $400,000 unless the misconduct is willful or reckless. While the Idaho Code does not define "willful or reckless misconduct," Idaho courts have interpreted it to mean conduct where the actor knowingly creates a substantial risk of harm. Key cases emphasize that recklessness involves an element of foreseeability. The courts favor a general risk of harm approach over a specific mechanism of injury when assessing foreseeability.
In this case, the court focused on whether the Cooperative's actions in moving high voltage lines closer to a billboard presented a high probability of harm. The district court found sufficient evidence for a jury to consider whether the Cooperative's conduct was willful or reckless, particularly given that electric utilities must exercise a high degree of care. Evidence included expert testimony on safety standards, the Cooperative's previous compliance requirements for other billboard owners, and awareness of the proximity of the billboard to the new lines. Viewing the evidence favorably for Kuntz, the court determined there were conflicting inferences regarding foreseeability, thereby justifying the jury's consideration of the issue. Consequently, the district court correctly denied the motion for judgment as a matter of law.
A party in Idaho may seek punitive damages only with court approval, as outlined in IDAHO CODE 6-1604(2). The court must allow such an amendment if the moving party demonstrates a reasonable likelihood of proving facts at trial that would support punitive damages. For punitive damages, the claimant must prove, by a preponderance of evidence, that the defendant engaged in conduct that is oppressive, fraudulent, wanton, malicious, or outrageous, showing an extreme deviation from reasonable conduct and an understanding or disregard for the consequences of their actions. The district court did not abuse its discretion in denying Kuntz’s motion to amend for punitive damages, as he failed to show a reasonable likelihood of proving the necessary "extremely harmful state of mind."
The Cooperative was correctly classified as a corporation for diversity jurisdiction under 28 U.S.C. 1332(c)(1), and it was not treated as a federal instrumentality for tort liability, thus it was not immune from suit. The district court had subject matter jurisdiction due to complete diversity of citizenship, and it properly denied Kuntz’s motion for judgment regarding recklessness. The judgment of the district court was affirmed.
The National Electric Safety Code serves as prima facie evidence of non-negligence, although it does not eliminate the possibility of actionable negligence. The Idaho High Voltage Act currently caps damages at $250,000. Lamar satisfied its judgment and is not part of this appeal, and subject matter jurisdiction can be raised at any time. The district court’s denial of the Cooperative's motion for judgment as a matter of law was reviewed de novo. Additionally, the National Rural Electric Cooperative Association, as amicus curiae, contended that the court misinterpreted the Idaho High Voltage Act regarding construction clearance and notice obligations.
The statute, Idaho Code 55-2402, imposes notice requirements on contractors but does not establish a clearance zone or direct obligations to utility companies. The district court's jury instructions regarding recklessness were appropriate and unchallenged. The argument by the National Rural Electric Cooperative Association (NREC) that the court misinterpreted the Idaho High Voltage Act is unsupported by the record, as the statute does not create a ten-foot clearance zone nor impose a notice duty on the Cooperative. The court's denial of Kuntz's motion to amend the complaint is subject to an abuse of discretion review. The relevant standard of proof is clear and convincing as per Idaho Code 6-1604(1). The district court's subject matter jurisdiction is assessed de novo, and it is noted that federal courts lack jurisdiction over unconsented suits against the United States. Additionally, the court's denial of the Cooperative's motion for judgment as a matter of law will also be reviewed de novo, distinguishing this case from previous precedents due to specific indications of danger. Lamar has satisfied its judgment and is not involved in the appeal.
