UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 03-2064
CHRISTOPHER ROCHE; JUANITA ROCHE,
Plaintiffs - Appellants,
versus
LINCOLN PROPERTY COMPANY; SWIB INVESTMENT
COMPANY,
Defendants - Appellees,
and
INVESCO INSTITUTIONAL,
Defendant.
On Remand from the United States Supreme Court.
(S. Ct. No. 04-712)
Argued: May 5, 2004 Decided: April 7, 2006
Before WIDENER and GREGORY, Circuit Judges, and C. Arlen BEAM,
Senior Circuit Judge of the United States Court of Appeals for the
Eighth Circuit, sitting by designation.
Affirmed by unpublished opinion. Judge Gregory wrote the opinion,
in which Judge Widener and Senior Judge Beam joined.
Jerry M. Phillips, PHILLIPS, BECKWITH & HALL, Fairfax, Virginia,
for Appellants. Connie Nora Bertram, VENABLE, L.L.P., Washington,
D.C., for Lincoln Property Company; Richard Alan Dean, TUCKER,
ELLIS & WEST, L.L.P., for SWIB Investment Company.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
2
GREGORY, Circuit Judge:
The plaintiffs, Christopher and Juanita Roche, citizens of
Virginia, commenced this action in state court against Lincoln
Property Company (“Lincoln”), a Texas corporation, Invesco
Institutional (“Invesco”), a Delaware corporation, and the State of
Wisconsin Investment Board (“SWIB”).1 In their complaint, the
plaintiffs alleged that they developed serious respiratory ailments
and incurred significant property damage as a result of exposure to
toxic mold in their apartment, which was owned by SWIB and managed
by Lincoln. Accordingly, the plaintiffs sought damages in excess
of $10 million under, inter alia, theories of negligence, breach of
contract, fraud, implied warranty of habitability, and conversion.
The defendants removed this action to federal district court on the
basis of diversity of citizenship. Following the district court’s
entry of summary judgment in favor of the defendants, the
plaintiffs filed a motion to remand the case to state court on the
grounds that there was not complete diversity of citizenship
between the parties. The district court denied the plaintiffs’
motion to remand and the plaintiffs appealed.
In May 2004, we reversed the district court’s denial of the
plaintiffs’ motion to remand and instructed the district court to
remand the case to state court. Roche v. Lincoln Prop. Co., 373
F.3d 610 (4th Cir. 2004), rev’d, 126 S. Ct. 606 (2005). In so
1
Invesco is no longer a party to this action.
3
doing, we only reached the first of the plaintiffs’ two arguments
against diversity of citizenship, that the Texas parent of
defendant Lincoln was not the real party in interest and therefore
that Lincoln was not truly diverse from the plaintiffs.
Specifically, we concluded that because defendant Lincoln had not
disproved the existence of a Virginia subsidiary, it had not met
its burden of establishing complete diversity from the plaintiffs.
The defendants appealed this decision to the Supreme Court. The
Supreme Court reversed our decision and remanded, concluding that
“[i]t is not incumbent on the named defendants to negate the
existence of a potential defendant whose presence in the action
would destroy diversity.” Roche, 126 S. Ct. at 610.
As noted above, our initial decision to remand was based
solely on our conclusion that the plaintiffs and defendant Lincoln
were both citizens of Virginia. Thus, we did not address the
plaintiffs’ alternative argument against diversity, that defendant
SWIB is an arm of the State of Wisconsin and therefore not a
“citizen of a state” for the purposes of diversity jurisdiction.
Accordingly, on remand, we must first address the threshold issue
of whether defendant SWIB is an arm of the state or, rather, an
independent agency. If we conclude that defendant SWIB is an arm
of the state, then SWIB is not a citizen for the purposes of
diversity jurisdiction and we must again remand this case to the
state court for a lack of complete diversity. However, if SWIB is
4
not an arm of the State of Wisconsin, then complete diversity
exists, and we must go on to assess whether the district court
erred in granting the defendants’ motion in limine and subsequently
granting summary judgment to the defendants.
I.
We decline to restate the underlying facts of this
dispute, which are adequately stated in the prior opinions in this
case. See Roche v. Lincoln Prop. Co., 373 F.3d 610 (4th Cir.
2004), rev’d, 126 S. Ct. 606 (2005). Accordingly, we now turn to
the various issues raised by the plaintiffs on appeal.
A.
The plaintiffs first assert that defendant SWIB is not a
citizen of the State of Wisconsin under 28 U.S.C. § 1332, and
therefore that the district court should have remanded this action
for a lack of diversity jurisdiction. “We review questions of
subject matter jurisdiction de novo, including those relating to
the propriety of removal.” Md. Stadium Auth. v. Ellerbe Becket
Inc., 407 F.3d 255, 260 (4th Cir. 2005) (internal quotation marks
and citation omitted).
Section 1441 of Title 28 provides that “any civil action
brought in a State court of which the district courts of the United
States have original jurisdiction, may be removed by the defendant
5
or the defendants, to the district court of the United States for
the district and division embracing the place where the action is
pending.” 28 U.S.C. § 1441(a). The defendants based removal on 28
U.S.C. § 1332, which provides for subject matter jurisdiction of
all cases between citizens of different states, when the amount in
controversy exceeds $75,000.
In Moor v. Alameda County, 411 U.S. 693 (1973), the Supreme
Court held that states are not “citizens” for purposes of diversity
jurisdiction. Id. at 717. Moreover, state entities and political
subdivisions are not “citizens” if they are an “arm or alter ego of
the State.” Id. at 717-18. As we recently recognized in Maryland
Stadium Authority, in order for a suit to be between “citizens of
different states” under § 1332, “each distinct interest should be
represented by persons, all of whom are entitled to sue, or may be
sued, in the federal courts.” Md. Stadium Auth., 407 F.3d at 260
(internal quotation marks and citation omitted). Thus, if any
party to a suit is not a citizen of a state, a federal court does
not have jurisdiction under § 1332. Id. This holds true even if
all of the other parties are citizens of different states. See id.
In Maryland Stadium Authority, the court recognized that to
determine whether a state entity or political subdivision is an arm
of the state and therefore not a citizen under § 1332, a court must
look “to the standards announced in cases addressing whether
governmental entities are entitled to Eleventh Amendment immunity
6
as an arm of the state.” Md. Stadium Auth., 407 F.3d at 260-61.
In that context, we typically apply the four-factor test adopted by
this court in Ram Ditta v. Maryland National Capital Park &
Planning Commission, 822 F.2d 456 (4th Cir. 1987). Accordingly, as
the court did in Maryland Stadium Authority, we apply the same
four-factor test from Ram Ditta to determine whether SWIB is an arm
of the State of Wisconsin and therefore not a “citizen” for the
purpose of diversity jurisdiction.
The first Ram Ditta factor requires the court to determine
whether a judgment against the entity would be paid out of the
state’s treasury. Ram Ditta, 822 F.2d at 457. Although a finding
that a judgment would be paid out of the state’s treasury weighs
heavily in favor of a conclusion that the entity is an arm of the
state, we must go on to assess the three additional factors: (2)
the degree of autonomy that the entity enjoys; (3) whether the
entity is involved in primarily state or local concerns; and (4)
the manner in which state law treats the entity. See id. at 457-
58.
Applying the above factors to defendant SWIB, we conclude that
this entity is not an arm the State of Wisconsin and therefore is
a citizen within the meaning of § 1332. First, as the district
court correctly noted, a judgment against SWIB would not affect the
Wisconsin treasury. By act of the Wisconsin legislature, SWIB is
an “independent agency of the state” whose purpose is to manage
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money and property for the state, its agencies and trust funds, in
addition to local government entities and state and local
employees. Wis. Stat. § 25.15(1). Accordingly, SWIB currently
manages over forty separate investment funds, including funds
consisting of money from various state agencies, funds consisting
of money from municipalities, and funds consisting of money from
current and retired state employees. The Wisconsin Retirement
System--Fixed Income Trust is the specific SWIB fund that owns the
apartment complex where the plaintiffs resided. Importantly, the
expenses associated with the management of the Fixed Income Trust,
including any liabilities resulting therefrom, are assessed solely
against the Trust, and not the state treasury. J.A. 1828-29; Bahr
v. State of Wis. Inv. Bd., 521 N.W.2d 152, 158 (Wisc. Ct. App.
1994). Therefore a judgment in this case against SWIB would be
assessed by SWIB against the Fixed Income Trust, and would not
affect the state treasury. Thus, consideration of the first Ram
Ditta factor weighs heavily against the plaintiffs’ argument that
SWIB is an arm of the state.
Turning to the related second and fourth factors, we conclude
that SWIB enjoys considerable autonomy from the State of Wisconsin.
As noted above, the legislature expressly recognized that SWIB is
an “independent agency” of the State, with the responsibility to
(1) sue and be sued in its own name; (2) manage its assets; (3) pay
its liabilities; (4) promulgate rules and regulations; and (5)
8
formulate its investment policies. See Wis. Stat. §§ 25.15, 25.17.
Thus, consideration of the second and fourth factors also weighs in
favor of a finding that SWIB is not an arm of the state.
The evidence is in equipoise with respect to the third factor,
whether SWIB is involved in primarily state or local concerns.
Although SWIB manages money for various state agencies and thus can
be fairly described as having statewide concerns, it is also true
that it has many local concerns, as evidenced by its management of
municipal property funds and various retirement funds on behalf of
individual employees of local governments. See Wis. Stat. §
25.15(1).
In sum, after fully considering the Ram Ditta factors, we
conclude that SWIB is not an arm of the State of Wisconsin and
therefore is a citizen within the meaning of 28 U.S.C. § 1332. The
district court, therefore, correctly concluded that it had subject
matter jurisdiction to adjudicate this action and properly denied
the plaintiffs’ post-judgment motion to remand to state court.
Accordingly, we must go on to assess the other issues raised by the
plaintiffs.
B.
Assuming that the district court’s exercise of subject matter
jurisdiction was proper, the plaintiffs next argue that the
district court abused its discretion in granting the defendants’
9
motion to bar the testimony of their medical expert, Dr. Richard
Bernstein. To the extent that Dr. Bernstein’s testimony was
admissible, the plaintiffs further contend that the district court
erred in granting the defendant’s motion for summary judgment on
the negligence claim.
In his expert report, Dr. Bernstein asserted that based on his
review of plaintiffs’ medical test results, the relevant medical
literature, and the report of the industrial hygienist, the
plaintiffs’ exposure to toxic mold in their apartment caused their
respiratory ailments. Exercising its gatekeeper function under
Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993),
the district court found Dr. Bernstein’s testimony to be unreliable
and granted the defendants’ motion to exclude it.
Since decisions on the admissibility of expert testimony are
committed to the sound discretion of the trial court, we review
those decisions for abuse of discretion. United States v.
Barnette, 211 F.3d 803, 816 (4th Cir. 2000). We will find an abuse
of discretion only where the district court’s “conclusion is guided
by erroneous legal principles, or rests upon a clearly erroneous
factual finding,” or if, after considering all of the evidence, the
reviewing court possesses a “definite and firm conviction that the
court below committed a clear error of judgment in the conclusion
it reached upon a weighing of the relevant factors.” Westberry v.
Gislavid Gummi AB, 178 F.3d 257, 261 (4th Cir. 1999). “Under the
10
abuse of discretion standard, this Court may not substitute its
judgment for that of the district court; rather, we must determine
whether the court’s exercise of discretion, considering the law and
the facts, was arbitrary or capricious.” United States v. Mason,
52 F.3d 1286, 1289 (4th Cir. 1995).
The district court thoroughly analyzed the facts and legal
principles respecting Dr. Bernstein’s proffered testimony in a
well-reasoned thirty-five page opinion. As such, we are unable to
say that the court’s decision to bar Dr. Bernstein from testifying
was arbitrary or capricious. As required by Daubert, the district
court analyzed the reasoning and methodology underlying Dr.
Bernstein’s opinion, which was based on differential diagnosis, to
determine whether it was reliable.2 In concluding that it was not,
the court relied on the fact that Dr. Bernstein had been unable to
determine that the particular types of mold found in the
plaintiffs’ apartment were the specific cause of their upper
2
As the court recognized in Westberry, differential diagnosis
“is a standard scientific technique of identifying the cause of a
medical problem by eliminating the likely causes until the most
probable one is isolated. A reliable differential diagnosis
typically, though not invariably, is performed after physical
examinations, the taking of medical histories, and the review of
clinical tests, including laboratory tests, and generally is
accomplished by determining the possible causes for the patient's
symptoms and then eliminating each of these potential causes until
reaching one that cannot be ruled out or determining which of those
that cannot be excluded is the most likely.” 178 F.3d at 262
(internal quotation marks and citations omitted).
11
respiratory ailments. Further, the district court noted that Dr.
Bernstein had failed to exclude any of the other non-mold allergens
to which the Roches were sensitive. The district court concluded
as follows:
While methodology of differential diagnosis is
scientifically valid, in this instance, Dr. Bernstein has
failed to faithfully apply the methodology to facts.
First, Dr. Bernstein does not rule in Aspergillus,
Cladosporium, and Penicillium as to Mr. Roche because he
was not allergic to these molds. Second, although Mrs.
Roche was allergic to Aspergillus, Cladosporium, and
Penicillium, Dr. Bernstein’s reliance on the literature
addressing general causation is misplaced because the
medical literature provides no scientific support for
specific causation. Third, Dr. Bernstein did not test
the Roches for sensitivity to Stachybotrys, and he
dismisses the Stachybotrys test the Roches had previously
undergone as inconclusive. Fourth, the literature upon
which he relies provides no support for his leap from
general causation to specific causation given the
specific molds, the specific levels of exposure, and the
Roches’ medical history. Fifth, he fails properly to
rule out other allergens and to provide any opinion, at
his deposition, with the requisite degree of medical
certainty.
J.A. 1911-12. Upon full and deliberate review of the record on
this issue, along with our consideration of the arguments of
counsel, we conclude that the district court did not abuse its
discretion in prohibiting Dr. Bernstein from testifying.
Without Dr. Bernstein’s testimony, the plaintiffs could not
establish that the mold in their apartment was the proximate cause
of their alleged respiratory ailments. Accordingly, we conclude
that the district court properly held that the defendants were
12
entitled to summary judgment on the plaintiffs’ claim for personal
injuries resulting from the defendants’ negligence.3
C.
Next, the plaintiffs assert that the district court erred in
granting the defendants summary judgment on their implied warranty
of habitability claim. In their original complaint, the plaintiffs
asserted that the defendants had breached a common law implied
warranty of habitability. Concluding that an implied warranty of
habitability between a landlord and tenant is not cognizable under
Virginia law, the district court initially dismissed this claim
under Federal Rule of Civil Procedure 12(b)(6). J.A. 166.
Notwithstanding this ruling, the plaintiffs later reasserted a
breach of implied warranty claim as part of their Second Amended
Complaint. In so doing, the plaintiffs contended that “[t]his
common law duty is an implied warranty under Virginia case law . .
. .” J.A. 197. The plaintiffs vaguely asserted that this implied
warranty of habitability also arose, in part, by virtue of
unspecified portions of the Virginia Residential Landlord Tenant
Act (“VRLTA”). J.A. 198.
3
The district court also concluded that the defendants were
entitled to summary judgment on plaintiffs’ claim for damages to
their personal property as a result of the defendants’ negligence.
J.A. 1931-32. Although the plaintiffs do not formally appeal this
ruling, we conclude that the district court properly determined
that the plaintiffs had failed to offer any evidence that their
chattels were actually damaged by mold exposure.
13
In granting the defendants’ motion for summary judgment on
this claim, the district court reiterated its previous finding that
Virginia does not recognize an implied warranty of habitability.
Although the district court recognized that the VRLTA provided a
cause of action for specific violations of that statute, the court
concluded that the plaintiffs had not pleaded a separate cause of
action under the VRLTA. See J.A. 1935-36.
As the district court correctly noted, Virginia does not
recognize an implied warranty of habitability between a landlord
and a tenant. Hutton v. Burke & Herbert Bank & Trust Co., 46 Va.
Cir. 146, 147 (Va. Cir. Ct. 1998) (citing Powell v. John E. Hughes
Orphanage, 354, 138 S.E. 637, 644 (Va. 1927)). On appeal from the
district court’s judgment, the plaintiffs now attempt to
recharacterize their implied warranty of habitability claim as an
express warranty claim under the VRLTA. A careful review of the
plaintiffs’ Second Amended Complaint demonstrates that the
plaintiffs never raised a separate claim for a violation of the
VRLTA.4 Instead, the plaintiffs passingly referenced the VRLTA as
an alternative legal basis for their implied warranty claim, while
reiterating that their implied warranty claim arose by virtue of
4
Section VRLTA provides that “[a]ny person adversely affected
by an act or omission prohibited under this chapter may institute
an action for injunction and damages against the person responsible
for such an act or omission . . . .” Va. Code Ann. § 55-248.40.
The VRLTA mandates that landlords, among other things, comply with
applicable building codes and maintain their properties in a safe
condition. See id. § 55-248.13.
14
“Virginia case law.” J.A. 197. Thus, because the implied
warranty of habitability is not cognizable under Virginia law, and
because the plaintiffs failed to assert a separate claim under the
VRLTA--except for the first time on appeal--we conclude that the
district court correctly granted the defendants’ motion for summary
judgment.
D.
We also affirm the district court’s grant of summary judgment
to the defendants on the plaintiffs’ conversion claim. In the
Second Amended Complaint, the plaintiffs alleged that defendant
Lincoln had converted their personal property by (1) exposing it to
toxic mold; (2) dispossessing them of the property and withholding
it without their consent; and (3) destroying or losing it. With
respect to the second and third theories, the plaintiffs contend
that the unlawful conversion arose as a result of Lincoln’s
involvement in the microbial remediation (mold removal) process.
The facts relating to the remediation are as follows. After
the plaintiffs discovered mold in certain areas of their apartment,
they retained an environmental testing company to test for the
presence of mold. The test results indicated that mold was
present. As a result, the testing company recommended that the
plaintiffs temporarily vacate the apartment until the mold could be
eradicated by microbial remediation. The plaintiffs notified
15
defendant Lincoln of the test results, and Lincoln temporarily
relocated the plaintiffs to another apartment unit. Shortly
thereafter, Lincoln notified Invesco to inform it of the mold
situation and the plaintiffs demands.5 Subsequently, Invesco
retained BARCO Enterprises (“BARCO”) to conduct the remediation of
the plaintiffs’ apartment. By letter, the plaintiffs consented to
BARCO’s removal of their personal property from the apartment for
the purposes of conducting remediation. However, the plaintiffs
demanded that any remediation attempt would have to result in the
complete eradication of the three toxic microbes that had been
found in the apartment.
Approximately one month later, BARCO inventoried, separated,
wrapped, and removed all of the items of personal property from the
plaintiffs’ apartment. After this process was completed, BARCO
sent the plaintiffs a printed inventory of the property in storage.
The plaintiffs contend that this inventory was incomplete because
it did not list several of the plaintiffs’ most valuable
possessions, including their money, jewelry, documents, and guns.
After a series of communications regarding the goals of the
remediation process, Invesco’s counsel sent a letter to plaintiffs’
counsel informing him that the plaintiffs had not advised BARCO or
Invesco concerning the final disposition of their property, which
5
As noted above, Invesco, who manages SWIB’s investment in the
apartment complex, is no longer a party to this action.
16
was still located at BARCO’s storage facility. In responding to
this inquiry, plaintiffs’ counsel admonished that “action taken to
harm or destroy any of the property would be considered a
conversion and an intentional act for which we will seek redress”
and demanded that Invesco reimburse the plaintiffs for the value of
the “missing” property, which they contend amounts to $160,000. As
of this appeal, the plaintiffs’ property remains in storage at
BARCO’s storage facility. From all indications, the plaintiffs
have made no attempt to claim the property.
The district court granted the defendants’ motion for summary
judgment on the plaintiff’s conversion claim, concluding that (1)
BARCO, and not Lincoln, had removed the plaintiffs’ property from
the apartment; (2) the plaintiffs had consented to the removal by
BARCO; (3) the plaintiffs had later abandoned that property; and
(4) even if the plaintiffs had not consented to the removal and not
abandoned the property, Lincoln could still not be held liable for
the intentional tort of a third party (BARCO). With respect to the
plaintiffs’ first conversion theory, that Lincoln had converted the
property by exposing it to mold, the court correctly found that the
plaintiffs had presented no evidence of mold damage. See J.A.
1937-38.
For the purposes of this appeal, the plaintiffs have abandoned
the first theory but persist that “Lincoln’s taking dominion of the
valuables of the Roche family, never accounting for them or
17
returning them, constituted conversion.” Appellant’s Br. at 30-33.
In asserting this conversion claim against defendant Lincoln, the
plaintiffs point to a single unauthenticated page of handwritten
notes, which they contend demonstrate that Lincoln was responsible
for removing the property during remediation.6 Accordingly, the
plaintiffs argue that Lincoln, and not BARCO, was the “bailee” of
their personal property.
The plaintiffs’ bailment theory fails because defendant
Lincoln never exercised physical control over the plaintiffs’
personal property with an intent to exercise that control. See K-B
Corp. v. Gallagher, 237 S.E.2d 183, 185 (Va. 1977). Even accepting
the page of handwritten notes as true, they do nothing to
counteract the overwhelming evidence in the record--including the
plaintiffs’ own testimony--indicating that BARCO, and not Lincoln,
ultimately removed, itemized, and stored the plaintiffs’ personal
property. J.A. 528-29, 543-47, 688-89, 708-35. Thus, even if
Lincoln initially promised to ameliorate the mold problem by
removing, cleaning, and storing the property, as the notes suggest,
it does not necessarily follow that the property management company
undertook that task. Instead, the evidence demonstrates that
6
These handwritten notes, which purportedly were transcribed
by an employee of defendant Lincoln after he or she had discussed
the situation with the plaintiffs, state that Lincoln is to remove,
clean, and store certain items from the plaintiffs’ apartment,
prepare an itemized list of property, and terminate the plaintiffs’
lease. J.A. 918.
18
BARCO, at Invesco’s request, removed the plaintiffs’ property to
conduct the microbial remediation. Although the plaintiffs might
have had a viable conversion claim against this third party for
losing (or stealing) several of their valuables, they did not name
BARCO as a defendant. Thus, because defendant Lincoln never
exercised dominion and control over the plaintiffs’ personal
property, the district court properly granted summary judgment on
the conversion claim.
E.
Finally, the plaintiffs contend that the district court erred
in dismissing their claim for punitive damages. In support of this
claim, the plaintiffs asserted that defendants Lincoln and SWIB:
(1) knew that there were health hazards associated with exposure to
toxic molds; and (2) concealed these mold-related health hazards
from their tenants. The district court concluded that even if
these factual allegations were true, they did not meet the high
threshold of egregious conduct necessary for an award of punitive
damages under Virginia law. J.A. 173-74.
It is well-settled that a finding of compensatory damages is
a prerequisite for an award of punitive liability. Zedd v.
Jenkins, 74 S.E.2d 791 (Va. 1953); Newspaper Publ’g Corp. v. Burke,
224 S.E.2d 132 (Va. 1976). In other words, if the defendant cannot
be held liable for the underlying wrong, a plaintiff’s derivative
19
claim for punitive damages is barred. As we have affirmed the
district court’s dismissal of the plaintiffs’ negligence claims for
a failure of proximate cause, the plaintiffs’ claim for punitive
damages fails as a matter of law.
II.
For the foregoing reasons, we affirm the district court’s
denial of the plaintiffs’ motion to remand; the district court’s
grant of the defendants’ motion in limine; and the district court’s
grant of the defendants’ motion for summary judgment.
AFFIRMED
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