Nelson v. Encompass PAHS Rehab. Hosp.

2023 CO 1

In Re Floyd Nelson, Plaintiff v. Encompass PAHS Rehabilitation Hospital, LLC d/b/a Encompass Health Rehabilitation Hospital of Littleton. Defendant

No. 22SA195

Supreme Court of Colorado, En Banc

January 9, 2023

Original Proceeding Pursuant to C.A.R. 21 Boulder County District Court Case No. 22CV30257 Honorable Andrew Hartman Judge

Rule Made Absolute

Attorneys for Plaintiff: Rhoden Law Firm Garry J. Rhoden Craig, Colorado

Attorneys for Defendant: Rodman & Rodman, LLC John R. Rodman Brendan P. Rodman Cala R. Farina Sheridan S. Couture Denver, Colorado

Attorneys for Respondent Boulder County District Court: Philip J. Weiser, Attorney General Grant T. Sullivan, Assistant Solicitor General Denver, Colorado

JUSTICE BERKENKOTTER delivered the Opinion of the Court, in which CHIEF JUSTICE BOATRIGHT, JUSTICE MÁRQUEZ, JUSTICE HOOD, JUSTICE GABRIEL, JUSTICE HART, and JUSTICE SAMOUR joined.

OPINION

BERKENKOTTER, JUSTICE

¶1 In this original proceeding under C.A.R. 21, we consider how to determine a limited liability company's ("LLC") residence for purposes of analyzing venue. Petitioner Encompass PAHS Rehabilitation, LLC d/b/a Encompass Health Rehabilitation Hospital of Littleton ("Encompass") argues that the trial court erred in looking to the residence of Encompass's members in determining that venue was proper in Boulder County District Court and thus denying Encompass's motion for change of venue. Respondent Floyd Nelson, analogizing to federal diversity cases, argues that the trial court properly looked to the residences of Encompass's members in deciding where venue lies.

¶2 In addressing this issue of first impression, we explore the nature and form of LLCs and the differences between venue and federal diversity jurisdiction, and ultimately conclude that the residence of an LLC for venue purposes under C.R.C.P. 98 is controlled by the residence of the LLC, not that of its members. We, accordingly, make the rule absolute.

I. Facts and Procedural History

¶3 The pertinent facts are not in dispute. Nelson, a resident of Arapahoe County, alleges that he sustained injuries from a fall at a rehabilitation hospital owned by Encompass, an LLC, that is located in Arapahoe County. Nelson sued Encompass, asserting claims for negligence; medical negligence; and negligent hiring, supervision, retention, and training. Although Nelson is a resident of Arapahoe County, the LLC is located in Arapahoe County, and the alleged torts occurred in Arapahoe County, Nelson brought the action in Boulder County District Court.

¶4 Before responding to Nelson's suit on the merits, Encompass moved to change venue from Boulder County to Arapahoe County pursuant to C.R.C.P. 98(f). Encompass argued that because neither it nor Nelson were residents of Boulder County and the alleged tort occurred in Arapahoe County, venue was improper and the suit had to be moved to Arapahoe County. Nelson opposed the motion, asserting that the trial court should look to the residences of Encompass's two limited liability members, (1) Encompass Health Littleton Holdings, LLC ("Littleton Holdings"); and (2) Porter Care Adventist Health System ("Porter"), in determining proper venue. Nelson contended that because Littleton Holdings, which owns a 68% stake in Encompass, is a Delaware-chartered corporation, he could file suit in the county of his choosing pursuant to C.R.C.P. 98(c), as interpreted by this court in Denver Air Center v. District Court, 839 P.2d 1182, 1184-85 (Colo. 1992). Nelson further asserted-upon information and belief-that Porter is a resident of Boulder County because it owns or operates two health care facilities in the county.

¶5 After the trial court denied Encompass's motion for change of venue, Encompass filed a petition for a rule to show cause why the trial court's denial of its motion to change venue should not be reversed. We then issued an order to show cause.

II. Analysis

¶6 We begin by discussing our original jurisdiction and discretion to hear this matter pursuant to C.A.R. 21. Next, we detail the relevant standard of review and principles of law, before turning to how, for venue purposes, courts should treat LLCs. We then apply these principles to the matter before us and conclude that venue is not proper in Boulder County. Accordingly, we make the rule absolute and vacate the trial court's order denying Encompass's motion to change venue to Arapahoe County.

A. Original Jurisdiction

¶7 This court exercises its original jurisdiction in those "extraordinary circumstances 'when no other adequate remedy' is available." People in Int. of A.C., 2022 CO 49, ¶ 6, 517 P.3d 1228, 1233 (quoting C.A.R. 21(a)(1)). We "have historically cabined" our original jurisdiction to matters raising "issue[s] of first impression that ha[ve] significant public importance." People v. A.S.M., 2022 CO 47, ¶ 9, 517 P.3d 675, 677. But we have also exercised our discretion to hear cases under C.A.R. 21 that "raise 'issues involving venue' because such issues 'directly affect the trial court's jurisdiction and authority to proceed with a case' and 'review of a venue determination serves to avoid the delay and expense involved in re-trial should this court deem venue improper.'" Magill v. Ford Motor Co., 2016 CO 57, ¶ 10, 379 P.3d 1033, 1036 (quoting Hagan v. Farmers Ins. Exch., 2015 CO 6, ¶ 13, 342 P.3d 427, 432).

¶8 We choose to exercise our original jurisdiction to review the trial court's order denying Encompass's motion to change venue because it involves a question of first impression: how to discern an LLC's residence for venue purposes. Additionally, forcing Encompass to litigate this matter in Boulder County just so an appellate court could subsequently order a new trial in Arapahoe County would waste judicial resources and the parties' time and money.

B. Standard of Review

¶9 We review a trial court's decision regarding a motion to change venue for an abuse of discretion. Id. at ¶ 12, 379 P.3d at 1036; Sampson v. Dist. Ct., 590 P.2d 958, 959 (Colo. 1979). "A trial court abuses its discretion when it proceeds to hear a case where venue is improper." Magill, ¶ 12, 379 P.3d at 1036. "[W]hen a party requests a change of venue upon a ground which entitles it to the change as a matter of right the trial court loses all jurisdiction except to order the change." Denver Air, 839 P.2d at 1185 (quoting Ranger Ins. Co. v. Dist. Ct., 647 P.2d 1229, 1231 (Colo. 1982)); see Brownell v. Dist. Ct., 670 P.2d 762, 764 (Colo. 1983) ("When a meritorious motion for change of venue is filed, 'the trial court loses jurisdiction in the case to proceed further with the determination of other issues, and has only authority to order a transfer to the proper county.'" (quoting Bd. of Cnty. Comm'rs v. Dist. Ct., 632 P.2d 1017, 1022 (Colo. 1981))).

C. Venue Principles

¶10 Pursuant to C.R.C.P. 98(f), courts "may, on good cause shown," grant a change of venue "[w]hen the county designated in the complaint is not the proper county." For torts, like those alleged here, venue is proper in the county: (1) where the plaintiff resides; (2) where an in-state defendant resides; or (3) where the alleged tort occurred. C.R.C.P. 98(c)(1), (5). If the defendant is not a Colorado resident, then venue is appropriate in the "county of plaintiff's choice." Denver Air, 839 P.2d at 1184-85.

¶11 A plaintiff may choose the county in which to file suit so long as venue is proper. Hagan, ¶ 14, 342 P.3d at 432. While there is a "strong presumption" in favor of a plaintiff's choice of venue, it is not absolute. Id. (quoting UIH-SFCC Holdings, L.P. v. Brigato, 51 P.3d 1076, 1078 (Colo.App. 2002)). The movant challenging a suit's venue bears the burden to show that it is improper. Tillery v. Dist. Ct., 692 P.2d 1079, 1084 (Colo. 1984).

D. LLCs and Venue

¶12 We turn next to consider the unique statutory scheme that authorizes the creation of LLCs, including how those statutes incorporate both corporate and general partnership principles. Then, we consider Nelson's argument that an LLC's residence for venue purposes should be analyzed the same way its citizenship is determined for purposes of analyzing federal diversity jurisdiction.

¶13 As noted, an LLC created under Colorado's Limited Liability Company Act is a form of legal entity that "combin[es] features of Colorado's limited partnership and corporation statutes." LaFond v. Sweeney, 2015 CO 3, ¶ 15, 343 P.3d 939, 944; see Colorado Limited Liability Company Act, §§ 7-80-101 to -1101, C.R.S. (2022). The third of its kind in the country, the Act "includes some of the same basic features found in the Uniform Limited Liability Company Act of 1996 ('Model Act') drafted by the National Conference of Commissioners on Uniform State Laws." LaFond, ¶ 15, 343 P.3d at 944; Water, Waste & Land, Inc. v. Lanham, 955 P.2d 997, 1000 (Colo. 1998). However, "[u]nlike a number of other states, where LLC statutes were based on [the Model Act]," Colorado opted to "combine[] features of the state's existing limited partnership and corporation statutes." Water, Waste & Land, 955 P.2d at 1000. To that end, "the [Colorado] LLC Act includes the same basic features of limited liability, single-tier tax treatment, and planning flexibility shared by the Uniform Limited Liability Company Act and LLC legislation adopted by other states." Id.; see generally John R. Maxfield et al., Colorado Enacts Limited Liability Company Legislation, 19 Colo. Law. 1029 (June 1990) (outlining the LLC statutory scheme in Colorado).

¶14 Similar to corporations, these LLCs shield individual members from personal liability for the LLC's actions. § 7-80-705, C.R.S. (2022). We have also previously made clear that LLCs created under the Act, like corporations, are "separate...