Court Opinion

ID: 9365273
Source: CourtListenerOpinion
Date Created: 2023-01-23 17:02:41.033306+00
Date Added: 2024-06-11T17:15:44.313295
License: Public Domain

The Supreme Court of the State of Colorado
                  2 East 14th Avenue • Denver, Colorado 80203

                                  2023 CO 1

                       Supreme Court Case No. 22SA195
                    Original Proceeding Pursuant to C.A.R. 21
               Boulder County District Court Case No. 22CV30257
                      Honorable Andrew Hartman, Judge

                                     In Re
                                   Plaintiff:

                                Floyd Nelson,

                                       v.

                                  Defendant:

   Encompass PAHS Rehabilitation Hospital, LLC d/b/a Encompass Health
                  Rehabilitation Hospital of Littleton.

                             Rule Made Absolute
                                   en banc
                               January 9, 2023

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.

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JUSTICE BERKENKOTTER delivered the Opinion of the Court.

¶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

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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.

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¶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

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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

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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).

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                               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

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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 from the members that own the entity.” Griffith v. SSC Pueblo Belmont

Operating Co., 2016 CO 60M, ¶ 11, 381 P.3d 308, 312. But LLCs are also like general

partnerships in certain respects: they “avoid both double taxation and liability for

the business’s debts.” 1 James D. Cox & Thomas Lee Hazen, Treatise on the Law of

Corporations § 1:11, Westlaw (3d ed., database updated Dec. 2022).

¶15   Because LLCs are “a relatively new form of doing business, there may be

questions as to whether laws applying to corporations, partnerships, and other

enumerated forms of doing business apply to [LLCs].” Id. A leading treatise has

noted that an LLC is “essentially a partnership with a legislative grant of limited

liability,” and that laws applying to corporations “should apply equally to

[LLCs].” Id.

¶16   The residence of a corporation “generally is the county of its ‘residence’ or

principal place of business.” 9 Fletcher Cyclopedia of the Law of Corporations § 4372,

Westlaw (database updated Sept. 2022); accord Hagan, ¶ 19, 342 P.3d at 433. This

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is because the law considers a corporation a legal person that is entirely different

from its individual shareholders, and which has a legal capacity that is distinct

from its shareholders, even if they organized the corporation, manage it, and own

all, or nearly all, of its shares. 1 James D. Cox & Thomas Lee Hazen, Treatise on the

Law of Corporations § 1:2, Westlaw (3d ed., database updated Dec. 2022); see

generally 19 C.J.S. Corporations § 787, Westlaw (database updated Nov. 2022) (“A

corporation ordinarily may be sued in the county of its residence or domicile and

for the purpose of suing or being sued, a domestic corporation is a resident of the

county where it has its registered or principal office . . . . A ‘principal office’ is

defined as an office of a corporation in which the decision makers for the

organization within the state conduct the daily affairs of the organization.”

(footnotes omitted)).

¶17   Because a corporation is legally distinct from the individuals who run or

own the entity, it “do[es] not belong to the natural persons composing it.” Trs. of

Dartmouth Coll. v. Woodward, 17 U.S. 518, 667 (1819).           For this reason, a

corporation’s residence, for venue purposes, is determined based on the residence

of the corporation, not the residences of the individuals who own it. Thus, when

a court is examining a motion to change venue in a case involving a corporation,

it does not consider where the corporation’s officers or shareholders reside.

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              E. Differentiating Federal Diversity Subject Matter
                       Jurisdiction and Venue Principles

¶18    Nelson asserts that LLCs should not be treated like corporations in

determining venue. Rather, he contends, an LLC’s residence for venue purposes

should be the same as its citizenship for purposes of analyzing diversity

jurisdiction in federal court. He argues that an LLC “can reasonably and in

fairness be found to reside where any of its members may be found.” We disagree.

¶19   Federal diversity jurisdiction and venue principles are legally distinct

concepts. And, importantly, they “are not concepts of the same order.” Wachovia

Bank v. Schmidt, 546 U.S. 303, 316 (2006). Federal diversity jurisdiction, pursuant

to 28 U.S.C. § 1332, “concerns a court’s competence to adjudicate a particular

category of cases.” Id. Because diversity jurisdiction is rooted in the very authority

of the court to act, a federal court may sua sponte raise concerns regarding

diversity jurisdiction at any time. This is also why diversity jurisdiction cannot be

waived. Id.

¶20   For diversity purposes, a corporation’s citizenship or domicile is where it is

registered to do business or its principal place of business. In contrast, ”a limited

liability company ‘takes the citizenship of all its members’” for diversity purposes.

Spring Creek Expl. & Prod. Co. v. Hess Bakken Inv., II, LLC, 887 F.3d 1003, 1014 (10th

Cir. 2018) (quoting Siloam Springs Hotel, L.L.C. v. Century Sur. Co., 781 F.3d 1233,

1234 (10th Cir. 2015)). This is because federal courts have declined to extend the

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subject matter jurisdiction rule that applies to corporations to unincorporated

associations. Siloam Springs, 781 F.3d at 1234; see Zambelli Fireworks Mfg. Co. v.

Wood, 592 F.3d 412, 420 (3d Cir. 2010) (collecting cases from circuit courts arriving

at the same disposition).

¶21   But, Nelson’s reliance on cases involving diversity jurisdiction in the federal

courts is misplaced because subject matter jurisdiction arises out of different and

“far weightier” concerns than venue. Wachovia Bank, 546 U.S. at 316. “Venue

provisions come into play only after jurisdiction has been established and concern

‘the place where judicial authority may be exercised.’” Lindahl v. Off. of Pers.

Mgmt., 470 U.S. 768, 793 n.30 (1985) (quoting Neirbo Co. v. Bethlehem Shipbuilding

Corp., 308 U.S. 165, 168 (1939)). “[R]ather than relating to the power of a court,

venue ‘relates to the convenience of litigants and as such is subject to their

disposition.’” Id. (quoting Neirbo, 308 U.S. at 168).

¶22   That is all to say that subject matter jurisdiction and venue analyses serve

different purposes and ask different questions: federal diversity analysis looks to

whether there is statutory authority for the federal trial court to even entertain the

matter, whereas venue decisions turn on the convenience of the parties. Associated

Gov’ts v. Colo. Pub. Utils. Comm’n, 2012 CO 28, ¶ 9, 275 P.3d 646, 649. And for

venue purposes under C.R.C.P. 98, this also means looking to see if an action has

been brought in a county other than one in which it should be tried.

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¶23   Because these concepts are not interchangeable, conflating and injecting

federal subject matter jurisdiction principles into an LLC venue analysis invites

more confusion than clarity. See 14D Charles Alan Wright & Arthur R. Miller,

Federal Practice and Procedure § 3801, Westlaw (4th ed., database updated Apr.

2022). So, while the citizenship of an LLC’s members is relevant to determining if

a federal court has the authority to act in a particular case, that information is not

particularly relevant to determining under C.R.C.P. 98 if venue is improper in a

particular county or if venue is convenient when one of the parties is an LLC.

¶24   Moreover, it is illogical to suppose that the reach of C.R.C.P. 98, as it relates

to an LLC, extends to the location of its members. This is particularly true because

an LLC has a legal capacity that is distinct from its members. Importantly, an LLC

is not merely a pass-through entity such that it only exists through its members.

Thus, it makes little sense to make decisions about where a case should be litigated

based on the location of the members of an LLC.1

1The trial court, relying on a case decided by a division of the court of appeals in
1900, argues that its ruling is consistent with the common law view that all
unincorporated groups should be treated as partnerships for venue purposes.
See Adamson v. Bergen, 62 P. 629, 630–31 (Colo. App. 1900). We are unpersuaded.
While the ruling may well align with the common law view of unincorporated
groups as articulated over a century ago, the General Assembly clearly
understood when enacting the Limited Liability Company Act—and with it a

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¶25   Adopting Nelson’s logic would weaken the delineation the General

Assembly created between LLCs and their members. See Ronquillo v. EcoClean

Home Servs., Inc., 2021 CO 82, ¶ 22, 500 P.3d 1130, 1135–36 (“We construe a statute

‘as a whole to give “consistent, harmonious and sensible effect to all its parts.”’”

(quoting Bd. of Cnty. Comm’rs v. Costilla Cnty. Conservancy Dist., 88 P.3d 1188, 1192

(Colo. 2004))). Because an LLC “is separate from the members that own the

entity,” Griffith, ¶ 11, 381 P.3d at 312, it strains common sense to look to the

residences of an LLC’s members to determine its residence for purposes of

analyzing venue.

¶26   To find otherwise would contravene the overarching statutory purpose to

delineate an LLC from its members, much like, for venue purposes, the distinction

between a corporation and its shareholders. See 1 James D. Cox & Thomas Lee

Hazen, Treatise on the Law of Corporations § 1:2, Westlaw (3d ed., database updated

Dec. 2022). Accordingly, we hold that the residence of an LLC’s members cannot

properly be considered in determining the LLC’s residence for venue purposes

new type of unincorporated association that was not merely a pass-through
organization, like a partnership—that it was authorizing a new type of legal
entity in derogation of the common law. § 7-80-109, C.R.S. (2022).

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under C.R.C.P. 98. Instead, courts must determine an LLC’s residence for venue

purposes like a corporation’s: by looking to the LLC’s residence.

                                 III. Application

¶27   Having held that the residence of an LLC determines the location of the LLC

for purposes of venue, we conclude that Encompass is a resident of Arapahoe

County, not of Boulder County. Contrary to Nelson’s contention, the fact that

Encompass’s members, Littleton Holdings and Porter, reside outside of Arapahoe

County, does not affect our analysis. Venue is proper in Arapahoe County—and

is improper in Boulder County—because (1) Nelson resides in Arapahoe County,

(2) Encompass resides in Arapahoe County, (3) the alleged torts took place in

Arapahoe County, and (4) Encompass is a Colorado resident.2

2 Finally, Nelson also argues that Encompass failed to properly exhaust its
remedies below by not filing a motion for reconsideration with the Boulder trial
court. See C.R.C.P. 121, § 1-15(11). C.A.R. 21 does not obligate parties to move for
reconsideration before seeking an order to show cause. See C.A.R. 21; see also People
ex rel. Rein v. Meagher, 2020 CO 56, ¶ 22, 465 P.3d 554, 560 (“[W]e do not add words
to or subtract words from a statute.”); People v. G.S., 2018 CO 31, ¶ 32, 416 P.3d 905,
913 (“We apply ‘[t]he standard principles of statutory construction . . . to our
interpretation of court rules.’” (alterations in original) (quoting In re Marriage of
Wiggins, 2012 CO 44, ¶ 24, 279 P.3d 1, 7)). C.A.R. 21 offers relief that is “wholly
within the discretion” of this court. C.A.R. 21(a)(1). Accordingly, there is no
procedural defect impeding our analysis of the parties’ substantive arguments.

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                                IV. Conclusion

¶28   The residence of an LLC for venue purposes cannot be determined based on

the residence of its members. Rather, the residence of an LLC for venue purposes

under C.R.C.P. 98 maps to how the residence of a corporation is determined for

venue purposes. That is, the trial court must look only to the residence of the LLC

itself. Because Encompass’s residence, like Nelson’s, is in Arapahoe County, and

because the alleged torts occurred in Arapahoe County, venue is not proper in

Boulder County. Thus, the trial court erred in denying Encompass’s motion to

change venue. Accordingly, we make the rule to show cause absolute, vacate the

district court’s order denying Encompass’s motion to change venue, and remand

for further proceedings consistent with this opinion.

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