Category: Contractors

Personal Liability of an LLC Member – Can an Informal Contract Create Liability?

06.27.2022

Limited liability companies (“LLCs”) are usually formed with the goal of protecting its members from personal liability for the actions of the LLC. Under Louisiana law, there is a “presumption” that the members of an LLC are not personally responsible for the liabilities of the LLC. However, a recent Third Circuit decision highlights how an LLC member may be exposed to personal liability for performance of a contract when the LLC’s name is not displayed on the contract.

In Bourque v. Bergeron, 2021-108 (La. App. 3 Cir. 12/1/21), 331 So. 3d 1089, the plaintiff filed suit against his contractor seeking damages from allegedly defective work. The contractor filed a motion to dismiss the claims against him individually, arguing that he was acting on behalf of his LLC and therefore had no personal liability. In support of his motion, the contractor introduced evidence that: (1) the contractor was the sole member of the LLC; (2) the required contracting license was in the name of the LLC; and (3) plaintiff’s checks were deposited into the LLC’s financial accounts.

The plaintiff argued that he contracted with the contractor individually, and the contractor did not represent that he was acting on behalf of an LLC. The proposal and invoices listed a business name, but did not indicate the business was an LLC. The trial court granted the contractor’s motion, finding the evidence showed the plaintiff was dealing with the LLC, and not the contractor individually.

On appeal, the Third Circuit recognized the general rule that an LLC member is not personally liable for acts committed by the LLC. However, it found an LLC member can be personally liable when they fail to disclose that the member is contracting on behalf of the LLC. The court noted that the proposal/invoice did not reflect the LLC’s involvement – it only included a business name along with the contractor’s individual name and address. Simply including a business name was not sufficient to alert plaintiff he was contracting with an LLC as opposed to an individual with a tradename. The Third Circuit reversed the trial court’s dismissal of the personal liability claims, finding issues of fact as to whether the contractor disclosed that he was acting on behalf of the LLC, which opened the door for potential personal liability for the LLC member.

This case shows that LLC members can create personal liability if they do not express that the LLC is the true party to the contract.

What ifs….. Indemnifying Premises Liability Exposure

11.24.2021

If you are a property owner, stop and think about the “what ifs” before you enter into a lease with a property manager or lessee. For example, what if an invitee of the property that you own is hurt while on and/or because of a condition on the property? Who is responsible?

A property owner may be able to transfer its potential liability to a property manager or lessee of the property if the lease contains an indemnification provision. However, not all indemnification provisions are enforceable, and these critical provisions are often litigated.

The Eastern District Court of Louisiana recently enforced an indemnification provision, granting summary judgment to a landowner who sought indemnification from its property lessee in Avila v. Village Mart, LLC, Civ. A. No. 20-1850, 2021 WL 4439579 (E.D. La. 9/28/21). In the case, a shopping center leased retail space to a men’s store. Before the store opened, a painter was injured when he fell from a ladder. The owner of the shopping center argued that the lessee owed a defense. It argued indemnity applied because the plaintiffs’ claims arose out of the lessee’s buildout construction, over which the owner did not have any care, custody, or control.

In response, the lessee argued that the owner was not entitled to indemnification because the plaintiffs’ claims did not “arise out of or were connected with Tenant’s use, occupancy, management or control of the Leased Premises.” The lessee claimed that it was not using, occupying, managing, or controlling the leased space because the only permitted use of the space was to sell menswear, and the space was not being used for this purpose at the time of the accident.

Louisiana courts often apply a “but for” causation test to such “arising out of” language in indemnity provisions. Avila, 2021 WL 4439579, at *5, citing Kan. City S. Ry. Co. v. Pilgrim’s Pride Corp., No. 06-03, 2010 WL 1293340, at *6 (W.D. La. Mar. 29, 2010), and Perkins v. Rubicon, Inc., 563 So.2d 258, 259-60 (La. 1990). The court observed the lessee’s arguments contradicted language in the lease that allowed the lessee to use and occupy the store before it opened to the public. The lease also explained that the lessee was responsible for certain construction work and identified specific dates to begin work and to open the store. Thus, the lease contemplated use and occupancy before the store was open to the public. The court found that the lessee’s possession of the space and its construction obligations under the lease established its use and occupancy of the space. The court stated:

Given the broad language in the indemnity agreement – ‘arising out of or connected with’ – [the plaintiffs’] injuries, resulting from his work as a subcontractor painting the premises leased by [the retail space lessee,] are connected to [its] use and occupancy of the premises. … Because [the retail space lessee] was in possession of the space, and had assumed responsibility for the buildout and for contractors and subcontractors working on the buildout, the Court finds that the plaintiffs’ liability theories fall within the scope of the indemnity provision in the lease. Avila, 2021 WL 4439579, at *6.

The enforceability of indemnity provisions such as the one examined in Avila will continue to be litigated. In the meantime, Avila reminds us of the importance of sound indemnity language to anticipate the “what ifs.”

Subcontractor’s Status as Plaintiff’s “Two-Contract” Statutory Employer Establishes Owner’s Immunity

06.17.2020

In Louisiana, a “statutory employer” is entitled to protection from tort suit. With limited exceptions, the defense must be supported by a contractual provision declaring the defendant to be a statutory employer in a manner consistent with La. RS 23:1061. In Spears v. Exxon Mobil Corporation & Turner Industries Group, LLC, 2019-0309, 291 So. 3d 1087 (La. App. 1^st Cir. 2019), the defendant-premises owner successfully asserted the defense, notwithstanding multiple issues with respect to the nature and terms of the agreement and an alleged lack of privity with the plaintiff’s immediate employer.

In Spears, the plaintiff was injured when he slipped and fell on the production floor at the Exxon plastics plant. Spears filed suit against multiple parties, including Exxon, alleging it failed to provide a safe premises. The plaintiff worked for Poly Trucking who operated at Exxon under a contract with Polly-America. Poly-America, LP and Exxon, in turn, were signatories to an agreement entitled “STANDARD PURCHASE ORDER” which stated that Polly-America was to:

“… provide pickup/delivery service… For all containers of Polyethylene scrap as well as Polyethylene’s scrap recovery vacuum service for a quoted amount of one dollar.”

The “STANDARD PURCHASE ORDER” also contained a section expressly recognizing Exxon:

“… as the statutory employer of employees of Poly America and subcontractors while such employees are engaged in the contracted work.”

Exxon filed a motion for summary judgment based upon its status as Spears’ statutory employer. The Trial Court granted the motion and dismissed Exxon with prejudice. On appeal, Spears argued that the contract between Exxon and Poly-America presented multiple issues of fact and law which necessitated a reversal of the summary judgment. The issues identified by the plaintiff included the following:

The agreement upon which Exxon relied was a “Contract of Sale,” not a “Contract for Services;”
The agreement specified that the signatory contractor (Poly America) was an “Independent Contractor;”
The plaintiff’s immediate employer (Poly Trucking) was neither a signatory to, nor specifically identified anywhere in the agreement; and,
Although the agreement designated Exxon as the statutory employer of the “employees of Poly America,” Exxon is not specifically designated as the statutory employer of the employees of Poly Trucking, the plaintiff’s immediate employer.

The First Circuit Court of Appeal expressly rejected each of the plaintiff’s arguments.

First, the Court pointed out that the law does not mandate that the contract containing the statutory employment language be of any particular type. As such, whether the contract was considered a contract of sale or for services was irrelevant.

Secondly, the Court rejected the claim that contractual language describing Exxon as an “independent contractor” required a rejection of the statutory defense. The Spears Court reasoned that nothing in La. RS 23:1061 prevents an independent contractor from entering into a written agreement whereby the principal to that contract is recognized as the statutory employer of the employees of the contractor and its subcontractors.

Finally, the Court rejected the claim the defense should be rejected because the plaintiff’s immediate employer was not a party to the contract. As discussed in Spears, the law provides that the contract establishing statutory employment can be with either the plaintiff’s immediate employer or the plaintiff’s statutory employer, and Poly America qualified as the plaintiff’s statutory employer under the “two contract” theory because the work that Poly America subcontracted to the plaintiff’s immediate employer (Poly Trucking) was included within Poly America’s “STANDARD PURCHASE ORDER” contract with Exxon.

The Spears opinion highlights that the statutory defense should be maintained, even under unusual facts, when the requirements of La. RS 23:1061 are satisfied.

Do You Have the “Right to Remain Silent” in Business Dealings?

04.05.2017

As a general rule in Louisiana, a party involved in business dealings may keep silent, but exceptions exist. Sure, where information is volunteered that may influence the other party’s conduct, that information must be truthful, but is there a duty to disclose information harmful to your position? According to one recent decision, the answer may be “yes.”

In Parkcrest Builders, LLC v. Housing Authority of New Orleans, 2017 WL 193500 (E.D. La. 2017), the court highlighted a wrinkle in the general rule of silence. According to the Parkcrest court, a party to a proposed transaction may have a duty to disclose any information that an ethical person would disclose. This duty complicates matters for a party wishing to disclose as little as possible in order to protect its interests in an arms-length negotiation. It also raises a question: can a party be sued in fraud if they don’t divulge enough information to satisfy the other party?

“Fraud” is defined as a misrepresentation or suppression of a material fact, made with the intent to obtain an unjust advantage or to cause a loss or inconvenience to the other party. La. Civil Code article 1953. In order to prove fraud by silence, there must exist a duty to disclose.

Parkcrest involved a public project to construct new affordable housing units where the owner terminated its contract with the contractor and sued the contractor’s bond company. In the suit against the bond company, the owner alleged fraud and claimed that the bond company improperly concealed (1) its intent to rehire the defaulted contractor to complete the project, and (2) the nature of the bond company’s agreement with the contractor. According to Parkcrest, these allegations, if proven, were sufficient to prove fraud by silence.

Given that the law allows recovery of economic losses arising from a party’s reasonable reliance upon information provided by another, businesses need to be careful in what they say, and even in what they don’t say.

When You Can’t Sue – Limits on Contractor Liability

01.25.2017

Louisiana law protects building contractors from liability for past projects that otherwise could extend for an indefinite period of time. La. R.S. 9:2772 prohibits any lawsuit against a contractor for damages arising from a construction project five years after: (1) the date project acceptance was filed into the public records; or, if no acceptance was filed, (2) the date of occupancy. This five-year period is referred to as the “peremptive” period.

This law is broad enough to bar untimely claims of breach of contract and negligence, as well as failure to warn of dangerous conditions. It also covers all conceivable building activities: design, construction, consultation, planning, evaluation, construction administration, and land surveying. It applies both to residential and commercial construction. It also covers claims of property damage, personal injury, and wrongful death brought by any person. The only noted exception is where a contractor’s fraud caused the damages.

The law is meant to establish a specific date to cut off the contractor’s liability. Under the law, nothing can interfere with the running of a peremptive period. After it expires, the claim no longer exists.

Construction litigation in this area often focuses on commencement of the peremptive period. For instance, in Celebration Church, Inc. v. Church Mutual Insurance Company, 16-245 (La.App. 5 Cir. 12/14/16), the owner of a shopping center sued its property insurer for roof damage related to Hurricane Isaac. The insurer prevailed in defending the claim based on defective roof repairs made following Hurricane Katrina. The owner then filed suit against the roofer who made the repairs after Hurricane Katrina. To avoid the peremptive defense, the owner argued that peremption did not begin to run until substantial completion of the entire shopping center. The court rejected this argument and held that the law is specific in defining the date of commencement of the peremptive period. It began to run when the tenants first occupied the space. By the time suit was filed, the owner’s claim no longer existed.

Because construction defects may not surface for years, a claim may be barred before the owner even discovers the problem.

The New Home Warranty Act: How Does It Work?

12.29.2016

Whether you are building a new home, buying a new home, or a residential construction contractor, there is one Louisiana law that you should know: The New Home Warranty Act (“NHWA”).

The NHWA provides the exclusive remedies, warranties, and peremptive periods between a builder and owner relative to home construction. The NHWA provides a warranty for new home purchases and defines the responsibilities of the builder during the warranty periods.

What warranties are provided?

1 year: For one year following the warranty commencement date, the builder warrants that the home will be free from defects due to noncompliance with the building standards or other defects not regulated by building standards;

2 years: For two years after the warranty commences, the builder warrants the plumbing, electrical, heating, cooling, and ventilation systems or other defects not regulated by building standards; and,

5 years: For five years following the warranty commencement, the builder warrants that the home will be free from major structural defects, including foundation systems, or other defects not regulated by building standards.

However, the builder’s warranty will exclude certain items, including, but not limited to: fencing, landscaping, insect damage, bodily injury, and mold damage.

The homeowner is also required under the NHWA to give written notice to the builder by registered or certified mail within one year of knowledge of the defect. Failure to give this required notice may forfeit any claims the homeowner may possess against the builder.

Once notice is given to the builder, if the builder fails to perform as required by the warranties, the owner may bring a claim against the builder for damages, including a claim for attorney fees. This cause of action must be brought within 30 days of the expiration of the applicable warranty period. The damages available to a homeowner cannot exceed the reasonable cost of the repair of the defect, and cannot exceed the original purchase price of the home.

While the NHWA provides certain “bright-line” rules and clarifies the rights and remedies available when a problem arises with new construction, litigation of these claims and the defenses provided to builders can present difficult issues. When an issue arises, you should consult an attorney experienced in this area of practice.

Fourth Circuit Brings Clarity to Peremption Statute in Suit Against Design Professional

02.15.2016

The question addressed in MR Pittman Group, LLC versus Plaquemines Parish Government, 2015-0396 (La.App. 4 Cir. 12/2/15) was whether the five-year peremptive period set by La. R.S. 9:5607 displaces Louisiana’s general one-year prescriptive period set by La. C.C. art. 3492, when applied to tort claims against design professionals. Finding a contractor’s claim against the project engineers prescribed, the MR Pittman court held that the one-year prescriptive period governs tort claims against design professionals.