RENTER BEWARE: Hidden Risks in Lease Agreements

In Marrero v. I. Manheim Auctions, Inc., the plaintiff fell after he exited a building during a rainstorm and stepped off a curb into a parking lot. He claimed he stepped into a divot where asphalt had washed away. The defendant moved for summary judgment.

In opposition, the plaintiff offered an expert affidavit that cited a lack of handrails, code violations, and loose pebbles as contributing to the plaintiff’s fall. To recover in the case, the plaintiff possessed the burden under La. R.S. 9:2800.6 to establish three elements: 1) the parking lot presented an unreasonable risk of harm, 2) this risk of harm was reasonably foreseeable, and 3) the defendant possessed actual or constructive notice of the alleged defect.

The defense argued the plaintiff could not show the parking lot presented an unreasonable risk of harm that was reasonably foreseeable and produced an expert affidavit to show the divot was only 3/16” deep. Evidence also showed the plaintiff was familiar with the area where he fell. The defendant also had received no prior complaints about the area. The trial court found that the parking lot did not present an unreasonable risk of harm because the divot was only 3/16” deep and granted summary judgment.

On appeal, the plaintiff argued that the trial court should not have granted summary judgment in light of the competing expert affidavits regarding whether the parking lot presented an unreasonable risk of harm. However, when a motion for summary judgment is appealed, the court uses a de novo standard of review. Under this standard, the appellate court reviews all issues and considers all evidence submitted to the trial court in its ruling.

The First Circuit affirmed summary judgment but did so for different reasons than the trial court. The Marrero court found the plaintiff failed to produce any evidence of the third element, i.e., whether the defendant knew or should have known of the defect. Because the plaintiff failed to establish a material issue of fact as to all three required elements, summary judgment was granted. Marrero reminds that appellate courts may consider facts and legal issues the trial court did not address in its ruling.

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.

The Supreme Court ruling in Couvillion Group, LLC v. Plaquemines Parish Government, 2020 -00074 (La. 4/27/20) is a reminder that an indemnity claim must be sufficiently related to the principal demand and that contract indemnity provisions are to be strictly construed.

In Couvillion, the general contractor sued the owner of a public works port project for contract delay damages resulting from a cease work order issued to allow redesign of a fuel tank platform. When the contractor submitted its delay claim, the owner requested that its project engineer review it and make recommendations. The engineer recommended payment of a little over $1 million dollars. When the owner refused to pay, the contractor sued. In response, the owner filed a third-party demand against the engineer alleging that its recommendation was erroneous and excessive and that, if it was bound by the engineer’s recommendation, then the engineer must indemnify the owner.

On behalf of the engineer, Keogh Cox attorneys argued that the engineer should not be required to reimburse the owner for any delay costs and asked for dismissal through an exception of no cause of action. Code of Procedure Article 1111 provides that a defendant in a principal action may bring in any person who may be liable to him for all or part of the principal demand. Here, that was not the situation. The engineer was not liable to the owner for any part of the contractor’s delay claim because the engineer did not cause the delay. The delay damages were incurred before the engineer made a recommendation for payment. The events giving rise to the two claims were separate and distinct: the main demand arose from the project delay and the third- party demand arose from the engineer’s recommendation of the claim amount. The Court commented that the principal claim against the owner for delay damages was too attenuated from the owner’s claim against the engineer, thus the third-party demand was improper.

The owner also relied on the indemnity provision in the engineer’s contract that required the engineer to indemnify the owner against any and all claims for personal injury or “damages to property” that may arise from its services. The Court held that the plain meaning of the term did not include the economic-only losses related to the subject delay claim. The Court further reasoned that indemnity agreements are to be strictly construed, rejecting the owner’s broader interpretation.