Liability of a Parent Corporation for Construction Defects



Magnolia N. Prop. Owners Ass’n, Inc. v. HeritageComm. Inc., No. 4943.

A property owners
association (POA) filed suit for construction defects in a condominium complex.
Appellants are three corporations: HCI (parent corporation), HMNI (seller) and
Buildstar (general contractor).
  HCI
created separate corporations for every development it constructed for the
purpose of operating as cost centers. HMNI was the cost center for Magnolia
North POA and Buildstar supervised construction at Magnolia North.
           

The POA board of directors initially consisted of
officers of the Appellant corporations. 
During this time, unit owners discovered various construction defects. The
officers assured POA members that the defects would be timely cured.  The POA filed suit after turnover of
the board from the developer to the unit owners. The POA asserted causes of
action of negligence, breach of express warranty, breach of warranty of
workmanlike services, and breach of fiduciary duty.  The court affirmed the jury’s award of $6.5M in actual
damages and $2M in punitive damages.
 

Amalgamation

Amalgamation is a theory of
holding a parent corporation liable in place of its subsidiary where evidence
shows that corporate interests, entities and activities are blurred to the
point that separate legal distinctions can be ignored.
  This is not piercing the corporate
veil, as fundamental unfairness and fraud are not required elements. The court
compared the instant case with
Kincaid v.
Landing Devel. Corp.
where amalgamation was found between three distinct
corporations.
  In the instant case,
the court pointed to the following facts for upholding the trial court’s
finding of amalgamation:

1.    
HCI, HMNI and Buildstar
“shared officers, directors, office space and a phone number”

2.    
The corporations shared
employees

3.    
HCI held itself out to the
POA as the corporation responsible for construction defects in its written
warranty

 Equitable Tolling

A three-year statute of
limitations applied to the POA’s causes of action. Appellants argue the statute
of limitations started when construction defects were discovered, marked by the
POA’s first meeting on March 8, 2000.
 
The court disagreed and held that the statute did not begin to run until
the date of turnover.

The
court relied on the recent case of
Hooper
v. Ebenezer Senior Svcs and Rehab. Ctr.
, where the supreme court described
equitable tolling as a “
doctrine to suspend
or extend the statutory period to ensure fundamental practicality and fairness

. . . It has been observed that equitable tolling typically
applies in cases where a litigant was
prevented from filing suit because of an extraordinary event beyond his or her
control
. . . To deny [equitable
tolling] would permit one party to suffer a gross wrong at the hands of the
other.”

The POA board consisted of
the corporations’ officers until turnover, so it is unreasonable to expect that
the POA would have brought suit before the homeowners gained control of the
board. As soon as turnover occurred, the POA promptly filed suit.
  The court upheld the trial court’s
ruling on equitable tolling.

Equitable Estoppel

The Appellant corporations
were equitably estopped from asserting the statute of limitations as a bar to
the POA’s claim because the Appellants induced the POA’s delay in filing
suite.
  The court held that deceit
is not an essential element of estoppel; it is enough that the party
“reasonably relied on the words and conduct
of the party to be estopped in allowing the limitations period to expire.”
  Appellants assured the unit owners that
the construction defects would be repaired, so it was reasonable for the unit
owners to give the Appellants time to make good on these promises before filing
suit. 

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter. 

Liability of a Parent Corporation for Construction Defects

Magnolia N. Prop. Owners Ass’n, Inc. v. HeritageComm. Inc., No. 4943.

A property owners association (POA) filed suit for construction defects in a condominium complex. Appellants are three corporations: HCI (parent corporation), HMNI (seller) and Buildstar (general contractor).  HCI created separate corporations for every development it constructed for the purpose of operating as cost centers. HMNI was the cost center for Magnolia North POA and Buildstar supervised construction at Magnolia North.            

The POA board of directors initially consisted of officers of the Appellant corporations.  During this time, unit owners discovered various construction defects. The officers assured POA members that the defects would be timely cured.  The POA filed suit after turnover of the board from the developer to the unit owners. The POA asserted causes of action of negligence, breach of express warranty, breach of warranty of workmanlike services, and breach of fiduciary duty.  The court affirmed the jury’s award of $6.5M in actual damages and $2M in punitive damages. 

Amalgamation

Amalgamation is a theory of holding a parent corporation liable in place of its subsidiary where evidence shows that corporate interests, entities and activities are blurred to the point that separate legal distinctions can be ignored.  This is not piercing the corporate veil, as fundamental unfairness and fraud are not required elements. The court compared the instant case with Kincaid v. Landing Devel. Corp. where amalgamation was found between three distinct corporations.  In the instant case, the court pointed to the following facts for upholding the trial court’s finding of amalgamation:

1.     HCI, HMNI and Buildstar “shared officers, directors, office space and a phone number”

2.     The corporations shared employees

3.     HCI held itself out to the POA as the corporation responsible for construction defects in its written warranty

 Equitable Tolling

A three-year statute of limitations applied to the POA’s causes of action. Appellants argue the statute of limitations started when construction defects were discovered, marked by the POA’s first meeting on March 8, 2000.  The court disagreed and held that the statute did not begin to run until the date of turnover.

The court relied on the recent case of Hooper v. Ebenezer Senior Svcs and Rehab. Ctr., where the supreme court described equitable tolling as a “doctrine to suspend or extend the statutory period to ensure fundamental practicality and fairness . . . It has been observed that equitable tolling typically applies in cases where a litigant was prevented from filing suit because of an extraordinary event beyond his or her control . . . To deny [equitable tolling] would permit one party to suffer a gross wrong at the hands of the other.”

The POA board consisted of the corporations’ officers until turnover, so it is unreasonable to expect that the POA would have brought suit before the homeowners gained control of the board. As soon as turnover occurred, the POA promptly filed suit.  The court upheld the trial court’s ruling on equitable tolling.

Equitable Estoppel

The Appellant corporations were equitably estopped from asserting the statute of limitations as a bar to the POA’s claim because the Appellants induced the POA’s delay in filing suite.  The court held that deceit is not an essential element of estoppel; it is enough that the party “reasonably relied on the words and conduct of the party to be estopped in allowing the limitations period to expire.”  Appellants assured the unit owners that the construction defects would be repaired, so it was reasonable for the unit owners to give the Appellants time to make good on these promises before filing suit. 

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter. 

Limited Home Warranty Waived Implied Warranty of Habitability

Jones v. Centex Homes, 189 Ohio App. 3d 668 (2010).

The Joneses entered into a sales agreement with Centex Homes for the construction of a new home.  The agreement included a Limited Home Warranty provision covering defects in materials and workmanship.  The provision also contained a clause purporting to waive any and all express or implied warranties of habitability or fitness. 

Under the law in most states, a new homebuilder impliedly warrants to a purchaser that the home is structurally safe and free from defects.  In some states, it is incredibly difficult if not impossible to disclaim this warranty.  However, both the trial court and court of appeals in this Ohio case found that the buyers contractually waived their claims by virtue of the Limited Home Warranty. 

The court of appeals seemed to place great emphasis on the fact that the Joneses were in their 30s and 40s and made the conscious decision to enter into this agreement without the aid of an attorney.  The court relied on basic contract principles of freedom of contract and the presumption that a party reads what he signs.  The court also noted that although the Limited Home Warranty provision was not emphasized in the contract, it was also not hidden or in small font.  Because the language was clear and unambiguous and because the parties voluntarily entered into the agreement, the court upheld the waiver as the homebuyers’ exclusive remedy.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice.  Seek a competent attorney for advice on any legal matter.

LLC Members are not Protected from all Liability

Sturm v. Harb Development, 298 Conn. 124, 2 A.3d 859 (2010).

Members of limited liability companies may be surprised to know that they can be sued individually when they personally direct or participate in tortious conduct. This is not the same as piercing the corporate veil, and does not require the plaintiff to allege facts to show that the corporate veil should be pierced.

In this case, a homeowner sued a contractor for breach of contract, negligence, fraud, and negligent misrepresentation in connection with the construction of a new home. The trial court held that the plaintiff failed to allege facts sufficient to pierce the corporate veil, so the contractor could not be held personally liable. On appeal, the plaintiff homeowner argued that piercing the veil was unnecessary because he was asserting liability against the defendant based on his individual actions, not trying to hold the contractor vicariously liable for the actions of the LLC. The court determined that a member of an LLC is not liable for the actions of the LLC merely because of his position within the company. However, when the member personally directs or participates in tortious conduct, he cannot hide behind the corporate shield.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.