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.