Fraud or Mistake? And How It Can Effect a Claim Against a Professional Designer.

Generally, a provision in a construction contract for private work limiting the contractor's right to recover additional costs arising from delays outside of the contractor's control may be enforceable. However, under the Public Bid Law, such a provision has been found to be against public policy. La. R.S. 38:2216 prohibits any public contract provision that purports to waive, release or extinguish the rights of a contractor to recover delay damages if the delay was caused in whole or in part by the acts or omission of the public entity.

A recent First Circuit decision struck down a contract provision that purported to limit a contractor's right to damages in a public contract. In F.H. Myers Const. Corp. v. State, Div. of Admin. Office of Facility Planning & Control, 2013-2153 (La.App. 1 Cir. 6/18/14), reh'g denied (July 22, 2014), a general contractor brought an action against the State for breach of contract, seeking payments for extended-fixed job site overhead.

The State argued that the contract contemplated that the contractor could recover extended-fixed job site overhead only if there was a complete stoppage of work solely attributable to the State. The contractor argued that the contract provision was in violation of La. R.S. 38:2216.

The court found that La. R.S. 38:2216 contemplates that a contractor who is a party to a public contract shall be able to recover for any delay they may suffer from the fault of the State entity. Because the contract waived the contractor's rights to seek damages for extended-fixed job site overhead for any delay short of a complete stoppage of work, the contract imposed a stricter limit on damages than the statute allows. The court also noted that the contract only allowed for damages where the State was 100% at fault, whereas the statute allows recovery even if the State is only partially at fault. As such, the provisions at issue were held to be void and unenforceable.

In Moran v. Rouse's Enterprises, LLC, 19-2392019(La. App.5Cir. 12/26/19)- - - So. 3d - - -, the Louisiana Fifth Circuit held that thereis a forfeiture of all benefits when a worker’s compensation claimant commitsfraud, regardless of when the fraudulent conduct occurs. The court declined tofollow opinions from the First and Third Circuits concluding otherwise.

In Moran, the claimant obtained treatment for injuries toher back, right knee, and right shoulder after a slip and fall at work forRouses supermarket. In her deposition, the claimant Moran testified that sheexperienced knee pain only once before her fall; it was “years ago” and not“serious.” Moran also claimed that she experienced no prior shoulder or backpain. However, medical records established:

• Complaintsof knee pain on at least 8 separate occasions between 2012 and the job injury;

• Complaintsof right knee, right wrist, and back pain after a slip and fall in 2013; and

• A rightshoulder impingement diagnosis 2 months before the on-the-job accident.

Rouses and its workers compensation carrier affirmativelyalleged a violation of La. R.S. 23:1208, Louisiana’s workers compensation fraudstatute, following the claimant’s deposition. Paragraphs “A” and “E” of section1208 provide in pertinent part:

A. It shallbe unlawful for any person… to willfully make a false statement orrepresentation… for the purpose of obtaining or defeating any benefit orpayment under…this Chapter.

***

E. Anyemployee violating this Section shall… forfeit any right to compensationbenefits under this Chapter.

As part of their fraud defense, the defendants specificallydenied responsibility for all worker’s compensation benefits, i.e. benefitsthat that might have otherwise been due both before and after the fraudulentdeposition testimony.

Following trial, the workers compensation judge determinedthat Moran carried her burden of proving the occurrence of on-the-job injuryand disability. Nevertheless, the trial court also ruled that the claimant madefalse statements for the purpose of obtaining workers compensation benefits inviolation of section 1208, thereby forfeiting the right to both the pre andpost-deposition benefits that she was claiming.

On appeal, Moran argued that the forfeiture requirement ofsection 1208 applies prospectively only. Moran cited opinions from theLouisiana First and Third Circuits. After addressing the statute and the caselaw, the Moran court affirmed the decision of the workers compensation judgefinding that the forfeiture of benefits provided for in of Section 1208 isclear and unambiguous. The opinion states that “…if the legislature hadintended to limit the application … it would have clearly expressed that in thestatute.”

There are no Louisiana Supreme Court opinions which specifically address whether the Section 1208 forfeiture applies retroactively or prospectively only. Given the defined split in the Louisiana appellate courts, the issue is ripe for consideration by the state’s highest court.

Ed is a Keogh Cox partner who litigates Worker’s Compensation, automobile and premises liability as well as subrogation claims. He is an avid runner and enjoys traveling with his wife Jennifer and their three children.

The longstanding rule that the analysis for "piercing the corporate veil" of an LLC is substantially the same as the analysis for piercing the veil of corporations has been called into question by the recent Louisiana Supreme Court decision in Ogea v. Travis Merritt and Merrit Construction, LLC, 2013-1085, --- So.3d ---. In Ogea, the Court addressed "the extent of the limitation of liability afforded to a member of an LLC" and the statutory basis for exceptions to this limited liability.

Typical of a veil piercing case, the Ogea Court began its discussion by citing familiar Louisiana cases on the topic: Riggins v. Dixie Shoring Co., Inc., 590 So.2d 1164 (La. 1991) and the more recent Charming Charlie, Inc. v. Perkins Rowe Associates, L.L.C., 11-2254 (La. App. 1 Cir. 7/10/12), 97 So.3d 595. However, the similarities stopped there.

The Court noted that traditional veil piercing doctrine was not invoked by the lower courts or the plaintiff. Instead, the Court's analysis turned on the interpretation of an infrequently cited statute within Title 12 that addresses the limitation of liability for LLC members. La. R.S. 12:1320(A) states that the liability of members and managers of an LLC "shall at all times be determined solely and exclusively by the provisions of this Chapter." Subsection (B) provides that members and managers are generally not liable for the debts, obligations, or liabilities of the LLC. Subsection (D) prescribes the exceptions to this limitation of liability, to include fraud, breach of professional duty, and any other negligent or wrongful act by the member or manager.

Addressing this statute as a matter of first impression, the Ogea Court applied the statute to the facts of the case. Merritt Construction, LLC was hired to build a home for plaintiff, Mary Ogea. As part of the process, Ms. Ogea requested that she have a friend prepare the site for the foundation. Travis Merritt, the sole member of Merritt Construction, LLC, informed Ms. Ogea that having someone else prepare the site would waive the warranty. Mr. Merritt subsequently operated the bulldozer to prepare the site for a subcontractor to pour the concrete slab. A dispute arose when a concrete contractor informed Ms. Ogea of problems with the home's foundation. Under these facts, the Court concluded Mr. Merritt was not personally liable under the exclusive exceptions to limited liability found in La. R.S. 12:1320(D).

The first exception, fraud, was rejected because no evidence in the record supported a finding that Mr. Merritt committed fraud.

Turning to the next exception, the Court also rejected the argument that plaintiff breached a professional duty as the sole member of the construction company. The professions recognized in Louisiana's corporate laws do not include individuals who perform construction work. Thus, Mr. Merritt could not breach a "professional duty" as contemplated by the statute. The Court also noted that the contract at issue only recognized Merritt Construction, LLC as a licensed contractor and did not reference any contractor's license held by Mr. Merritt personally.

Finally, the Court addressed the final exception to limited liability: "negligent or wrongful act." Plaintiff asserted that the term "negligence" in the statute only required proof of a tort by the individual. The Court quickly rejected this argument, noting that such an interpretation would improperly expand the liability of LLC members.

Rather, the Court set forth four factors to assist in the analysis under the last "negligence" exception: 1) whether a member's conduct could be fairly characterized as a traditionally recognized tort; 2) whether a member's conduct could be fairly characterized as a crime, for which a natural person, not a juridical person, could be held culpable; 3) whether the conduct at issue was required by, or was in furtherance of, a contract between the claimant and the LLC; and 4) whether the conduct at issue was done outside the member's capacity as a member.

It appears from the Ogea Court's focus that the prior analysis for "piercing the veil" of an LLC has perhaps been set aside and replaced with a new analysis which considers the exceptions to limited liability listed in La. R.S. 12:1320. However, the Court failed to expressly state that the prior analysis is improper and therefore no longer applicable. For now, it appears that the rules for piercing the veil of an LLC have changed but the true impact of Ogea remains to be seen.