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

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.

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.

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.