What is LLC Contractor Liability?
When you enter into a contract with an LLC (Limited Liability Company), you are getting protection for that company from personal liability exposure. Generally, you are limited to bringing a lawsuit against just the LLC alone. However, there are exceptions. If the LLC is found to be completely under-capitalized or if the individual opens up his or her wallet and commits fraud or makes other misrepresentations that induce you to enter into a contract with them, the veil of protection held by the LLC can be pierced.
The whole purpose of the LLC is to provide limited liability protection to the owners and that’s why you can’t just sue them individually unless you have some extraordinary circumstance. One of the most important things to understand is the value of doing business with an LLC. It’s not enough to say that you may have a lawsuit against the owners of the LLC if things go wrong like you have a claim on the underlying contract. You have to show intent, reliance, damage and causation.
The LLC is not an afterthought and you must conduct due diligence in protecting yourself when the LLC is formed. Depending on the size of the entity, you can ask for indemnification, insurance and bonding and those three together typically will protect you in the event the LLC does something wrong .
You need to understand if the LLC has been validly formed and if it has business insurance coverage. You also want to know whether or not the LLC has the financial capability to pay a judgment. In Florida, you can actually go on the Secretary of State’s website and find out who actually made the investment and whether or not there is a lawsuit that’s been filed against them. Generally, the owners of the LLC will not tell you that. You must do your own research.
One of the easiest things you can do, from a contractor perspective, is check out their payment history on jobs that they have previously done. You can look on the construction lien system and determine how much they paid the subcontractors on their previous jobs. You can also look at the costs in the local property appraiser’s office to see what the property sold for, how much the contractor bought it for and whether or not they actually want to build it out.
You want to know if the contractor owes any money on prior projects and whether he has had lawsuits filed against them in the past. Those lawsuits can and will follow the contractor into his new LLC during the veil piercing. In Florida, once the corporate veil is pierced, the owners can be held liable for the acts of the company.
Common Reasons for Suing a LLC Contractor
One common reason people sue LLC contractors is for breaching the contract. Breach of contract occurs when either party to a contract or agreement does not fulfill an obligation mandated within the terms of the contract. For example, if an LLC contractor fails to perform according to the terms of a contract that has been signed, it is considered a breach of contract. If an unfinished fence is not completed within the time allotted for the construction or a staircase that was supposed to be finished cannot be accessed due to a trailer that is blocking it, issues like these are considered breach of contract.
Another reason people may sue LLC contractors is for failure to perform according to the agreement. In this instance, a contract is entered into but conditions that were agreed upon are not followed. A landlord searching to hire a concrete company may enter into a contract and pay the company to perform on certain days if needed. If the concrete company does not show up as agreed upon, it is an example of failing to perform according to the agreement.
An LLC contractor may be sued for failure to obtain a required license. Examples of when this can occur is if a contractor plans to paint a property but does not have a license to offer painting services. This may seem trivial but without a license, a client can be left responsible for hiring a painter in addition to their current contractor and may lose out on some of their deposit.
Negligence can also be a reason to sue an LLC contractor. Negligence can be described as a contractor who makes a mistake that is not related to the terms of an agreement or contract. If an electrician installs a light switch incorrectly on a kitchen counter, this would be an example of negligence. Negligence can also be described as failing to uphold responsibility, so a loss of payment may be demanded for not fulfilling responsibilities in the job.
Prerequisites to Filing a Lawsuit
If you are considering suing an LLC contractor, there are several preliminary steps you should take before moving forward with a lawsuit. First, carefully review the contract terms and conditions to determine if there are any relevant provisions that need to be addressed. For instance, many construction contracts have requirements that disputes be resolved through mediation or arbitration instead of through a lawsuit. Next, gather any evidence you can to support your legal claims, such as receipts for payments, invoices from the contractor, photographs of the work performed, and communications between you and the contractor. You should then make an attempt to resolve the dispute by first communicating with the contractor about your claim, and then potentially meeting in person to discuss a resolution. If you are unable to resolve your claim through communication, you may want to consider mediation or arbitration if that is required under your contract.
How to Bring a Lawsuit Against an LLC Contractor
When seeking to file a lawsuit against a contractor that is an LLC, the process is fairly similar to filing a lawsuit against an individual or a different kind of business entity. The first step is deciding where you should file your lawsuit, as this can vary based on the nature of your case. If the damages were under $15,000, you can file a complaint in Small Claims Court, as this is generally the least expensive way to file a lawsuit.
In most small claims jurisdictions, this route is intended only for simple cases with limited damages, so consider whether the case is worth the costs involved or whether you need to pursue a different path. For cases with damages above the small claims threshold , you can generally file your lawsuit in the appropriate civil court in your jurisdiction. As a part of this process, you will need to prepare a complaint and file it with the court. You will also need to have your complaint served on both the contractor and the contractor’s registered agent, which is essentially a representative of the business who can accept legal documents on the LLC’s behalf.
If you are unsure where to file the complaint or whether to file in small claims court or civil court, an attorney can advise you about your best options. Different jurisdictions have their own rules regarding the filing of lawsuits, and there may be factors that come into play based on whether there was a written contract or if the damages were caused by fraud or some other type of misconduct.
Possible Outcomes and Remedies
The possible outcomes of a lawsuit against an LLC contractor, either through a settlement or a court judgment, can vary widely based on the nature of the dispute, the severity of the losses, and the circumstances of the case. There are several forms of legal relief that may be awarded through a settlement or a judgment.
Monetary Damages
Legal damages typically fall into two distinct categories: compensatory and consequential. Compensatory damages are focused on putting the non-breaching party in the position they would have been in had the conduct never occurred. On the other hand, consequential damages seek to account for any other impact the breach of contract had, such as the loss of future profits or business. The ability to recover any damages will depend on the specific provisions of the contract and the other circumstances specific to the situation.
Specific Performance
In some cases, the equitable remedy of specific performance may be awarded. These orders demand that the breaching party fulfill their original obligations – in this case, to complete the construction project as required per the terms of the original contract and local building codes and ordinances. Specific performance is typically awarded only in particular circumstances, such as when it is impossible for the non-breaching party to replace the work that was supposed to be completed under the contract, or the subject of the contract is unique and cannot be duplicated. However, an award of specific performance is not uncommon in construction cases, and may be the best option to ensure the owner gets the project they want, albeit months or even years after the fact.
Rescission
If neither monetary damages nor specific performance is available, the court may choose to rescind the contract. For the construction industry, this means the court deems the contract null and void, and the parties are restored to the conditions they were in just before the contract was executed. This is far less common than monetary damages or specific performance, but may still be an option. Rescission is used when more extreme remedies are not appropriate, the breach goes to the essence of the contract, and restitution is appropriate, putting the parties back where they began.
What to Consider Before Filing a Lawsuit and Hiring an Attorney
When it comes to suing an LLC contractor, seeking legal advice is highly recommended. Not only does law provide the legal framework for your situation, but it is also necessary in order to sue an LLC contractor who is not involved in the LLC personally. When you are thinking about suing an LLC contractor, one of the first questions you should ask yourself is if you could benefit from hiring an attorney.
It is beneficial to have legal help when lawsuits are that complex, for example when they involve principles of corporate liability, or in cases where the damages are very high. However, when you owe damages to the contractor, you don’t want to hire a lawyer unless you already owe money and need to defend against an ensuing counterclaim . Defending against counterclaims is one of the narrower practices performed by business litigators, and essentially, this is what you would hire a litigator for. Otherwise, business litigators are not for now, non-legal or individual-related business matters; attorneys who practice commercial litigation primarily focus on legal disputes between businesses or organizations.
In most situations, people sue because they have lost something. But the lost items or damages usually pale in comparison to the cost of an attorney. If the cost of an attorney is more than the amount you are suing for, the best option is to simply not pursue your claim. That’s a difficult pill to swallow, but rather than try to hold on to the hope of a lawsuit, it’s better to cut your losses.