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Tennessee Appellate Court Affirms Trial Court’s Holding That Owner Of Corporation Engaged As Contractor On Construction Project Could Not Be Held Personally Liable For Corporation’s Alleged Statutory Violations

In Clarksville Towers, LLC v. Straussberger, the Court of Appeals of Tennessee analyzed whether the trial court properly granted summary judgment for the owner of a corporation which was engaged as the contractor in a multi-million-dollar construction project. 2021 WL 1884636, at *1 (Tenn. Ct. App. May 11, 2021). The plaintiff, Clarksville Towers, LLC (“Clarksville Towers”), sought to hold the owner, John Straussberger, personally liable for the corporation’s alleged violations of the Tennessee Contractors Licensing Act (“TCLA”) and the Tennessee Consumer Protection Act (“TCPA”). The trial court determined the owner could not be held personally liable for the corporation’s alleged violations and granted summary judgment on the claims against Straussberger. The Court of Appeals of Tennessee affirmed the grant of summary judgment.

Clarksville Towers contracted with The Strauss Company, Inc. (“Strauss”) in July 2017 for the construction of a dormitory building in Clarksville, Tennessee. At the time the contract was executed, Strauss held a valid contractor’s license issued by the State of Tennessee. However, Strauss’ license expired on March 31, 2018 before construction was completed. Once Clarksville Towers learned Strauss’ license had expired, it provided written notice of its intent to terminate the contract due to Strauss’ failure to maintain proper licensure. Clarksville Towers thereafter terminated the contract on April 18, 2018.

Clarksville Towers initially filed a complaint against both Strauss and Straussberger in which it asserted claims for breach of contract and various statutory violations. On January 9, 2020, Clarksville Towers filed an amended complaint which named Straussberger as the sole defendant and asserted, among other claims, violations of the TCLA and the TCPA.

Straussberger filed for summary judgment on the claims, asserting he could not be held personally liable for the actions of Strauss under the TCLA or the TCPA.  The trial court found there were no genuine issues of material fact and granted summary judgment for Straussberger on the basis that Clarksville Towers had contracted with Strauss, a corporation, rather than Straussberger, and Clarksville Towers had not attempted to pierce the corporate veil. On appeal, the Court of Appeals of Tennessee analyzed whether the trial court erred by determining Straussberger could not be held personally liable under the TCLA or the TCPA based on the facts presented.

The TCLA makes it unlawful for a person or corporation to represent itself as, or to act in the capacity of, a licensed contractor while not licensed. Tenn. Code. § 62-6-136(a) (2019). A violation of Section 62-6-136(a) of the TCLA is “construed to constitute an unfair or deceptive act or practice affecting the conduct of trade or commerce under the [TCPA] . . . and, as such, the private right of action remedy under the [TCPA] shall be available to any person who suffers an ascertainable loss of money or property, real, personal or mixed, or any other article, commodity or thing of value wherever situated as a result of the violation.” Tenn. Code. § 62-6-136(b).

It was undisputed that Strauss was properly licensed at the time the contract was executed and at the time construction began. It was also undisputed that Strauss’ license expired before the project was completed, and it therefore acted as an unlicensed contractor after that time. Tennessee precedent would have allowed Strauss to be held liable as an unlicensed contractor pursuant to the TCLA and the TCPA. However, Clarksville Towers needed to present facts demonstrating Straussberger, individually, acted in the capacity of a contractor, in order to avoid summary judgment and for Straussberger to be held personally liable on the claim.

Although Straussberger was the president and sole owner of Strauss, it was undisputed that he was not personally involved in the negotiations or bidding process for the Clarksville Towers contract. No evidence was presented that Straussberger personally had supervised, managed, scheduled, directed, or assumed charge of any part of the construction project. Rather, the Parties agreed Straussberger’s only involvement with the Clarksville Towers project was to sign checks that were presented to him. Based on these facts, the Court of Appeals of Tennessee agreed with the trial court’s determination that Straussberger’s actions did not amount to “acting in the capacity of a contractor” without a license, as needed to support a violation of the TCLA or the TCPA.

The appellate court additionally recognized that Section 62-6-136(c) of the TCLA imposes personal liability on an owner for the owner’s “own representations, acts or omissions.” Tenn. Code. § 62-6-136(c). Taking into account prior construction of this provision by federal district and bankruptcy courts in Tennessee, the Court of Appeals of Tennessee construed Section 62-6-136(c) to require that the alleged “representations, acts or omissions” of an owner relate to the company’s licensure status, in order to create liability under the TCLA. The appellate court found that not only did Clarksville Towers fail to present evidence that Straussberger misrepresented the status of Strauss’ license following its expiration, but Clarksville admitted in its response to Straussberger’s statement of undisputed facts that Straussberger never made any representations to it about Strauss’ license. The appellate court determined Straussberger could not be held personally liable under section 62-6-136(c) of the TCLA.

This case serves as a reminder for corporate contractors of the requirements under the TCLA and a warning to their owners of fact patterns that could open them up to personal liability.