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Contractors, Corporate Veils, and Prompt Pays

In Clarksville Towers, LLC v. John Straussberger, et al, Tennessee's appellate court addressed the Tennessee Contractors Licensing Act, the Tennessee Consumer Protection Act, the Tennessee Trust Fund Statute, and the Prompt Pay Act. In the case, Clarksville Towers sued Straussberger, in his individual capacity, and his construction company, The Strauss Company, Inc., after a construction project went south. The opinion focuses on the individual claim against Straussberger and provides an extensive review and discussion of these four statutes and how and when they apply. I include a link to the opinion here: I highly recommend reading the entire opinion if you are a contractor or a frequent builder.

But for this article, the takeaways are that: 1) Clarksville Towers’ contract was with Strauss, a corporation, rather than Mr. Straussberger in his individual capacity; 2) Clarksville Towers had not attempted to pierce the corporate veil; 3) there were “no facts contained in this record to support an allegation that [Mr. Straussberger] represented or misrepresented the status or non-existence” of Strauss’s contractor’s license, such that he could be held liable pursuant to Tennessee Code Annotated § 62-6-136(c) of the Tennessee Contractors Licensing Act; 4) the Tennessee Trust Fund Statute only applied to “prime” or “remote” contractors and that Strauss was the contractor, not Mr. Straussberger, because there was “no proof in this record that [he] ever held a Tennessee contractor’s license”; 5) the Prompt Pay Act did not apply because Clarksville Towers was an owner, not a contractor, subcontractor, laborer, or materialman, and; 6) that no fiduciary duty was owed by Mr. Straussberger to Clarksville Towers and that no facts existed upon which Mr. Straussberger could be held personally liable under the TCPA.

For summation, operate through your entity, do not sign individually, and make no individual guarantees or representations. The action could continue against the company, but not the individual.

LEGAL JARGON DISCLAIMER: The foregoing is not legal advice. Even if you construe it that way, it’s probably only worth what you paid for it. I am an attorney but am not yours.

Whether you are a Haven client or not, I’m always available to discuss.