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BLOG / 10.17.19 /

Contractors may have at least one way to sue members of limited liability companies personally for renovation work provided to the LLC

Members of New York State limited liability companies often form their entities with two thoughts in mind: an LLC provides favorable tax structuring and protection from personal liability. To the joy of contractors and chagrin of LLC members, that protection may not shield LLC members from claims of unjust enrichment, as a recent case in Long Island showed.

The facts in Georgica Builders, Ltd. v. 136 Bishops Lane, LLC.[1], as stated in the Appellate Division’s August 21, 2019 decision, are relatively simple, but with a twist. An LLC which owned certain real estate in Suffolk County retained a contractor to construct a single-family residence. When the LLC allegedly failed to make payment when due, the contractor filed a mechanic’s lien. It then commenced the action to foreclose the lien, recover for breach of contract and for an account stated. The contractor also sued the LLC member personally for unjust enrichment.

At first glance, one may think that if the real property is in the name of the LLC, and the LLC made the agreement with the contractor, then only the LLC should be potentially liable for monies owed to the contractor. Not necessarily, said the Suffolk County Supreme Court in denying a motion to dismiss the unjust enrichment claim, and that denial was affirmed by the Appellate Division.

While the Appellate Division does not expressly detail, it would appear that the underlying allegation that the member used the single-family home as his residence, and therefore benefited by the construction to the contractor’s detriment, weighted in favor of at least permitting the unjust enrichment claim to survive dismissal. The contractor’s claim against the member still had to be proven, but for now, the contractor stated a viable claim, subjecting the member to a lawsuit and potential damages.

[1] 175 A.D.3d 610 (2d Dep’t 2019)