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Court Finds No Personal Liability On Home Construction Service Suppliers Contracts

R.C. 4722 et seq., the Home Construction Service Suppliers Act (HCSSA), has been effective since August 31, 2012, though it is commonly and mistakenly unreferenced in applicable projects and contracts. Even in legal pleadings, the HCSSA is often omitted as a claim purely by lack of knowledge. Its place is often improperly occupied by R.C. 1345 et seq., the Consumer Sales Practices Act (CSPA), the HCSSA’s older, more punitive sister. While personal liability for officers is clearly possible through the CSPA, only one case has recently analyzed whether personal liability for corporate actors is possible through the HCSSA.

A. Personal liability and piercing the corporate veil

It is bedrock Ohio law that shareholders, officers, and directors of corporations are generally not liable for the debts of the corporation. Ohio, like many states, allows the rare and exceptional tool known as “piercing the corporate veil,” to extend liability on individuals for the inauspicious acts of the company. The Ohio Supreme Court’s decision in
Belvedere Condominium Unit Owners’ Assn. v. R.E. Roark Cos., Inc., created Ohio’s three-prong test for piercing the corporate veil:

                  (1) control over the corporation by those to be held liable was so complete that
                  the corporation has no separate mind, will, or existence of its own;
                  (2) control over the corporation by those to be held liable was exercised in
                  such a manner as to commit fraud or an illegal act against the person seeking
                  to disregard the corporate entity; and
                  (3) injury or unjust loss resulted to the plaintiff from such control and wrong.

67 Ohio St.3d 274, 617 N.E.2d 1075 (1993).

As later clarified in Ohio Supreme Court case Dombroski v. WellPoint, Inc., unjust and inequitable acts are not enough to fulfill the second prong of Belvedere, if they do not arise to the level of fraud or an illegal act. 119 Ohio St. 3d 506, 507, 2008-Ohio-4827, 895 N.E.2d 538, 540, ¶ 1. 

                  Were we to allow piercing every time a corporation under the complete control
                  of a shareholder committed an unjust or inequitable act, virtually every close
                  corporation could be pierced when sued, as nearly every lawsuit sets forth a
                  form of unjust or inequitable action and close corporations are by definition
                  controlled by an individual or small group of shareholders.

Dombroski at ¶ 27. While often broached, an actual piercing of the corporate veil is extremely rare. It is against this backdrop that principles of personal liability for corporate actions have developed through the CSPA and HCSSA.

B. CSPA

In 2007, the Ohio legislature first enacted the CSPA with the principal goal of protecting consumers from unfair and deceptive practices. It protects against bad conduct generally, but also contains a non-exhaustive list of precise violations. The Ohio Administrative Code further specifies exact actions constituting unfair, deceptive, and unconscionable conduct. There are lengthy requirements for everything from selling motor vehicles to offering prizes. Because of its unique blend of broadness and technicality, it is easy to violate the CSPA.

Many violations are indisputable. Your insulation contract either contains “the type and brand name of insulation to be installed” or it does not. A missing line in a contract is all that is necessary to violate the CSPA. If a supplier sues to collect on a consumer debt, a counterclaim under the CSPA is usually soon to follow.

The CSPA is effective for many reasons in addition to its susceptibility to violation. The Ohio Attorney General may investigate under and enforce the statute. It also provides for reasonable attorney fees, non-economic damage up to $5,000, and actual damages tripled. What you will not see within the four corners of the CSPA is any provision deeming individuals acting on behalf of their corporation personally liable under the CSPA. However, such liability exists.

The state of the law today makes an officer of a corporation liable for each violation of the CSPA in which she personally participates, specifically directs, or cooperates in. The officer’s liability does not flow from his status as an officer but from his personal actions in that corporate capacity. It is a tort created not by the statute’s language, but through the CSPA’s case law. While it does not displace common law piercing of the corporate veil, it creates something similar and easier to accomplish.

C. HCSSA

Before the HCSSA, home renovators, home contractors, and all manner of flippers were subject to the CSPA and its penalties, including personal liability for officers participating in the unfair, deceptive, and unconscionable acts. That changed in 2012 when Ohio adopted the HCSSA and amended the CSPA to exclude “home construction service contracts” from the definition of “consumer transaction.”

Like the CSPA, the HCSSA’s requirements are both general and specific. There is a general requirement construction is done in a workmanlike way. There are also over ten specific provisions which must be contained in a “home construction service contract.” HCSSA applicable contracts rarely contain all that is required and there are frequent violations.

Violations of the HCSSA allow the owner of the subject property to either rescind the contract or recover the owner’s actual damages plus no more than $5,000 in non-economic damages. It too allows for enforcement by the Ohio Attorney General and attorney fees. A key difference from the CSPA, the HCSSA does not provide for the tripling of actual damages available in CSPA transactions. The HCSSA has been considered a watered-down version of the CSPA, simply because it does not provide for triple damages. The HCSSA also does not explicitly provide for personal liability for corporate directors or officers.

Because the statutes are so similar, there was an assumption personal liability for officers or directors under the HCSSA would be available based on the same logic generated from the CSPA case law. Lawyers utilizing the HCSSA would include personal actors as defendants alongside the contracting corporation.

Before 2020, no Ohio appellate court clarified whether personal liability for corporate actors would be available in HCSSA cases.

D. Hanamura-Valashinas v. Transitions by Firenze, LLC

Hanamura-Valashina v. Transitions by Firenze, LLC, is the only published case considering the issue. Hanamura contains our common factual scenario, where homeowners sue the construction company regarding the remodel of their home. The Hanamura homeowners included the “managing partner” of the company as a defendant, liable for alleged violations of the HCSSA. Following a jury trial, the trial court directed judgment in the remodelers favor finding the managing partner could not be personally liable under the HCSSA. The homeowners appealed the directed verdict as well as other issues.

The homeowners claimed ample evidence existed showing the managing partner participated in the violations of the HCSSA, justifying personal liability through the CSPA’s case law. The Eleventh District found the managing partner could not be liable under the HCSSA, because he did not fit the statutory definition of “home construction service supplier,” which is specified as the “person” who contracts with the owners and maintains general liability insurance of at least $250,000. The managing partner in question did not contract with the homeowners personally, it was his construction company on the contract.

The CSPA’s definition of “consumer transaction” is broader than the HCSSA’s definition of “home construction service contract,” including “a sale, lease, assignment, award by chance, or other transfer of an item of goods, a service, a franchise, or an intangible, to an individual for purposes that are primarily personal, family, or household, or solicitation to supply any of these things.” A CSPA “supplier” only has to be engaged regularly in consumer transactions, “whether or not the person deals directly with the consumer.” Liability under the CSPA is not limited to the contractual parties.

The Hanamura court also pointed out the substantive differences between the two statutes. The CSPA is specifically meant to address and requires unfair, deceptive, and unconscionable actions to generate a violation. The minute violations of the CSPA have been officially designated as unfair, deceptive, and unconscionable. The CSPA does not impose liability on practices that would constitute a simple breach of contract. Conduct violating the HCSSA is as simple as not performing work in a workmanlike fashion, without any tort-like requirement of unfairness, deception, or unconscionability. The Hanamura court refused to extend personal liability for violations of the HCSSA and affirmed the trial court’s directed verdict. The parties did not appeal the issue to the Supreme Court.

At least in the Eleventh District, the HCSSA has the added benefit of preserving the corporate shield. While personal torts and veil piercing are still in play, the express avenue for personal liability provided by the CSPA is not an option for home construction contracts. There is likely to be more interpretations from other Ohio appellate districts but the Hanamura court’s reasoning is sound.

E. Conclusion

Contractors should take care they meet the form requirements for an HCSSA contract, including an express provision the HCSSA applies to the contract. Homeowners should explore the benefits (including express rescission) of the HCSSA when their project goes wrong. Lawyers should take care they are correct on the applicability of either statute and the ability, if any, to hold personal actors liable for corporate actions.

OndaLaBuhn’s attorneys are experienced in navigating the complexity of these statutes and welcome the opportunity to discuss your individual circumstances and make sure your interests are properly protected.

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