Clarksville Towers, LLC v. Straussberger

639 S.W.3d 586

CLARKSVILLE TOWERS, LLC

v.John STRAUSSBERGER et al.

No. M2020-00756-COA-R3-CV

Court of Appeals of Tennessee, AT NASHVILLE.

January 28, 2021 Session

FILED May 11, 2021

Todd E. Panther and Eric G. Osborne, Nashville, Tennessee, for the appellant, Clarksville Towers, LLC.

William H. Horton and Carol M. Ballard, Chattanooga, Tennessee, for the appellee, John Straussberger.

Thomas R. Frierson, II, J., delivered the opinion of the court, in which D. Michael Swiney, C.J., and Kristi M. Davis, J., joined.

OPINION

Thomas R. Frierson, II, J.

This appeal concerns the potential personal liability of the owner of a corporation, which was engaged as the contractor in a multi-million-dollar construction project. The trial court granted summary judgment in favor of the construction company's owner, determining that the owner could not be held personally liable for the corporation's alleged violations of either the Tennessee Contractors Licensing Act, the Tennessee Consumer Protection Act, the Tennessee Trust Fund Statute, or the Prompt Pay Act. The plaintiff has appealed. Upon our de novo review, we affirm the grant of summary judgment to the corporation's owner.

I. Factual and Procedural Background

In July 2017, Clarksville Towers, LLC ("Clarksville Towers"), entered into a contract with The Strauss Company, Inc. ("Strauss"), concerning the construction of a dormitory building on Main Street in Clarksville, Tennessee. At the time the contract was executed, Strauss held a valid contractor's license issued by the State of Tennessee, but Strauss's license expired on March 31, 2018, before construction was completed. Clarksville Towers learned of the expiration of Strauss's license on April 5, 2018, and provided written notice six days later of its intent to terminate the contract due to Strauss's failure to maintain proper licensure. Following a lack of response from Strauss, Clarksville Towers terminated the contract on April 18, 2018.

Nine days later, on April 27, 2018, Clarksville Towers filed a complaint in the Montgomery County Chancery Court ("trial court"), naming John Straussberger and Strauss as defendants. In its complaint, Clarksville Towers alleged that Mr. Straussberger was the president of Strauss and "oversaw and directed all activities of [Strauss] relating to the Project." Clarksville Towers asserted that it had performed an accounting concerning the project following termination of the contract and discovered that Strauss had allegedly invoiced Clarksville Towers for $971,358.34 in payments that had not been passed along to subcontractors. Clarksville Towers asserted claims against both defendants for breach of contract, violation of the Tennessee Contractors Licensing Act, and violation of the Tennessee Consumer Protection Act ("TCPA"). Clarksville Towers sought an award of compensatory damages, treble damages, and attorney's fees, as well as entry of a restraining order and a temporary injunction prohibiting Strauss from using the funds paid by Clarksville Towers for any purpose other than paying the respective subcontractors. Clarksville Towers subsequently filed a notice stating that it had received three notices of nonpayment and liens filed by various subcontractors who had worked on the project.

On May 1, 2018, the trial court entered a restraining order that enjoined "[t]he defendants ... and their agents, servants, employees, attorneys ... from using any portion of the $971,358.34 amount Clarksville Towers paid the Contractor ... for any purpose other than to pay the subcontractors." On May 10, 2018, the trial court entered an agreed order, providing that the temporary restraining order entered in the matter would "continue as a Temporary Injunction until trial."

On May 29, 2018, Strauss filed an answer, denying that it had retained excess funds on the project. Although not pertinent to the issues on appeal, Strauss concomitantly filed a third-party complaint against Scott DeLano, a former Strauss project manager; The Bradley Projects, Inc. ("TBP"), the architect on the project; and Jared Bradley, a TBP employee. Strauss alleged that Mr. DeLano was liable for breach of fiduciary duty and that Mr. Bradley and TBP were liable for negligence.¹ Mr. Straussberger similarly filed an answer and third-party complaint, incorporating the answer and third-party complaint filed by Strauss and adding, as an affirmative defense, that Clarksville Towers had failed to state a claim against him personally. On July 20, 2018, Mr. DeLano filed a suggestion of bankruptcy, stating that Strauss had been named as the debtor in a bankruptcy action. On September 5, 2018, Strauss filed notice that it had removed the matter to the United States Bankruptcy Court for the Middle District of Tennessee ("bankruptcy court"). On October 19, 2018, the bankruptcy court remanded the matter to the trial court based upon Clarksville Towers’ voluntary dismissal of all claims against Strauss.

Mr. Straussberger subsequently filed a motion to dismiss for failure to join an indispensable party, asserting that the action should not proceed in Strauss's absence. Mr. Straussberger alternatively argued that the case should be stayed until the bankruptcy proceedings were resolved. The trial court denied Mr. Straussberger's motion by order dated December 14, 2018. The court also ruled that because the claims brought by Clarksville Towers against Strauss were voluntarily dismissed during the bankruptcy proceedings, those claims were dismissed without prejudice. The trial court subsequently entered an agreed order on December 2, 2019, allowing Clarksville Towers to file an amended complaint.

On December 23, 2019, Clarksville Towers filed a motion for partial summary judgment, arguing that "there is no genuine issue of material fact that John Straussberger can be held personally liable to Clarksville Towers as a matter of law." Although no legal basis was set forth in the motion, in its accompanying memorandum of law, Clarksville Towers explained that it based its motion on its interpretation of the "Tennessee Trust Fund Statute," codified at Tennessee Code Annotated § 66-11-138 ; the Prompt Pay Act of 1991 ("Prompt Pay Act"), codified at Tennessee Code Annotated § 66-34-101, et seq. ; and the Tennessee Contractors Licensing Act, codified at Tennessee Code Annotated § 62-6-101, et seq.

On January 9, 2020, Clarksville Towers filed an amended complaint, naming only Mr. Straussberger as a defendant. In the amended complaint, Clarksville Towers asserted violations of the Tennessee Contractors Licensing Act, the TCPA, the Tennessee Trust Fund Statute, and the Prompt Pay Act, as well as breach of fiduciary duty. Clarksville Towers sought a judgment for the "$1,335,165.73 discrepancy between the amount [it] paid the Contractor and the amount the Contractor paid the subcontractors for the same amount of work" as well as $569,220.10 in "additional costs to complete the Project." It also sought treble damages pursuant to the TCPA, punitive damages, prejudgment interest, and an award of its reasonable attorney's fees and expenses incurred.

Mr. Straussberger subsequently filed a motion seeking to dismiss Clarksville Towers’ claims on the basis that the amended complaint failed to state a claim against him. Mr. Straussberger also filed a motion for summary judgment, asserting that he could not be held personally liable for the actions of Strauss, whether based upon the Tennessee Contractors Licensing Act, the TCPA, the Tennessee Trust Fund Statute, the Prompt Pay Act, or any claim for breach of fiduciary duty. Mr. Straussberger also filed an answer to the amended complaint, denying any liability.

Although no hearing was held on the cross-motions for summary judgment, the trial court entered an order on May 13, 2020, granting summary judgment in favor of Mr. Straussberger and denying Clarksville Towers’ motion for partial summary judgment. The court found that there were no genuine issues of material fact and that Clarksville Towers’ contract was with Strauss, a corporation, rather than Mr. Straussberger. The court also determined that Clarksville Towers had not attempted to pierce the corporate veil.

The trial court further found that 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. In addition, the trial court concluded that 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." The court likewise determined that the Prompt Pay Act did not apply because Clarksville Towers was an owner, not a contractor, subcontractor, laborer, or materialman. The court also determined 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. The court accordingly dismissed all of Clarksville Towers’ claims against Mr. Straussberger. Clarksville Towers timely appealed.

II. Issues Presented

Clarksville Towers presents the following issues for our review, which we have restated slightly:

1. Whether the trial court erred by determining that Mr. Straussberger could not be held personally liable under the Tennessee Contractors Licensing Act and the TCPA for his actions in disbursing funds from the bank account of a corporation solely owned by him while that corporation was contracting without a valid license.

2. Whether the trial court erred by determining that Mr. Straussberger could not be held personally liable under the Tennessee Trust Fund Statute for misallocating payments intended for Clarksville Towers’ subcontractors.

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