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Construction Company Owners - Protect yourself from personal liability by creating a Limited Liability Company

Recently we have seen more cases where a contractor sues a consumer for the balance due for construction work and the consumer countersues the contractor and the contractor's owners personally and individually for violations of the Illinois Consumer Fraud and Deceptive Practices Act (the "Act").

Under the Act a consumer's counterclaim can be for "any deception, fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact..." Thus, a claim can be not only for a false statement but also for failure to disclose a material fact. Because suit can be brought for failure to disclose a material fact, it is easy for consumers to make counterclaims. This kind of counterclaim can shift the leverage of the parties because the Consumer Fraud Act allows the consumer to recover tort damages, punitive damages, and attorneys' fees.

You need to do what you can to protect your company and yourself personally from Consumer Fraud Act claims and counterclaims.

  1. Your company's contracts should be reviewed by a knowledgeable attorney experienced in construction law. We can suggest contract provisions that may limit your company's liability.

  2. You should consider creating a limited liability company (LLC) to conduct future business. A recent case has held that a change to the Limited Liability Act means that an owner of an LLC may avoid personal liability for acts or omissions committed while acting for the LLC. This includes liability for claims under the Consumer Fraud Act. There is only one case and other courts may disagree, but we believe the argument in this case is persuasive. In contrast, owners of a corporation who personally violate the Consumer Fraud Act have little or no protection from personal liability for their own acts or omissions.

We strongly recommend that you have us review your contract forms and that you discuss with us whether to reorganize your company as an LLC. If you wish to discuss this further please contact Mike Nigro, Craig Westfall or Howard Turner.

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