Alicia and Sean Leake hired Alex General Construction, LLC (AGC) to renovate their Washington, D.C. home. Work included a new laundry room, renovating the kitchen, new appliances, removing several walls, opening a stairwell and painting the whole house. The job didn’t go well. After fifteen months and four extensions, the Leakes claimed AGC still wasn’t done: electrical sockets and loose wiring were exposed. Three walls had holes. Plumbing was faulty. Paint splatter hadn’t been cleaned up. Urine was standing in a toilet. To that point, the Leakes had paid AGC $39,000. They spent another $100,000 to make good on AGC’s mistakes.
But that wasn’t the end of this project. The Leakes filed suit against AGC and moved to add their contractor, Bayron Salguero, as an additional defendant. AGC is a limited liability company. Salguero is the sole owner of AGC. Salguero moved for his dismissal from the case, citing black letter law: Officers of a limited liability company are not personally liable for what their company does or doesn’t do.
How would you decide the motion to dismiss?
Chief Judge Boasberg of the Washington District Court wrote the May 8, 2025 decision. You may recognize the name. Judge Boasberg has been in the news recently. According to Judge Boasberg, a contractor can be held personally liable for acts of a LLC if:
(1) there is unity of ownership and interest, and
(2) the LLC form was used to perpetrate fraud or wrong.
Every construction contractor should understand these two rules for “piercing the corporate veil”. Make a mistake and your LLC or corporation offers no protection against personal liability.
The first prong of this two-part test is called the “alter ego” standard, unity of ownership and interest. Does a single shareholder dominate work of the LLC? Has there been a commingling of company and personal funds, staff, and property? For examples of what to avoid, see my blog post of August 2016.
The Decision In This Case
The Leakes claim that [Salguero] was the person who deceived them, defrauded them, and decided that AGC would do inferior or unsafe work. They allege, for instance, that he was the one who misled them during the contract formation, decided to hire unlicensed subcontractors and workers, illegally obtained an electrical license in the name of another person, fraudulently demanded and accepted installment payments, knew that he “had neither the expertise nor man power to complete the project” on time, misrepresented the reasons for the project delays, and refused to refund the $39,000 already paid by the Leakes. [citations omitted]
Judge Boasberg reinforced his decision with the second prong, using the LLC form to perpetuate a fraud or wrong.
Salguero used the existence of AGC to mislead them. As they tell it, he consistently “misrepresented his status and authority” vis-à-vis AGC. When executing the agreement, instead of signing on the line provided for the contractor (here, AGC), he signed beneath it. In doing so, they say, he meant to conceal the fact that he was the contractor — i.e., the company’s owner. Later, when parrying their complaints, he “routinely” told them he had a “boss,” thereby implying that he was a mere employee of the company that he in fact owned. [T]hese allegations arguably indicate that Salguero hid behind his LLC in order to obscure, misdirect, and delay. . . [citations omitted]
Don’t make the same mistake. Start your jobs with an enforceable contract:
- Made in the name of the license holder,
- Signed by an officer of the LLC,
- In his or her capacity as an officer.
No matter the type of work or the construction site, Construction Contract Writer drafts letter-perfect agreements. The trial version is free.
