Can homeowners associations sue general contractors under alter-ego theory? The Lodges v. Bear Hollow Restoration Explained

In construction defect litigation, homeowners associations often face privity of contract issues when seeking to hold general contractors liable. The Utah Court of Appeals addressed this challenge in The Lodges v. Bear Hollow Restoration, establishing important precedent for when associations can pierce the corporate veil to reach general contractors.

Background and Facts

Bear Hollow Restoration, LLC developed The Lodges at Bear Hollow condominium complex and hired Hamlet Homes Corporation as general contractor. Bear Hollow’s 26 members contributed $1.245 million in startup capital, and the company borrowed over $25 million for construction. When the homeowners association discovered construction defects in common areas, it sued both entities. The Association lacked privity of contract with Hamlet Homes but argued it could pursue contract claims under an alter-ego theory.

Key Legal Issues

The case presented two primary issues: whether Hamlet Homes was Bear Hollow’s alter ego under the Norman test, and whether the district court properly denied the Association’s requests for equitable relief, including a constructive trust, writ of replevin, and writ of attachment.

Court’s Analysis and Holding

The Court of Appeals affirmed both district court rulings. Under Utah’s two-part Norman test for piercing the corporate veil, the Association failed to demonstrate “such unity of interest and ownership that the separate personalities” no longer exist. Despite Hamlet Homes’ majority ownership in Bear Hollow and shared employees, the entities maintained separate organizational documents, bank accounts, tax returns, and records. The Association’s undercapitalization argument failed because it couldn’t establish what adequate capitalization should be or demonstrate actual insolvency. The court also rejected the Association’s request for constructive trust relief, finding no evidence of wrongful conduct or unjust enrichment meeting the Wilcox requirements.

Practice Implications

This decision reinforces Utah’s reluctance to pierce corporate veils absent compelling evidence. Practitioners must present specific proof of inadequate capitalization relative to business scope, not merely financial difficulties. Normal business relationships between related entities—shared ownership, employees, or management services—insufficient alone to establish alter-ego liability. For equitable remedies, associations must demonstrate concrete wrongful acts with record support, not policy arguments about fairness in construction defect recovery.