Date: 02-02-2004

Case Style: MW Erectors, Inc. v. Niederhauser Ornamental and Metal Works Company, Inc., et al.

Case Number: G030681, G030825

Judge: Moore

Court: California Court of Appeals, Fourth District

Plaintiff's Attorney: Pine & Pine, Norman Pine, Beverly Tillett Pine; Gibbs, Giden, Locher & Turner and Richard J. Wittbrodt for Plaintiff and Appellant.

Defendant's Attorney: Arter & Hadden, William S. Davis, Jack W. Fleming; Lord, Bissell & Brook, William S. Davis; Musick Peeler & Garrett and Jack W. Fleming for Defendants and Respondents.

Description:

In this case, a subcontractor on a large commercial project has suffered the consequences of its failure to complete the application process and obtain the requisite contractor's license(s) before signing two separate contracts. The subcontractor's work was terminated before the projects were completed and without the subcontractor having obtained full payment of amounts it claims are due under the contracts. When the subcontractor filed its lawsuit seeking compensation, it was met with a successful motion for summary judgment, based on its noncompliance with the licensing requirements. The subcontractor asserts the trial court erred in granting the motion, because it had substantially complied with the applicable licensing requirements by obtaining a Class C- 51 license before the completion of the first contract and before undertaking work pursuant to the second contract.

In reviewing the ruling on the first contract, we explore the application of Business & Professions Code section 7031 in the context where a contractor is not licensed on the day it undertakes performance of a contract, but becomes licensed before completion of the work. We also address whether, under such circumstances, the contract is illegal and void. We conclude that, in the situation described, the statutory provision permits the contractor to recover compensation for the acts performed while licensed and, that being the case, the contract is neither illegal nor void. As applied to this case, section 7031 does not bar the subcontractor from seeking compensation for all acts performed under the first contract while the subcontractor was licensed. Therefore, summary judgment with respect to the first contract was improper.

With respect to the second contract, the parties agree the subcontractor held the Class C-51 license during the entire period of performance. Therefore, as long as the Class C-51 license was the proper license with respect to the work to be performed under that contract, Business & Professions Code section 7031 presents no bar to the recovery of compensation and the contract is not void.

The defendants claim that a Class C-23 license was required for the performance of the work under the second contract and that the subcontractor did not hold the requisite license at any time during the performance of that contract. This is a matter we do not decide. Suffice it to say, the subcontractor raised a triable issue of material fact as to whether the Class C-51 license was sufficient for the work performed under the second contract. Therefore, summary judgment was improper as to that contract as well.

We reverse the summary judgment and remand the case for further proceedings consistent with this opinion. In addition, we reverse the order awarding attorney fees.

I

Facts

Turner Construction Company (Turner), as general contractor, hired Niederhauser Metal Works Company, Inc. (Niederhauser)1 to perform certain "miscellaneous metals work" and "ornamental metals work" on Disney's Grand Californian Hotel. Niederhauser, in turn, subcontracted to MW Erectors, Inc. (MW) to perform certain work. Niederhauser and MW entered into a contract dated October 11, 1999, pursuant to which MW agreed to perform structural steel work. On November 12, 1999, Niederhauser and MW entered into a second contract, for the performance of certain ornamental metals work on the project.

MW began the structural steel work on or before December 3, 1999. It did not obtain its Class C-51 structural steel contractor license until December 21, 1999. (See Cal. Code Regs., tit. 16, § 832.51 [Class C-51 license explained].) It never held a Class C-23 ornamental metal contractor license while performing work under either contract. (See Cal. Code Regs., tit. 16, § 832.23 [Class C-23 license explained].)

MW filed a complaint against Niederhauser, Fidelity and Guaranty Insurance Company, and United States Fidelity and Guaranty Company.2 MW alleged that Niederhauser had terminated its work under each of the contracts, without cause, on or about August 28, 2000. It requested $955,552.89 for miscellaneous metals work and $366,694 for ornamental metals work, as amounts purportedly owing under the two contracts. MW included the two bonding companies in the suit in an effort to collect on the payment bonds with respect to the two contracts.3

The defendants filed a motion for summary judgment. They asserted simply that MW did not have a Class C-51 license when it began the structural steel work and never had a Class C-23 license when performing the ornamental metals work and that MW was therefore precluded by Business and Professions Code section 7031 from seeking compensation for work performed under those two contracts. The motion was granted and summary judgment was entered thereafter. MW appeals from the summary judgment and from the subsequently entered order awarding attorney fees.

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B. Pleadings

(1) Amended complaint

In the first amended complaint, MW asserted causes of action for breach of contract, reasonable value of services, quasi-contract, promissory estoppel, and payment bond. Each cause of action was predicated on the assertion that MW had not been paid for its work on the hotel.

(2) Motion for summary judgment

In bringing its motion for summary judgment, Niederhauser sought to establish a complete defense to each cause of action, by citation to Business and Professions Code section 7031.5 Subdivision (a) generally prohibits a contractor from maintaining an action to recover "compensation for the performance of any act or contract where a license is required . . . without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract . . . ."

Niederhauser supported its motion with its separate statement of undisputed material facts showing that MW undertook work on the structural steel work contract before it obtained its Class C-51 structural steel license and that it never obtained a Class C-23 ornamental metals license while working on the ornamental metals work contract. Based on this information, Niederhauser argued in essence that MW was not licensed "at all times" during the performance of the structural steel work contract, and was never properly licensed during the performance of the ornamental metals work contract. Therefore, it contended it had shown a complete defense, under section 7031, subdivision (a), to a suit seeking compensation for performance of the work under either contract.

(3) Opposition to motion

In responding to Niederhauser's separate statement of undisputed facts, MW admitted that it began the structural steel work on or before December 3, 1999, but did not obtain its Class C-51 license until December 21, 1999. It also admitted that during the time it performed work on the hotel, it never obtained a Class C-23 license.

However, in its opposition to the motion, MW endeavored to raise two triable issues of fact with respect to Niederhauser's section 7031 defense. MW asserted that: (1) it had substantially complied with the requirements of section 7031; and (2) no Class C-23 license was required for the performance of the ornamental metals work contract. It also argued that Niederhauser was barred by the doctrine of judicial estoppel from contending that MW was unlicensed.

With respect to the substantial compliance argument, MW asked the court to focus on the qualifications and activities of Donald Parks, Jr., the sole owner and president of MW. Parks was the responsible managing officer of MW for the purpose of qualifying it for a Class C-51 license and was also the responsible managing officer of Metal-Weld Specialties Inc., of which he was president and 90 percent owner. He had previously qualified the latter company for a Class C-51 license. In his declaration in support of opposition to the summary judgment motion, Parks declared that he had applied for a Class C-51 license for MW in August 1999. He further declared that he had been informed in November 1999 that he had succeeded in qualifying MW for the license and that all that was needed for issuance of the license was proof of workers compensation insurance. In addition, he stated that he had directed his insurance broker to supply the necessary proof of insurance and then believed he had done all he could to comply with the requirements of the Contractors State License Board (Board). This evidence, MW argued, showed substantial compliance with section 7031.

With respect to the requirement of a Class C-23 license, MW cited certain evidence which we will discuss in detail below.

(4) Reply to opposition

Niederhauser, in reply to MW's opposition, argued that the judicial doctrine of substantial compliance had been abrogated by statute, as provided in former subdivision (d) of section 7031.6 However, Niederhauser also noted that the subdivision provided one, and only one, situation in which the substantial compliance doctrine would be permitted to apply. Niederhauser asserted that the particular situation was not present in this matter and that MW had not satisfied the statutory requirements for the application of the substantial compliance doctrine. In addition, Niederhauser maintained that the law was clear that a Class C-23 license was required for the performance of the ornamental metals work contract.

We will address the section 7031 issues and the Class C-23 license issues in turn.

C. Business & Professions Code Section 7031

(1) Structural steel work contract

Whether MW is entitled to compensation for the performance of any of the structural steel work is determined by a careful examination of the language of section 7031. "In construing this statute, we must ‘"ascertain the intent of the Legislature so as to effectuate the purpose of the law. In determining such intent, a court must look first to the words of the statute themselves, giving to the language its usual, ordinary import and according significance, if possible, to every word, phrase and sentence in pursuance of the legislative purpose. . . .' [Citation.]" (Warmington Old Town Associates v. Tustin Unified School Dist. (2002) 101 Cal.App.4th 840, 851.)

Section 7031, subdivision (a) provides: "Except as provided in subdivision (e), no person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract, regardless of the merits of the cause of action brought by the person . . . ."

Niederhauser claims that subdivision (a) answers our question on its face, contending that subdivision bars suit by any contractor who cannot plead and prove it was licensed at all times during the performance of the contract, and MW has admitted that it was unlicensed when it undertook work on the structural steel work contract. We cannot agree with Niederhauser's argument, because it overlooks certain key words in the statute. We must avoid a construction of the statute that makes some words surplusage. (Warmington Old Town Associates v. Tustin Unified School Dist., supra, 101 Cal.App.4th at p. 851.)

Subdivision (a) provides that a contractor may not maintain an action seeking compensation "for the performance of any act or contract" which requires a license unless he or she alleges having been duly licensed "at all times during the performance of that act or contract . . . ." (Italics added.) The statute very simply does not state that compensation may be sought only for completed contracts where the contractor was licensed start to finish. Rather, the statute permits contractors to seek compensation for any act if he or she alleges having been duly licensed during the performance of the act. The plain meaning of the words would indicate that the act in question, the one for which a license is required, is the same act for which compensation is sought. (See Slatkin v. White, supra, 102 Cal.App.4th at p. 970 [court gives effect to plain meaning of statute when words of statute are clear and unambiguous].)

In other words, as long as the contractor alleges he or she was duly licensed during the entire period of time he or she performed acts for which compensation is sought, his or her suit is not necessarily barred just because the license was not in place when work on the contract was initially undertaken. No compensation is available for that initial period of time during which the contractor was not duly licensed, but as long as the contractor was thereafter licensed for the entire period of time during which acts were performed for which compensation is sought, compensation is available for those particular acts.

The validity of this construction is underscored by a reading of section 7031, subdivision (e), on which the parties focus much of their argument. Subdivision (e) provides in pertinent part: "The judicial doctrine of substantial compliance shall not apply under this section where the person who engaged in the business or acted in the capacity of a contractor has never been a duly licensed contractor in this state. However, the court may determine that there has been substantial compliance with licensure requirements under this section if it is shown at an evidentiary hearing that the person who engaged in the business or acted in the capacity of a contractor (1) had been duly licensed as a contractor in this state prior to the performance of the act or contract, (2) acted reasonably and in good faith to maintain proper licensure, and (3) did not know or reasonably should not have known that he or she was not duly licensed. . . ."

The first sentence of subdivision (e) provides that the substantial compliance doctrine shall not be applied if the contractor has never been licensed in the state. That sentence, standing alone, does not bar application of the doctrine as to contractors who have become licensed at some time during the performance of a contract. However, the second sentence of subdivision (e) sets forth three specific criteria that must be met in order for the doctrine to apply. The first of these three criteria is the most telling. It requires the contractor to have "been duly licensed . . . prior to the performance of the act or contract . . . ." (Italics added.) Again, the language is in the disjunctive, requiring the contractor to have been duly licensed before performing either the act or the contract, for which compensation is sought. So, in order for the doctrine of substantial compliance to apply, the contractor must have been duly licensed before performing the act for which compensation is sought, and must have satisfied the remaining two criteria established in subdivision (e) as well.

We need not address those two criteria in this particular case, however, because they are not relevant to the matter before us. Niederhauser based its motion for summary judgment on MW's purported failure to comply with section 7031, subdivision (a). We need only look at one legal issue, the interpretation of subdivision (a), and stop there.

In this opinion, we discuss subdivision (e), pertaining to substantial compliance, simply to point out that both that subdivision and subdivision (a) are consistent with respect to the contractor's initial licensing requirement. The contractor must have been licensed for the first time before undertaking the acts for which he or she seeks compensation. That does not mean that the contractor is unable to recover any monies due and owing under a contract if he or she had never been licensed before the date that work under the under the contract was initially undertaken. It just means that he or she can only recover for the acts performed while licensed, unless the substantial compliance doctrine applies to permit him or her to recover, in addition, for acts performed during any period of time when his or her license may have lapsed during the course of the project. The contractor cannot recover for those acts performed under the contract but before the contractor had obtained his or her license for the first time.

We observe that this interpretation may seem at odds with certain cases decided in years gone by. For example, in Owens v. Haslett (1950) 98 Cal.App.2d 829, the trial court denied recovery to a contractor who was not licensed when he entered into the contract or when he commenced work, even though he obtained his license before the work was completed. However, the party who had hired the contractor was the only one who appealed - the contractor did not. Therefore, whether the contractor should have received compensation for some portion of the work was not at issue on appeal and the appellate court's comments thereon are dicta.

An even earlier case of interest is Holm v. Bramwell (1937) 20 Cal.App.2d 332. There, the property owner hired a general contractor to construct certain buildings, and agreed to pay him cost plus 10 percent. The general contractor subcontracted a portion of the work to an individual who was not licensed on signing the subcontract. The court did not permit the general contractor to recover from the property owner the money the general contractor had paid to the subcontractor, because the subcontractor was unlicensed at the time the subcontract was signed. The court based its decision in part on section 12 of the Contractors' License Law as then in effect. The relevant portion of that statute provided: "‘No person engaged in the business or acting in the capacity of a contractor [or subcontractor] . . . shall bring or maintain any action in any court of this state for the collection of compensation for the performance of any act for which a license is required by this act, without alleging and proving that such person was a duly licensed contractor at the time the alleged cause of action arose.'" (Id. at p. 336.)

As is evident, the statutory provision at issue in Holm v. Bramwell, supra, 20 Cal.App.2d 332 did not include the language of current section 7031, upon which the case before us turns. The Holm court did not address what it meant to require a contractor to allege that he or she was licensed "at all times during the performance of [the] act or contract." Therefore, the case is inapposite. Moreover, under the statutory provision at issue in Holm, the cause of action in question might have arisen upon signing of the contract, and if so, a license would have been required at that time. (See Vitek, Inc. v. Alvarado Ice Palace, Inc. (1973) 34 Cal.App.3d 586, 591, fn. 5.) The concerns are different under current section 7031, subdivision (a).

Our construction of section 7031 is supported by the policy underlying that provision. As the Supreme Court stated in Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988, 995, "The purpose of the licensing law is to protect the public from incompetence and dishonesty in those who provide building and construction services. [Citation.] The licensing requirements provide minimal assurance that all persons offering such services in California have the requisite skill and character, understand applicable local laws and codes, and know the rudiments of administering a contracting business. [Citations.] [] Section 7031 advances this purpose by withholding judicial aid from those who seek compensation for unlicensed contract work. The obvious statutory intent is to discourage persons who have failed to comply with the licensing law from offering or providing their unlicensed services for pay." The court continued: "The protective purposes of the licensing law cannot be satisfied in full measure unless the ‘continuing competence and responsibility' of those engaged in the work for which compensation is sought have been officially examined and favorably resolved. [Citation.]" (Id. at p. 996.)

Here, MW's qualifications for licensure were officially examined and the issue of qualification was favorably resolved in the issuance of a Class C-51 license. The licensing requirements having been met, Niederhauser was assured that MW had the requisite qualifications to undertake work for which a Class C-51 license was required. That being the case, there is no reason why MW should be denied compensation for the acts performed during the period of time in which it was licensed. In keeping with the statutory intent of discouraging persons who have failed to comply with the licensing law from providing unlicensed services for pay, however, MW is properly denied compensation for acts performed during the period of time before it had acquired its license.

Niederhauser, as the moving defendant, did not show that section 7031 provided a complete defense to MW's causes of action based on the structural steel work contract and thus did not meet its burden of showing that those causes of action had no merit. (See Code Civ. Proc., § 437c, subd. (p)(2); Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 849.) Therefore, the burden did not shift to MW as the plaintiff to show that a triable issue of material fact exists as to Niederhauser's defense and it was error to grant summary judgment with respect to the causes of action pertaining to the structural steel work contract. (See Code Civ. Proc., § 437c, subd. (p)(2); Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 849.)

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Outcome: The summary judgment and the order awarding attorney fees are reversed. The case is remanded for further proceedings consistent with this opinion. MW shall recover its costs on appeal.

Plaintiff's Experts: Unknown

Defendant's Experts: Unknown

Comments: None