Court Bars Licensed Contractor From Seeking Compensation for Work Performed by Unlicensed Sub | California Construction Law Blog

It all started off with a tree.

A eucalyptus tree to be specific.

What followed is one particular of the far more crucial circumstances to be decided under Small business and Professions Code part 7031 in modern decades. Yes, that Part 7031. The statute variously explained by the state’s courts as “harsh[ ],” draconian” and “unjust,” but, importantly, even so legitimate.

Under Segment 7031, an unlicensed contractor is barred from looking for payment for operate necessitating a contractor’s license. This has been known as the “shield.” Nevertheless, in addition to the “shield,” venture owners can also employ Area 7031’s “sword,” and seek out disgorgement of all monies paid to an unlicensed contractor. Section 7031’s “shield” and “sword” applies even if the job proprietor understood that the contractor was unlicensed. They also utilize even if the unlicensed contractor’s do the job was flawless. And they also use even if a contractor was unlicensed all through a part of its perform. This is for the reason that, as courts have mentioned, Section 7031 is a client security statute meant to defend the public from unlicensed contractors and applies irrespective of the equities.

On the other hand, one concern that has never been tackled, is whether or not Part 7031 bars a accredited contractor from looking for compensation for do the job executed by an unlicensed subcontractor. That is, right until now. In Kim v. TWA Development, Inc., Situation No. H045900 (May well 13, 2022), the 6th District Court docket of Appeals lastly resolved that difficulty.

The TWA Design Scenario

In September 2015, property owners Sally Kim and Dai Truong employed basic contractor TWA Development Inc.  to make their residence in Los Gatos, California. The operate bundled website perform, bridge do the job and installation of retaining partitions. Beneath the conditions of the design contract, TWA agreed that all get the job done would be executed by certified men and women and TWA more agreed to indemnify the homeowners from any claims arising from the carelessness of TWA, its staff, or its subcontractors.

On the residence was a eucalyptus tree. But not any eucalyptus tree. It was a eucalyptus tree that straddled the assets amongst Kim-Truong and their neighbor Joan Todd even though this was not regarded to the house owners. A tree removing allow was acquired to clear away the eucalyptus tree, and while removal of the tree was not specifically recognized in the construction agreement. TWA hired an individual named Marvin Hoffman to get rid of the tree. Hoffman, who TWA found through Craigslist, was compensated a $400 look at and $16,000 in money to remove the tree. TWA under no circumstances checked the license status of Hoffman.

On September 28, 2015, Hoffman and his crew started to clear away the tree. Right before they could finish, however, Todd informed Hoffman and his personnel to prevent. Todd also contacted the law enforcement. Function on the tree ceased and a little above a year later, Todd filed fit towards Kim-Truong and TWA for carelessness, trespass and other promises connected to the attempted removing of the eucalyptus tree.

Kim-Truong in transform filed a cross grievance towards TWA for comparative negligence, breach of agreement, express contractual indemnity, equitable indemnity and other promises. TWA in flip submitted a cross-criticism versus Kim-Truong for breach of contract, together with missing gains, due to the fact Kim-Truong had fired them midway as a result of the undertaking.

Prior to demo, the homeowners filed a movement in limine requesting that TWA make an offer of evidence as to Hoffman’s licensure status. In accordance to the householders, Hoffman was required to maintain a C-61/D-49 Tree Services Specialty license, and because he did not, TWA was essential to disgorge somewhere around $10,000 they had compensated TWA for the tree removal do the job under Business enterprise and Professions Code part 7031.

Not able to verify that Hoffman held a C-61/D-49 license, the demo courtroom dominated that TWA was barred beneath Portion 7031 from “collecting compensation for companies performed by the subcontractor for the tree trimming if, in fact, the subcontractor was unlicensed at the pertinent time.” The demo court’s ruling did not preclude TWA from presenting evidence that Hoffman was effectively certified at trial.

Trial proceeded by jury in two phases. The first section resolved Todd’s complaint versus Kim-Truong and TWA. The 2nd section tackled the cross-grievances between Kim-Truong and TWA. In the course of the demo, Kim-Truong arrived at a settlement with Todd agreeing to spend her $50,000 and to eliminate the eucalyptus tree. Todd also settled with TWA.

Adhering to demo, the jury identified that TWA was 100 p.c liable for carelessness and awarded the Kim-Truong $18,196 on the homeowner’s claims for contributory negligence, indemnity and express contractual indemnity. The jury also requested TWA to disgorge the $10,000 paid by the house owners for the tree removing. And last but not least, the jury uncovered in favor of the homeowners on TWA’s breach of deal claim. Highlighting the value of litigation, the court later on awarded the house owners $137,821 in attorneys’ costs, $22,505 in specialist witness expenses, and $18,273.59 in fees.

TWA appealed.

The Attraction

On appeal, TWA lifted three problems: (1) the trial courtroom erred as a make any difference of law in its pretrial ruling on the software of Company and Professions Code segment 7031 (2) due to the fact the building deal did not involve elimination of the eucalyptus tree, the homeowner’s promises for indemnity and attorneys’ service fees based on that settlement can’t stand and (3) significant evidence did not support the jury’s finding that the homeowners paid out TWA $10,000 to eliminate the eucalyptus tree.

Noting that the “California Supreme Court docket has not immediately addressed” application of Segment 7031 “where a accredited normal contractor seeks payment from an operator for get the job done carried out by an unlicensed subcontractor,” the Court of Appeals looked at the Contractors Point out License Regulation “and the statutory scheme of which it is a portion,” and concluded that Area 7031 bars a licensed contractor from trying to get compensation for do the job executed by an unlicensed subcontractor:

We conclude that to narrowly construe area 7031(a) to allow TWA’s assert for compensation to carry on underneath the conditions here (consequently reversing the demo court’s buy) would undermine specified other provisions of the statutory plan governing contractor licensing and contravene the plan behind the statute. . . .we concur with the trial court’s observation that it would be unreasonable to permit TWA to acquire compensation for function done by an unlicensed subcontractor when all sides of the Contractors’ State License Legislation are directed at ensuring licensing compliance. . . .For all of these motives, we decide that section 7031 bars even a certified standard contractor in California from bringing an motion for compensation for an act or agreement executed by an unlicensed subcontractor in which a license is essential. Therefore, TWA has not glad its stress of demonstrating error in the demo court’s pretrial ruling implementing area 7031.

As to TWA’s declare that because the construction deal did not consist of removing of the eucalyptus tree, the homeowner’s promises for indemnity and attorneys’ expenses dependent on that arrangement are not able to stand, the Court of Enchantment held that primarily based on email messages exchanged concerning the home owners and TWA concerning elimination of the eucalyptus tree the extrinsic proof indicated that removing of the tree was part of the building deal.

Last but not least, the Court docket held that significant evidence supported the jury’s getting that the householders compensated TWA $10,000 to clear away the eucalyptus tree. Although no checks had been published by the house owners to TWA for $10,000, let on your own a look at indicating that the payment was for elimination of the tree, the homeowner’s testified that of the payments created, $10,000 accounted for around just one-3rd of the charge of getting rid of the partially eliminated tree.

Summary

So there you have it. The to start with appellate court docket decision in the point out obtaining that Organization and Professions Code segment 7031 bars a accredited contractor from looking for payment for work performed by an unlicensed subcontractor. What this circumstance foretells is discovery during litigation by challenge homeowners on the license position of subcontractors to see if they can knock down all or a element of payment statements manufactured by key contractors. For key contractors, it is still another “check the box” administrative responsibility they will need to adhere to if they want to guard their payment legal rights.