LEGAL NEWS
Appeals Court Rules Valid Contractor’s License Required to Sue for Payment of Contracting Services
By Jesse Sullivan and Omar Parra, Haight Brown & Bonesteel LLP
A
s one construction contractor recently learned the hard way in Phoenix Mechanical Pipeline, Inc.
v. Space Exploration Technologies Corp., the courts will make no exceptions regarding the California Business & Professions Code section 7031(a), which requires a party to have a valid contrac- tor’s license in order to properly bring suit for payment of contracting services. In 2010, SpaceX contracted with
Phoenix Pipeline for the performance of various services and Phoenix Pipeline performed this work pursuant to a series of invoices. SpaceX paid Phoenix Pipeline’s invoices up until October 2013, but refused to pay for the invoices from October 2013 to August 2014, which totaled just over $1 million. Consequently, Phoenix Pipeline filed a complaint against SpaceX for breach of contract and breach of the duty of good faith and fair dealing. SpaceX challenged Phoenix
Pipeline’s complaint to recover payment for its services by arguing that Phoenix Pipeline failed to allege that it held a valid contractor’s license. In response, Phoenix Pipeline elected to amend its complaint by adding language that it had a licensed “responsible managing employee” on the job who owned another corporate entity, Phoenix Mechanical Plumbing, Inc., and who “oversaw all services” provided by Phoenix Pipeline. SpaceX subse- quently challenged Phoenix Pipeline’s amended complaint, contending the new allegations still failed to satisfy the requirements of section 7031(a). Te trial court agreed with SpaceX, but allowed Phoenix Pipeline another opportunity to amend its complaint.
20 July/August 2018 Phoenix Pipeline used this oppor-
tunity to make two changes to its complaint: 1. Relabeled the licensed “responsible managing employee” as a “respon- sible managing officer.”
2. Expanded the definition of the employee’s role of the project. SpaceX filed yet another motion
challenging Phoenix Pipeline’s new complaint on grounds that Phoenix Pipeline still had not properly alleged it held a valid contractor’s license. Te trial court granted the motion, but refused to allow Phoenix Pipeline a third opportunity to amend its complaint. Consequently, the Court dismissed Phoenix Pipeline’s lawsuit and entered judgment in favor of SpaceX. Phoenix Pipeline subsequently appealed. On appeal, the Second Appellate
District considered whether Phoenix Pipeline’s allegations, if true, were sufficient to overcome the requirement in section 7031 that it must have had a valid license to sue for payment for services for which a contractor’s license
is needed. Te Court ruled as follows: Phoenix Pipeline’s second amended complaint failed to allege Phoenix Pipeline itself held a contractor’s license. Te Court noted that under well-established case law, the failure to comply with the licensing require- ments of the statute bars a person or entity from recovering compensation for any work performed that requires a contractor’s license.
Phoenix Pipeline’s allegation it had a licensed “responsible managing officer,” without more, was insuf- ficient to satisfy the requirements of section 7031 that Phoenix Pipeline itself must hold a contractor’s license to pursue its claim. In support of this conclusion, the Court again relied
Jesse Sullivan Omar Parra
on several cases which ruled that contractor’s licenses held by partners, managing officers, and/or owners of contracting entities were not enough to overcome the obligations of section 7031. Tis ruling makes clear the Court
of Appeal will strictly interpret the requirements of section 7031, as the Court concluded the statute repre- sents a “legislative determination that the importance of deterring unlicensed persons from engaging in the contracting business…can best be realized by denying violators the right to maintain any action for compensation” in California courts. Contractors, therefore, must
understand and appreciate that in order to file a lawsuit for payment of contracting services, they must demon- strate the contracting entity seeking payment itself held a valid contractor’s license. As Phoenix Pipeline learned to its detriment, licenses held by employees, partners, individual owners, or other ancillary individuals are not enough to support a claim for recovery of payment.
Jesse Sullivan and Omar Parra are
attorneys in the San Francisco office of Haight Brown & Bonesteel LLP. Sullivan is a member of the firm’s General Liability, Construction Law and Risk Management & Insurance Law Practice Groups. Parra is a member of the Construction Law, Employment and Labor and General Liability Practice Groups.
California Constructor
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