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


Lonely Tree

It all started off with a tree.

A eucalyptus tree to be actual.

What followed is a person of the more significant scenarios to be made a decision under Company and Professions Code area 7031 in the latest many years. Yes, that Segment 7031. The statute variously explained by the state’s courts as “harsh[ ],” draconian” and “unjust,” but, importantly, yet legitimate.

Less than Area 7031, an unlicensed contractor is barred from trying to find compensation for get the job done requiring a contractor’s license. This has been named the “shield.” On the other hand, in addition to the “shield,” task proprietors can also make use of Section 7031’s “sword,” and seek disgorgement of all monies paid out to an unlicensed contractor. Segment 7031’s “shield” and “sword” applies even if the challenge proprietor knew that the contractor was unlicensed. They also utilize even if the unlicensed contractor’s perform was flawless. And they also apply even if a contractor was unlicensed through a portion of its work. This is because, as courts have said, Segment 7031 is a shopper safety statute intended to defend the general public from unlicensed contractors and applies irrespective of the equities.

Even so, 1 problem that has in no way been addressed, is whether Part 7031 bars a accredited contractor from trying to find payment for perform executed by an unlicensed subcontractor. That is, until finally now. In Kim v. TWA Building, Inc., Case No. H045900 (May 13, 2022), the 6th District Courtroom of Appeals ultimately dealt with that problem.

The TWA Development Case

In September 2015, homeowners Sally Kim and Dai Truong employed common contractor TWA Design Inc.  to make their house in Los Gatos, California. The do the job provided web-site get the job done, bridge operate and set up of retaining partitions. Under the conditions of the building agreement, TWA agreed that all function would be performed by licensed persons and TWA even further agreed to indemnify the house owners from any claims arising from the negligence of TWA, its staff members, or its subcontractors.

On the assets was a eucalyptus tree. But not any eucalyptus tree. It was a eucalyptus tree that straddled the house involving Kim-Truong and their neighbor Joan Todd whilst this was not recognised to the house owners. A tree removal allow was attained to get rid of the eucalyptus tree, and though removal of the tree was not precisely identified in the construction agreement. TWA hired an specific named Marvin Hoffman to get rid of the tree. Hoffman, who TWA found via Craigslist, was compensated a $400 look at and $16,000 in dollars to take out the tree. TWA under no circumstances checked the license status of Hoffman.

On September 28, 2015, Hoffman and his crew commenced to take away the tree. Just before they could end, even so, Todd advised Hoffman and his staff to cease. Todd also contacted the law enforcement. Get the job done on the tree ceased and a minor above a 12 months afterwards, Todd submitted suit in opposition to Kim-Truong and TWA for negligence, trespass and other statements connected to the tried elimination of the eucalyptus tree.

Kim-Truong in turn submitted a cross criticism from TWA for comparative negligence, breach of agreement, categorical contractual indemnity, equitable indemnity and other statements. TWA in flip submitted a cross-grievance from Kim-Truong for breach of contract, including lost earnings, mainly because Kim-Truong had fired them midway by the project.

Prior to demo, the home owners filed a movement in limine requesting that TWA make an provide of proof as to Hoffman’s licensure standing. According to the owners, Hoffman was needed to maintain a C-61/D-49 Tree Services Specialty license, and due to the fact he did not, TWA was needed to disgorge around $10,000 they experienced paid TWA for the tree removal operate underneath Enterprise and Professions Code area 7031.

Not able to confirm that Hoffman held a C-61/D-49 license, the trial courtroom dominated that TWA was barred underneath Area 7031 from “collecting compensation for providers performed by the subcontractor for the tree trimming if, in fact, the subcontractor was unlicensed at the relevant time.” The demo court’s ruling did not preclude TWA from presenting proof that Hoffman was appropriately certified at trial.

Demo proceeded by jury in two phases. The initial period addressed Todd’s complaint from Kim-Truong and TWA. The second phase resolved the cross-issues concerning Kim-Truong and TWA. Through the trial, Kim-Truong arrived at a settlement with Todd agreeing to shell out her $50,000 and to take out the eucalyptus tree. Todd also settled with TWA.

Pursuing demo, the jury uncovered that TWA was 100 p.c liable for negligence and awarded the Kim-Truong $18,196 on the homeowner’s statements for contributory negligence, indemnity and specific contractual indemnity. The jury also purchased TWA to disgorge the $10,000 compensated by the homeowners for the tree removing. And lastly, the jury uncovered in favor of the property owners on TWA’s breach of agreement declare. Highlighting the charge of litigation, the court later on awarded the property owners $137,821 in attorneys’ charges, $22,505 in pro witness expenses, and $18,273.59 in fees.

TWA appealed.

The Appeal

On appeal, TWA elevated a few difficulties: (1) the trial courtroom erred as a subject of legislation in its pretrial ruling on the software of Business and Professions Code section 7031 (2) because the construction agreement did not include things like removal of the eucalyptus tree, the homeowner’s promises for indemnity and attorneys’ charges primarily based on that arrangement simply cannot stand and (3) significant proof did not help the jury’s finding that the house owners paid out TWA $10,000 to clear away the eucalyptus tree.

Noting that the “California Supreme Court docket has not right addressed” software of Segment 7031 “where a accredited common contractor seeks compensation from an operator for get the job done executed by an unlicensed subcontractor,” the Court docket of Appeals looked at the Contractors Condition License Regulation “and the statutory plan of which it is a section,” and concluded that Area 7031 bars a licensed contractor from in search of compensation for work executed by an unlicensed subcontractor:

We conclude that to narrowly construe part 7031(a) to enable TWA’s declare for payment to proceed below the circumstances right here (thus reversing the demo court’s purchase) would undermine selected other provisions of the statutory plan governing contractor licensing and contravene the plan powering the statute. . . .we concur with the trial court’s observation that it would be unreasonable to allow TWA to collect payment for work carried out by an unlicensed subcontractor when all aspects of the Contractors’ State License Law are directed at ensuring licensing compliance. . . .For all of these motives, we decide that segment 7031 bars even a accredited basic contractor in California from bringing an motion for compensation for an act or agreement performed by an unlicensed subcontractor where by a license is essential. Thus, TWA has not content its load of demonstrating error in the trial court’s pretrial ruling implementing part 7031.

As to TWA’s claim that because the construction deal did not involve removal of the eucalyptus tree, the homeowner’s statements for indemnity and attorneys’ service fees based on that arrangement simply cannot stand, the Court of Charm held that based on email messages exchanged concerning the owners and TWA about removal of the eucalyptus tree the extrinsic evidence indicated that removal of the tree was portion of the construction deal.

Eventually, the Courtroom held that significant evidence supported the jury’s discovering that the owners paid out TWA $10,000 to eliminate the eucalyptus tree. Although no checks were penned by the home owners to TWA for $10,000, let by yourself 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 about one-3rd of the price of eradicating the partially taken out tree.

Summary

So there you have it. The 1st appellate court choice in the state obtaining that Organization and Professions Code segment 7031 bars a licensed contractor from searching for compensation for operate carried out by an unlicensed subcontractor. What this circumstance foretells is discovery throughout litigation by undertaking owners on the license position of subcontractors to see if they can knock down all or a aspect of payment claims built by key contractors. For key contractors, it is yet an additional “check the box” administrative obligation they will have to have to adhere to if they want to defend their payment rights.





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