Subcontractor Pacific Caisson & Shoring, Inc. (Pacific), sued its general contractor Bernards Bros. Inc. (Bernards) seeking payment for work performed under Pacific's subcontract. The trial court granted Bernards's motion for judgment, ruling, because Pacific did not maintain a class C-12 specialty license, that it was not "a duly licensed contractor" and was hence not entitled to bring its action. (Bus. & Prof. Code, § 7031, subd. (a).)
We hold that Pacific was duly licensed because it held a class A general engineering contractor's license when it commenced performance of the subcontract. However, Pacific's class A license lapsed for two and a half months during performance. Where the trial court ruled Pacific was never duly licensed, the court never reached the question whether Pacific nonetheless was entitled to recover because it substantially complied with the Contractors' State License Law (the CSLL) (§§ 7000 et seq., 7031, subd. (e)). Accordingly, we reverse the judgment and remand for further proceedings.
The evidence is not in dispute. Bernards and Pacific executed a subcontract (the subcontract) in 2002 for Pacific to provide temporary excavation and support work on a project to construct a medical center for the County of Ventura. Under the subcontract documents, Pacific agreed to excavate the site for footings, grade beams, plumbing and utility lines, and other requirements,
Pacific commenced work under the subcontract at some point before July 29, 2002, and billed for work performed through October 28, 2003. Meanwhile, the Contractors State License Board (the Board) suspended Pacific's licenses on April 1, 2003, for nonpayment of a judgment. During the period the licenses were under suspension, they also expired. The licenses were reinstated on June 25, 2003.
Eventually, Pacific filed this lawsuit seeking $544,567 owed it by Bernards under the subcontract. In its answer to the complaint, Bernards asserted as an affirmative defense that Pacific was not at all times relevant to this action properly licensed to perform the work that is the subject of the subcontract. Bernards also cross-complained alleging Pacific breached its subcontract and seeking reimbursement for monies owed.
Following the presentation of Pacific's case, Bernards moved for judgment (Code Civ. Proc., § 631.8)
The trial court "reluctantly" ruled in favor of Bernards and dismissed the lawsuit for "lack of a C-12 license." The court did not address any other arguments or decide any other issues involving Pacific's complaint.
Pacific moved the trial court for reconsideration arguing that the class C-12 specialty license is subsumed in the class A license. In its opposition, Bernards argued that Pacific's subcontract specified that Pacific must have a class C-12 license not a class A license; and in any event, during the time Pacific was performing work under its subcontract, Pacific's class A license was suspended for nearly three months for failure to satisfy a judgment against it. The trial court granted the motion for reconsideration, reconsidered its prior ruling, and reconfirmed it. The court entered judgment against Pacific pursuant to section 7031, subdivision (a) and awarded Bernards damages in the amount of $206,437.91 on its cross-complaint representing the money it paid to an unlicensed contractor. Pacific filed its timely notice of appeal.
Section 7031, subdivision (a) reads in relevant part: "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
The threshold question thus is whether, by virtue of its class A license, Pacific was ever a "duly licensed contractor" as required by section 7031, subdivision (a).
The Board is authorized to "adopt reasonably necessary rules and regulations to effect the classification of contractors in a manner consistent with established usage and procedure as found in the construction business, and may limit the field and scope of the operations of a licensed contractor to those in which he or she is classified and qualified to engage, as defined by Sections 7055, 7056, 7057, and 7058." (§ 7059, subd. (a).) Licenses "include[] any or all of the following branches: [¶] (a) General engineering contracting. [¶] (b) General building contracting. [¶] (c) Specialty contracting." (§ 7055.)
A class A or general engineering contractor is "a contractor whose principal contracting business is in connection with fixed works requiring specialized engineering knowledge and skill, including the following divisions or subjects: irrigation, drainage, water power, water supply, flood control, inland waterways, harbors, docks and wharves, shipyards and ports, dams and hydroelectric projects, levees, river control and reclamation works, railroads, highways, streets and roads, tunnels, airports and airways, sewers and sewage disposal plants and systems, waste reduction plants, bridges, overpasses, underpasses and other similar works, pipelines and other systems for the transmission of petroleum and other liquid or gaseous substances, parks, playgrounds and other recreational works, refineries, chemical plants and similar industrial plants requiring specialized engineering knowledge and skill, powerhouses, power plants and other utility plants and installations, mines and metallurgical plants, land leveling and earthmoving projects, excavating, grading, trenching, paving and surfacing work and cement and concrete works in connection with the above mentioned fixed works." (§ 7056, italics added.) The list of fixed works in section 7056 is not exhaustive. (Ron Yates Construction Co. v. Superior Court (1986) 186 Cal.App.3d 337, 345-347 [230 Cal.Rptr. 629] (Yates).)
In contrast to a general contractor, "[a] specialty contractor is a contractor whose operations involve the performance of construction work requiring special skill and whose principal contracting business involves the use of specialized building trades or crafts." (§ 7058, subd. (a).) The California Code of Regulations further subdivides specialty contracting work into subclassifications. (Cal. Code Regs., tit. 16, §§ 832.02-832.61.)
As is pertinent here, "[a]n earthwork and paving contractor digs, moves, and places material forming the surface of the earth, other than water, in such a manner that a cut, fill, excavation, grade, trench, backfill, or tunnel (if
Pacific argues that its class A general engineering contractor's license sufficed for this project and that the lesser or specialty license would have been superfluous as it is fully encompassed within the class A license requirements. Bernards counters that the prime contract between the county and its engineers required that the subcontractor performing the temporary excavation and support works have a class C-12 specialty license, and where Pacific did not hold a class C-12 license, it was not duly licensed irrespective of Pacific's class A license. We agree with Pacific.
This court addressed a very similar issue in Yates and our opinion provides important guidance here. Yates was a class A licensee, but did not hold a class B license for construction of residences.
We based our reasoning on the statutory language of sections 7056 and 7057 concerning the class A and class B licenses and on the legislative history. (Yates, supra, 186 Cal.App.3d at pp. 344-347.) We concluded that while section 7056, defining a general engineering contractor, did not contain a finite list of the categories of fixed works (Yates, supra, at pp. 345-347), it modified the type of fixed works by specifying that such works "requir[e] specialized engineering knowledge and skill" (ibid.). We also reviewed the test for class A licensees and discovered it included knowledge of foundation work whereas the test for a class B license did not. (Id. at pp. 347-348.) Accordingly, we held "that a general engineering contractor which possesses a Class A license may contract to construct a foundation for a residence if it requires `specialized engineering knowledge and skill' (§ 7056)" and so the trial court erred in ruling that Yates was not properly licensed to build the caisson foundation for the homeowners' residence. (Id. at p. 348.) According to Yates, a fixed work "requiring specialized engineering knowledge and skill" falls within the scope of work of a class A licensee. (Id. at pp. 345-347.)
Furthermore, class A licensees are permitted to engage in the same work as the class C-12 license. Section 7056 includes in its list of activities of a class A licensee "leveling and earthmoving projects, excavating, grading, trenching, paving and surfacing work and cement and concrete works" when done in connection with fixed works requiring specialized engineering knowledge and skill. (§ 7056.) Thus, although both the class A and class C-12 contractors may dig and pave, only class A licensee may engage in land leveling and
Comparing Pacific's subcontract to the words of section 7056 and California Code of Regulations, title 16, section 832.12, the subcontract required "specialized engineering knowledge and skill." Pacific was expected to provide "calculations that clearly disclose such information as interpreted subsurface conditions and geotechnical design parameters, factors of safety, assumptions, design criteria, overstress values and serviceability/deflection tolerances." Along with these calculations, Pacific was also to provide temporary support, which is not within the expertise of a class C-12 contractor. The subcontract required of Pacific activities that fall beyond the purview of the class C-12 contractor but within the expertise of the class A licensee. (§ 7056.) Therefore, Pacific's class A license enabled it to provide temporary excavation and support for the hospital project because it required Pacific to utilize specialized engineering knowledge and skill and provide more than those activities falling under the definition of a class C-12 license. (§ 7056.)
Next, Bernards argues that Ventura County, as a public agency authorized to select which license classification was entitled to perform this project, required Pacific to hold a class C-12 license. As Pacific did not hold the license the county had designated, it was not duly licensed as provided for by the statute.
The authorities upon which Bernards relies are distinguished as they all involve the bidding process. (See, e.g., M & B Const., supra, 68 Cal.App.4th at p. 1362 [§ 7059, subd. (b) grants agency the right to consider license classifications in determining whether a bidder is qualified to bid on contract].) Furthermore, M & B Const. is distinguished because, as noted, Pacific's subcontract did not involve work outside its contractor's license. (M & B Const., supra, at pp. 1360-1361.) In any event, the decision of a public agency goes to its own dealings with the contractor with whom it contracts and has no impact on contractors' dealings with third parties. (Id. at p. 1362.) Here, based on our holding that a class A license sufficed in this case, it is irrelevant that Pacific did not hold a class C-12 license. The requirement of a C-12 license was located in the prime contract between the County of Ventura and Bernards. Bernards observes that the subcontract contained a provision incorporating the prime contract and reciting that Pacific certified that it is fully familiar with all of the terms, conditions, and obligations of the prime contract. But, the authority of the public agency to select which license classification could perform this project extends only to its dealings with its own contracts. (Ibid.)
To summarize, Pacific had a valid California contractor's license when it began work under the subcontract.
Bernards contends, even if Pacific's class A license was sufficient, that license was suspended and expired during suspension while Pacific was performing its work, with the result that Pacific is precluded from recovering on its subcontract because it was not duly licensed "at all times during the performance of" the subcontract as required by section 7031, subdivision (a) and MW Erectors, supra, 36 Cal.4th 412. This issue was raised and argued below. However, because the court ruled against Pacific on the ground it lacked a proper license at all (§ 7031, subd. (a)), the court never addressed the issue of whether Pacific could recover in any event because it was in substantial compliance with the licensing requirement under section 7031, subdivision (e). We conclude that reversal is required to allow Pacific the opportunity to establish it satisfied the elements of substantial compliance.
The Legislature amended section 7031, subdivision (e) effective 2003 "to provide that one may establish substantial compliance, despite being unlicensed at some time during performance, if he or she (1) `had been duly licensed . . . prior to . . . performance . . ., (2) acted reasonably and in good faith to maintain proper licensure, (3) did not know or reasonably should not have known that he or she was not duly licensed when performance of the act or contract commenced, and (4) acted promptly and in good faith to reinstate
However, as the Supreme Court noted, "[i]n an uncodified section of the 2003 amendments, the Legislature `[found] and declare[d] that the changes made by this act do not constitute a change in, but are declaratory of, existing law.' [Citation.]" (MW Erectors, supra, 36 Cal.4th at p. 434, citing Stats. 2003, ch. 289, § 2, p. 2485.) MW Erectors determined "the 2003 amendment seems entirely consistent with the prior statutory expression of the substantial compliance doctrine. No reason appears to reject the Legislature's assurance that the amendment merely clarified, and did not change, existing law." (36 Cal.4th at p. 434.)
Two cases involving the doctrine of substantial compliance where the contractor's license lapsed during the performance of the contract are instructive. The contractor in Slatkin v. White (2002) 102 Cal.App.4th 963 [126 Cal.Rptr.2d 54], was licensed when he commenced work on the contract. Two
In Pacific Custom Pools, Inc. v. Turner Construction Co. (2000) 79 Cal.App.4th 1254 [94 Cal.Rptr.2d 756], the appellate court affirmed the finding of no substantial compliance, not because of the lapse, but because of a lack of good faith. There the evidence showed, although licensed before commencing work on the project (id. at pp. 1258, 1262), that the contractor knew its license was suspended during performance for failure to file a judgment bond (id. at p. 1264). Also, the contractor's renewal application was untimely and its check was dishonored. (Ibid.) Such facts did not indicate that the contractor acted reasonably or in good faith to maintain licensure or that it did not know or reasonably should not have known that it was not duly licensed. (Ibid.)
However, as the result of its ruling granting judgment based on subdivision (a) of section 7031, the trial court never reached the doctrine of substantial compliance. The record is devoid of facts indicating whether Pacific (1) acted reasonably and in good faith to maintain proper licensure, (2) did not know or reasonably should not have known that he or she was not duly licensed, and (3) acted promptly and in good faith to reinstate his or her license upon learning it was invalid. (§ 7031, subd. (e).) Stated differently, the record does not support the trial court's judgment pursuant to Code of Civil Procedure section 631.8. This case must be reversed for trial of the substantial compliance doctrine under section 7031, subdivision (e). Accordingly, that portion of the judgment ordering Pacific to return the $206,437.91 Bernards had paid it must also be reversed.
The judgment is reversed and remanded to the trial court in accordance with the opinions expressed herein. Appellant to recover costs on appeal.
Croskey, Acting P. J., and Kitching, J., concurred.
The 2003 amendments sought, among other things, to "[e]xpand[] the definition of activities not deemed as `substantial compliance' to include performance of work with an inactive license, a revoked license, or a license suspended by disciplinary action of the Contractors' State License Board . . . ." (Sen. Rules Com., Off. of Sen. Floor Analyses, Summary of Assem. Bill No. 1386 (2003-2004 Reg. Sess.) as amended July 23, 2003, p. 1.) Comments showed that to defend against a court action to disgorge compensation for work performed, the contractor must demonstrate that it was not responsible for the lapse in licensure and that he or she acted in good faith and promptly moved to reinstate the license. (Assem. Com. on Judiciary, Analysis of Assem. Bill. No. 1386 (2003-2004 Reg. Sess.) as amended Apr. 21, 2003, p. 2.)
