MG Anz Enterprises v. Burks

Filed 10/20/06 MG Anz Enterprises v. Burks CA2/3

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

APPEAL from a judgment of the Superior Court of Los Angeles County, Michael L. Stern, Judge. Reversed and remanded.

Feinberg, Mindel, Brandt, Klein & Kline and Irwin B. Feinberg for Plaintiff and Respondent.

L. Frank Zankich for Defendant and Appellant.

______________________________________________

Defendant Chuck Burks (defendant) appeals from a judgment rendered against him and in favor of plaintiff MG Anz Enterprises, Inc. (plaintiff). Plaintiff is a retail store that sells and installs flooring products. Defendant is a general contractor who repairs foreclosed properties for banks and government entities. He does business under the name Southwest Servicing Group. Plaintiff brought this suit claiming it is owed money for services and products it supplied to defendant. Defendant responded that (1) plaintiff failed to properly apply, to the appropriate invoices, the payments defendant made,[1] (2) money claimed in two of plaintiff’s invoices was never intended by plaintiff to be paid by defendant, and (3) plaintiff was not entitled to a judgment in its favor because it could not prove that it was properly licensed at all times it was doing business with defendant.[2]

Based on the evidence presented at trial, the court determined plaintiff met its burden of producing a prima facie case that it was properly licensed, and defendant did not present evidence to controvert that prima facie case. The court also found that some of plaintiff’s invoices were barred by the four-year statute of limitations set out in Civil Code section 337,[3] and that other invoices were not intended by the parties to be debts owed by defendant. After making allowances for those rejected invoices, and determining interest owed by defendant, the court awarded judgment in plaintiff’s favor.

We find plaintiff failed to demonstrate that it was properly licensed during a portion of the relevant period of time it did business with defendant, and we will therefore reverse the judgment and return the case to the trial court for a redetermination of the amount of money actually owed to plaintiff by defendant.

FACTUAL AND PROCEDURAL BACKGROUND[4]

1. Procedural Background

According to the judgment, the complaint alleges causes of action for breach of a written contract, breach of the implied covenant of good faith and fair dealing, reasonable value of work, labor and services, and a book account, all based on plaintiff’s providing defendant with services and related products.

The case was tried to the court on October 11, 2005. As noted above, the trial court determined that some of plaintiff’s claims were precluded by the statute of limitations, and others were never intended by the parties to be paid. A judgment for plaintiff in the amount of $43,261, plus contractual attorney’s fees and costs, was signed and filed on October 20, 2005. Thereafter, defendant filed this timely appeal.

2. Factual Background

a. Testimony From the Parties

Michael Anz (Anz), plaintiff’s president, testified plaintiff has been in business since 1997. It opened as a corporation doing business as MGA Carpets, and in 2001 changed its dba to MGA Flooring Center.[5] He stated that a contractor’s license is required for his type of work and plaintiff has been a licensed contractor during the time plaintiff had a business relationship with defendant.[6]

That business relationship with defendant began in 1998. Anz testified there came a time when defendant fell behind in his payments to plaintiff. Defendant told plaintiff he was having financial difficulties, so plaintiff agreed to give defendant more time to make payments, and arranged for defendant to make scheduled payments of $500. Defendant was not sent monthly statements by plaintiff showing the status of defendant’s account; however, defendant was sent demand notices from the factor utilized by plaintiff. Anz stated there was no assertion by defendant that defendant’s failure to pay was due to poor quality workmanship or materials from plaintiff. Eventually Anz filed this suit to obtain payment.

Defendant testified he has been in business for approximately 20 years. He stated plaintiff would fax an invoice to him when plaintiff had completed work and he would typically make the payment within 30 days. When he sent payment checks to plaintiff, he would designate on the check the invoice number for which the check was intended. He stated that he paid all money owed plaintiff. He ended his business relationship with plaintiff because he felt that one or two of the jobs plaintiff did for him did not have the quality plaintiff had delivered in the past. When he stopped doing business with plaintiff he owed plaintiff money but it was later paid.

Defendant was asked about two particular jobs for which plaintiff claimed payment was outstanding. One was work done by plaintiff at defendant’s parents’ home, which defendant asserted was done as a gift by plaintiff because defendant had given plaintiff so much business. The other was for services and materials at a realty company. Defendant testified he suggested to the realtors that they call on plaintiff for services, but he did not authorize the work and plaintiff did not present him with an invoice for the work.[7] He stated plaintiff never complained about money being owed by him except for one occasion when his bank account did not have sufficient funds to cover a check.

b. Testimony From the Parties’ Experts

Plaintiff and defendant each presented testimony from their own respective expert witnesses. Plaintiff’s forensic CPA, Scott Decker, testified he used all of the documentation he received from plaintiff and defendant in making his analysis of whether plaintiff is correct that defendant owes plaintiff money for services rendered by plaintiff. Decker stated that much of the documentation from each side was the same, although plaintiff’s documents reflected more invoices and more payments by defendant, and defendant presented copies of checks and cashier’s checks. Based on his examination of the materials, he concluded plaintiff invoiced defendant $348,739 and defendant made payments of $239,843. That left a balance of $108,896, plus interest provided for on the invoices in the sum of 18 percent per year, in the amount of $57,148 through day of filing this suit, and legal interest of 10 percent through September 30, 2005, in the amount of $13,434. He concluded the grand total owed plaintiff was $179,478. In making his calculations, he applied payments made by defendant to the oldest outstanding invoices, pursuant to instructions given to him by plaintiff’s attorney. He stated it was his understanding that this is the way payments are often credited in the construction industry and construction-related industry, and he had often seen that done. He qualified that by saying it was the procedure he has seen followed “on the ones where they have numerous multiple invoices all outstanding at a time.”

Mr. Decker stated he understood that defendant is claiming plaintiff is bound by defendant’s designation, on defendant’s payment checks, of the jobs to which such payments are to be credited, and because of that claim, Decker prepared a second schedule in the event defendant’s contention has validity. In this second schedule, he applied defendant’s payments to the invoices to which the checks indicated they should be applied. In doing so, the total reflected on the invoices supplied to him by plaintiff and defendant did not change, and the total payments made by defendant to plaintiff did not change. He stated the change came in that some of the invoices became more than four years old on the date this case was filed, which he understood impacted the statute of limitations. Therefore, he removed those invoices (totaling $81,529), from his prior calculation of the amounts owed to plaintiff by defendant. That made the outstanding invoiced amount change from $108,896 to $27,366. The interest, which he factored as before based on 18 percent and 10 percent, amounted to $15,895, making a grand total of $43,261 owed to plaintiff using defendant’s method of applying payments. In making his calculations for both methods of applying defendant’s payments, he included the abovementioned two specific invoices--the one for defendants’ parents’ home, and the one for the realtors.

Defendant’s expert, Kenneth Lester, stated he had been a CPA since 1972. Like Mr. Decker, he also reviewed documents submitted by the parties. From his review he concluded that defendant had checks to show that it paid what plaintiff claimed were unpaid invoices, except for the work on Burks’ parents home and the realtors’ office. He stated he found that defendant had paid twice on two separate invoices, and he noticed that the styles of plaintiff’s invoices were different such that he found a job where it appeared to him that plaintiff was using two invoices for the same job. However, he did not have proof that defendant received both invoices or paid both of them. He also stated it is “usual and customary“ to stamp an invoice paid and note the date and check number on it when payment is made but plaintiff did not do that with about half of its invoices for defendant. He did not think that plaintiff’s accounting system was usual and customary. He also noticed that one of the invoices is marked “paid in full thank you,” in one court exhibit while the same invoice is listed on another exhibit as one of those with a statute of limitations problem. He stated it is industry standard to apply checks as the debtor requests to “prevent mechanics liens“ and to have control over accounts payable and receivable and project cash flow.

Mr. Lester stated he was not aware of any invoice or payment missing from the parties’ documents. He agreed with plaintiff’s expert that plaintiff invoiced $348,739; and while he initially testified he agreed with plaintiff’s expert that defendant paid $239,843, he later stated he found that defendant paid $252,006. He was aware that plaintiff had credited defendant’s payments to earlier invoices rather than to the invoices indicated on the payment checks.

DISCUSSION

1. Plaintiff Failed to Establish That It Was Licensed During the Entire Period of Time Between July 8, 2000 and June 1, 2002

a. Introduction

A person engaged in the business of contracting or acting in the capacity of a contractor must allege in his complaint in which he seeks to recover compensation for his services, that he was licensed to perform the act or contract on which he sues, if a license is required for such services, and that he was so licensed at all times during that performance. (§ 7031, subd. (a); see fn. 2, ante.) When the plaintiff’s “licensure or proper licensure is controverted, then proof of licensure pursuant to . . . section [7031] shall be made by production of a verified certificate of licensure from the Contractors’ State License Board which establishes that the individual or entity bringing the action was duly licensed in the proper classification of contractors at all times during the performance of any act or contract covered by the action. . . . When licensure or proper licensure is controverted, the burden of proof to establish licensure or proper licensure shall be on the licensee.” (Id. subd. (d).) At issue in this appeal, as it was in the trial court, is the efficacy of defendant’s “controverting” the existence of proper licensing of plaintiff throughout the relevant period of the business dealings of the parties.

As noted in footnote 3, ante, the trial court ruled plaintiff could not recover on invoices dated prior to July 8, 2000, because of the four-year statute of limitations, and that left plaintiff to sue on invoices spanning the period July 8, 2000 to June 1, 2002. At trial, plaintiff produced several documents for the purpose of establishing that it was properly licensed during that period of nearly two years. In its exhibit “8” series of documents, plaintiff represented that exhibit 8-1 is a copy of a C-15 license issued to it on April 13, 2001, bearing license number 793815. Additionally, plaintiff presented the originals and copies of the following pocket license cards for C-15 license number 793815: (a) exhibit 8-3, which shows an expiration date of April 30, 2003; (b) exhibit 8-4, which shows an expiration date of April 30, 2005; and (c) exhibit 8-5, which shows an expiration date of April 30, 2007.[8]

Additionally, plaintiff presented an original and a copy of exhibit 8-2, which is a pocket license card for a C-15 license bearing number 768884 and the name Sami Anz. Michael Anz identified Sami Anz is his brother. He stated that Sami Anz is the licensee under whom plaintiff obtained its C-15 license in September 1999, and that plaintiff continued that relationship with Sami Anz thereafter.[9] Also introduced into evidence was exhibit 8-9, which is a printout from the website of the California Contractors’ State License Board for Sami Anz’s C-15 license number 768884. Both exhibit 8-2 and exhibit 8-9 state that Sami Anz’s license number 768884 is inactive and expired on September 30, 2001. Exhibit 8-9 states his license was issued on September 17, 1999, as a sole ownership business entity. Exhibit 8-9 was taken from the Board’s website on the day of trial.

Plaintiff failed to allege in its complaint that it was a duly licensed contractor throughout the relevant period of its relationship with defendant. Based on these collective documents presented by plaintiff, the trial court permitted plaintiff to amend its complaint to include the allegation required by section 7031, subdivision (a), and it rejected defendant’s assertion that plaintiff’s evidence was not sufficient under section 7031 to establish that plaintiff was properly licensed at all times relevant to this case.

b. Evidentiary Burdens Associated With Section 7031

We read the provisions in subdivision (a) of section 7031 regarding a plaintiff’s allegation of being duly licensed, and the provisions in subdivision (d) of section 7031 regarding a defendant’s “controverting” the plaintiff’s assertion of licensure or proper licensure, as requiring the following evidentiary burdens of production and persuasion at trial. First, if the defendant’s answer denies the allegation in the complaint that the plaintiff was duly licensed at all relevant times, the plaintiff must present a prima facie case that it was properly licensed at all times during the performance of the act or contract on which it is suing.[10] If the plaintiff meets that burden of production, the burden of production shifts to the defendant to introduce evidence sufficient to constitute a prima facie showing that the plaintiff was not in fact properly licensed at all relevant times, that is, to support, with evidence, its challenge to the plaintiff’s allegation of proper licensure. If the defendant meets its burden of production, the burden of production shifts back to the plaintiff, and the plaintiff must present the verified certificate of licensure from the Contractors’ State License Board as provided for in subdivision (d) of section7031.[11] Additionally, subdivision (d) makes it clear that whether or not the burden of production ever shifts, the burden of persuasion always remains with the plaintiff, who must persuade the trier of fact that it was indeed duly licensed at all relevant times.

In Buzgheia v. Leasco Sierra Grove (1997) 60 Cal.App.4th 374, the plaintiff alleged in his complaint he was a licensed general contractor with a qualifying responsible managing employee (RME), and presented evidence at trial to support that allegation. Although the defendant conceded the license was valid in that it was not forged, expired or held by some other entity, the defendant denied the allegation that the plaintiff had a qualifying RME, and the defendant presented the jury with evidence to controvert that allegation, thus meeting its burden to produce a prima facie case that the plaintiff was not properly licensed. The reviewing court observed that “[d]epending on what evidence the jury believed, it could find either that [the RME] was a bona fide RME or . . . was a sham RME.” (Id. at pp. 381-382.) The Buzgheia court appears to have construed the verified certificate of licensure required by subdivision (d) of section 7031 to mean simply the license given to contractors by the Contractors’ State License Board, that is, the license that a contractor would display in its main office or primary place of business in compliance with section 7075. (Id. at pp. 389-391.) As noted in footnote 11, ante, we construe the verified certificate of licensure as something additional the plaintiff will obtain for use at trial in the event the defendant is able to present a prima facie case that the plaintiff was not in fact licensed, or properly licensed, at all relevant times. However we note that there are situations, such the Buzgheia case, where the controverting issue cannot be settled by a verified certificate of licensure. In Buzgheia, the issue was whether the asserted RME was really what he purported to be, and it was the descriptions of how much work and oversight he put into the subject construction projects that the jury was left to consider when it determined whether he really was the plaintiff’s RME.

In the instant case, plaintiff presented a prima facie showing that it was licensed as a C-15 contractor from April 13, 2001 through April 30, 2007. Thus, the burden of production shifted to defendant to produce evidence constituting a prima facie case that plaintiff was not properly licensed during that period of time. However, defendant did not present any evidence at all. Therefore the trial court, as the trier of fact, was left to determine, solely on the basis of plaintiff’s own evidence, whether plaintiff met its burden of persuasion to show that it was properly licensed during the relevant period of time, which as noted in footnote 3, was between July 8, 2000 and June 1, 2002. Although the court determined plaintiff did meet its burden of persuasion, we do not agree. Plaintiff’s evidence shows its licensing did not begin until April 13, 2001. Therefore it cannot recover on unpaid invoices dated prior to that time. We will reverse the judgment and remand the case so that the trial court can redetermine plaintiff’s damages.

Additionally, it is necessary to say a word about the fact that Michael Anz testified plaintiff was granted, and maintained, its license based on Sami Anz’s license number 768884. As noted above, the evidence shows license number 768884 expired on September 30, 2001. Further, it also shows that the bond for that license had a cancellation date of September 2, 2001, and thus license 768884 was arguably ineffective even earlier than its expiration date. Were it not for Evidence Code section 664, this court would have to conclude that plaintiff did not present evidence of its being properly licensed past September 2001.

Evidence Code section 664 states in relevant part: “It is presumed that official duty has been regularly performed.” The import of section 664 here is that despite the evidence that Sami Anz’s license number 768884 was not effective after September 30 (or September 2), 2001 to support plaintiff’s own license, the Contractors’ State License Board continued to renew plaintiff’s own license every two years. Absent evidence to the contrary, which was not presented in the trial court, we must presume that by continuing to issue license renewals to plaintiff after Sami Anz’s license number 768884 was no longer effective, the Board determined that some other license was in existence which plaintiff could use to maintain its own license in good standing. That is, we presume the Board performed its duty regularly. It is true, as defendant argues, that plaintiff’s license may have been suspended at some point during the relevant period of time, and plaintiff did not present evidence showing there was no suspension. For example, under section 7068.2, if the qualifying responsible managing officer or responsible managing employee disassociates from the licensed contractor, the licensed contractor or the qualifier must notify the registrar, and the licensed contractor must replace the qualifier within 90 days of the date of disassociation. Failure to replace the qualifier within 90 days of the disassociation means the contractor’s license is automatically suspended or the classification is removed. However, it was not plaintiff’s burden to address the matter of possible suspensions. Plaintiff presented a prima facie case that it was licensed from and after April 13, 2001. Evidence of suspension was a matter for defendant’s own burden of production--to show that plaintiff was not in fact properly licensed during the entire relevant period of time. Defendant did not present evidence of suspensions.

2. The Judgment Erroneously Includes Two Invoices Disallowed by the Trial Court

Although the court, in its judgment, indicated it rejected defendant’s contention that plaintiff should have applied defendant’s payments to the invoices indicated on defendant’s payment checks, in reality it actually accepted that position. As noted above, plaintiff’s expert prepared both a “first in/first out schedule to determine how much was owed by defendant to plaintiff, and a second schedule using defendant’s view that plaintiff is bound by the invoice designations defendant made on his payment checks. In preparing the second schedule, plaintiff’s expert concluded that because of the statute of limitations, defendant owed plaintiff $43,261, which is the same amount the trial court awarded in its judgment.

However, we observe that whereas the trial court disallowed the two invoices defendant claimed were never meant by the parties to be paid by defendant (concerning defendant’s parents and the realtors), plaintiff’s expert included those invoices in his second schedule, yet both the court and plaintiff’s expert’s second schedule arrived at the same amount of money owed by defendant to plaintiff--$43,261. Therefore, the judgment must be reversed for an additional reason -- the erroneous inclusion in it of the amounts for the two disallowed invoices.

DISPOSITION

The judgment is reversed and the cause is remanded for further proceedings consistent with the views expressed herein. The parties shall bear their own costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

CROSKEY, J.

We Concur:

KLEIN, P. J.

ALDRICH, J.

Publication Courtesy of California attorney referral.

Analysis and review provided by Vista Property line attorney.

[1] Defendant relies on Civil Code section 1479. Under that statute, “proceeds of a payment are allocated in accordance with the intention of the ‘debtor’ if manifested, and if not manifested the ‘creditor’ may allocate in any manner he chooses within a reasonable time.” (Post Bros. Constr. Co. v. Yoder (1977) 20 Cal.3d 1, 6-7, fn. omitted.) In the instant case, application of defendant’s payments to the invoices indicated on defendant’s payment checks meant that older invoices were barred by the statute of limitations.

[2] Unless otherwise indicated, all references herein to statutes are to the Business and Professions Code.

Section 7031 of that code provides in relevant part: “(a) “[N]o 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, . . . (d) If licensure or proper licensure is controverted, then proof of licensure pursuant to this section shall be made by production of a verified certificate of licensure from the Contractors’ State License Board which establishes that the individual or entity bringing the action was duly licensed in the proper classification of contractors at all times during the performance of any act or contract covered by the action. Nothing in this subdivision shall require any person or entity controverting licensure or proper licensure to produce a verified certificate. When licensure or proper licensure is controverted, the burden of proof to establish licensure or proper licensure shall be on the licensee.”

The Business and Professions Code divides contractors into three branches--general engineering contractors, general building contractors, and specialty contractors. (§§ 7055-7058). Section 7058, subdivision (c) provides that “[a] specialty contractor includes a contractor whose operations are concerned with the installation and laying of carpets, linoleum, and resilient floor covering.” Specialty contractors are subclassified in title 16 (Professional and Vocational Regulations), division 8 (Contractors’ State License Board), section 832 of the California Code of Regulations. Section 832 provides that flooring and floor covering specialty contractors have the subclassification “C-15.”

[3] Regarding the possible period of time for which plaintiff could recover in this case, the trial court observed that plaintiff was suing on invoices spanning the period September 17, 1998 to June 1, 2002, and that this case was not filed until July 8, 2004. The court ruled plaintiff could not recover on invoices dated prior to July 8, 2000, because of the four-year statute of limitations that restricts plaintiff’s causes of action. Thus, plaintiff was only able to sue on invoices spanning the period July 8, 2000 to June 1, 2002, and plaintiff had to be properly licensed for that period of time.

[4] Our recitation of the background of this case is based on the sparse clerk’s transcript, the reporter’s transcript of the trial, the lengthy judgment rendered by the trial court, and trial exhibits submitted to this court by the parties.

[5] Michael Anz also testified the change in 2001 might have involved a change from one corporation to another, but he was not sure.

[6] Anz produced certain documents to support his claim that plaintiff was duly licensed during the period of time it did business with defendant. We discuss those documents infra.

[7] On rebuttal, Michael Anz testified he had an agreement with defendant that defendant would pay for the work at his parents’ home and the realty company.

[8] Section 7140 provides in pertinent part that “[a]ll licenses issued under the provisions of this chapter [governing contractors] shall expire two years from the last day of the month in which the license is issued, or two years from the date on which the renewed license last expired.”

[9] Sections 7065 and 7068 provide that corporations must qualify for a contractor’s license through a responsible managing officer or responsible managing employee who is qualified for the same license classification as that for which the corporation is applying.

[10] This requirement that the defendant must first deny the allegation of licensure before the plaintiff is required to present proof that it was properly licensed comports with the decision of the Legislature, by its 1992 amendment of section 7031, to delete from subdivision (a) the requirement that the plaintiff allege and prove that it was a duly licensed contractor at all relevant times.

[11] We view the procedure for obtaining a verified certificate of licensure as similar to the procedure operated by California’s Secretary of State to certify that a corporation is in good standing. The denial of proper licensing, in the defendant’s answer, coupled with the plaintiff’s use of discovery prior to trial to uncover the basis of such denial, will focus the plaintiff on what evidentiary burden it will face at trial and what it will seek to have stated in the verified certificate of licensure it obtains from the Contractors’ State License Board.