Banko Construction v. Superior Court

Filed 1/29/07 Banko Construction v. Superior Court 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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 977.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

Purported appeal from an order of the Superior Court of Los Angeles County, treated as a petition for writ of mandate. Judith C. Chirlin, Judge. Petition denied.

Law Offices of Don Iwuchuku and Donald E. Iwuchuku for Petitioner.

No appearance for Respondent.

Raymond G. Fortner, Jr., County Counsel, Karen Lichtenberg, Assistant County Counsel, Michael L. Moore, Deputy County Counsel, for Real Party in Interest.

_________________________

Plaintiff and appellant Banko Construction Inc. (Banko) purports to appeal an order following a grant of summary judgment in favor of defendant and respondent County of Los Angeles (the County). The appeal is premature; due to the pendency of the Countys cross-complaint, there is no final judgment in the action. In order to resolve this matter on the merits, we treat the purported appeal as a petition for writ of mandate. (9 Witkin, Cal. Procedure (4th ed. 1997) Appeal, 77, 88, pp. 131-132, 147-149.)

The essential issue presented is whether Banko, which is seeking to recover against the County on a construction contract, was in substantial compliance with licensing requirements.

We conclude, as did the trial court, that Bankos conduct did not constitute substantial compliance. Therefore, Bankos petition for writ of mandate is denied.

FACTUAL AND PROCEDURAL BACKGROUND

1. Facts.

On February 18, 2000, the County and Mohag Construction Company, Inc. (Mohag), a licensed contractor, entered into a public works construction contract for

As-Needed Exploratory Subsurface Excavations, Contract No. 72609 (the potholing contract or the contract).

The term of the contract was one year, with two one-year extensions at the Countys option. The County later exercised its options to extend the contract and consequently, the contract expired on April 19, 2003.

On October 29, 2000, Banko filed an application with the Contractors State License Board (Board) for an original contractors license.

On November 20, 2000, Mohag assigned its interest in the contract to Banko. Jalal M. Banki (Banki) was the sole owner of both Mohag and Banko. At the time Mohag assigned the contract to Banko, Banko was not yet licensed.

The assignment was complete and irrevocable in all respect[s] as between the Assignor and Assignee. Under the assignment, Banko assumed all [Mohags] duties, liabilities, obligations under, and the burdens of [said contract].

On December 1, 2000, after Banko replaced Mohag on the contract, the Board granted Bankos application for an original contractors license.

On January 22, 2004, Banko filed a claim for damages with the County, seeking, inter alia, payment for prior invoices totaling $81,212.58. On February 10, 2004, Banko filed an amended claim. The claim was denied.

2. Proceedings.

a. Pleadings.

On May 3, 2004, Banko filed suit against the County for breach of contract and breach of the implied covenant of good faith and fair dealing. Banko subsequently filed the operative first amended complaint against the County, seeking damages for breach of contract and breach of the implied covenant of good faith and fair dealing. Banko alleged it was owed $81,212.58 on invoices which the County had refused to pay. Banko also sought to recover lost profits on excavation jobs it alleged were wrongly assigned to other County contractors.

The County answered the complaint, generally denying the allegations and asserting various affirmative defenses.

The County also filed a cross-complaint against Banko for damages, treble damages and civil penalties. The County alleged Banko violated the False Claims Act by knowingly and willfully accepting public works construction work, performing such work, and submitting invoices for payment for such work, at times when Banko was not duly licensed by the State of California to do such work.^[1]

b. The Countys motion for summary judgment.

On February 22, 2005, the County filed a motion for summary judgment or in the alternative, summary adjudication of issues. The County contended, inter alia, Banko was barred from recovery by Business and Professions Code section 7031 because Banko was not duly licensed at all times during its performance under the contract.^[2]

In opposition, Banko argued, inter alia: it was a licensed contractor when it entered into the contract with the County; it acted reasonably and in good faith to maintain proper licensure; it did not know or reasonably should not have known that it was not duly licensed when performance of the act or contract commenced; and it acted promptly and in good faith to reinstate its license upon learning it was invalid.

During the pendency of the summary judgment motion, the Supreme Court issued its decision in MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412 (MW Erectors), relating to a contractors failure to maintain proper licensure and the statutory exception for substantial compliance. MW Erectors held, inter alia, the substantial compliance doctrine is not available to a contractor who had not been duly licensed at some time beforebeginning performance under the contract. (Id. at p. 419.)

On October 6, 2005, the trial court herein requested supplemental briefing as to the impact of MW Erectors on the matter before it.

In its supplemental papers, Banko contradicted its earlier position as to the date Mohag assigned the contract to Banko. Previously, Banko, in its opposing separate statement as well as in Bankis declaration, admitted the assignment occurred in November 2000, before Banko obtained its original license on December 1, 2000. Now, Banki, in a new declaration, asserted the assignment occurred on December 15, 2000, after Banko became licensed. In support, Banko proffered, as exhibit F, the purported minutes of a special meeting of Mohags shareholders, held on December 15, 2000, wherein it was agreed that Mohag would transfer its rights in the contract to Banko.

The County strongly objected to exhibit F, arguing [t]he reliability and veracity of this document could not be more suspect, now being brought forward at the 11th hour, when all the previously admitted evidence of the transfer date is November 2000, which is the death nail to plaintiffs case. Where an allegation is contrary to law or to a fact of which the court may take judicial notice, it is to be treated as a nullity. [Citation.] [] . . . [Banko] has previously offered . . . statements and evidence which are inconsistent with this new declaration and document.

c. Trial courts ruling.

On November 14, 2005, the trial court granted the Countys motion for summary judgment, ruling as follows:

On the Motion before this Court, the [County] raises three issues or sets of issues: whether [Bankos] claims are barred by the Statue of Limitations, whether they are barred because [Bankos] contractors license was suspended during the relevant time periods and whether the contract requires the [County] to pay certain costs of the job.

The MW Erectors case, cited above, directly addresses the issue of the status of the Plaintiffs contractors license as raised in this case. In its decision, the Supreme Court summarizes its holdings as follows:

Our most significant conclusions are these: (1) Where applicable, [Business and Professions Code] section 7031(a) bars a person from suing to recover compensation for any work he or she did under an agreement for services requiring a contractors license unless proper licensure was in place at all times during such contractual performance. (2)  Section 7031(a) does not allow a contractor who was unlicensed at any time during contractual performance nonetheless to recover compensation for individual acts performed while he or she was duly licensed. (3) The statutory exception for substantial compliance is not available to a contractor who had not been duly licensed at some time before beginning performance under the contract. (4) However, if fully licensed at all times during contractual performance, a contractor is not barred from recovering compensation for the work solely because he or she was unlicensed when the contract was executed. [Citation.]

That holding bears directly on the issues in this case: It is undisputed that at certain times during the performance of this contract, [Banko] did not have a current, valid license. Furthermore, [Banko] cannot avail itself of the substantial compliance test, as it did not have a valid license prior to assuming the contract and it was not in compliance with the statute during substantial . . . portions of the time when work was performed.

Thus, [Banko] is completely barred from maintaining this action. Because the lack of proper licensure at points during the performance of contract bars recovery, the Court declines to rule on the other bases argued for the Motion.

This Court is aware of the harshness of this ruling to an entity that performed actual work. But, just as the Supreme Court acknowledge[d] that it was bound by the strong and clear statutory mandate [citation], this Court is bound by the holding of the Supreme Court.

Banko filed a notice of appeal from the order.

CONTENTIONS

Banko contends the trial court erred in concluding: it was not licensed when performance of the contract began; it was not entitled to payment and damages for breach of contract during the periods when licensure was not in dispute; it was not entitled to the protection of the substantial compliance doctrine.

Banko further contends the County was not entitled to summary judgment because it timely presented a claim to the County; its request for additional compensation is not time-barred; its requests for lost profits for the Countys breach of contract is not time-barred; and it did not waive any claim or cause of action it has against the County under the subject contract.

DISCUSSION

1. Standard of appellate review.

A motion for summary judgment is a proper vehicle to determine whether a contractor substantially complied with licensure requirements. (Pacific Custom Pools, Inc. v. Turner Construction Co. (2000) 79 Cal.App.4th 1254, 1265 (Pacific Custom Pools).)

Summary judgment motions are to expedite litigation and eliminate needless trials. [Citation.] They are granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. [Citations.](PMC, Inc. v. Saban Entertainment, Inc. (1996) 45 Cal.App.4th 579, 590.)

A defendant meets its burden upon such a motion by showing one or more essential elements of the cause of action cannot be established, or by establishing a complete defense to the cause of action. (Code Civ. Proc., 437c, subd. (p)(2); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 849.) A defendant has shown the plaintiff cannot establish at least one element of the cause of action by showing that the plaintiff does not possess, and cannot reasonably obtain, needed evidence . . . . (Id., at p. 854.) Once the moving defendant has met its initial burden, the burden shifts to the plaintiff to show a triable issue of one or more material facts exists as to that cause of action or a defense thereto. (Id., at p. 849.)

We review the trial courts ruling on a motion for summary judgment under the independent review standard. (Rosse v. DeSoto Cab Co. (1995) 34 Cal.App.4th 1047, 1050.)

2. General principles.

a. The pertinent statute.

Section 7031 provides in relevant part at subdivision (a): 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 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 . . . . (Italics added.)^[3]

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. ( 7031, subd. (d), italics added.)

Section 7031, at subdivision (e), sets forth the statutory exception for substantial compliance. The judicial doctrine of substantial compliance shall not apply under this section where the person who engaged in the business or acted in the capacity of a contractor has never been a duly licensed contractor in this state. However, notwithstanding subdivision (b) of Section 143, the court may determine that there has been substantial compliance with licensure requirements under this section if it is shown at an evidentiary hearing that the person who engaged in the business or acted in the capacity of a contractor (1) had been duly licensed as a contractor in this state prior to the performance of the act or contract, (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 his or her license upon learning it was invalid. ( 7031, subd. (e), italics added.)

b. The recent decision in MW Erectors.

In MW Erectors, the Supreme Court construed various provisions of section 7031 and concluded: (1) Where applicable, section 7031(a) bars a person from suing to recover compensation for any work he or she did under an agreement for services requiring a contractors license unless proper licensure was in place at all times during such contractual performance. (2) Section 7031(a) does not allow a contractor who was unlicensed at any time during contractual performance nonetheless to recover compensation for individual acts performed while he or she was duly licensed. (3) The statutory exception for substantial compliance is not available to a contractor who had not been duly licensed at some time before beginning performance under the contract. (4) However, if fully licensed at all times during contractual performance, a contractor is not barred from recovering compensation for the work solely because he or she was unlicensed when the contract was executed. (MW Erectors, supra, 36 Cal.4th at p. 419.)

3. Banko was not duly licensed at all times during the performance of the contract.

The record establishes that Banko was not duly licensed at all relevant times. Banko was unlicensed from November 20, 2000, the date of the assignment from Mohag, until December 1, 2000, when it obtained an original license. Thereafter, according to the Boards records, on June 5, 2001, Bankos license was suspended and remained suspended for over a year. Bankos license was not reinstated until June 7, 2002. The license then was in effect until December 31, 2002, when it expired. The license then lapsed until January 8, 2003, when it was renewed.

Because Banko was not duly licensed at all relevant times, the only issue is whether Banko can bring itself within the statutory exception for substantial compliance. ( 7031, subd. (e).) We now turn to that issue.

4. Trial court properly concluded no triable issue exists as to whether Banko substantially complied with the licensing requirement.

a. Banko was not licensed when it commenced performance.

One of the elements of the substantial compliance doctrine is that the person who engaged in the business or acted in the capacity of a contractor (1) [was] duly licensed as a contractor in this state prior to the performance of the act or contract. ( 7031, subd. (e), italics added.)

Banko is bound by its separate statement of facts, by Bankis initial declaration in opposition to summary judgment, as well as by its recital in the consent to assignment of contract, all of which establish the potholing contract was assigned by Mohag to Banko on November 20, 2000, eleven days before issuance of a license to Banko. Like the trial court, we reject Bankos attempt, in the wake of MW Erectors, to change the date of the assignment to December 15, 2000. Thus, Banko is bound by its earlier admission the assignment occurred in November 2000.

However, the critical issue is the status of the contractors license on the date performance began, not the date the contract was executed. The substantial compliance doctrine requires the contractor to be duly licensed before beginning performance under the contract. (MW Erectors, supra, 36 Cal.4th at p. 419.) [I]f fully licensed at all times during contractual performance, a contractor is not barred from recovering compensation for the work solely because he or she was unlicensed when the contract was executed. (Ibid.)

Banko argues that irrespective of the date the assignment occurred, the first of several potholing jobs under the contract was assigned to Banko on January 25, 2001. In other words, by the time Banko commenced performance under the potholing contract, it was duly licensed.

Bankos theory that the potholing contract was actually a series of discrete jobs, commencing on January 25, 2001, is unpersuasive. The potholing contract between the County and Mohag was executed on February 18, 2000 and was ongoing. Effective November 20, 2000, the contract was assumed by Banko. The assignment was complete and irrevocable in all respect[s] as between the Assignor and Assignee. The consent to assignment (to which Banko was a signatory) included the recital that upon receiving a November 20, 2000 letter from Mohag seeking assignment of the contract to Banko, the County Department of Public Works began making payments to Assignee for work performed under the Pot Holing Contract.

In view of Bankos assumption of an ongoing contract as of November 20, 2000, its performance commenced as of that date, which preceded licensure. Therefore, the substantial compliance doctrine is unavailing to Banko. ( 7031, subd. (e).)

b. Even assuming Bankos performance commenced with the January 25, 2001 potholing job, there was no substantial compliance with the licensing requirement.

Assuming arguendo Bankos performance commenced with the January 25, 2001 potholing job, so that Banko was licensed when it commenced performance, thus satisfying the first element of section 7031, subdivision (e), it still cannot establish substantial compliance.

Section 7031, subdivision (e), also requires the contractor to have acted reasonably and in good faith to maintain proper licensure.

Pacific Custom Pools is instructive. There, it was undisputed the contractors license was not in effect for seven months during the construction work on the project; the contractor had notice of the suspension in November 1995 and for five months after its president personally became aware of the suspension in January 1996; the contractor failed to timely renew the license after notice of expiration; and when the contractor did attempt to renew the license, it sent the Board a filing fee check that was dishonored. (Pacific Custom Pools, supra, 79 Cal.App.4th at p. 1265.) These facts compel the conclusion [the contractor] could not establish that it acted reasonably and in good faith to maintain licensure or that it did not know or reasonably should not have known that it was not licensed, essential elements for a substantial compliance showing under section 7031. Thus, [cross-defendants] were entitled to summary judgment as a matter of law. (Ibid.)

Here, Banko obtained its license on December 1, 2000. Banko concedes that by April 2001, it knew it was facing suspension of its license. Bankos license was suspended seven times, beginning June 5, 2001. The suspensions stemmed from the failure of Bankos responsible managing officer (RMO), Banki, to pay outstanding construction-related civil court judgments. The Boards records indicate the status of Bankos license was suspended for over a year, from June 5, 2001, until reinstatement on June 7, 2002, upon Bankis disassociation from the corporation. Bankos license then lapsed on December 31, 2002 and was renewed on January 8, 2003. In other words, during the first two years of Bankos licensure, it was unlicensed for 375 days, or about half the time. Under these circumstances, Bankos reliance on the doctrine of substantial compliance is misplaced.

5. Remaining issues not reached.

In view of the above, it is unnecessary to address whether Bankos claims are time-barred, or any other issues.

DISPOSITION

The petition for writ of mandate is denied. The County shall recover its costs in this proceeding. (Cal. Rules of Court, rule 8.490(m).)

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

KLEIN, P. J.

We concur:

CROSKEY, J. KITCHING, J.

Publication courtesy of California pro bono legal advice.

Analysis and review provided by La Mesa Property line attorney.

^[1] At oral argument, county counsel advised this court that the cross-complaint is still pending below.

^[2] All further statutory references are to the Business and Professions Code, unless otherwise indicated.

^[3] The statutory prohibition on recovery by an unlicensed contractor applies even where the person for whom the work was performed knew the contractor was unlicensed. (Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988, 997.)