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Focus
Column
By Daniel Lee Jacobson and Georgia M. Linkletter
California's Business and Professions Code is unforgiving to
building contractors who fail to abide by its licensing requirements.
Section 7031 contains two punishments for nonlicensed contractors. One
of those punishments is new and the other one, while not new, has had
its scope explained by the courts.
New Section 7031(b), effective last Jan. 1, states, "A person
who utilizes the services of an unlicensed contractor may bring an
action in any court of competent jurisdiction in this state to recover
all compensation paid to the unlicensed contractor for performance of
any act or contract."
This sentence provides consumers with a simple yet powerful
weapon to get back "all compensation" that they have paid to an
unlicensed contractor. An unanswered question regarding this new weapon
is whether it can be applied to pre-Jan. 1 "act[s] or contract[s]" of
unlicensed contractors.
Aetna Casualty & Surety Co. v. Industrial Accident Comm'n,
30 Cal.2d 388 (1947), has been described as "perhaps the leading modern
California decision on the subject [of the retroactive application of
statutes]." Evangelatos v. Superior Court, 44 Cal.3d 1188 (1988).
In Aetna, the Supreme Court laid out the general rule:
"It is an established canon of interpretation that statutes are not to
be given a retrospective operation unless it is clearly made to appear
that such was the legislative intent."
No legislative intent to apply Section 7031(b) retroactively can
be found. See California Session Laws, 2001, Vol. 1, at 1887. But the
inquiry cannot stop there.
In Davis & McMillan v. Industrial Accident Comm'n, 198
Cal. 631 (1926), the court stated that the presumption against
retrospective construction does not apply to statutes relating merely to
remedies and modes of procedure. However, the Aetna court
followed the reasoning provided in Morris v. Pacific Electric Ry. Co.,
2 Cal.2d 764 (1935), wherein the Supreme Court said that procedural
changes "operate on existing causes of action and defenses, and it is a
misnomer to designate them as having retrospective effect."
The Aetna court explained, "[P]rocedural statutes may
become operative only when and if the procedure or remedy is invoked,
and if the trial postdates the enactment, the statute operates in the
future regardless of the time of occurrence of the events giving rise to
the cause of action. In such cases the statutory changes are said to
apply not because they constitute an exception to the general rule of
statutory construction, but because they are not in fact retrospective."
The procedure or remedy operates in the present when it is invoked.
Is Section 7031(b), which provides consumers the new statutory
remedy of a refund of all compensation paid to unlicensed contractors, a
procedural statute? If it is, then it can be applied in current cases
that concern pre-Jan. 1 acts or contracts of unlicensed contractors.
The Aetna court said, "[T]he distinction [between
procedural statutes and substantive statutes] relates not so much to the
form of the statute as to its effects. If substantial changes are made,
even in a statute which might ordinarily be classified as procedural,
the operation on existing rights would be retroactive because the legal
effects of past events would be changed, and the statute will be
construed to operate only in futuro ... ."
In Tapia v. Superior Court, 53 Cal.3d 282 (1991), the
court stated the "general rule that statutes addressing the conduct of
trials are prospective."
In ARA Living Centers-Pacific Inc. v. Superior Court, 18
Cal.App.4th 1556 (1993), the court was faced with new statutory language
that provided for the award of attorney fees to successful plaintiffs in
elder abuse cases and removed a previously imposed damages limitation
that had prevented personal representatives or successors of decedents
in elder abuse cases from being awarded damages based on the pain and
suffering of the decedent.
After synthesizing Aetna and its progeny, the ARA
court decided that its task was to decide "whether the Legislature (1)
has merely affected a change in the conduct of trials, which should
routinely apply to this trial, or (2) has changed the legal consequences
of past conduct by imposing new or different liabilities based upon such
conduct."
The ARA court found that the attorney fees portion of the
new legislation was procedural and, thus, applicable to the current
trial, because "fee statutes ... address[] the conduct of trials." On
the other hand, it found that the portion that allowed for pain and
suffering damages "did considerably more than change the conduct of
trial. Because of the amendment, damages up to $250,000 may be assessed
against a defendant for pain and suffering if circumstances warrant."
So while Section 7031(b) is clearly a remedial, procedural
statute in form, a court judging whether it can be applied in current
trials to past acts or contracts of unlicensed contractors will have to
judge whether the effect of the new legislation is substantial enough to
be thought of not as a statute merely addressing the conduct of trials
but as one that substantively changes the legal effects of past events.
For many years, Section 7031(d) has stated that "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 ...
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."
The "compensation" that unlicensed contractors are barred from
seeking includes all sorts of payment, monetary or otherwise. K&K
Services Inc. v. City of Irwindale, 47 Cal.App.4th 818 (1996). It
also bars indemnity claims. Ranchwood Communities v. Jim Beat Constr.,
49 Cal.App.4th 1397 (1996) ("[C]ontracts [made in violation of Section
7031(a)] are considered illegal, i.e., malum prohibitum as opposed to
malum in se.").
A contractor either must be individually qualified to perform in
the trade for which a contractor's license is sought or have a
responsible managing employee or officer who is so qualified. Business
and Professions Code Sections 7068(b)(1), (2), (3).
"[The responsible managing employee or officer] shall be
responsible for exercising that direct supervision and control of his or
her employer's or principal's construction operations as is necessary to
secure full compliance with the provisions of this chapter and the rules
and regulations of the board relating to the construction operations."
Business and Professions Code Section 7068.1.
"Once the RME [responsible managing employee or officer] is not
performing his function, it is as if the contractor has no license at
all." Buzgheia v. Leasco Sierra Grove, 60 Cal.App.4th 374 (1997).
If a responsible managing employee or officer is not employed at the
time relevant to the action, then the contractor is considered
unlicensed for purposes of Section 7031 and, thus, is barred from
bringing suit. Construction Fin. v. Perlite Plastering Co., 53
Cal.App.4th 170 (1997).
In recent years, the court has been faced with situations where
an unlicensed contractor has brought suit both in its capacity as a
contractor and in its capacity as a land developer. In Ranchwood,
the court faced such a situation. The unlicensed general contractor was
also the owner-developer of the land on which it had built mass-produced
housing.
The fact that the unlicensed general contractor was also the
developer played a vital role in the outcome of the case because the
court ruled that whether any particular cause of action survived
depended upon whether it was brought by the unlicensed contractor in its
capacity as a contractor or as a developer.
In Ranchwood, an unlicensed general contractor-developer
cross-complained against its subcontractors when homeowners sued it for
construction defects. The court barred the causes of action in the
cross-complaint for express indemnity, breach of contract, breach of
warranties and declaratory relief because those causes of action were
thought to be the causes of action brought by the unlicensed general
contractor side of the contractor-developer. It treated the other causes
of action differently because it decided that they were brought by the
developer side of the contractor-developer.
Ranchwood explained that because developers of mass
housing face liability under a strict liability theory, it would let the
other causes of action stand. The court quoted La Jolla Village
Homeowners' Ass'n v. Superior Court, 212 Cal.App.3d 1131 (1989): "[T]he
principle of risk distribution has been described as the fundamental
policy underlying the doctrine of strict liability."
The Ranchwood court further drew from and quoted La
Jolla: "A homeowner-plaintiff is protected by this doctrine 'because
the developer is strictly liable for the negligence of its
subcontractors and the developer has adequate recourse to proceed
against the subcontractors if warranted in any particular case.'"
(Italics omitted.)
Daniel Lee Jacobson and Georgia M. Linkletter are
attorneys at Veatch, Carlson, Grogan & Nelson. Jacobson is also an
adjunct professor at Pacific West College of Law. |