239 Cal. App. 4th 882
Cal. Ct. App.2015Background
- Judicial Council of California (JCC) contracted in 2006 with Jacobs Facilities, Inc. (Facilities) to provide maintenance services requiring a California contractor’s license; Facilities was licensed at contract start.
- Jacobs reorganized: Facilities’ employees were shifted first to Jacobs then to Jacobs Project Management Co. (Management); Management obtained a new class B license in August 2008 while Facilities’ license lapsed and expired in November 2008.
- Jacobs asserts it made an undocumented “internal assignment” of performance to Management when Management was licensed; Facilities, however, remained the contract signatory, invoiced JCC, maintained required bonds/insurance, and received payments until a formal written assignment to Management in November 2009.
- JCC sued for disgorgement under Bus. & Prof. Code §7031(b) (all compensation paid to unlicensed contractor) and related claims; jury found for defendants on various factual questions but the trial court deferred the statutorily required judicial “substantial compliance” hearing under §7031(e) until after the jury (which never occurred).
- Court of Appeal reversed the defense judgment: held Facilities was unlicensed while acting as the contracting party after its license expired, so strict liability under §7031 applies; remanded for a court (not jury) hearing on statutory substantial compliance under §7031(e).
Issues
| Issue | Plaintiff's Argument (JCC) | Defendant's Argument (Jacobs entities) | Held |
|---|---|---|---|
| Whether Facilities violated §7031 by continuing as contracting party after its license lapsed | Facilities’ license expired Nov 2008 but it continued to act as contracting party and receive compensation, so §7031 forfeiture applies | Reorganization/transfers meant a licensed entity (Management) was performing and receiving payment, so no §7031 violation | Held: Facilities acted "in the capacity of a contractor" after licensure lapsed (signatory, invoicing, bonds, insurance), so §7031 applies and jury verdict cannot stand |
| Whether an internal (undocumented) assignment to Management avoided §7031 liability | — | Internal assignment (when Management licensed) transferred performance and responsibility, avoiding unlicensed performance | Held: Internal assignment was ineffective as to JCC without JCC’s consent; Facilities remained obligor and required to be licensed until formal assignment |
| Whether JCC’s later written assignment/consent ratified or related back to cure earlier lapse | JCC had the right to withhold consent and did not ratify earlier internal transfer; later consent does not relate back to cure statutory violation | Defendants: The Nov 2009 assignment (and JCC consent) ratified or related back to the internal assignment, curing the lapse | Held: Assignment does not evidence JCC ratification of the earlier internal assignment nor justify relation-back; Transamerica rule limited to routine insurance-policy assignments and not applicable here |
| Whether defendants waived right to a §7031(e) substantial-compliance hearing and whether judge or jury must decide it | JCC: defendants forfeited the hearing by not insisting after jury; if remanded, jury required | Defendants: timely requested hearing; it was granted and deferred; §7031(e) hearing is for the court (not jury) | Held: Defendants did not forfeit the hearing; §7031(e) provides an evidentiary hearing to be decided by the court (equitable issue), so remand required for judge to determine substantial compliance |
Key Cases Cited
- Asdourian v. Araj, 38 Cal.3d 276 (discusses pre-1989 substantial compliance doctrine under CSLL)
- Hydrotech Systems, Ltd. v. Oasis Waterpark, 52 Cal.3d 988 (explains CSLL purpose and strict enforcement policy)
- MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc., 36 Cal.4th 412 (analyzes legislative abolition of judicial substantial compliance and §7031 strictness)
- Alatriste v. Cesar’s Exterior Designs, Inc., 183 Cal.App.4th 656 (construction of §7031 remedies)
- Opp v. St. Paul Fire & Marine Ins. Co., 154 Cal.App.4th 71 (entity that signs contract is treated as contractor; who acts "in the capacity of a contractor" controls)
- E.J. Franks Construction, Inc. v. Sahota, 226 Cal.App.4th 1123 (addressed corporate form change and licensure continuity — distinguished)
- Transamerica Ins. Co. v. University of Judaism, 61 Cal.App.3d 937 (relation-back/deemed approval doctrine in insurance assignments; limited application)
- Ahdout v. Hekmatjah, 213 Cal.App.4th 21 (disgorgement under §7031 applies regardless of equities)