YOSEF Y. MANELA v. JOHN D.S. STONE et al.
B302660
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION ONE
Filed 7/1/21
CERTIFIED FOR PUBLICATION; (Lоs Angeles County Super. Ct. Nos. 19STCV18640 c/w 19STCV24162)
APPEAL from orders of the Superior Court of Los Angeles County, Daniel S. Murphy, Judge. Reversed.
Selvin & Weiner and Beryl Weiner for Defendants and Appellants.
Buchalter, Robert M. Dato; and Gabriel G. Green for
Defendants John D.S. Stone (Stone) and JDSS Construction Company, Inc. (JDSS) (collectively, the Stone parties) appeal from an order removing the Stone parties’ mechanic‘s lien on a property owned by plaintiff Yosef Manela (Manela) and his former wife Nomi Manela (the Manela property). The Stone parties jointly filed the mechanic‘s lien to collect payment for work they performed on the Manela property pursuant to a construction contract executed by the Manelas and Stone (the Manela contract), the quality of which Manela challenged in a separate lawsuit. After compelling the parties’ disputes to arbitration, the trial court granted Manela‘s motion to remove the mechanic‘s lien bаsed on the court‘s conclusion that
On appeal, the Stone parties argue that the evidence does not support that JDSS performed work under the Manela contract before it became licensed, and in particular that the trial court improperly relied on an assignment agreement as conclusive evidence of such unlicensed performance. We hold that the evidence in the record compels the conclusion that
A. The Manela Contract
From 1982 through 2015, Stone held a California general contractor‘s license (license No. 425872) and did business under that license as Stone Construction Company, a fictitious business name for his sole proprietorship.
In early 2014, Stone and Manela began discussing a major home remodeling project on the Manela property. On January 4, 2015, Stone—as a sоle proprietor doing business as Stone Construction Company—and the Manelas signed the Manela contract regarding the project. The contract provided that “SCC [Stone Construction Company] will perform the work specified herein at the [Manela] property on behalf of the owner[s] [the Manelas]” and included a price and estimated completion date of December 2015. (Capitalization omitted.) It further provided that “extra work and change orders become part of the contract once the order is prepared in writing and signed by the parties prior to the commencement of any work covered by the new change order.” (Capitalization omitted.)
B. The Incorporation of Stone‘s Business As JDSS
On February 11, 2015, after work on the project had begun, Stone formed JDSS, a corporation doing business under the same fictitious business name as Stone‘s sole proprietorship, Stone Construction Company. Stone was the sole shareholder of the corporation. Stone applied to the Contractors State License Board (CSLB) to reissue his existing contractor‘s license to JDSS.
While waiting for the CSLB to reissue the license, Stone executed a March 15, 2015 agreement between himself and JDSS (the assignment agreement) that purports to formally assign to JDSS “all of [Stone‘s] rights and obligations under the [Manela contract]” “effective . . . March 15, 2015.”2 The agreement was signed by Stone in his personal capacity, as well as by Stone on behalf of JDSS in his capacity as its president. It was not signed by either of the Manelas.
The CSLB ultimately reissued Stone‘s license (license No. 425872) to JDSS on June 22, 2015. Stone is listed as the “qualifying individual” on the
C. Activity During the Period When JDSS Was Not Yet Licensed
Manela does not dispute that Stone was the person who performed all contractor work on the project during the period between March 15, 2015 (when Stone purported to assign the Manela contract to JDSS) and June 22, 2015 (when the CSLB reissued Stone‘s license to JDSS). Whether Stone was doing so in his personal capacity or as an agent of JDSS was the key subject of disagreement in the proceedings below.
During this approximately three-month period, Stone continued to send invoices to the Manelas as a sole proprietorship, doing business as Stone Construction Company. The first invoice reflected in the record from JDSS is dated August 10, 2015 (i.e., аfter JDSS was licensed); all subsequent invoices reflected in the record for work under the Manela contract are from JDSS as well.
The record also contains an unsigned change order dated during the three-month period when JDSS was not yet licensed. This document, dated June 10, 2015, is on JDSS letterhead and lists license number 425872 as the applicable contractor‘s license number. It provides that “[t]he contractor agrees to perform and the owner agrees to pay for the following changes to this contract,” then describes certain work and its pricing. There are spaces on the form for both the “contractor” and “owner” to sign and date under the word “approved,” but these spaces are blank. (Capitalization omitted.) The document appears to bear a “paid” stamp, which includes a text box that is likewise blank, as well as a notation thаt the work was “invoiced on ynm-07.” (Capitalization omitted.) The record does not indicate if or when this work was performed and/or approved, or when the work described in the change order was invoiced or paid for.
D. The Parties’ Dispute and Lawsuit
Throughout the course of the project, Manela requested numerous change orders that expanded the scope of the project, increased the cost, and delayed the estimated completion date, although the extent to which they did so is a subject of debate between the parties. In late 2018, the project still was not completed, and the Manelas stopped paying JDSS‘s invoices. Manela filed
The Stone parties then jointly recorded a mechanic‘s lien on the Manela property for the amount of allegedly unpaid invoices and filed a related action against the Manelas.4 Their verified complaint included claims for breach of contract and foreclosure on the mechanic‘s lien. Paragraph 18 of the complaint alleged that “[f]rom and after March 15, 2015, plaintiff JDSS Construction Company, Inc., dba Stone Construction Company continued work to provide the services required under the
contract.” (Capitalization omitted.) The assignment agreement was attached as an exhibit to the verified complaint as well.
The Stone parties also filed a petition to compel arbitration of Manela‘s claims, pursuant to an arbitration clause in the Manela contract.
E. Licensure Issue Raised in Manela‘s Amended Complaint and Motion to Remove Mechanic‘s Lien
Manela‘s initial complaint did not include any allegations about or causes of action based on lack of licensure. Based on the Stone parties’ verified allegation in paragraph 18 of their complaint, however, Manela amended his complaint to add allegations that JDSS “and possibly Stone as well” had performed work on the project without a contractor‘s license, in violation of
F. The Parties’ Submissions Regarding the Motion to Remove Mechanic‘s Lien
The Stone parties opposed the motion to remove the mechanic‘s lien, claiming that there had been no gap in the requisite licensure. Stone‘s declaration submitted in support of the Stone parties’ opposition contains several statements about when Stone believed himself to be providing services as an agent of JDSS. The declaration first provides that “[p]rior to June 22, 2015 [the date the license was transferred to JDSS], Stone conducted his general contractor license business under the dba Stone Construction Company.” Later, in paragraph 13, it provides that “[f]rom and after February 11, 2015, all of Stone‘s general contracting business was conducted under the aegis of JDSS.” (Italics added.) Finally, the declarаtion provides that Manela “knew from and after the date of the [fifth] change order dated June 10, 2015 that JDSS was providing all of the services (labor and materials) under the contract” and that this was “reflected on the change orders, the JDSS invoices, [and] payments by [Manela] to JDSS.” (Capitalization omitted.)
In response, Manela argued that the assignment of the construction contract prior to JDSS becoming licensed created a gap in the requisite licensure even if Stone was always the person performing the contracting services. Somewhat in tension with this, however, in opposing the Stone parties’ concurrently filed motion to compel arbitration, Manela also argued that “Manela never consented to th[e] assignment, nor did he ratify it.”5
The day before the hearing on the mechanic‘s lien motion, the Stone parties’ counsel filed an errаta to the Stone declaration previously filed in opposition to that motion. The errata purported to alert the court to a “typographical error” and omission—namely that the wrong date for when “all of Stone‘s general contracting business was conducted under the aegis of JDSS” was inadvertently included in the Stone declaration. In a supplemental declaration from Stone in support of the errata, Stone explained that he had actually conducted business as JDSS “[f]rom and after June 22, 2015, ” rather than from and after February 11, 2015, as his earlier declaration had indicated.
The court addressed Manela‘s motion to remove the mechanic‘s lien and the Stone parties’ motion to compel arbitration in the same tentative ruling, which the court ultimately adopted in full. In that ruling, the trial court first granted the arbitration motion. Manela had argued in opposition to the motion that he could not be compelled to arbitrate with JDSS because JDSS had not signed the arbitration agreement.
The court rejected this argument based on the court‘s conclusion that the allegations in Manela‘s complaint established “sufficient identity of [the] parties between Stone . . . and JDSS” to enforce the arbitration agreement against Manela.
In addressing the mechanic‘s lien motion, the court first rejected the Stone parties’ argument that the court lacked jurisdiction to hear the motion because the matter was being compelled to arbitration. The court emphasized that it had limited jurisdiction to address the mechanic‘s lien issue, and would not be addressing the merits of the parties’ dispute.
The court granted the motion to remove the mechanic‘s lien on the basis that JDSS had performed work under the contract without a license.6 The court explained that this conclusion flowed solely from the assignment agreement; because “JDSS assumed Stone‘s rights and obligations under the [Manela] [c]ontract” on March 15, 2015, “from March 15, 2015 to June 22, 2015, JDSS performed contractor services for which it was not licensed.” The court further concluded that the assignment distinguished the facts before it from a situation in which there was a mere change in a contractor‘s business form. (Cf. E. J. Franks Construction, Inc. v. Sahota (2014) 226 Cal.App.4th 1123, 1129-1130 (Franks).)
The court declined to characterize anything in its order as a finding of fact, emphasizing that it had “merely evaluat[ed] the
probable validity of [d]efendants’ mechanic[‘s] lien, not the merits of this claim or claims that are compelled in arbitration.”7
The Stone parties filed an ex parte application and/or motiоn seeking reconsideration of the trial court‘s order removing the mechanic‘s lien, relief
At the ex parte hearing, the court explained thаt even assuming the Stone parties’ most recent version of events were true, “it wouldn‘t . . . change[ ] my tentative [ruling] anyway . . . because there‘s no dispute there was a complete assignment in March to that corporation [JDSS], which was not licensed.” The
court overruled Manela‘s evidentiary objections to the most recent Stone declaration, and noted—but did not make any findings resolving—the conflicts between the various Stone declarations.8
The court denied the Stone parties’ request for ex parte relief, except for granting them leave to amend their complaint.
DISCUSSION
The Stone parties filed a petition for writ of mandate in this court (case No. B302131) challenging the court‘s order removing the mechanic‘s lien, as well as a notice of appeal (case No. B302660) challenging both that order and the order denying the Stone parties’ requestеd ex parte relief. This court initially issued an order to show cause in the writ proceeding, then discharged the order to show cause and informed the parties that the writ petition would be considered with this appeal.
We conclude—and Manela does not contest—that the order removing the mechanic‘s lien is appealable. (See Howard S. Wright Construction Co. v. Superior Court (2003) 106 Cal.App.4th 314, 318 [“the grant of a motion to remove a mechanic‘s lien is essentially a judgment on the underlying foreclosure action that no lien exists—a judgment that, upon recordation, removes the lien from the public records . . . [a]nd . . . is a final,
fn. omitted].) We therefore consider the merits of the Stone parties’ appeal from the order removing their mechanic‘s lien.9
A motion to remove a mechanic‘s lien should be granted only when the lienholders (here, the Stone parties) fail to make a threshold showing of the “probable validity of the lien.” (Lambert v. Superior Court (1991) 228 Cal.App.3d 383, 387.) Thus, by removing the mechanic‘s lien in this case based on the applicability of
A. Applicable Law Regarding Section 7031 Forfeiture
The Contractors State License Law (CSLL) (
or acting in the capacity of a contractor, may bring or maintain any action . . . for the collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that they were a duly licensed contractor at all times during the performance of that act or contract.” In M.W. Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412 (M.W. Erectors), the California Supreme Court made clear the all-or-nothing nature of
period during which the party is “engag[ed] in the business or act[ing] in the capacity of a contractor,” but rather the period when the contractor is performing under the contract.11 (See M.W. Erectors, supra, 36 Cal.4th at p. 435, italics omitted; ibid. [“the due licensure of which
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.” (Id. at p. 419, italics added & omitted.) M.W. Erectors explains that this conclusion follows in part from the plain language of
For the purposes of determining when a license is required to avoid
The Stone parties primarily rely on Franks, supra, 226 Cal.App.4th 1123, a decision that draws heavily on the reasoning of M.W. Erectors and is factually similar to the instant appeal. In Franks, an individual contractor entered into a home construction contract with the defendant homeowners. During performance of the contract, he incorporated the plaintiff corporation, of which he was the sole shareholder. The contractor‘s license that had been issued initially to him in his personal capacity was reissued to his corporation, at which point the corporation took over work under the contract. (Id. at p. 1126.) The defendants argued that, because the corporation had not been licensed at all times during the performance of the contract, the plaintiff corporation had violated
With this precedent regarding
The Stone parties argue that the evidence does not support the trial court‘s conclusion that they failed to show
Although we ordinarily review evidentiary challenges for substantial evidence, that standard ” ‘is typically implicated when a defendant contends that the plaintiff succeeded at trial in spite of insufficient evidence.’ ” (Sonic Manufacturing Technologies, Inc. v. AAE Systems, Inc. (2011) 196 Cal.App.4th 456, 465; In re I.W. (2009) 180 Cal.App.4th 1517, 1528, disapproved of on other grounds by Conservatorship of O.B. (2020) 9 Cal.5th 989.) ” ‘In the case where the trier of fact has expressly or implicitly concluded that the party with the burden of proof did not carry the burden’ “—here, the court‘s implicit finding that Stone parties failed to prove the probable validity of the lien—and that party appeals, ” ‘the question for a reviewing court becomes whether the evidence compels a finding in favor of the appellant as a matter of law.’ ” (Dreyer‘s Grand Ice Cream, Inc. v. County of Kern (2013) 218 Cal.App.4th 828, 838.) We thus consider whether the evidence compels the conclusion that JDSS did not perform under the contract while unlicensed.
The parties identify the following evidence in this regard: thе assignment agreement; the June 10, 2015 change order; and the conflicting statements by Stone regarding his work under the Manela contract. We address each in turn below.
1. The assignment agreement
The trial court viewed the assignment agreement as conclusive evidence that JDSS began performing under the contract as of March 15, 2015 (the effective date listed in the assignment). The Stone parties argue the assignment agreement cannot serve as such evidence. We agree.
Under the assignment agreement, Stone assigned his rights and purported to delegate the performance of his duties under the Manela contract to JDSS, and JDSS accepted the assignment of rights and assumed Stone‘s duties. (See p. 4, fn. 2, ante.) A third party‘s agreement to assume a contractor‘s duties under a construction contract without a license is akin to the execution of a construction contract without a license, something the California Supreme Court has explained does not trigger
Thus, for the purposes of applying
2. The June 10, 2015 change order
Manela argues that the June 10, 2015 change order on JDSS letterhead reflects JDSS performing under the contract as of that date. But the change order describes work to be performed in the future; it does not indicate whether or when the work was performed. Thus, a reasonable trier of fact could not infer from this document that any work had been performed at the request of or on behalf of JDSS before June 22, 2015.
Nor does JDSS‘s mere issuance of a change order meet the definition of performance of the contract set forth in M.W. Erectors, because it is neither an act “for which [JDSS] seeks compensation” nor an act “carrying out the contract.” (M.W. Erectors, supra, 36 Cal.4th at p. 435, italics omitted.) Rather, the Manela contract provides that work may be added to the contract‘s scope through a written change order signed by both parties, meaning that executing a change order is an act amending the original contract and, like entering into the contract, does not constitute performance thereunder. Although issuing a change order is certainly an ” ‘act[ ] in the capacity of a contractor’ ” (id. at p. 437), M.W. Erectors distinguishes such acts from the narrower category of performance under a specific contract, and makes clear that the former does not trigger
Manela does not contend, and the record contains no evidence, that any person other than Stone or subcontractors hired by him performed any work under the Manela contract before June 22, 2015. The Stone parties’ verified complaint and Stone‘s multiple declarations conflict regarding whether, before that date, Stone performed that work and/or engaged others to perform that work in his personal capacity or on behalf of JDSS. Regardless, however, of what Stone declared or wrote in his complaint, and notwithstanding the assignment agreement, Stone remained personally liable for his promised performance under the Manela contract in the absence of the Manelas’ consent to the purported delegation. (See
other parties] under the contract“].) Yet, Manela does not contend that the Manelas consented to the delegation before June 22, 2015, nor does the record contain evidenсe supporting any such approval.
The assignment agreement purports to assign Stone‘s rights and delegate his obligations under the Manela contract to JDSS, effective March 15, 2015. Generally speaking, “the statutes in this state clearly manifest a policy in favor of the free transferability of all types of property, including rights under contracts” (Farmland Irrigation Co. v. Dopplmaier (1957) 48 Cal.2d 208, 222), but contractual “duties imposed upon one party may be of such a personal nature that their performance by someone else would in effect deprive the other party of that for which he bargained. The duties in such a situation cannot be delegated.” (Ibid.; see Superbrace, Inc. v. Tidwell (2004) 124 Cal.App.4th 388, 402 (Superbrace) [same].) For example, duties “are not delegable in either of the following situations: (1) where in the nature or circumstances of the case, the skill, credit or other personal quality of the party was a distinctive characteristic of the thing stipulated for, namely, the personal nature of the contract itself, or (2) the personal quality of the party was a material inducement to the other party entering into the contract.” (Edgar Rice Burroughs, Inc. v. Commodore Productions & Artists, Inc. (1959) 167 Cal.App.2d 463, 469.) Here, the contractor services Stone agreed to provide to the Manelas in the Manela contract are personal services to be rendered by Stone. According to the allegations in Manela‘s complaint (which Manela reiterated in his brief to this court), “Manela felt comfortable enough to agree to the terms and execute a fixed price construction contract with Stone” and “agreed to hire
Manela does not argue that he consented to the assignment agreement before June 22, 2015,14 nor does the record contain any evidence that this occurred. The June 10, 2015 change order on JDSS letterhead does not reflect the Manelas’ acquiescence to JDSS stepping in for Stone before June 22, 2015, аs it is not signed as approved by either of the Manelas, nor does it indicate if or when the Manelas paid for such proposed work15 or when
the work was done. Rather, the earliest evidence in the record that might constitute the Manelas’ acquiescence or consent to the assignment agreement was their payment of JDSS invoices for work performed under the Manela contract beginning in August 2015. Absent any evidence of the Manelas’ consent to the assignment agreement before June 22, 2015, Stone‘s obligations under the Manela contract still existed before June 22, 2015, notwithstanding that the assignment agreement professes to be effective as of March 15, 2015.16 As a result, regardless of how Stone characterizes the work he performed before June 22, 2015, he could not have been performing that work at the instruction of or on behalf of JDSS, because he was already contractually obligated to perform it in his personal capacity during that time period. Put differently, until the Manelas consented to the assignment agreement, “[t]he corporation [JDSS] was not the contracting party,” and thus “did not act ‘as a contractor without a license.’ ” (Franks, supra, 226 Cal.App.4th at p. 1130.)
under the contract before it was licensed, and that
4. Franks
Our conclusion in this regard is consistent with the policy rationale set forth in Franks, which we find persuasive. Here, as in Franks, the same contractor‘s license was in place at all times during the performance of the contract, held at first by an individual, then by that individual‘s corporation. (See Franks, supra, 226 Cal.App.4th at pp. 1128-1129; see also Jacobs Facilities, supra, 239 Cal.App.4th at p. 899 [distinguishing Franks because “[t]he continuity of license and business entity that was central to the rationale of Franks was not present“].) Franks concluded that, under these circumstances, allowing a
change in business form to create a gap in licensing “wоuld lead to absurd results” and would “effectively preclude licensed sole proprietor contractors from lawfully incorporating and obtaining a reissue of a general contracting license to the new business entity at any time during the construction period.” (Franks, supra, at p. 1129.)
Manela argues the trial court correctly concluded that the instant case is distinguishable from Franks because it involves the additional element of an assignment, rather than just a change in business entity. But given that the assignment agreement here could not unilaterally relieve Stone of his duties to Manela under the original agreement (absent consent by the Manelas), this is a distinction without a difference. Nor does the additional element of the assignment agreement render any less applicable Franks’ conclusion that forfeiture under such circumstances would not serve “[t]he purpose of
Importantly, Franks did not treat the individual and the corporation as interchangeable for the purposes of
DISPOSITION
The order of the trial court remоving the mechanic‘s lien is reversed. Upon remand, the trial court is instructed to enter a new order confirming the validity of the mechanic‘s lien notwithstanding Manela‘s motion to remove it.
The Stone parties are awarded their costs on appeal.
CERTIFIED FOR PUBLICATION.
We concur:
CHANEY, J.
BENDIX, J.
ROTHSCHILD, P. J.
Notes
Similarly, we need not address arguments the trial court rejected below as bases for removing the mechanic‘s lien (timeliness and a lien held by multiple parties), because Manela does not argue on appeal that the court erred in rejecting these arguments or that they provide alternative bases for affirming the court‘s order.