License? We Don’t Need No Stinking License!

by Wendel, Rosen, Black & Dean LLP
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No shooting signI know.

You’ve heard it from me, or your construction attorney, ad naseum.

When in doubt get a license.

We’ve paraded out the list of terribles:

  • If you don’t get paid, and you were required to be licensed but weren’t, you can’t sue for the money your owed . . . no matter how good of a job you did.
  • Not only that, but you could be sued by the owner who can force you to disgorge every penny you were paid.
  • And if the California Contractors State License Board gets involved it may even land you a stint in The Big House.

There are, however, some exceptions.

For example, if the total cost of labor and materials is less than $500.

And here’s another one you can throw back at us know it all construction lawyers: If you’re performing work on a federal project.

In Technica, LLC v. Carolina Casualty Insurance Company, Case No. 12-56539 (April 29, 2014), the U.S. Court of Appeals for the Ninth Circuit held that a contractor who performed work on a federal project in California and who did not have a California contractor’s license could still pursue a claim under the Miller Act.

Background

In 2007, general contractor Calendaria Corporation (“Candelaria”) entered into a federal construction contract known as . . . . wait for it . . . the ICE El Centro SPC-Perimeter Fence Replacement/Internal Devising Fence Replacement project in California.  Just slips off the tongue.  But, we’ll just call it the project.

Candelaria subcontracted a portion of the work to Otay Group, Inc. (“Otay”) who in turn subcontracted a portion of its work to Technica, LLC (“Technica”).

Between 2007 and 2008, Technica provided $893,697.77 worth of labor, materials and services on the project, but only received partial payment payment in the amount of $287,86181.  In mid-2008, Candelaria terminated Otay’s subcontract and Technica was left unpaid.

In response, Technica filed a complaint in the U.S. District Court against Candelaria and its payment bond surety, Carolina Casualty Insurance Company (“Carolina”), under the Miller Act.

Candelaria and Carolina in turn filed a motion for summary judgment on the ground that, because Technica did not have a California contractor’s license, it could not pursue a claim under the Miller Act because Business and Professions Code section 7031 bars a contractor who is required to be licensed from suing to recover payment for work performed.

The District Court agreed and entered judgment in favor of Candelaria and Carolina.  Technica appealed.

The Appeal

On appeal, the 9th Circuit Court of Appeals provided a succinct history of the Miller Act, explaining that the Miller Act was enacted to address a “historical dilemma” faced by contractors and suppliers.  Namely, that common law doctrine of sovereign immunity prevented contractors and suppliers from placing liens on property owned by federal government and, for subcontractors and suppliers not in direct contract with the federal government, their inability to pursue contractual claims against the federal government:

The Miller Act is the modern-day remedy to the historical dilemma faced by contractors and materialmen denied compensation in federal construction projects. The common law doctrine of sovereign immunity prevented liens against property of the federal government, and federal statutes only allowed those in privity of contract with the government to sue to enforce contractual rights. . . . Recognizing that other parties who contribute to the performance of a federal construction contract, including subcontractors, should in some way be assured payment of their claims, Congress enacted the Heard Act in 1894. . . . In 1935, the Heard Act was repealed and the Miller Act enacted in its place.

The Miller Act requires a general contractor on a federal construction project to furnish a payment bond “for the protection of all persons supplying labor and material in carrying out the work provided for in the contract.” 40 U.S.C. § 3133(b)(2). It “represents a congressional effort to protect persons supplying labor and material for the construction of federal public buildings in lieu of the protections they might receive under state statutes with respect to the construction of nonfederal buildings.”

Because the Miller Act was a creature of federal statute, the Court of Appeals continued, “the scope of the remedy as well as the substance of the rights created thereby is a matter of federal not state law.As such, and while acknowledging that the case presented an issue of first impression in the Ninth Circuit, the Court of Appeals explained that the U.S. Supreme Court and other Circuit Courts had already previously held that rights and remedies under the Miller Act may not be conditioned by state law.  Therefore, held the Court of Appeals, “the limitation . . . on the right of a non-licensed contractor to maintain an action for collection of unpaid services does not apply to an action under the Miller Act.”

Conclusion

While the 9th Circuit Court of Appeals said that the Technica case was a case of first impression in the Ninth Circuit, the Court of Appeal’s holding was not surprising.

Back in 1991, the 9th Circuit, in Gartrell Construction, Inc. v. Aubry, 940 F.2d 437 (1991), explained that:

Thirty-five years ago, the United States Supreme Court ruled on the issue before us today: whether a contractor performing services on a federal construction project can be required by the state to obtain a license from the state’s contractor’s licensing board. The Court held that a state licensing requirement is invalid as applied against a contractor with the federal government because it results in interference with federal government functions and is in conflict with federal procurement legislation; its application is therefore precluded by the Supremacy Clause of the United States Constitution.

Thus, while the Court of Appeal’s holding is not particularly surprising, the Technica case provides further clarity that a California contractor’s license is not required on federal projects in California even by a second-tier subcontractor making a claim under the Miller Act.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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