Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-04632/USCOURTS-cand-3_04-cv-04632-32/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 18:1961 Racketeering (RICO) Act

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States District C

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For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO BAY AREA RAPID

TRANSIT DISTRICT,

Plaintiff,

 v.

 WILLIAM D. SPENCER, et al.,

Defendant.

 /

No. C 04-04632 SI

ORDER DENYING PLAINTIFF’S

MOTION TO FILE AND SERVE

AMENDMENT TO SECOND AMENDED

COMPLAINT

A three-week jury trial began in this case on January 22, 2007. On January 23, 2007, plaintiff

filed a motion for leave to file and serve an amendment to the Second Amended Complaint to add a

claim for violations of the California Contractors License Law. For the following reasons, the Court

DENIES plaintiff’s motion. 

LEGAL STANDARD

Federal Rule of Civil Procedure 15(b) provides:

Amendments to Conform to the Evidence. When issues not raised by the pleadings

are tried by express or implied consent of the parties, they shall be treated in all

respects as if they had been raised in the pleadings. Such amendment of the

pleadings as may be necessary to cause them to conform to the evidence and to raise

these issues may be made upon motion of any party at any time, even after judgment;

but failure so to amend does not affect the result of the trial of these issues. If

evidence is objected to at the trial on the ground that it is not within the issues made

by the pleadings, the court may allow the pleadings to be amended and shall do so

freely when the presentation of the merits of the action will be subserved thereby and

the objecting party fails to satisfy the court that the admission of such evidence would

prejudice the party in maintaining the party's action or defense upon the merits. The

court may grant a continuance to enable the objecting party to meet such evidence.

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1As an initial matter, the procedural posture of BART’s motion is awkward. BART characterizes

its motion as the “second type” of Rule 15(b) motion, which, as discussed above, allows the court to

amend the pleadings “[i]f evidence is objected to at the trial on the ground that it is not within the issues

made by the pleadings.” Fed. R. Civ. P. 15(b); see Mot. at 2:14. BART fails to identify, however, what

evidence was “objected to at the trial,” thereby allowing BART to bring this motion. The Court is not

aware of any specific objection made by defendants to evidence of CCLL violations. BART’s motion

thus appears premature. Nonetheless, BART’s motion fails on the merits.

2BART does not contest the fact that it has unduly delayed in seeking to add this claim. BART

filed the initial complaint in this case on November 1, 2004. BART filed a first amended complaint on

February 23, 2005, and a Second Amended Complaint on November 4, 2005. BART provides

absolutely no explanation for why it did not include this claim in any of these three complaints, or seek

leave to amend prior to the commencement of trial. BART hints only that: “In light of recent rulings

by the Court . . . BART has determined that it is necessary to state now a separate and independent claim

for relief under the CCLL.” Pl.’s Br. at 2:22-24. 

2

Rule 15(b) thus provides two methods of amending the pleadings: (1) “if issues are tried with the

express or implied consent of the parties, a court must treat the issues as if they were raised in the

pleadings”; and (2) the court may “grant an amendment . . . after a party objects at trial to the

introduction of that evidence on the grounds that it is not within the issues in the pleadings. If it is in

the interest of justice to do so, a court may freely grant leave to amend after an objection. A party may

obtain leave to amend over the objection unless the opposing party is able to show prejudice would

result. The burden is on the opposing party to show that allowing amendment would result in prejudice

to it.” 3-15 Moore's Federal Practice - Civil § 15.18 (2006).1 

DISCUSSION

BART seeks to add a claim for violation of the California Contractors License Law (“CCLL”),

California Business & Profession Code Section 7031(b).2 Subsection (b) of Section 7031 provides:

“Except as provided in subdivision (e), 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.” Subdivision (e) provides an

exception to liability where “there has been substantial compliance with licensure requirements . . . .”

Pursuant to subsection (b), BART seeks to recover payments made to the joint venture between 1998

and 2003 for work on the four contracts at issue in this case. BART’s claim alleges that the joint

venture’s license was invalid ab initio because the joint venture was a sham, and defendants therefore

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3

violated 7031(b) by engaging in work without a valid license. Having considered the arguments of the

parties, the Court will not permit BART to amend its complaint in the midst of trial, because BART’s

new claim is likely futile, and defendants would be highly prejudiced by the proposed amendment.

The most glaring problem with BART’s proposed amendment is the likely futility of the new

claim. Though neither party raises this point, the Court notes that subsection 7031(b) was added by

amendment to the CCLL in 2001. See Deering’s California Codes Annotated, Cal. Bus. & Prof. Code

§ 7031 (2006). The California courts have explicitly held that subsection (b) does not apply to actions

taken before the effective date of the amendment, January 1, 2002. As the California Court of Appeal

stated:

[T]here was no provision allowing restitution from an unlicensed contractor until the

current subdivision (b) became effective on January 1, 2002. Before that date,

section 7031 provided only that an unlicensed contractor could not recover money

owed for work requiring a license. . . .

The [plaintiffs] do not contend the new subdivision (b) of section 7031 was

retroactive, but assert it merely codified existing case law allowing restitution from

an unlicensed contractor. We disagree. Case law interpreting section 7031

demonstrates that courts never awarded the restitution provided by the current

subdivision (b) before its effective date.

Lee William Dev. Corp. v. Chalker, 2005 WL 1100646 (Cal. App. 4 Dist. May 9, 2005) at *4-*5. 

Most, if not all, of this case involves events occurring in 1998 and 1999, well before section

7031(b) came into effect. BART’s proposed amendment suggests that it would seek to recover for work

completed up to 2003, some of which therefore would be covered by section 7031(b). It is apparent,

however, from the evidence submitted at the summary judgment stage, that the joint venture ceased to

exist in 1999. SLG’s license was suspended in August 1999, and SLG went out of business before the

end of the year. See Balmat Decl., Ex. 57; Talao Decl. ¶ 77; Whitfield Decl., Ex. 12. Subsequently,

defendants wrote the Contractors’ State License Board, requesting that the joint venture license be

continued, in spite of SLG’s demise, in order to complete the projects already in progress. See Balmat

Decl., Ex. 59. The Board granted BMC’s request. See id., Ex. 60. According to BART’s own papers,

BART was informed of these events, and “accepted . . . that BMC would complete the work required.”

Opp. at 13:24-27. “[A]s of September 1999, BART understood that . . . BMC would perform the

subcontracts awarded to SLG/BMC.” Id. at 13:27-14:2.

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3The Court also notes that there is a serious legal issue with the applicability of section 7031(b)

to joint ventures. Subsection 7031(a), which prevents contractors from bringing legal action to recover

compensation for work performed without a license, does not apply to joint ventures if each of the joint

venture partners is independently and validly licensed. See Knapp Dev. & Design v. Pal-Mal Props.,

Ltd., 173 Cal. App. 3d 423 (Cal. Ct. App. 1985). Though no California court has addressed the issue,

the Court questions whether the joint venture exception should apply to subsection 7031(b) as well.

There is also a serious legal issue as to whether an owner can bring a claim against a

subcontractor under subsection 7031(b). The plain language of the statute allows anyone who “utilizes”

a contractor to bring an action to recover compensation “paid” to the contractor. There would thus be

an issue over whether it was BART, or the prime contractors, who “utilize[d]” and “paid” the

defendants. No California court has addressed this issue.

4

The fact that the joint venture no longer existed after 1999, and that the State License Board

knew this fact and re-approved the validity of the joint venture license, casts serious doubt on BART’s

presumed argument that defendants worked without a valid license after the effective date of section

7031(b). BART’s new claim would thus be futile, as a matter of law, with respect to any work

performed before January 1, 2002, and would most likely be futile with respect to work performed after

the effective date as well.

Moreover, a theory that defendants’ license was invalid despite the State License Board’s

affirmation of defendants’ license in 1999, would require the parties and the Court to resolve extensive

factual and legal issues3 related to what constitutes a “valid” license. Doing so would require further

discovery into the Board’s procedures and policies, and the rationale underlying its actions with respect

to the joint venture license. None of this has been at issue thus far in this case. Defendants would thus

be highly prejudiced if amendment of this claim were allowed at this stage.

Since it was filed, this case has centered around allegations that defendants created a sham joint

venture with a minority-owned construction firm in order to secure subcontracts as a favored

disadvantaged business enterprise. The validity of the joint venture is an issue in this case, and the

validity of the joint venture’s license may be relevant to this issue. At its core, however, this is, and

always has been, a fraud case. This is the case that BART has pursued, and the case against which

defendants have prepared a defense. None of the extensive pre-trial motions or discovery disputes dealt

with the issue of the validity of the joint venture’s contractors’ license. Defendants would thus be

prejudiced if the Court allowed BART to present a new, unexplored and unprepared-for claim at trial.

In light of certain prejudice to defendants and the futility of most, if not all, of the new claim, the

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Court hereby DENIES BART’s motion for leave to amend the Second Amended Complaint. (Docket

No. 281)

IT IS SO ORDERED.

Dated: February , 2007 

SUSAN ILLSTON

United States District Judge

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