Opinion ID: 2576241
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Heading Rank: 4

Heading: Licensure during performance of act or contract.

Text: Since the CSLL was adopted in 1939 (Stats.1939, ch. 37, § 1, p. 381), section 7031 has declared that, except as expressly otherwise provided, a contractor may not sue to collect compensation for performance of any act or contract requiring a license without alleging that he or she was duly licensed at all times during the performance of that act or contract. (§ 7031(a).) In 1989, section 7031(a) was amended to make clear that the bar extends to actions in law or equity and applies regardless of the merits of the cause of action. (Stats.1989, ch. 368, § 1, p. 1509.) If licensure is controverted, the suing contractor must produce a verified certificate establishing that he or she was duly licensed ... during the performance of any act or contract covered by the action. (§ 7031, subd. (d).) MW concedes it needed a C-51 license to perform the work contemplated by the structural steel contract, but began work thereon before its C-51 license was formally issued on December 21, 1999. Thus, MW admits it was [not] ... duly licensed ... at all times during the performance of that ... contract. (§ 7031(a).) The Court of Appeal nonetheless held that, while section 7031(a) bars MW from recovering compensation for pre license activities under the structural steel contract, MW may recover for all performance rendered under that contract after the C-51 license was issued. We disagree. At the outset, the Court of Appeal's interpretation contravenes well-entrenched case law. Prior decisions express a consistent understanding that one fails to meet the technical requirements now set forth in section 7031(a), and is ineligible to recover any compensation under the terms of that statute, if, at any time during performance of an agreement for contractor services, he or she was not duly licensed. ( Latipac, Inc. v. Superior Court (1966) 64 Cal.2d 278, 280-281, 49 Cal.Rptr. 676, 411 P.2d 564 ( Latipac ); Pacific Custom Pools, Inc. v. Turner Construction Co. (2000) 79 Cal.App.4th 1254, 1259-1260, 94 Cal.Rptr.2d 756; ICF Kaiser Engineers, Inc. v. Superior Court (1999) 75 Cal.App.4th 226, 230, fn. 3, 89 Cal.Rptr.2d 88; Pickens, supra, 269 Cal.App.2d 299, 302, 74 Cal.Rptr. 788; Bierman v. Hagstrom Construction Co. (1959) 176 Cal.App.2d 771, 776-777, 1 Cal.Rptr. 826; Harrison v. Butte Steel Buildings, Inc. (1957) 150 Cal.App.2d 296, 302-303, 310 P.2d 126; see Slatkin v. White (2002) 102 Cal.App.4th 963, 968, 126 Cal.Rptr.2d 54 ( Slatkin ); Owens v. Haslett (1950) 98 Cal.App.2d 829, 832, 221 P.2d 252.) Our close examination of section 7031(a) confirms that these decisions are correct. In construing a statute, `we strive to ascertain and effectuate the Legislature's intent. [Citations.] Because statutory language generally provide[s] the most reliable indicator of that intent [citations], we turn to the words themselves, giving them their usual and ordinary meanings and construing them in context....' ( People v. Castaneda [ Castenada ] (2000) 23 Cal.4th 743, 746-747 [97 Cal.Rptr.2d 906, 3 P.3d 278].) `If the language contains no ambiguity, we presume the Legislature meant what it said, and the plain meaning of the statute governs.' ( People v. Robles (2000) 23 Cal.4th 1106, 1111 [99 Cal.Rptr.2d 120, 5 P.3d 176].) If, however, the statutory language is susceptible of more than one reasonable construction, we can look to legislative history ( ibid. ) and to rules or maxims of construction ( Meija [ Mejia ] v. Reed (2003) 31 Cal.4th 657, 663 [3 Cal.Rptr.3d 390, 74 P.3d 166]). `... [T]he court may [also] consider the impact of an interpretation on public policy, for [w]here uncertainty exists consideration should be given to the consequences that will flow from a particular interpretation.' ( Ibid., quoting Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1387 [241 Cal.Rptr. 67, 743 P.2d 1323].) ( People v. Smith (2004) 32 Cal.4th 792, 797-798, 11 Cal.Rptr.3d 290, 86 P.3d 348.) Addressing section 7031's plain language, we note first its specific provision that no person ... may bring or maintain any action, or recover in law or equity in any action ... for the collection of compensation for the performance of any act or contract [requiring] a [contractor's] license unless he or she alleges (§ 7031(a), italics added), and can prove (§ 7031, subd. (d)), his or her due licensure at all times during such performance (§ 7031(a)). The words at all times convey the Legislature's obvious intent to impose a stiff all-or-nothing penalty for unlicensed work by specifying that a contractor is barred from all recovery for such an act or contract if unlicensed at any time while performing it. This all-or-nothing philosophy is directly at odds with the premise that contractors with lapses in licensure may nonetheless recover partial compensation by narrowly segmenting the licensed and unlicensed portions of their performance. To conclude otherwise, the Court of Appeal focused on the words act or contract. In the Court of Appeal's view, urged here by MW, the disjunctive phrasing of this passage plainly indicates that a contractor may recover compensation for either any act or any contract requiring a license, so long as he or she was duly licensed at all times during the performance of either the act or the contract. Thus, the Court of Appeal reasoned, the contractor may recover compensation for each and every fully licensed act, even if it occurred in furtherance of a contract and the contractor was not licensed  at all times during the performance of such ... contract  (italics added). We find this parsing of section 7031(a) unpersuasive. Central to the Court of Appeal's reasoning was its assumption that if the phrase act or contract were construed to mean a contractor could not recover compensation for any work done under a contract unless the contractor was duly licensed at all times during performance of that contract, the disjunctive word act would be superfluous. This, the Court of Appeal insisted, would violate the maxim against statutory interpretations that render some words surplusage. (E.g., Myers v. Philip Morris Companies, Inc. (2002) 28 Cal.4th 828, 850, 123 Cal.Rptr.2d 40, 50 P.3d 751.) However, the Court of Appeal's strained construction defies the only plausible reading of section 7031(a)'s plain language. At the outset, while the Court of Appeal's interpretation gives meaning to the word act, it violates the very maxim it seeks to apply by making the word contract surplusage. If a contractor, working to perform an agreement for services that require a license, may recover for any licensed act undertaken in the course of that performance, even if not duly licensed at other times during the work, there is no separate meaning to, or use for, the explicit statutory proviso that one may not maintain an action to recover compensation for the performance of any contract where a license is required unless he or she was ... duly licensed ... at all times during the performance of that ... contract.  (§ 7031(a), italics added.) [6] On the other hand, Niederhauser argues that, contrary to the Court of Appeal's assumption, there is a sensible function for both act and contract as they appear in section 7031(a). In Niederhauser's view, the disjunctive prohibition against compensation for an `act' exists to deny any sort of recovery on a theory other than breach of contract. (Italics added.) Thus, Niederhauser asserts, its purpose is to broaden the bar of [s]ection 7031 beyond a `contract' to any [unlicensed] `act' with or without a contract. (Italics added.) We agree. The CSLL does not require contractors to operate exclusively by formal contract; it simply seeks to deter them from offering or performing unlicensed services for pay. (See Hydrotech, supra, 52 Cal.3d 988, 995, 277 Cal.Rptr. 517, 803 P.2d 370.) As amended in 1989, section 7031(a) stresses that an unlicensed contractor may not sue for compensation in law or equity.  (Italics added.) This implies that licensed contractors have noncontractual remedies to recover for work not covered by a formal contract. Indeed, parties do sometimes operate without, or beyond the boundaries of, a formal contractual arrangement, under an implicit understanding that the contractor is working on a quantum meruit basis. (See, e.g., Amelco Electric v. City of Thousand Oaks (2002) 27 Cal.4th 228, 237, 115 Cal.Rptr.2d 900, 38 P.3d 1120; C. Norman Peterson Co. v. Container Corp. of America (1985) 172 Cal.App.3d 628, 640, 218 Cal.Rptr. 592; Daugherty Co. v. Kimberly-Clark Corp. (1971) 14 Cal.App.3d 151, 156, 158, 92 Cal.Rptr. 120.) It therefore appears clear that the reference to unlicensed performance of both acts and contracts was intended to close a loophole, not to open one. Most reasonably read, this reference ensures that one may not avoid the all-or-nothing bar against recovery for unlicensed services simply because there is no formal contract. In other words, one may not recover compensation for work accomplished under a contract unless duly licensed for the work  at all times during the performance of that ... contract. (§ 7031(a), italics added), and, in any event, he or she may not recover compensation for any act requiring a license unless duly licensed  at all times during the performance of that act ( ibid., italics added). We confirm this construction by examining section 7031(a) in its statutory context. Similar at all times and act or contract language appears throughout the companion subdivisions of section 7031. (See id., subds. (b) [one may sue to recover all compensation paid to unlicensed contractor for performance of any act or contract], (c) [security interest taken to secure payment for performance of any act or contract requiring a contractor's license is unenforceable unless contractor was duly licensed at all times during the performance of the act or contract], (d) [if due licensure is controverted, suing contractor must produce certificate proving such licensure was in place at all times during the performance of any act or contract covered by the action], and (e) [substantial compliance applies only where contractor had been duly licensed ... prior to the performance of the act or contract, acted reasonably and in good faith to maintain licensure, neither knew nor should have known he or she was unlicensed when performance of the act or contract commenced, and acted promptly and in good faith to reinstate his or her license upon learning it was invalid].) Together these provisions make clear the general rule denying recovery of all compensation for work requiring a contractor's license if a valid license was not in place when performance began, or if licensure lapsed at any time during the work. Our interpretation also conforms to the Legislature's express understanding when it amended section 7031 in 1989. The 1989 amendments, contained in Assembly Bill No. 841 (1989-1990 Reg. Sess.) (Assembly Bill No. 841), modified section 7031(a) to specify that an unlicensed contractor could not recover compensation in law or equity, regardless of the merits of the cause of action, and also added subdivision (d) (now subdivision (e)) to section 7031, abrogating the prior judicially developed doctrine of substantial compliance. (Stats.1989, ch. 368, § 1, p. 1509; see discussion, post. ) Legislative reports and analyses for Assembly Bill No. 841 uniformly described existing law as prevent[ing] a person from pursuing legal action for payment for work requiring a contractor's license if the person was not duly licensed ... at all times during the project. [7] (Assem. Com. on Gov. Efficiency and Consumer Protection, Rep. on Assem. Bill No. 841, as amended Apr. 4, 1989, p. 1; Assem. Com. on Gov. Efficiency and Consumer Protection, 3d reading analysis of Assem. Bill No. 841, as amended Apr. 4, 1989, p. 1; Dept. of Consumer Affairs, analysis of Assem. Bill No. 841, as amended Apr. 4, 1989, p. 1; Cal. Dept. of Consumer Affairs, Enrolled Bill Rep. on Assem. Bill No. 841 (Aug. 31, 1989) p. 1.) [8] MW urges that section 7031(a)'s disjunctive phrase act or contract cannot have meant to bar quantum meruit recovery for individual licensed acts as punishment for a lapse of licensure during other stages of contractual performance, because use of that phrase in the original CSLL far predated the 1989 Legislature's express decision to preclude such relief. We fail to see the point of this argument. The Legislature intended its 1989 amendments to narrow a loophole created by the courts' use of the substantial compliance doctrine to avoid apply[ing] the licensing law strictly. (Assem. Com. on Gov. Efficiency and Consumer Protection, Rep. on Assem. Bill No. 841, as amended Apr. 4, 1989, p. 2; Assem. Com. on Gov. Efficiency and Consumer Protection, 3d reading analysis of Assem. Bill No. 841, as amended Apr. 4, 1989, p. 2.) If anything, the Legislature's 1989 action confirms, rather than undermines, the view that the phrase act or contract has never allowed contractors to distinguish, for purposes or recovery, among individual licensed and unlicensed act[s] in furtherance of a larger contract. Several amici curiae [9] foresee dire consequences unless we affirm the Court of Appeal's construction of section 7031(a). These amici curiae predict that contractors who suffer momentary gaps in licensure while performing agreements for licensed services may abandon the work, even though they are by then fully licensed, because they will realize that they have already forfeited all right to sue for compensation for both past and future labor and materials expended on the projects. (Cf., Slatkin, supra, 102 Cal.App.4th 963, 969-971, 126 Cal.Rptr.2d 54.) However, as indicated above, it has been understood for decades that section 7031 precludes court recovery for any work performed under an agreement for construction services unless the contractor was duly licensed (or met the applicable standards for substantial compliance with licensure requirements) with respect to all the work performed thereunder. Even so, we are not aware that significant problems of the kind described by amici curiae have surfaced. The statute's purpose, to encourage careful adherence to the licensing laws, and to deter persons from offering or providing unlicensed contractor services for pay, has apparently been served. [10] But even if such problems had arisen, we could not depart from section 7031(a)'s clearly expressed purpose to bar recovery for any work performed under a construction services agreement unless the provider was duly licensed at all times during the performance of that ... contract. Here, MW had no valid California contractor's license when it began work under the structural contract. Hence, unless MW can establish substantial compliance with applicable license requirements, it cannot recover, in its suit against Niederhauser, any compensation for its work under that contract. We turn to a consideration of the substantial compliance issue.