No license--free ride?(CONSTRUCTION CORNER)(cases of MW Erectors, Inc.)

For nearly 70 years, California has embraced a statutory licensing scheme for contractors. The Contractors' State License Law, Ca. Bus & Prof. Code [section] 7000, et seq. (the CSLL) significantly punishes a contractor for failure to maintain proper licensure while performing construction services in that state.

This punishment extends into the California courts as well. Within the CSLL, Code Section 7031 includes a general rule that regardless of the merits of the claim, "no contractor may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract where a license is required ... without alleging that he or she was duly licensed at all times during the performance of that act or contract ..." CA BUS & PROF [section] 7031(a).

On July 14, 2005, the California Supreme Court, in MW Erectors, Inc. r. Niederhauser Ornamental & Metal Works Co., Inc., 36 Cal. 4th 412, 115 P. 3d 41 (2005) (MW Erectors) ruled on several issues regarding the applicability of this code section. The case stems from two lower-tier subcontracts to perform structural and ornamental steel erection on a privately owned hotel construction project.

When MW Erectors signed both of these subcontracts, it did not hold a California contractor's license under the applicable contractor designation. (California's contractor licensing scheme has 62 differing classifications. See www.cslb.gov.) Ultimately, MW Erectors obtained its California contractor's license for steel erection work; however, this license did not become effective until roughly three weeks after it started performing work on the steel erection subcontract. MW Erectors had the license in place when it began the ornamental steel erection subcontract work.

Ultimately, MW Erectors sued Niederhauser for over $1.3 million due on the two subcontracts. It was not disputed that MW Erectors performed the work under these subcontracts. However, Niederhauser sought full dismissal of MW Erectors' lawsuit on grounds that CSLL section 7031 (a) expressly prohibited recovery because MW Erectors was not a licensed California contractor at all times during its performance of the subcontracts.

Arguing against dismissal, MW Erectors contended that, while it was not licensed when it signed the subcontracts or when it started performing the steel erection subcontract, it had nevertheless substantially complied with the state's license requirements. MW Erectors also asserted that Niederhauser was judicially estopped from raising this defense where, in separate litigation, it had implicitly acknowledged MW Erectors' proper licensure in claims against the general contractor.

The trial court granted Niederhauser's motion for summary judgment and dismissed MW Erectors' case, from which it appealed.