Since the California Legislature amended Business & Professions Code section 7031, subdivision (e), to narrow the doctrine of substantial compliance with contractor licensing requirements, a contractor attempting to recover for construction work performed may no longer avoid the harshness of the bar against recovery by claiming lack of licensure was merely a matter of form. On this subject, I authored the case of Opp v. St Paul Fire & Marine Ins. Co. (2007) 154 Cal.App.4th 71. Opp involved an individual who was barred from utilizing his personal license because he was a different entity than the corporate entity that contracted to perform the work in question.
In this blog's June 27, 2011 edition, I discussed the contrasting facts of Ball v. Steadfast-BLK (2011) 196 Cal.App.4th 694. There, the trial court's judgment barring recovery was reversed because the business name listed in the contract was deemed one and the same as the individual sole proprietor operating the business, although the owners name appeared nowhere in the business name; the business was not a legal entity licensable separate from its owner who was licensed.
Montgomery Sansome LP v. Rezai (filed March 28, 2012) 2012 DJDAR 4042 presents yet another variant on this issue. Defendants hired "Montgomery Sansome Ltd. Lp, 305 Adrian Road, Millbrae" to perform repairs at an apartment building they owned; the work orders had the quoted information printed on the work orders along with contractor's license # 741713. Defendants paid $65,000 on the contract prior to terminating it. Plaintiff claims a balance of about $203,000 is owed it.
In answering plaintiff's lawsuit, defendants asserted that plaintiff "Montgomery Sansome LP" was not the real party in interest, lacked standing to sue and was precluded from compensation for unlicensed contracting work. In its summary judgment motion, they submitted the following evidence: (1) the certificate of limited partnership for "Montgomey Sansome LP," (2) two licensing records, one showing issuance of license # 741713 to "Montgomery Sansome LTD" and another showing "Montgomery Sansome LP" as the licensee, and (3) the fictitious business name statement for "MONTGOMERY SANSOME LTD, L.P.," listed as a general partnership. The San Francisco Superior Court granted the motion and entered judgment in favor of defendants.
The Court of Appeal, First Appellate District, Division Two, reversed. It found a critical issue in determining whether section 7031 bars plaintiff's claims is whether the contracting entity is a general partnership and a separate legal entity from the licensed limited partnership. If it is, stated the court, then under Opp, the claims would be barred; if it is not, then under Ball the use of slightly different names for that entity on different documents would not bar recovery under section 7031.
The appellate court then notes factors that show the issue remains a triable one: a fictitious business name statement does not itself create a separate entity, although it does raise a rebuttable presumption of the truth of the information; other evidence suggests the reference is not to a separate entity, including the listing of the same Millbrae address and the same commencement date of the business. The evidence supports an inference that the general partnership designation and minor variances in the company names were honest mistakes. Because a trier of fact needs to ultimately determine this disputed issue, the judgment was reversed and remanded for proceedings.
I would urge counsel advising contractors to take great care in keeping entity names and statuses precisely the same throughout various filing and licensure processes. While the Ball and Montgomey Sansome, LP opinions suggest minor imprecisions might be excused, there is no guarantee of that. And an effort to rectify the issue may consume enormous attorney fees. Note that the reversal in Montgomery Sansome, LP included a reversal of defendants' judgment for attorney fees totaling $127, 616.90; no doubt plaintiff's attorney fees to that point were sizable as well.