The Fifth Day, LLC v. Bolotin

172 Cal. App. 4th 939, 91 Cal. Rptr. 3d 633, 2009 Cal. App. LEXIS 441

• Court: California Court of Appeal
• Decided: March 27, 2009
• Docket: B201556
• Status: Published

Opinions

Opinion

ARMSTRONG, Acting P. J.

Plaintiff and appellant The Fifth Day, LLC (Plaintiff), entered into an agreement with Industrial Real Estate Development Company (Owner) to provide certain “industrial real estate development and construction project management” services with respect to real property located in Chino, California. Plaintiff sued Owner and its principals, Pacific Allied Industrial Corporation and James P. Bolotin (together referred to as Defendants), for compensation alleged to be due for services rendered by Plaintiff.

The trial court granted summary judgment in favor of Defendants on the ground that Plaintiff was acting as a general building contractor and therefore was required to hold a license pursuant to Business and Professions Code¹ section 7026; because it had no such license, it was barred by section 7031, subdivision (a), from maintaining this action. On appeal, Plaintiff contends that (1) it was not a contractor within the meaning of section 7026; (2) it was exempt from the license requirement because it was an owner of the property or a partner of Owner; and (3) even if some of the services it rendered required a contractor’s license, it nevertheless could be compensated for other services that did not require a license. We determine that Plaintiff was not a contractor within the meaning of the licensing statute, and its claims are therefore not barred by section 7031, subdivision (a). Consequently, we reverse the judgment.

FACTUAL AND PROCEDURAL SUMMARY

In 1999, Defendants owned 12.3 acres of land (the Property) in Chino, California, adjacent to land owned by Chino Industrial Commons, LLC (CIC). Plaintiff’s managing member was Kevin Knox. At Knox’s urging, Defendants and CIC agreed to develop their properties jointly.² To that end, the Property was divided into three parcels designated lots Nos. 19, 20 and 21. CIC entered into 52-year ground leases on the three lots. The ground lease for lot No. 20 required CIC to construct a 55,000-square-foot building on the lot. Once the building was completed, CIC was to assign its interest in lot No. 20 back to Defendants, and Defendants were to convey to CIC a fee simple interest in lots Nos. 19 and 21. No rent was payable by CIC under the ground leases for the first two years, but rent was payable thereafter.

CIC failed to construct the building on lot No. 20 during the first two years of the lease term, and rent began to accrue under the ground leases at a rate of 5 cents per square foot, or approximately $24,000 per month. In February 2001, rather than pay the rent, CIC assigned the three ground leases—along with its obligation to construct the building—to Plaintiff. The development plan for the Property was changed to a seven-building commercial office park. Lot No. 20 was redesignated as lots Nos. 1 and 2, and lots Nos. 19 and 21 were redesignated as lots Nos. 3 through 7. Plaintiff undertook to construct two buildings totaling 55,000 square feet on lots Nos. 1 and 2 (formerly lot No. 20) in return for a fee simple interest in lots Nos. 3 through 7 (formerly lots Nos. 19 and 21). Plaintiff was responsible for financing the construction.

By early 2003, Plaintiff had not constructed the buildings and owed Defendants $465,000 in back rent. Plaintiff negotiated with PCI³ to obtain financing for the construction. Under the agreement contemplated between Plaintiff and PCI, Plaintiff would assign the ground leases to PCI. PCI would finance the construction of the seven buildings, pay Defendants the accrued back rent, and pay Plaintiff $100,000. Plaintiff was to receive a “Project Incentive Fee” based on a 25 percent share of the profits from the sale of the development.

Defendants refused to consent to the assignment of the ground leases contemplated in the PCI deal, and proposed instead to finance the construction on terms similar to the PCI deal, including reassignment of the ground leases back to Defendants. Defendants proposed to increase Plaintiff’s Project Incentive Fee to 34 percent of the profits. Knox stated in his declaration that Plaintiff “reluctantly” accepted Defendants’ proposal because of the increased Project Incentive Fee.

This agreement is memorialized in a document dated May 5, 2003, between Plaintiff and Owner entitled “Development Management Agreement For the Construction of The Campus at CIC” (the DMA). Owner is referred to as the “Owner” and Plaintiff as the “Development Manager.”

The DMA recites that Owner wishes to undertake the development of the entire property. To do so, “Owner desires to have Professional Development and Construction Management Services to assist the Owner . . . .” Plaintiff was “experienced in industrial real estate development and construction project management and is willing to provide to Owner these services.”

Plaintiff was to be paid a fixed development fee of $100,000 as a nonrefundable advance against a Project Incentive Fee of 34 percent of a defined “Project Value.” The DMA provided, “The Owner agrees that for purposes of this agreement, any and all lease rents accrued are included in the value of the Land Contribution and that the leases for Lots 19, 20 and 21 previously entered into are to be terminated as and by those Lease Terminations attached as Exhibit_.”

The DMA specified that Plaintiff was to perform the following duties “as Owner may specifically and expressly direct”:

—To “identify critical and high priority matters and promptly report the same to Owner,” and with respect to matters “requiring any immediate action” to “make recommendations for a short-term contingency plan to minimize Owner’s exposure to loss or damage.”

—To provide “advice or opinions with respect to the development of an overall strategic plan for the management and administration of the Project.”

—To “coordinate and direct” the activities of design professionals hired by Plaintiff.

—To obtain building and special permits, “except for permits required to be obtained directly by the various contractors.”

—To provide advice or opinions with respect to (1) “developing the budget for construction costs” and “controlling the overall budget for the Project,” and (2) “Owner’s efforts to keep the Project moving forward” on budget and on time.

—To update the budget regularly, including a comparison between anticipated and actual expenses.

—To “provide cost and performance evaluations of alternative materials and systems . . . .”

—To provide a project development schedule setting forth Plaintiff’s “good faith estimate of how long the regulatory and construction phases of the Project will last.”

—To hold and document regularly scheduled preconstruction meetings with Owner to “update the Owner, discuss issues, plan strategies to meet objectives and solve problems.”

—To provide “opinions or advice on administrative and management matters that relate to the coordination of work among and between the Contractors, Subcontractors, Disbursement Agent, Owner and the Design Professional(s).”

—To assist the general contractor in “developing bidders’ interest in the Project, establish bidding schedules and assist the Owner in preparing construction contract document packages.”

—To assist the general contractor in the subcontractor bidding process and to ensure that the general contractor performs its duties with respect to bids from subcontractors and material suppliers.

—To receive and review required certificates of insurance from the design professionals and contractors.

—To “use commercially reasonable efforts to achieve satisfactory performance from each of the Contractors and Subcontractors.”

—To conduct daily “on-site inspections and reviews” during construction, and to attend and report to Owner on “all on-site Project status meetings . . . .”

—To provide to Owner summaries of and to document all change proposals and change orders.

—To “ensure that the contract documents contain all necessary independent testing and inspection” and to “regularly review the testing and inspection reports . . . .”

—To report to Owner monthly “regarding the status of all or part of the Project.”

—To review with Owner monthly a draw request package, including approved applications for payment.

—To maintain the financial books and records for the project.

—To report cash disbursements related to the project.

— To maintain contact information for the project team.

—To “coordinate the completion and correction of the work” and to “assist the Design Professional(s) in conducting substantial final inspections.”

In addition, Plaintiff warranted and represented that (1) it was “experienced, competent and qualified to perform the work contemplated by” the DMA; (2) it had and would maintain “sufficient facilities, expertise, staff, assets and other resources to perform its duties”; (3) it held and would hold “all licenses, permits or other certifications necessary to perform its duties”; and (4) Owner would “have full knowledge and involvement in the Project.”

In January 2004, Owner entered into a construction contract (the Contractor Agreement) with Fullmer Construction, pursuant to which Fullmer agreed to complete specified work, including the construction of seven concrete tilt-up buildings on the Property, for a fee of nearly $4.9 million. Knox, Plaintiff’s principal, was designated in the Contractor Agreement as the Owner’s representative. As such, Knox represented the Owner with respect to “all aspects of the [Contractor] Agreement and the execution and performance of the Work including, without limitation, the authority to give approvals and consents and the authority to execute Prime Contract Change Orders less than [$25,000] and provide directions to Contractor.”

Plaintiff performed the services required of it under the DMA. Construction was completed, and certificates of occupancy for the project issued in December 2004.

Plaintiff alleged that, between December 2004 and March 2005, Owner sold three of the buildings. According to Knox, Owner paid Plaintiff in excess of $785,000 in Project Incentive Fees. Plaintiff alleged that Owner subsequently sold or leased the remaining four buildings, but refused to pay Plaintiff the additional Project Incentive Fees earned under the DMA. Plaintiff alleged that as a result, Defendants owe Plaintiff approximately $1.8 million in additional Project Incentive Fees.

Plaintiff sued Defendants for breach of contract and on common counts for money had and received and for services rendered. The trial court sustained Defendants’ demurrers to the original complaint with leave to amend on the ground that Plaintiff failed to allege that it was a licensed contractor and was therefore barred from bringing suit by section 7031. Plaintiff thereafter filed a first amended complaint that (1) omitted the common count for services rendered, (2) recast Plaintiff’s cause of action for breach of contract to allege the breach of a partnership agreement, and (3) sought the additional remedies of rescission and restitution. Defendants again demurred on the ground that section 7031 barred Plaintiff’s suit. This time, the trial court overruled the demurrer, concluding that Plaintiff had alleged facts that, if true, avoided the section 7031 bar.

Defendants subsequently moved for summary judgment on the sole ground that section 7031 barred Plaintiff’s suit. The trial court granted the motion, concluding that the undisputed facts established that Plaintiff was a contractor within the meaning of section 7026; because Plaintiff was not licensed, its action was barred by section 7031. The trial court entered judgment in favor of Defendants.⁴ Plaintiff timely appealed.

STANDARD OF REVIEW

On an appeal from a grant of summary judgment, we examine the record de novo to determine whether triable issues of material fact exist. (Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 767 [107 Cal.Rptr.2d 617, 23 P.3d 1143]; Avila v. Continental Airlines, Inc. (2008) 165 Cal.App.4th 1237, 1245-1246 [82 Cal.Rptr.3d 440].) We view the evidence in a light favorable to, and resolve any evidentiary doubts or ambiguities in favor of, the nonmoving party. (Saelzler v. Advanced Group 400, supra, 25 Cal.4th at pp. 768-769.) The moving party bears the burden to demonstrate “that there is no triable issue of material fact and that [it] is entitled to judgment as a matter of law.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850 [107 Cal.Rptr.2d 841, 24 P.3d 493], fn. omitted.) If the moving party makes a prima facie showing, the burden shifts to the party opposing summary judgment “to make [its own] prima facie showing of the existence of a triable issue of material fact.” (Ibid.) “There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.” (Ibid., fn. omitted.)

Contract interpretation on undisputed facts is a question of law that we review de novo. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 866 [44 Cal.Rptr. 767, 402 P.2d 839]; Employers Mutual Casualty Co. v. Philadelphia Indemnity Ins. Co. (2008) 169 Cal.App.4th 340, 347 [86 Cal.Rptr.3d 383].) Statutory interpretation also is a question of law that we review de novo. (Burden v. Snowden (1992) 2 Cal.4th 556, 562 [7 Cal.Rptr.2d 531, 828 P.2d 672].) “Our primary duty when interpreting a statute is to ‘ “determine and effectuate” ’ the Legislature’s intent. [Citation.] To that end, our first task is to examine the words of the statute, giving them a commonsense meaning. [Citation.] If the language is clear and unambiguous, the inquiry ends. [Citation.] However, a statute’s language must be construed in context, and provisions relating to the same subject matter must be harmonized to the extent possible. [Citation.]” (Van Horn v. Watson (2008) 45 Cal.4th 322, 326 [86 Cal.Rptr.3d 350, 197 P.3d 164], fn. omitted.)

DISCUSSION

Although Plaintiff advances a number of arguments to support its position that its lack of licensure does not preclude it from suing for compensation earned under the terms of the DMA, the central question presented in this appeal is whether an entity which provides construction management services to a private owner developing commercial real property is required to be licensed pursuant to the Contractors’ State License Law. The licensing law itself does not identify construction managers as workers requiring licensure. Defendants nevertheless argued below, and now on appeal, that sections “7026 and 7057, and the holdings of the California Supreme Court, make it quite clear that a person or entity that provides supervision and/or management services for any construction project, must be licensed as a ‘general building contractor,’ so as to ‘protect the public from dishonesty and incompetence in the administration of the contracting business.’ ” Defendants’ position is untenable.

A “contractor”—a term “synonymous with ‘builder’ ” according to section 7026—is required to hold one of three categories of contractor’s license: Class A (general engineering contractor), class B (general building contractor), or class C (covering “specialty” licenses). (§§ 7055-7058.) Section 7026 defines “contractor” as “any person who undertakes to or offers to undertake to, or purports to have the capacity to undertake to, or submits a bid to, or does himself or herself or by or through others, construct, alter, repair, add to, subtract from, improve, move, wreck or demolish any building, highway, road, parking facility, railroad, excavation or other structure, project, development or improvement, or to do any part thereof, . . . whether or not the performance of work herein described involves the addition to, or fabrication into, any structure, project, development or improvement herein described of any material or article of merchandise. ‘Contractor’ includes subcontractor and specialty contractor.”

A review of Plaintiff’s duties under the DMA reveals that it was to assist, on behalf of the Owner, in coordinating the activities of the various workers to enable them to complete their assigned tasks in an organized and efficient manner, on time and on budget; to maintain records such as insurance certificates, as well as the financial books and records for the project; to keep the Owner apprised of the status of the project; to be the on-site “point person” to respond to issues as they arose; and generally to act as the Owner’s agent with respect to the various parties connected with the development of the project. Plaintiff had no responsibility or authority to perform any construction work on the project, or to enter into any contract or subcontract for the performance of such work.

It is undisputed that Plaintiff neither contracted with Owner to perform any of the activities listed in section 7026’s definition of a contractor, nor performed any of those activities. Indeed, Owner entered into a construction contract with Fullmer Construction, a licensed general contractor, to perform and/or supervise all construction on the project, and Fullmer Construction hired all of the subcontractors who performed construction services with respect to the project. In no way did the DMA contemplate that Plaintiff was to perform construction services, or assume the general contractor’s responsibilities under the construction contract.

Defendants rely on section 7057 to argue that construction management services such as those set forth in the DMA may not be performed without a general contractor’s license. That statute defines a “general building contractor” as “a contractor whose principal contracting business is in connection with any structure built, being built, or to be built, for the support, shelter, and enclosure of persons, animals, chattels, or movable property of any kind, requiring in its construction the use of at least two unrelated building trades or crafts, or to do or superintend the whole or any part thereof” (§ 7057, subd. (a), italics added.) From the foregoing definition, Defendants argue, “It is clear . . . that the performance of any specific trade or craft in connection with the construction of a structure ... is not required for a person or entity to be engaged in the business of performing the function of a ‘general building contractor.’ The statute itself . . . includes in the definition of a ‘general building contractor’ [] any person or entity that superintends the whole or any part of a structure being built.” This is a misstatement of the law. Section 7057 provides that any contractor who engages in the listed activities is a general building contractor, not that any “person” or “entity” that does so comes within the definition. If Plaintiff is not a contractor (because it does not perform the activities listed in section 7026 which defines a contractor), it is, by definition, not a general contractor.

In addition to sections 7026 and 7057, Defendants rely on two California Supreme Court cases to support their argument that construction managers are required to be licensed: Lewis & Queen v. N. M. Ball Sons (1957) 48 Cal.2d 141 [308 P.2d 713] and Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988 [277 Cal.Rptr. 517, 803 P.2d 370], Neither of these cases may reasonably be read to create a new category of workers requiring licensure under the Contractors’ State License Law.

In Lewis & Queen v. N. M. Ball Sons, supra, 48 Cal.2d 141, the plaintiff entered into an agreement for “the removal of concrete, application of water, excavation, overhaul, and compacting of original ground” in connection with the construction of the Hollywood Parkway. (Id. at p. 145.) The Supreme Court found that “plaintiff actually undertook to and did in fact ‘construct a highway’ for defendant, and thereby acted as a contractor within the meaning of section 7026 . . . ,” “and that because it had done so without the license required by section 7028, it was barred by section 7031 from maintaining any action for compensation.” (Id. at pp. 147, 146.) In Hydrotech Systems, Ltd. v. Oasis Waterpark, supra, 52 Cal.3d 988, the plaintiff, a foreign manufacturer of water park equipment, contracted to construct a wave-making attraction at a California venue. The Supreme Court “granted review to decide two questions. The first is whether section 7031 permits an unlicensed nonresident to sue upon an ‘isolated transaction’ in California where ‘exceptional circumstances’ exist, even though there was no substantial compliance with California’s licensing law. The second—an issue of potentially broad importance—is whether section 7031 bars an unlicensed contractor’s fraud action against the person for whom the work was done.” (Id. at p. 992, original italics.) This simple recitation of the facts of these cases makes abundantly clear that they are in no way analogous to the situation before us, and have nothing whatsoever to say about the licensure of construction managers. In short, Defendants have directed us to no California cases which discuss, much less hold, that a construction manager must be licensed under the Contractors’ State License Law.⁵

We note as well that the Legislature provided that construction managers on public works projects must be licensed architects, engineers or general contractors. (Gov. Code, § 4525, subd. (e).) The Legislature determined that licensure was required for public works projects, and so enacted a statute to that effect; the fact that a similar statute applicable to privately owned real estate development projects was not enacted strongly suggests that the Legislature determined that licensure of construction managers was not necessary in that arena.

In short, the Legislature has not defined the term “contractor” to include persons who perform construction management services such as those set forth in the DMA.⁶ It is within the sole purview of the Legislature to determine whether private construction project managers should be licensed. To this end, the Legislature is empowered to conduct public hearings on the merits of such licensure, to solicit the views of the various players in the building industry who would be affected by such a requirement, and to amend the licensing law if it concludes that the public interest would be better served by such a revision. Unless and until the Legislature does so, its failure to expressly address the issue must be the last word.

DISPOSITION

The judgment is reversed. Plaintiff is to recover its costs on appeal.

Kriegler, L, concurred.

1 All statutory references are to the Business and Professions Code unless stated otherwise.

2 From the record, it appears that only the Property, which was owned by Defendants, is at issue in this case.

3 In his declaration, Knox refers to PCI as “Principal Capital Management.’

4 Because the summary judgment did not resolve Owner’s cross-complaint against Plaintiff alleging the latter’s breach of the DMA, the judgment did not name Owner. We therefore dismissed Plaintiff’s appeal with respect to Owner.

5 While clearly not persuasive authority for our conclusion, we note that at least one treatise on California construction law definitively states California licensure law does not regulate construction management on private works. (Acret et al., Cal. Construction Contracts, Defects, and Litigation (Cont.Ed.Bar 2008) § 2.19, p. 95.) This statement is supported by dicta in Dorsk v. Spivack (1951) 107 Cal.App.2d 206, 209 [236 P.2d 840] [“So far as statutory law is concerned, there is no provision of the Business and Professions Code which requires a mere supervisor or superintendent of building construction to be licensed”].)

6 That the Legislature has given some consideration to the subject is evident from the enactment of the Construction Management Education Sponsorship Act of 1991, section 7139 et seq. That construction management is an established job classification distinct from other professionals involved in the construction trade is revealed by a simple Google search of “construction management degree”: UCLA Extension and UC Berkeley Extension each offer a certificate program in construction management; a number of undergraduate institutions award bachelor degrees with a major in construction management; and Georgetown University awards a postbaccalaureate degree, master of professional studies in real estate, with a focus on construction management.