Earth Trades, Inc. v. T&G Corp.

• Citation: 108 So.3d 580
• Decision Date: 24 January 2013
• Docket Number: No. SC10–1892.,SC10–1892.
• Court: Florida Supreme Court
• Parties: EARTH TRADES, INC., et al., Petitioners, v. T & G CORPORATION, etc., Respondent.

108 So.3d 580

EARTH TRADES, INC., et al., Petitioners,

v.T & G CORPORATION, etc., Respondent.

No. SC10–1892.

Supreme Court of Florida.

Jan. 24, 2013.

John Joseph Shahady, Thomas R. Shahady and Christopher Jallo of Kopelowitz Ostrow Ferguson Weiselberg Keechl, Fort Lauderdale, FL, for Petitioners.

Kimberly A. Ashby of Akerman Senterfitt, Orlando, FL, for Respondent.

CANADY, J.

In this case we consider the defense to a breach of contract claim that the parties were in pari delicto—equal wrongdoers. We have for review Earth Trades, Inc. v. T & G Corp., 42 So.3d 929, 930 (Fla. 5th DCA 2010), in which the Fifth District Court of Appeal held that section 489.128, Florida Statutes (2005), which governs construction contracting, precluded an unlicensed contractor from employing this common law defense. The Fifth District's decision expressly and directly conflicts with Austin Building Co. v. Rago, Ltd., 63 So.3d 31 (Fla. 3d DCA 2011). We have jurisdiction. Seeart. V, § 3(b)(3), Fla. Const. For the reasons explained below, we approve the decision in Earth Trades and conclude that a party's knowledge that a contractor or subcontractor does not hold the state-required license to perform the construction work of the contract is legally insufficient to establish the defense that the parties stand in pari delicto.

I. BACKGROUND

In 2004, T & G Corporation, the general contractor on a parking garage project, subcontracted with Earth Trades, Inc., to perform site work on the project. Earth Trades, 42 So.3d at 930. Earth Trades was at all relevant times not licensed under Florida law to perform the work required by the contract. After a dispute arose between the parties, Earth Trades filed a breach of contract action against the general contractor, alleging nonpayment for work performed. T & G counterclaimed that Earth Trades breached the contract and brought a third-party complaint against First Sealord Surety, Inc. (Sealord), claiming that Sealord was responsible for Earth Trades' breach as surety on the performance and payment bond.

In the ensuing litigation, T & G argued that because Earth Trades was unlicensed, its breach of contract claim against T & G was barred under the plain language of section 489.128, Florida Statutes (2005). This statute provides in pertinent part that “[a]s a matter of public policy, contracts entered into on or after October 1, 1990, by an unlicensed contractor shall be unenforceable in law or in equity by the unlicensed contractor.” § 489.128(1), Fla. Stat. (2005). Earth Trades and Sealord countered that T & G also was barred from enforcing the construction contract because the parties were in pari delicto. Specifically, they alleged that T & G was equally at fault because it was aware that Earth Trades did not hold the contractor license required under chapter 489, Florida Statutes. The trial court rejected Earth Trades' defense and granted T & G's motion for summary judgment.

In ruling against Earth Trades, the trial court cited changes to section 489.128 making any construction contract unenforceable in law or equity by an unlicensed contractor who was a party to it. The court reasoned that the Legislature intended to solve the considerable problem of unlicensed contractors by precluding them from any affirmative relief or defenses to relief until they obeyed the law and obtained licenses. Accordingly, the trial court held that the common law defense of in pari delicto was unavailable under the amended statute. After a bench trial, the court rendered final judgment for T & G and ordered Earth Trades and Sealord to pay damages.

On appeal, petitioners Earth Trades and Sealord argued that the trial court erred in precluding their use of the in pari delicto defense, which was based on T & G's alleged knowledge of Earth Trades' unlicensed status. Earth Trades, 42 So.3d at 930. The Fifth District acknowledged that “[s]ome Florida courts interpreted the former statute to preclude a party from enforcing a contract against an unlicensed contractor (or its bonding company), where that party had knowledge of the lack of a license.” Id. However, the court pointed out that the amendments to section 489.128 made construction contracts unenforceable by the unlicensed contractor only. Accordingly, the district court affirmed the trial court's conclusion that the statute precluded Earth Trades from raising the in pari delicto defense, concluding that the “decision ... was consistent with the clear and unambiguous language of section 489.128, as amended in 2003.” Id.

The Fifth District's holding that section 489.128 precluded the unlicensed contractor from raising an in pari delicto defense to a breach of contract claim conflicts with the decision in Austin Building. In that case, Rago was the subcontractor on a mixed-use project. 63 So.3d at 32–33. After being terminated for defective work, Rago sued the successive general contractors: Austin Building Co. (ABC) and Austin Commercial L.P. (ACLP). ABC countersued, and Rago and ABC filed opposing motions for summary judgment, “each asserting that the other was an unlicensed contractor under section 489.128.” Id. at 33. The trial court granted both summary judgment motions.

In ABC's appeal of its suit against Rago, the Third District Court of Appeal applied the same version of section 489.128 in reversing. 63 So.3d at 34. The district court concluded that there were several genuine issues of material fact, including when Rago commenced work and the contractors' knowledge of the subcontractor's licensure status. Id. at 33. With regard to the licensing issue, the Third District added the following in a footnote:

We also note that viewing the evidence in the light most favorable to the non-movant, there are genuine issues of material fact as to the extent of ACLP's and ABC's knowledge of Rago's unlicensed status at the time Rago was engaged to perform the work and at the time the Subcontract was executed, thereby precluding entry of summary judgment on the basis of the parties being in pari dilecto [sic]. Castro v. Sangles, 637 So.2d 989, 991 (Fla. 3d DCA 1994); Restatement (Second) of Contracts § 178 (1981); see Black's Law Dictionary 806 (8th ed. 2004) (under the in pari dilecto [sic] doctrine, a “plaintiff who participated in a wrongdoing may not recover damages resulting from the wrongdoing”).

Id. at 34 n. 2. Thus, unlike the Fifth District, the district court in Austin Building expressly acknowledged that an unlicensed contractor could claim the defense that the parties were in pari delicto in a breach of contract case implicating section 489.128.

II. ANALYSIS

We begin our analysis of the conflict issue presented by first outlining the parameters of the common law defense of in pari delicto. Then, we apply these principles to the case at hand to determine the merit of the argument that T & G was barred from enforcing the construction contract because the parties were in pari delicto.

A. The In Pari Delicto Doctrine

The common law defense of in pari delicto refers to “[t]he principle that a plaintiff who has participated in wrongdoing may not recover damages resulting from the wrongdoing.” Black's Law Dictionary 806 (8th ed. 2004). This principle is based on the relative circumstances of the parties at the time of the execution or performance of the contract and generally may be raised in an action at law or in equity. O'Halloran v. PricewaterhouseCoopers LLP, 969 So.2d 1039, 1044 (Fla. 2d DCA 2007) (“The defense of in pari delicto ‘is both an affirmative defense and an equitable defense’... [that] prohibits plaintiffs from recovering damages resulting from their own wrongdoing.” (quoting Nisselson v. Lernout, 469 F.3d 143, 151 (1st Cir.2006))); see also22 Fla. Jur.2d Equity § 76 (2005).

The defense of in pari delicto, however, does not require simply that both parties be to some degree wrongdoers. Rather, the parties must participate in the same wrongdoing. O'Halloran, 969 So.2d at 1044 (citing Memorex Corp. v. Int'l Bus. Machs. Corp., 555 F.2d 1379, 1382 (9th Cir.1977)). And they must be “[e]qually at fault.” Black's Law Dictionary at 806. The Supreme Court explained this principle as follows:

The common-law defense ... derives from the Latin, in pari delicto potior est conditio defendentis: “In a case of equal or mutual fault ... the position of the [defending] party ... is the better one.” The defense is grounded on two premises: first, that courts should not lend their good offices to mediating disputes among wrongdoers; and second, that denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality. In its classic formulation, the in pari delicto defense was narrowly limited to situations where the plaintiff truly bore at least substantially equal responsibility for his injury, because “in cases where both parties are in delicto, concurring in an illegal act, it does not always follow that they stand in pari delicto; for there may be, and often are, very different degrees in their guilt.”

Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 306–07, 105 S.Ct. 2622, 86 L.Ed.2d 215 (1985) (footnotes and citation omitted) (alteration in original); see Kirkpatrick v. Parker, 136 Fla. 689, 187 So. 620, 625 (1939) (acknowledging but rejecting on the facts the claim that a party to an illegal seduction may not be “in pari delicto with the defendant but only in delicto”). Accordingly, that both plaintiff and defendant may be wrongdoers does not mean that the parties stand in pari delicto. By definition, if the wrong of the party seeking to enforce the contract is not substantially equivalent to the wrong of the defendant, the defense of in pari delicto does not defeat the cause of action.

Finally, “[t]he defense of in pari delicto is not woodenly applied in every case where illegality appears somewhere in the transaction; since the principle is founded on public policy, it may give way to a supervening...