In re Yan

• Decision Date: 12 December 2007
• Docket Number: Adversary No. 05-3257.,No. C 06-0508 VRW.,Bankruptcy No. 04-33526.,C 06-0508 VRW.
• Citation: 381 B.R. 747
• Court: U.S. District Court — Northern District of California
• Parties: In re Demas Wai YAN, aka Dennis Yan, Debtor. Wei Suen, Plaintiff/Appellant, v. Demas Yan, et al., Defendants/Appellees.

381 B.R. 747

In re Demas Wai YAN, aka Dennis Yan, Debtor Wei Suen, Plaintiff/Appellant, v. Demas Yan, et al., Defendants/Appellees.

No. C 06-0508 VRW.

Bankruptcy No. 04-33526.

Adversary No. 05-3257.

United States District Court, N.D. California.

December 12, 2007.

COPYRIGHT MATERIAL OMITTED

Mark Joseph Romeo, Law Offices of Mark J. Romeo, San Francisco, CA, for Debtor.

Charles M. Kagay, Spiegel Liao & Kagay, LLP, John Chu, Corporate Counsel Law Group, LLC, San Francisco, CA, for Plaintiff/Appellant.

Joanne Marie Lafreniere, Stromsheim & Associates, William Webb Farrer, Law Offices Of William Webb Farrer, San Francisco, CA, for Defendants/Appellees.

USBC Manager-San Francisco, San Francisco, CA, pro se.

Thomas E. Carlson, San Francisco, CA, pro se.

ORDER

VAUGHN R. WALKER, Chief Judge.

Plaintiff Wei Suen, as assignee of the claim of Dong Fu (also known as Tony Fu), appeals from a judgment entered by the United States Bankruptcy Court denying a claim for recovery of a share of profits specified under an agreement entered into between Fu and Defendant Demas Yan (also known as Dennis Yan).

In the bankruptcy court's Amended Decision After Trial entered on March 3, 2006, the bankruptcy court characterized the Yan-Fu agreement as a "joint venture agreement" but determined that Suen as Fu's assignee could not recover Fu's share of profits from the project that was the subject of the agreement or even recoup funds contributed to the venture. Specifically, the bankruptcy court determined that Fu, who was not then a licensed contractor, had acted as a contractor on the project and was therefore barred from recovery by California Business and Professions Code § 7031. After a careful review of the bankruptcy court's record and applicable law, the decision of the bankruptcy court is REVERSED and REMANDED for further proceedings consistent with this opinion.

I

A

This section summarizes the bankruptcy court's Amended Decision After Trial (Am. Dec.). Doe. # 49 Ex. 23.

Winky Wong owned a single-family residence at 663 Chenery Street in San Francisco (the "property"). In October 1999,¹ Yan, Fu and Wong entered into a written agreement to demolish the existing improvements to the property and build four condominium units. Wong was to supply the property in return for fifty percent of the proceeds from the sale of the units, while Yan and Fu were to pay for the cost of construction and together receive the remaining fifty percent of the proceeds.

On February 2000, presumably before work on the project had begun, Yan purchased the property from Wong. On October 12, 2000, Wong, Fu and Yan canceled their three-party agreement. On October 18, 2000, Yan and Fu entered into a new written agreement (the "agreement"). The agreement's complete and exact wording is set forth below:

Agreement/Contract

This is intended to be a legally binding contract.

This agreement is between Demas Yan and Dong Fu concerning over the project and ownership located in 663 Chenery. Street, San Francisco, California

The entire agreement is as follows:

1. Demas Yan will entitle to 75% ownership and Dong Fu will entitle to 25% ownership over the said property located in 663 Chenery Street, San Francisco.

2. Regarding the construction project, Demas will responsible for the initial $300,000 construction cost. Dong will responsible for the rest of the construction costs.

3. The said property is either up for sale or rent, the proceeds shall distribute according to the ownership percentage; however, Dong has complete right to decide whether to sell or to rent the property.

4. The ownership is transferable and can be assigned to any one by his own choice but only limit to his own ownership percentage.

Doc. # 29 Ex. 10. The document was signed by Yan and Fu, both signatures dated October 18, 2000.

The bankruptcy court's decision described the agreement at issue as a "jointventure agreement" but provided no analysis describing how it concluded that the agreement should be so characterized. The Amended Decision described the parties' responsibilities under the agreement thusly: "Yan was to provide the property and up to $300,000 of the costs of construction in return for 75 percent of the proceeds from the sale of the condominiums. Fu was to supervise construction and supply all additional costs of construction in return for 25 percent of the sale proceeds." Am Dec at 2:24-28. Fu was without a valid contractor's license throughout the entire construction period. (According to evidence in the record, Fu was formerly a licensed contractor, but was no longer. See, e.g., Fu Testimony, July 26, 2005, RT 206-07 (Doc. # 49).)

Construction on the property began in May 2001 and ended in August 2003. Yan eventually sold all four units by mid-2005 for a combined price of approximately $2.3 million.

Meanwhile, in November 2002, Yap executed a promissory note in favor of Stella Chen, Fu's sister, for $450,000 together with a deed of trust against the Chenery Street property as security for the note. Chen contended that the note represented a promise to repay a cash loan advanced to Yan by a relative of Fu who lived in Hong Kong. Am. Dec. at 3. Yan, however, contended that he received no cash loan and that the note was "the embodiment of Fu's interest under the Agreement" but was unenforceable under California law because it represented compensation for construction services by an unlicensed contractor. Id.

Fu at some point assigned his interest under the agreement to Suen. Suen sought a twenty-five percent share of the proceeds, but Yan contended that Fu's share under the agreement was in fact compensation for contracting services which could not be recovered by an unlicensed contractor. M at 3.

Regarding the agreement, the bankruptcy court made the following findings of fact:

• the agreement was an agreement to establish a joint venture;

• Yan provided the entire consideration for the purchase of the fee interest in the property from Winky Wong in February 2000;

• Yan retained legal title to the property following the execution of the agreement;

• in February 2000, Fu had not yet performed his duties under the agreement;

• Fu was not a licensed contractor;

• Fu did not retain a general contractor;

• Fu supervised the construction himself using both a licensed electrical contractor and "employees."

Am Dec at 4-5.

The bankruptcy court's Amended Decision also included several findings that appear to be based on evidence extrinsic to the agreement but are not supported by findings describing such evidence:

• "Yan and Fu did not intend that Fu receive a present 25 percent ownership interest in the Property upon the execution of the [] Agreement" because Yan provided the whole consideration for the purchase from Wong and retained legal title thereafter;

• "Yan and Fu intended that Fu would be responsible for executing the planned construction"; and

• the agreement "permitted Fu to hire a licensed general contractor and did not require Fu to act as a general contractor in executing the construction." Id. at 4.

• Rather, "the parties intended that Fu would become an equitable owner of a 25 percent undivided interest in the Property only after he performed his obligations under that Agreement." Id.

Regarding the note, the bankruptcy court made the factual finding that the note did not represent Fu's interest in the agreement. Id. at 9.

The bankruptcy court made the following conclusions of law relevant to this appeal:

By supervising the construction himself, Fu acted as a contractor. Because Fu did not have a contractor's license, he was not entitled to collect any compensation for work performed per California Business and Professions Code section 7031, which provides that "no person engaged in the business or acting in the capacity of a contractor, may bring or maintain 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 * * *" (West 2004). By seeking twenty-five percent of the sale proceeds, Fu was in essence seeking compensation for services for which a contractor's license was required. Id. at 6.

Fu did not come within statutory exceptions that permit an owner to perform certain contracting work without a license because he was "not an owner at the time he performed the work in question." Id. at 5. He was not an owner because, under the bankruptcy court's conclusion in part I A 2 above, Fu would not become an equitable owner until he had discharged his obligation to provide construction management services under the agreement. Fu was also barred from recovery because he failed to hire licensed subcontractors to "perform substantially all of the major tasks of construction." Id.

Section 7031 should be read broadly to preclude the court from awarding any payment for the work Fu performed. Id at 6. Epstein v. Stahl, 176 Cal.App.2d 53, 1 Cal. Rptr. 143 (1959) does not apply because the property in Epstein "had not been offered for sale." Epstein, moreover, may "not be good law" due to legislative changes to Business & Professions Code § 7031. Id. at 7.

Because Fu was unlicensed, Fu's assignee Suen was "entitled to recover no part of the proceeds of sale of the Property pursuant to the Joint-Venture Agreement." Id. at 8.

Suen was, moreover, not entitled to alternative relief in the form of a refund of Fu's contributions because Fu did not itemize the value of the materials he provided and because California courts "have generally not apportioned the value provided by unlicensed contractors between services and materials, but rather have denied payment for materials supplied as well as for services performed." Id. at 7.

B

Appellant filed a timely notice of appeal of the bankruptcy court's rulings. After lengthy delays in briefing and disputes about the record on appeal, the parties had a hearing on the merits on September 13, 2007, following...