Ranchwood Communities Limited Partnership v. Jim Beat Construction Co., s. D022053

• Decision Date: 08 October 1996
• Docket Number: D023845,Nos. D022053,s. D022053
• Citation: 49 Cal.App.4th 1397,57 Cal.Rptr.2d 386
• Court: California Court of Appeals Court of Appeals
• Parties: , 96 Cal. Daily Op. Serv. 7538, 96 Daily Journal D.A.R. 12,337 RANCHWOOD COMMUNITIES LIMITED PARTNERSHIP et al., Cross-Complainants and Appellants, v. JIM BEAT CONSTRUCTION CO. et al., Cross-Defendants and Respondents. SICKELS, KELLOGG DEVELOPMENT COMPANY et al., Cross-Complainants and Appellants, v. SOUTHWEST CONSTRUCTION CO., Cross-Defendant and Respondent.

Page 386

57 Cal.Rptr.2d 386

49 Cal.App.4th 1397, 96 Cal. Daily Op. Serv. 7538,

96 Daily Journal D.A.R. 12,337

RANCHWOOD COMMUNITIES LIMITED PARTNERSHIP et al., Cross-Complainants and Appellants, v. JIM BEAT CONSTRUCTION CO. et al., Cross-Defendants and Respondents.

SICKELS, KELLOGG DEVELOPMENT COMPANY et al., Cross-Complainants and Appellants, v. SOUTHWEST CONSTRUCTION CO., Cross-Defendant and Respondent.

Nos. D022053, D023845.

Court of Appeal, Fourth District, Division 1, California.

Oct. 8, 1996.

Rehearing Denied Oct. 25, 1996. ^*

Lorber, Volk, Greenfield & Blick, Joyia Z. Greenfield, Linda S. Wisener, Jill Ann Herman, Jeffrey A. Garofalo, Koletsky, Mancini & Feldman, Marc S. Feldman and Stacey R. Friedman, San Diego, for Cross-complainants and Appellants

Epsten & Grinnell and Duane E. Shinnick, San Diego, as Amici Curiae on behalf of Cross-complainants and Appellants.

No appearance for Cross-defendants and Respondents Jim Beat Construction Co. et al.

Shifflet, Walters, Kane & Konoske, Gary P. Sinkeldam and Amy E. Volk, San Diego, for Cross-defendants and Respondents Southwest Construction Co.

HUFFMAN, Justice.

May an unlicensed contractor who worked on a project, but who is barred by statute from bringing an action for any recovery of compensation for work performed, nevertheless seek equitable indemnity from the subcontractors it hired to perform other work on the project, on the basis that such subcontract work was negligently performed? Such indemnity rights would stem from the fact that this unlicensed contractor at the same time was acting in the related capacity of developer of the overall project (i.e., its own contract principal), and is subject as a developer to strict liability for construction defects, in favor of the plaintiff-homeowners who purchased the units it built.

These issues arise in the following context: In these construction defect actions, consolidated on appeal, the trial court granted summary judgments in favor of numerous cross-defendant subcontractors and against cross-complainants, the developers/general contractors of the two separate condominium projects involved. The trial court found that since neither of the developers/general contractors possessed contractors' licenses, their cross-complaints for equitable and implied contractual indemnity, contribution, negligence, and certain contract-based theories against the allegedly negligent subcontractors who worked on the projects were necessarily barred by BUSINESS AND PROFESSIONS CODE SECTION 7031¹ as "actions for compensation" for services rendered and work performed by those cross-complainant developers/general contractors.

We conclude the trial court's ruling in each consolidated case was erroneous because it disregarded the dual nature of the developers'/general contractors' functions in these cases: They acted not only as general contractors, who had to be licensed in order to pursue an action for compensation for their work, but also acted as developers, who could be held strictly liable in damages to the homeowners/plaintiffs in the actions for defective construction, and who would normally be allowed to seek to spread that loss among all culpable parties. Under these circumstances and in their latter capacity, developers, they are not subject to a bar to their pursuit of recovery on tort theories of indemnity and contribution, by reason of their lack of contractors' licenses. The trial court was correct, however, in viewing the contract-based theories of the cross-complaint as barred by the noncompliance with licensing requirements. Since the summary judgments were granted as to the cross-complaints as a whole, however, we reverse and remand for further proceedings consistent with the views expressed in this opinion.

I FACTUAL AND PROCEDURAL BACKGROUND

A Ranchwood Development

We need only sketch the facts regarding each condominium development (the project) in broad outline, since this appeal primarily presents questions of law for our resolution. Ranchwood Park is a 325-unit development in Spring Valley, developed by Ranchwood Communities Limited Partnership (RCLP), the developers/general contractors of the In 1993 the homeowners' association for the project (Ranchwood Park Property Owners Association) brought a construction defect action against RCLP and the other owner/lenders (RCLP et al.), alleging they as developers/contractors were liable for damages under strict liability, breach of express and implied warranties, negligence, nuisance, and negligent misrepresentation. RCLP et al. responded with their answer and cross-complaint against numerous subcontractors on the project, alleging they were entitled to equitable indemnity, implied contractual, express, and total indemnity, contribution, and recovery on theories of negligence, breach of contract and warranties, strict liability against certain component suppliers, and declaratory relief regarding contractual duties.

project. RCLP's fellow cross-complainants were fellow owners and lenders on the project, Mission Hills Park Associates, CDS-RGK, Inc., MHP-1, Inc., and RSD Investment, who did not take an active role in the construction activities. RCLP never had a general contractor's license during the 1981-88 design and construction of the project; however, owner/lender MHP-1 obtained such a license in 1987. RCLP hired numerous subcontractors to work on the project.

B Sickels, Kellogg Project

The scenario as to the other project, the 168-unit Ventana development in La Jolla, is similar. It was built in two phases, with general partnership Sickels, Kellogg Development Company (Sickels, Kellogg) serving as the developer/general contractor of the first phase of 85 homes, built between 1984 and 1986. Sickels, Kellogg had three general partners who are its fellow cross-complainants here: Raymarc Development, Inc. (Raymarc), Doublegood Industries, Inc., and CDS-Bay Area Development, Inc. (sometimes collectively Sickels, Kellogg). Raymarc became the developer/general contractor of 83 homes in the second phase, constructed from 1987-1989. None of these entities had general contractor's licenses. They hired a licensed general contractor, Stouffer Construction Management (SCM), to supervise construction at the site of both phases. They also contracted for various trade work with the subcontractors who are now being sued in the cross-complaint.

Sickels, Kellogg was sued in 1993 as developer/contractor by the project's homeowners' association (La Jolla Alta Common Council No. 3) for construction defects on theories of strict liability, negligence, breach of implied warranty, and an action on a bond. It responded with its answer and cross-complaint on similar theories to RCLP's: Equitable indemnity, implied contractual, express, and total indemnity, contribution, and recovery on theories of negligence, breach of contract and warranties, and declaratory relief regarding contractual duties.

C Summary Judgment Motions

In both actions, the subcontractor cross-defendants individually and collectively brought motions for summary judgment on the cross-complaints, arguing that since the developers/general contractors RCLP and Sickels, Kellogg were not licensed general contractors, their entire cross-complaints were barred by section 7031 as the equivalent of actions for compensation for work performed, pursuant to illegal contracts entered into by unlicensed persons. This argument was based on recent Supreme Court authority interpreting section 7031, Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988, 277 Cal.Rptr. 517, 803 P.2d 370 (Hydrotech ).

In both of the matters, some subcontractors filed procedurally correct motions that were complete with separate statements, and some filed joinders with and/or without separate statements, some of which were timely and some of which were not. (Code Civ. Proc., § 437c.) In both cases, over objection, the same trial judge deemed all parties to be joined in the motions and all procedural defects to be waived, in order to get to the merits of the motions.

In opposition to the motions, both sets of cross-complainants argued section 7031 was not a bar to all causes of action, since the cross-complainants were potentially subject In reply, the various moving parties disputed that the substantial compliance and owner-builder arguments were viable under current statutory law or that an adequate showing of same had been made. They reiterated that the cross-complaints effectively sought "compensation" for work and were barred under Hydrotech. The trial court agreed and granted summary judgment dismissing the cross-complaints. The orders recited that under Hydrotech, the statutory term "compensation" in section 7031 should be interpreted broadly and should apply to the entire cross-complaint as a matter of law. The court found no substantial compliance had been shown and no exemption from section 7031's requirements was available under section 7044 (applicable to owner-builders). The court found the cross-complainants could not claim laches as to the subcontractors' claims, due to their own unclean hands. Finally, the court relied on its discretion under Code of Civil Procedure section 437c, subdivision (b) to grant the motion, despite the various missing separate statements, "as the material facts upon which the Court is relying are the same as to all moving parties." ²

to strict liability and should be allowed to spread the loss among all negligent parties. They also claimed there had been substantial compliance with the licensing statute in various ways and, in any case, they were exempt from licensing requirements because they were "owner-builders" within the meaning of section 7044. They relied on legislative history to support their substantial compliance and owner-builder arguments. They further claimed not all cross-complainants (e.g., the owners and lenders, who did not actively participate as...