TOPRO SERVICES v. McCARTHY WESTERN CONSTRUCTORS

• Decision Date: 29 June 1994
• Docket Number: Civ. A. No. 93-K-1095.
• Citation: 856 F. Supp. 1461
• Parties: TOPRO SERVICES, INC., a Colorado corporation, Plaintiff, v. McCARTHY WESTERN CONSTRUCTORS, INC., a foreign corporation and Federal Insurance Company, a foreign corporation, Defendants.
• Court: U.S. District Court — District of Colorado

856 F. Supp. 1461

TOPRO SERVICES, INC., a Colorado corporation, Plaintiff, v. McCARTHY WESTERN CONSTRUCTORS, INC., a foreign corporation and Federal Insurance Company, a foreign corporation, Defendants.

Civ. A. No. 93-K-1095.

United States District Court, D. Colorado.

June 29, 1994.

Thomas C. Clark, Wheat Ridge, CO, for plaintiff.

Arlene Dykstra, Pryor, Carney & Johnson, Englewood, CO, Michael L. Rhees, Phoenix, AZ, for defendants.

MEMORANDUM OPINION AND ORDER

KANE, Senior District Judge.

This matter is before me on the motion for summary judgment of Defendants McCarthy Western Constructors, Inc. ("McCarthy"), and the Federal Insurance Company ("Federal"). Plaintiff Topro Services, Inc. ("Topro") claims $281,031 in damages allegedly owed to it by McCarthy or its surety, Federal, for breach of contract and unjust enrichment. The claims arise out of a subcontract entered into by Topro and McCarthy in which Topro agreed to supply instrumentation and control equipment for a wastewater treatment plant McCarthy was building for the City of Phoenix, Ariz. I deny Defendants' motion.

I. Facts.

Jurisdiction is based upon diversity of citizenship, 28 U.S.C. § 1332. The Plaintiff is a citizen and resident of Colorado. Defendants are neither citizens nor residents of Colorado. This case was removed from the District Court, Second Judicial District, City and County of Denver, State of Colorado.

McCarthy, a general contractor, undertook the construction of the 23rd Avenue Wastewater Treatment Plant Upgrade and Expansion Contract I pursuant to its prime contract with the City of Phoenix in February 1991. In October 1991, McCarthy subcontracted with Topro to supply various instrumentation and control equipment. The ultimate issue in dispute is whether Topro was obligated to supply an electrical control panel and related equipment (the "odor control panel") as part of its contract with McCarthy. Within the context of Defendants' motion for summary judgment, the merits of the contract claim are not at issue. Topro did supply the "odor control panel" under protest, claiming it was not obligated to do so under its contract.

On summary judgment, McCarthy claims that Topro cannot maintain an action for compensation because it was not licensed to perform the work — as is required by Arizona law.¹ (Defs.' Br.Supp.Mot.Summ.J. ("Defendants Motion") at 3). Topro contends that the statutory prohibition against suit by unlicensed contractors only extends to Arizona state courts, or alternatively, that it falls within one of the exemptions to the statute. (Pl.'s Resp.Defs.' Mot.Summ.J. ("Topro Response") at 2-4). Topro in fact did not have the required license either at the time it contracted with McCarthy or when it supplied the "odor control panel." Topro argues that it should be allowed to maintain its suit because although Topro itself did not have a license, the work at issue was performed by licensed subcontractors.

II. Standards for Motion.

Under Federal Rule of Civil Procedure 56(c), summary judgment is appropriate if the pleadings and affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The opposing party may not rest upon mere allegations or denials in the pleadings but must set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 2510-11, 91 L.Ed.2d 202 (1986). Summary judgment will be granted against the party who fails to make a showing sufficient to establish the existence of an element essential to that party's case and on which that party will bear the burden of proof at trial. Celotex Corp., 477 U.S. at 322, 106 S.Ct. at 2552.

III. Merits.

McCarthy contends Ariz.Rev.Stat. Ann. §§ 32-1151 & 32-1153 control this case and prevent Topro from asserting a cause of action since it did not have a license at the time it entered into the contract. Section 32-1151 makes it unlawful for a contractor to contract within the state without a license:

It is unlawful for a person, firm, partnership, corporation, association or other organization, or a combination of any of them, to engage in the business, act or offer to act in the capacity, or purport to have the capacity of contractor without having his own license in good standing in his own name therefor as provided in this chapter, unless the person, firm, partnership, corporation, association, or other organization is exempt as provided in this chapter.

. . . . .

Ariz.Rev.Stat.Ann. § 32-1151 (1986). Furthermore, contractors must offer proof they have licenses before they can file civil actions:

No contractor as defined in § 32-1101 shall act as agent or commence or maintain any action in any court of the state for collection of compensation for the performance of any act for which a license is required by this chapter without alleging and proving that the contracting party whose contract gives rise to the claim was a duly licensed contractor when the contract sued upon was entered into and when the alleged cause of action arose.

Ariz.Rev.Stat.Ann. § 32-1153 (1986). Through these sections, the Arizona legislature sought to protect the public from incompetent, inexperienced and fraudulent building contractors. See Desert Springs Mobile Home Ranches, Inc. v. John H. Wood Constr. Co., 15 Ariz.App. 193, 196, 487 P.2d 414, 417 (1971). These strict licensing requirements should be upheld "even where harsh consequences fall upon those that do contracting work in good faith without an appropriate license." B & P Concrete, Inc. v. Turnbow, 114 Ariz. 408, 410, 561 P.2d 329, 331 (App.1977).

A. Applicability of the Statutory Provision.

As its first response to McCarthy's contention that it is precluded from bringing suit, Topro claims that § 1153 only applies to attempts to file in Arizona state court and thus does not affect this federal diversity action in Colorado. Also, since the statute is penal in nature and would result in a forfeiture, Topro urges that its interpretation be limited to its literal terms. In support of Topro's argument that federal courts can hear its claim despite the wording of the statute, it relies solely upon In re: Spanish Trails Lanes, Inc., 16 B.R. 304, 308 (Bankr. D.Ariz.1981).

In that bankruptcy proceeding, the debtor-in-possession objected to a claim made by a contractor who had done paving and curbing work on the debtor's property. Id. at 305. The debtor-in-possession invoked §§ 32-1151 & 1153, since the contractor had not had a license at the time the work was performed. Id. Despite the words "any court of this state" contained § 1153, the court allowed the contractor to pursue its claim. However, Topro is incorrect in its assertion that the decision turned on the mere fact that the suit was brought in federal rather than state court. In fact, the Spanish Trails court said it was the special nature and jurisdiction of the federal bankruptcy courts that preserved the plaintiff's cause of action. The rationale hinges at least in part on Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), and the distinction between federal bankruptcy and diversity courts:

While most federal courts are required to apply the law of the state in which they sit, the bankruptcy courts fall squarely within the above exception to the general rule that state law controls. Their jurisdiction is not grounded on diversity of citizenship, but by an "Act of Congress" found in 28 U.S.C. § 1471 ...

. . . . .

The distinction between bankruptcy and diversity courts was noted by Judge Friendly, who stated:

Of course, Congress is not required to direct the federal courts to look to state law for the definition of state-created rights asserted in bankruptcy, as it is when federal jurisdiction rests solely on diversity of citizenship. The question is of intent, not of power. Fore Improvement Corp. v. Selig, 278 F.2d 143, 147 (2nd Cir.1960).

16 B.R. at 306. (emphasis added). The Spanish Trails court therefore inferred that the statute would apply in a federal district court sitting in diversity.

Urbatec v. Yuma County, 614 F.2d 1216, 1219 (9th Cir.), cert. denied, 449 U.S. 841, 101 S.Ct. 120, 66 L.Ed.2d 49 (1980), also held that the Arizona licensing statute should be applied in federal court. Plaintiff contractor Urbatec had sued Yuma County in a diversity action for breach of a construction contract. Id. at 1216-17. Despite the fact that the district court ruled that the parties had entered into a contract, Yuma County had breached, and Urbatec had suffered damages of $256,766, the Ninth Circuit reversed because Urbatec lacked an Arizona contractor's license. Id. at 1219. The court held that Urbatec was unable to sue for actions grounded in contract or promissory estoppel. Id. at 1218.

Urbatec and Spanish Trails indicate that a federal court sitting in diversity and applying Arizona law cannot allow an action for compensation by a contractor who was unlicensed. Although this may very well lead to an inequitable and harsh result, the statute was designed to protect the public and "must not be defeated in order to accommodate one who has violated the provisions of the statute." Northen v. Elledge, 72 Ariz. 166, 171, 232 P.2d 111, 116 (Ariz.1951). If the statute applies against Topro, it will have no cause of action against the Defendants — so the remaining question is whether the plaintiff is somehow exempt from the licensing requirements of §§ 1151 & 1153.

B. Void v. Voidable Contracts.

Topro and the Defendants also dispute whether a contract entered into by an unlicensed contractor is voidable or void ab initio. The Urbatec court based its decision on the theory that § 1151 renders such contracts violative of Arizona law and void, and that § 1153 is the...