Vallejo Development Co. v. Beck Development Co.

• Decision Date: 29 April 1994
• Docket Number: A059826,Nos. A058820,A059830,A059202 and A060054,A059824,s. A058820
• Court: California Court of Appeals Court of Appeals
• Parties: VALLEJO DEVELOPMENT COMPANY, Plaintiff and Appellant, v. BECK DEVELOPMENT CO., INC., et al., Defendants and Respondents. (Two Cases) VALLEJO DEVELOPMENT COMPANY, Plaintiff and Appellant, v. BROADMOOR HOMES SOUTHWEST, INC., et al., Defendants and Respondents. VALLEJO DEVELOPMENT COMPANY, Cross-complainant and Appellant, v. MISSION INVESTMENT, LTD., et al., Cross-defendants and Respondents.

Page 669

29 Cal.Rptr.2d 669

24 Cal.App.4th 929

VALLEJO DEVELOPMENT COMPANY, Plaintiff and Appellant, v. BECK DEVELOPMENT CO., INC., et al., Defendants and Respondents. (Two Cases)

VALLEJO DEVELOPMENT COMPANY, Plaintiff and Appellant, v. BROADMOOR HOMES SOUTHWEST, INC., et al., Defendants and Respondents.

VALLEJO DEVELOPMENT COMPANY, Cross-complainant and Appellant, v. MISSION INVESTMENT, LTD., et al., Cross-defendants and Respondents.

Nos. A058820, A059824, A059826, A059830, A059202 and A060054.

Court of Appeal, First District, Division 2, California.

April 29, 1994.

Review Denied June 30, 1994.

J. Robert O'Connor, III, Laura W. Packer, Lori L. Dunivan,O'Connor, Packer & Dunivan, San Diego, for Vallejo Development Co.

Daniel J. Modena, Modena & Royce, So. San Francisco, for Mission Development and Castle Const. Co., Inc.

Edmund L. Regalia, Michael J. Hassen, Miller, Starr & Regalia, Oakland, for Wells Fargo Bank.

Paul W. Goulart, Rader, Rader, Goulart & Gray, Sacramento, for Beck Development Co., Inc.

Kenneth C. Ward, Capps, Staples, Ward, Hastings & Dodson, Walnut Creek, CA, for Golden Eagle Ins. Co.

James J. Ficenec, Mark A. Muro, Lillick & Charles, Sacramento, for First Nationwide Financial Corp., Fitzpatrick Development Co., and FN Projects, Inc.

Sheldon Eisenberg, Richard M. Birnholz, Irell & Manella, Los Angeles, David Lowe, Vacaville, CA, for Broadmoor Homes Southwest, Inc., GDC/Broadmoor/Vallejo Associates, Broadmoor Pacific, Inc., Glenfed Development Corp. and Glendale Federal Bank.

PHELAN, Associate Justice.

Appellant Vallejo Development Company (VDC) timely appeals from judgments of dismissal entered by the Solano County Superior Court as to each of four complaints (Nos. 117843, 117845, 117846, and 112275) by which VDC sought to recover payment from several "merchant builders" for whom VDC agreed to install infrastructure improvements in a large, unfinished commercial/residential project in Vallejo, commonly known as "Northgate." The trial court accepted the respondents' argument that VDC cannot prosecute any of its claims for compensation--whether characterized as actions on the contract or in quasi-contract, actions to foreclose a mechanic's lien, actions to enforce a vendor's lien, or otherwise--because, during the time it was providing the agreed-upon services to respondents, it did not have a valid contractor's license as required by section 7031, subdivision (a), of the California Business and Professions Code. ¹ Appellant argues that, as a "master developer" for the Northgate project, it merely furnished labor and materials through licensed, third-party general contractors and that it was not, therefore, a "contractor" within the meaning of sections 7026 and 7031. As we will discuss, this argument is foreclosed by the plain meaning and legislative history of these statutes, and by the California Supreme Court's recent decision in Hydrotech Systems Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988, 997, 277 Cal.Rptr. 517, 803 P.2d 370 (hereinafter Hydrotech ). We affirm. ²

I. FACTUAL AND PROCEDURAL BACKGROUND

In 1988, W. Wolf Industries, Inc. (Wolf) purchased approximately 1200 acres of undeveloped real property in Vallejo, California, for development of a master planned community known as "Northgate." As a condition of approval of the specific area plan for the project, the City of Vallejo (City) required installation of those infrastructure improvements necessary for Northgate, plus additional improvements for the benefit of the Vallejo community as a whole. ³ Wolf and its successor-in-interest, ⁴ VDC, subsequently sold six residentially-zoned parcels (commonly known as "neighborhoods") to various "merchant builders," respondents herein, who would complete and sell individual homes. The purchase agreements accomplishing these transactions divided the purchase price into two distinct parts: (1) the cost of the land, at a specified rate per "approved lot;" and (2) the "improvement cost," at a specified amount per lot.

The purchase agreements also contained provisions by which VDC promised that, after the close of escrow on the land sale transactions, it would "improve the Property in accordance with the City approved plans and specifications to a Finished Lot Condition," including grading for building pads, and installation of storm drains, water, sewer, utilities, streets, curbs and gutters. In its agreements with respondent Broadmoor Homes Southwest, Inc. (Broadmoor) VDC specifically agreed that it would be "solely responsible for completion of all offsite, onsite and infrastructure improvements required in connection with the development of the [Northgate] Property, including without limitation grading, storm drainage, sanitary systems, streets, curbs, gutters, utilities, street lighting, traffic signals, sidewalks, landscape buffer areas...." As alleged in VDC's first amended complaint, these were agreements to "provide all of the labor, equipment, and materials necessary to be used and consumed in construction of all onsite and offsite improvements...." VDC further alleged that, pursuant to these agreements, it "furnished all necessary labor, equipment, services and material to be used or consumed in, and which were actually used or consumed in, the construction of the onsite and offsite improvements." However, VDC qualified these allegations by stating that it acted as a mere "administrator" in connection with this construction work, and that it furnished the requisite labor and materials through "licensed third-party contractors." ⁵ It is undisputed that, at all relevant times, VDC did not hold any type of California contractor's license.

Beginning in June 1991, various parties involved in the Northgate project, including respondents GDC/Broadmoor/Vallejo Associates and Mission Development, filed suit against VDC seeking rescission and damages for breach of contract for VDC's alleged failure to complete agreed-upon infrastructure improvements. VDC stopped all work on the Northgate project in September 1991.

Notwithstanding its failure to complete the agreed-upon infrastructure improvements, VDC recorded mechanic's liens in late 1991 against various parcels of the Northgate property, claiming entitlement to over $17 million dollars for "labor, services, equipment or materials" it claimed to have furnished for grading, storm drains, sewers, waterlines, trenches, paving, and other onsite and offsite improvements to the neighborhoods. On March 17, 1992, VDC filed the within actions seeking to foreclose upon its mechanic's liens, to recover the reasonable value of services furnished, to recover an agreed price for improvements, and to recover on an open book account.

Respondents promptly sought dismissal of VDC's complaints on the ground that VDC could not prosecute an action seeking compensation for services performed under the contracts because it had failed to allege that it was a duly licensed contractor. On June 3, 1992, prior to the time its opposition was due, VDC filed a petition under Chapter 11 of the United States Bankruptcy Code, and chose not to oppose respondents' motions on the merits. Instead, VDC asserted that the automatic stay of 11 United States Code section 362 prevented respondents from proceeding. On June 12, 1992, following a hearing, the trial court sustained respondents' demurrers without leave to amend. On July 8, 1992, the court granted Mission Development's motion for summary adjudication. Citing section 7031, and the Supreme Court's decision in Hydrotech, supra, 52 Cal.3d 988, 277 Cal.Rptr. 517, 803 P.2d 370, the trial court ruled that, because VDC was not a licensed contractor at all times during its performance under its contracts with respondents, it could not state a cause of action for compensation for the services rendered.

On July 21, 1992, after VDC failed in its attempt to have the bankruptcy court set aside the orders sustaining the demurrers without leave to amend and granting summary adjudication, ⁶ VDC filed motions for reconsideration in the trial court, along with its proposed second amended complaints. On August 14, 1992, the trial court granted VDC's motion for reconsideration in order to afford VDC "a full hearing on the merits" of the various motions. After considering all material submitted in connection with respondents' motions, the court reaffirmed its prior orders, and ruled that the second amended complaints had no effect on the license requirement. The court thereafter entered judgment against VDC, dismissing all of its complaints. These timely appeals followed.

II. DISCUSSION

A. The Trial Court Did Not Err in Holding that VDC's Claims are Barred by Section 7031.

VDC's sole contention on appeal is that the trial court erred in applying section 7031 as a bar to its claims against the merchant builders. This is a question of law to which we apply a de novo standard of review. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 861-865, 44 Cal.Rptr. 767, 402 P.2d 839; see also Code Civ.Proc., § 589.)

Section 7031 provides, with exceptions not relevant here, that "no person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract for which a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract, regardless of the merits of the cause of action brought by the person." (Italics added.)

California's strict contractor licensing law reflects a strong public policy in favor of protecting the public against unscrupulous and/or incompetent contracting work. As the California Supreme Court recently reaffirmed, "The purpose of the licensing law is to protect the public from incompetence and dishonesty in those who provide...