Phx. Mech. Pipeline, Inc. v. Space Exploration Techs. Corp.

SpaceX demurred on the ground that Phoenix Pipeline was not licensed. Rather than oppose the demurrer, Phoenix Pipeline elected to file an amended complaint.

Phoenix Pipeline's first amended complaint (FAC) contained essentially the same factual allegations as its initial complaint, but added the allegation that Harold Hill, whom Phoenix Pipeline characterized as the "Responsible Managing Employee" for Phoenix, "oversaw all services that [Phoenix Pipeline] provided to any contractors, companies, or institutions, including [SpaceX]." The FAC alleged that Hill was the owner of another entity, Phoenix Mechanical Plumbing, Inc. (Phoenix Plumbing), and that he held a California contractor's license, No. 670382. The FAC alleged that Hill "supervised the Subcontracting Services that [Phoenix Pipeline] provided [SpaceX] for the duration of their relationship." Phoenix Pipeline attached a copy of contractor's license No. 670382 to the FAC. The copy showed that the license had been issued to Phoenix Plumbing.

When a trial court sustains a demurrer without leave to amend, the court's decision not to permit further amendment is reviewed for abuse of discretion. (Code Civ. Proc., § 472c, subd. (a) ;

None of the cases that Phoenix Pipeline cites supports its position. Phoenix Pipeline cites Matchett v. Gould (1955) 131 Cal.App.2d 821 , 281 P.2d 524 , but our Supreme Court disapproved that case in Lewis & Queen to the extent the opinion reasoned that section 7031 did not apply to a suit by a subcontractor against a contractor. ( Lewis & Queen , supra , 48 Cal.2d at pp. 152-154, 308 P.2d 713 .) In Lewis & Queen , the Supreme Court also distinguished Norwood v. Judd (1949) 93 Cal.App.2d 276 , 209 P.2d 24 , Galich v. Brkich (1951) 103 Cal.App.2d 187 , 229 P.2d 89 , and Wold v. Luigi Consentino & Sons (1952) 109 Cal.App.2d 854 , which Phoenix Pipeline also cites, on the ground that those cases were actions against partners for a share of profits in an unlicensed enterprise, not suits against third parties who contracted with an unlicensed entity. (See Lewis & Queen , at pp. 151-152, 308 P.2d 713 .)

In Gatti v. Highland Park Builders, Inc. (1946) 27 Cal.2d 687 , 166 P.2d 265 , both plaintiffs had individual contractors' licenses but formed a partnership that did not have its own license during performance of the contract. The

We offer no view as to whether the facts will ultimately support the allegation that Phoenix Pipeline's work was governed by separate agreements for each task, or its claim that some of those tasks required no contractor's license. At this stage of the case, we hold only that Phoenix Pipeline has adequately alleged particular agreements to perform work that did not require a contractor's license. Section 7031 does not bar an action for compensation for such work.

4. The Trial Court Acted Within Its Discretion in Declining to Permit an Amendment Alleging that Phoenix Pipeline Was an Employee

For the first time on appeal, Phoenix Pipeline argues that it could amend its SAC to allege that it was an employee rather than a contractor. We need not consider whether this theory is legally viable, as it is inconsistent with Phoenix Pipeline's own allegations.

As mentioned, each version of Phoenix Pipeline's complaint, including its SAC, alleged that Phoenix Pipeline entered into a series of individual agreements with SpaceX to perform particular services. Phoenix Pipeline alleged that each of its invoices memorialized the services that Phoenix Pipeline performed under these agreements. Each of the invoices attached to the complaints stated that it was from Phoenix Pipeline and billed to SpaceX. Thus, Phoenix Pipeline has consistently characterized itself as a contractor and it cannot rely upon the possibility of new, inconsistent allegations to save its claim. (See Owens, supra, 198 Cal.App.3d at pp. 383-384, 243 Cal.Rptr. 627 ; Vallejo, supra, 24 Cal.App.4th at p. 946, 29 Cal.Rptr.2d 669 .)

BACKGROUND

Phoenix Pipeline filed its initial complaint on December 29, 2014, asserting claims for breach of contract and breach of the duty of good faith and fair dealing; common counts; intentional and negligent misrepresentation; and unfair business practices. The complaint alleged that in 2010 SpaceX requested that Phoenix Pipeline provide a variety of services, including "plumbing, general maintenance and repair, concrete removal and pouring, trash clean-up and disposal, demolition, car washing, electrical, excavation and installation," all of which the complaint characterized as "Subcontracting Services." The complaint alleged that Phoenix Pipeline provided SpaceX with invoices detailing the services that it provided, and that each such invoice constituted "an individual agreement between [SpaceX and Phoenix Pipeline]."

Phoenix Pipeline filed its SAC on July 23, 2015. The SAC made two changes to the allegations in the FAC. First, it relabeled Hill as a "responsible manager officer" rather than as the "Responsible Managing Employee" and expanded the description of his role. The SAC alleged that Hill "supervised construction related services, managed construction activities by making technical and administrative decisions, checked jobs for proper workmanship, and directly supervised construction job sites." Second, the SAC distinguished between alleged construction related services, which it categorized as "Subcontracting Services," and alleged nonconstruction related services, which it labeled as "Non-Contracting Services." The SAC claimed that no valid contractor's license was required for the Non-Contracting Services.

SpaceX again demurred. Phoenix Pipeline opposed the demurrer, and in the alternative requested 30 days leave to file a third amended complaint. Phoenix Pipeline's opposition did not explain how it proposed to amend the SAC. The trial court sustained the demurrer without leave to amend and entered judgment against Phoenix Pipeline on October 21, 2015.

DISCUSSION

1. Standard of Review

An order sustaining a demurrer is reviewed de novo to determine whether the complaint states a cause of action as a matter of law. ( Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494 , 1501, 82 Cal.Rptr.2d 368 .) On appeal, we " 'treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.' " ( Blank v. Kirwan (1985) 39 Cal.3d 311 , 318, 216 Cal.Rptr. 718 , 703 P.2d 58 .) However, an appellate

2. Phoenix Pipeline's SAC Fails to State a Claim for Construction Related Services Because It Does Not Allege that Phoenix Pipeline is a Licensed Contractor

Section 7031, subdivision (a) provides that, with identified exceptions not relevant here: "[N]o 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 where 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." Under section 7025, subdivision (b), " 'Person' " includes a corporation.

The purpose of this section is to "protect the public from incompetence and dishonesty in those who provide building and construction services." ( Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988 , 995, 277 Cal.Rptr. 517 , 803 P.2d 370 ( Hydrotech ).) The section "advances this purpose by withholding judicial aid from those who seek compensation for unlicensed contract work." ( Ibid. )

Our Supreme Court has explained that, in light of the "strength and clarity" of this purpose, "section 7031 applies despite injustice to the unlicensed contractor. 'Section 7031 represents a legislative determination that the importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties , and that such deterrence can best be realized by denying violators the right to maintain any action for compensation in the courts of this state.' " ( Hydrotech, supra, 52 Cal.3d at p. 995, 277 Cal.Rptr. 517 , 803 P.2d 370 , quoting Lewis & Queen v. N. M. Ball Sons (1957) 48 Cal.2d 141 , 151, 308 P.2d 713 ( Lewis & Queen ).) The court has interpreted the section strictly to fulfill its purpose. For example, in Hydrotech , the court held that section 7031 barred a claim for fraud by a subcontractor against a contractor who was aware that the subcontractor was unlicensed. ( Hydrotech, at p. 997, 277 Cal.Rptr. 517 , 803 P.2d 370 .) And in Lewis & Queen , the court held that a claim by an unlicensed partnership against a contractor was barred, even though one of the partners was individually licensed. ( Lewis & Queen, at pp. 146, 148-149, 308 P.2d 713 .) More recently, in

Similarly, in Opp v. St. Paul Fire & Marine Ins. Co. (2007) 154 Cal.App.4th 71 , 64 Cal.Rptr.3d 260 , the court held that neither the owner of an unlicensed corporation nor the corporation itself could maintain an action for contracting services performed by the corporation despite the

The holdings in Hydrotech and in numerous other cases contradict Phoenix Pipeline's assertion that California courts have only "exacted [the] severe prohibition" in section 7031"in contractor-homeowner relationships." For example, in Lewis & Queen , our Supreme Court applied section 7031 to a suit by a subcontractor against a contractor on a contract for construction of a roadway, noting that "[t]he class protected by the statute includes those who deal with a person required by the statute to have a license." ( Lewis & Queen , supra , 48 Cal.2d at pp. 145, 153, 308 P.2d 713 .) WSS applied section 7031 to a lawsuit by a subcontractor against a contractor for work involving "improvements on a public works project" at a school. ( WSS, supra, 162 Cal.App.4th at p. 585, 76 Cal.Rptr.3d 8 .) WSS cited Banis Restaurant Design, Inc. v. Serrano (2005) 134 Cal.App.4th 1035 , 36 Cal.Rptr.3d 532 ( Banis ), which involved a contract for design services for a restaurant and market construction project. (See WSS , at p. 591, 76 Cal.Rptr.3d 8 ; see also Vallejo Development Co. v. Beck Development Co. (1994) 24 Cal.App.4th 929 , 943-944, 29 Cal.Rptr.2d 669 ( Vallejo ) [rejecting the argument "that there is less reason to regulate

In Citizens State Bank v. Gentry (1937) 20 Cal.App.2d 415 , 67 P.2d 364 , the plaintiff contractor was licensed at the time of the contract but renewed the license while work was still ongoing in the name of a corporation that he owned. Under those facts, the court concluded that "the individual plaintiff in whose name the license stood at the time the contract was made and the corporate entity organized by him in whose name the license stood at the time the cause of action accrued, should be considered as one." ( Id . at p. 420, 67 P.2d 364 .) Those facts are not applicable here.

There is no basis to read into section 7031 the limitation that Phoenix Pipeline suggests. Phoenix Pipeline's claim that SpaceX is a sophisticated corporate entity is therefore irrelevant to Phoenix Pipeline's obligation to show that it was licensed.

3. Phoenix Pipeline Adequately Alleged that It Provided Some Services for Which No Contractor License Was Necessary

In a brief argument, Phoenix Pipeline asserts that some of the tasks that it performed were "non-construction related services" and therefore did not require a contractor's license. These tasks, which the SAC labels as "Non-Contracting Services," allegedly included work such as "general maintenance and repair, trash clean-up, hauling, and disposal, and car washing." The SAC distinguishes these services from "construction related services," which it alleges included "plumbing, concrete pouring/removal, excavation, demolition, and electrical."

Phoenix Pipeline's argument raises several questions, including: (1) whether the tasks that Phoenix Pipeline groups in the category of "Non-Contracting Services" actually were nonconstruction related work for which no license was necessary, and (2) whether those tasks can be segregated from other work that Phoenix Pipeline

We do not find a fatal inconsistency between the use of the label "Subcontracting Services" in prior complaints and the later allegation that some of those services did not require a contractor's license. The factual allegations identifying the particular services that Phoenix Pipeline provided did not change materially; Phoenix Pipeline simply added the allegation that some of those services required a license and some did not. Moreover, the label "Subcontracting Services" does not necessarily imply that all the services included in that category required a contractor's license. "Subcontracting" as used in that label could simply refer to services that were covered by a contract rather than to services that could be performed only by a "contractor" as defined in section 7026.

The judgment is reversed, and the case is remanded to permit further pleading consistent with this opinion. Each party is to bear its own costs on appeal.

We concur:

ROTHSCHILD, P.J.

CHANEY, J.