Licensed Versus Unlicensed Contractors

By March 10, 2016 October 25th, 2018 Commercial Litigation, James Wakefield

Case Dismissed in Breach of Contract Claim

Highlights

  • With extensive construction litigation experience, Cummins & White successfully defended a prime contractor that was sued for breach of contract when a subcontractor was terminated from a public works job.
  • At trial, the unlicensed subcontractor argued that it could recover damages because its contract was an engineering contract, not a construction contract.
  • Attorneys James Wakefield and Iman Reza refuted that claim, establishing during cross-examination that the work outlined in the contract was solely construction in nature.
  • The Court dismissed the suit against the prime contractor and ordered the unlicensed subcontractor to disgorge all sums paid for work done on the job, totaling more than $100,000.

Attorneys

Case Study

James Wakefield and Iman Reza of Cummins & White, LLP, were successful in getting a case dismissed when they defended a contractor accused of breach of contract by a subcontractor that was terminated from a public works project. At trial, the Plaintiff, which was a licensed engineering firm but did not hold a California state contractor’s license, argued that its right to recover damages was based on an engineering contract between the firms. However, cross-examination of witnesses established that the contract was, in fact, a public works construction contract requiring a licensed contractor. Based on the Plaintiff’s inability to prove licensure, the Cummins & White team moved for dismissal. The judge agreed and also ruled in favor of the Defendant’s cross-complaint requesting disgorgement of more than $100,000 in fees and interest.

Background

In 2010, Dynalectric, an electrical construction contractor, subcontracted with Synetcom Digital Inc. to work on an upgrade of a wireless monitoring and control system for the Mesa Consolidated Water District. Before the project was complete, Synetcom Digital was removed from the contract. Synetcom Digital in turn filed suit against Dynalectric asking for more than $2.2 million, claiming breach of contract, unpaid invoices, and trade secret theft.

Legal Strategy

James Wakefield and Iman Reza of Cummins & White, LLP, represented Dynalectric in defense of the claims. An investigation revealed that the subcontractor, which was a licensed engineering firm, was not a licensed contractor, and Dynalectric filed a cross-complaint seeking repayment of fees paid for work on the project. California law requires a contractor license for any bid that is $500 or more for the total costs of labor and materials, and prohibits unlicensed contractors from bringing or maintaining an action to recover compensation in any court in the state.

During three weeks of a jury trial in Orange County Superior Court, the Plaintiff argued its right to recover damages based on the assertion that the contract between the firms was an engineering contract, and that it served only as a supervisor of the construction work. This included testimony from five witnesses for the Plaintiff, four of whom were engineers. However, Mr. Wakefield’s careful and detailed cross-examination of the witnesses established that the work the Plaintiff was called upon to do as listed in the contract was categorically not engineering work, but construction in nature.

After the Plaintiff presented its evidence, Mr. Wakefield and Mr. Reza filed a motion for dismissal and a directed verdict, claiming the Plaintiff could not prevail and the case should be thrown out because:

  • The contract was a construction contract
  • The firm was not a licensed contractor on a public works job
  • The statute of limitations had expired on claims of oral contracts approving additional work
  • The requirements for written change orders as outlined in the contract were not followed

Results/Implications

Superior Court Judge David Chaffee dismissed the case, granting a nonsuit on all claims against the Defendant, Dynalectric, including breach of contract and theft of trade secrets. In addition, the judge directed a verdict in favor of Dynalectric’s cross-complaint requesting disgorgement of more than $100,000 in fees and interest paid to the Plaintiff for all work completed on the project.

Mr. Wakefield said the case was unusual in that judges very rarely throw out cases before they reach a jury. “The judge’s ruling here underscores the growing issue of licensed versus unlicensed contractors in the construction field and the problems that can result from construction contracts that are intended to require construction pursuant to plans and specifications but include some elements that are arguably design in nature,” he said. “The main argument here was that the firm did not have a contractors license, which is a core requirement for construction business in California.”