What’s In a Name? Part II

ImageEarlier, I reported on a case decided by the California Court of Appeals for the Third District, Ball v. Steadfast-BLK, 196 Cal.App.4th 694 (2011), in which the Court found that a contractor who was licensed under one name but who contracted under another name was properly licensed and was not precluded from suing a property owner for compensation, because, according to the Court, the contractor, David Ball, who was licensed as a sole proprietor, operated as a sole proprietor irrespective of the business name he contracted under.  In Montgomery Sansome, LP v. Rezai, 2012 WL 1021079 (March 28, 2012), the California Court of Appeals for the First District, following in the footsteps of the Third District, reversed a trial court which had barred a contractor who was licensed as a general partnership from suing a property owner under a contract which it signed as a limited partnership.

The Secretary of State Filing

In Montgomery Sansome, Leonard Nordeman, filed a certificate of limited partnership for “Montgomery-Sansome, LP” with the California Secretary of State on July 25, 1997.  The certificate listed Nordeman as the general partner and listed the entity’s office address as 755 Prairie Creek Drive in Pacifica, California.  In 2002, an amendment was filed with the California Secretary of State adding Catherine Diane Magee and Deborah V. Fico as general partners.

The CSLB Filing

On October 22, 1997, Nordeman applied for a contractor’s license with the California Contractors State License Board (“CSLB”) under the name “Montgomery Sansome LTD.”  The license application stated that the entity was “partnership,” listed Nordeman as a general partner and Magee and Fico as limited partners, and listed the entity’s office address at the Pacifica address.  In 2007, a renewal application was filed listing the entity’s office address as 305 Adrian Road, Millbrae, California.  However, a 2010 print-out from the CSLB records identified the entity as “Montgomery Sansome LP.”

The Fictitious Name Filing

On February 20, 2008, Nordeman, Magee, and Fico filed a fictitious business name statement in San Mateo County listing the fictitious business name “Montgomery Sansome Ltd., L.P.”  The fictitious business name statement stated that “[t]his business is conducted by [a] General Partnership,” that “[t]he registrant commenced to transact business . . . on 10/22/97,” and listed the entity’s office address at the Millbrae address.

The Contract

On February 4, 2008, Zhian and Jacklyn Rezai entered into a contract with “Montgomery Sansome Ltd. Lp” to perform repairs at an apartment building they owned. The contract identified the CSLB license number issued to “Montgomery Sansome LTD” and used the Milbrae address.  In July 2008, “Montgomery Sansome Ltd. L.P.” recorded a mechanic’s lien against the property, and in August 2008, Nordeman filed a complaint against Rezai.  The Complaint identifies “Leonard Nordeman, individually and d.b.a. Montgomery Sansome Ltd., L.P.” as plaintiff.  On June 29, 2009, the complaint was dismissed, and a new action was filed identifying “Montgomery Sansome LP” as plaintiff.

Thus, at the time the second action was filed, there were five differently named entities – “Montgomery-Sansome, LP,” “Montgomery Sansome LTD,” “Montgomery Sansome LP” “Montgomery Sansome Ltd. L.P.,”  and “Montgomery Sansome Ltd. Lp” – two different entity types – a general partnership and a limited partnership – and two different addresses – the Pacifica and Milbrae addresses.

Rezai successfully challenged “Montgomery Sansome LP[’s]” complaint, contending that “Montgomery Sansome LP” lacked standing to sue because it was not a party to the contract, and contending that even if the complaint was brought under name of “Montgomery Sansome Ltd., Lp” with whom they had entered into a contract, “Montgomery Sansome Ltd., Lp” was barred from suing them under Civil Code section 7031 because “Montgomery Sansome Ltd., Lp” did not have a CSLB license number associated with its name.

The Court of Appeals, however, reversed.  Relying on the Third District’s decision in Ball v. Steadfast-BLK, 196 Cal.App.4th 694 (2011), the Court held that it was unclear whether the entity which contracted with Rezai – “Montgomery Sansome Ltd., Lp” – was the same entity as the limited partnership licensed by the CSLB in October 1997 – “Montgomery Sansome LTD” – or the general partnership in which a certificate was filed with the Secretary of State in July 1997 – “Montgomery-Sansome LP”:

[A] critical issue in determining whether section 7031 bars plaintiff’s claims is whether the Montgomery Sansome entity that contracted with defendants is a general partnership and a separate legal entity from the licensed limited partnership.  If it is, then . . . any claims for compensation it had would be barred by section 7031. . . .  On the other hand, if the entity that contracted with defendants is the same entity that held a license, then, under Ball, the use of slightly different names for that entity on different documents . . . would not bar its recovery under section 7031.

Although, as stated by the Court, “[s]ection 7031 represents a legislative determination that the importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties,” Montgomery Sansome highlights that, so long as the party entering into a construction contract holds a valid contractor’s license, minor variations in the name used in the contract and the name in which the license was issued will not bar a contractor from suing a property owner for compensation.

2 Responses to “What’s In a Name? Part II”

  1. Francis E. Coats

    Thanks for the note. I am a state attorney dealing with a contractor who lost its qualifying employee, failed to replace the qualifying employee in 90 days, was suspended under B&PC 7068.2, yet continued to accept orders and perform work after suspension. the contractor and its attorney seem outraged that I am advising that the state not pay for work done by a licensed subcontractor while the primary contractor was suspended. Case law seems to support me. so, off we go. There appears to be a set of cases suggesting that perhaps we ought to attempt to recover the amount already paid for work done before the license suspension under this contract. comments?

    Reply
    • Garret Murai

      Hi Francis.

      Business and Professions Code section 7031 both: (1) bars an unlicensed or improperly licensed contractor from suing to recover compensation for work performed without a license; and (2) allows a property owner to sue the unlicensed or improperly licensed contractor for all compensation paid to the unlicensed or improperly licensed contractor.

      I have not seen a case which would preclude a property owner from suing an unlicensed or improperly licensed contractor for disgorgement simply because a portion of the work performed was performed by a licensed subcontractor of the unlicensed or improperly licensed prime contractor. Which makes sense, because whether a subcontractor is licensed or not is irrelevant, since the contactual relationship is between the property owner and the unlicensed or improperly licensed prime contractor.

      Note, however, that while Section 7031 permits a property owner to sue for disgorgement of compensation already paid it does not permit a property owner to withhold payment. Rather, depending on whether it is progress or retention payments, the type of public entity, and who the payee is, public entities may generally withhold up to 150% of any amount in which there is a bona fide or good faith dispute. See Public Contract Code sections 7107, 10261.5, 10853, 20104.50, and Civil Code section 8802.

      Reply

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