You May Be Able to Dodge a Bullet, But Not a Gatling Gun

In the days before cable, and long before Netflix, I watched my fair share of spaghetti westerns on lazy weekend afternoons. Bullets zinging past cowboys, knocking off hats, and ricocheting off rocks. But while you might get lucky and dodge a bullet, not so with a Gatling gun.*

In the next case, C. W. Johnson & Sons, Inc. v. Carpenter, Case No. B300187 (August 7, 2020), a contractor who was unlicensed during a portion of a project dodged a bullet. However, I’m not so sure that he’s going to be able to dodge the hail of bullets that are coming after.

The C. W. Johnson & Sons Case

As cases go, the C. W. Johnson & Sons case is pretty straightforward. In March 2016, Contractor C. W. Johnson & Sons, a family owned flooring company, was contracted to install flooring at Randall Carpenter’s house for a total contract price of $68,343. Work was performed between March and September 2016 including some warranty, repair and corrective work after September 2016.

On September 21, 2016, Charles Wilmer Johnson, the responsible managing officer and license holder of the family business, passed away. His son, Charles William Johnson, who took over the family business, did know that his father was the license holder of the family business, and later applied through the Contractors State License Board to replace his father as the license holder. His application was approved in October 2018.

By then, however, the inevitable had happened. In September 2018, Carpenter sued C. W. Johnson for fraud, breach of contract, unfair business practices and disgorgement under dreaded Business and Professions Code section 7031. C. W. Johnson in turn filed its own cross-complaint against Carpenter for breach of contract and quantum meruit.

Carpenter, however, demurred, on the ground that C. W. Johnson had failed to allege that it was a licensed contractor as required under Business and Professions Code section 7031. C. W. Johnson, in its opposition to the demurrer, contended that it was licensed during the period in which it was seeking compensation and, nevertheless, that it had substantially complied with the Contractor Licensing Law.

The trial court granted Carpenter’s demurrer without leave to amend and C.W. Johnson appealed.

The Appeal

On Appeal, the 2nd District Court of Appeal noted that Business and Professions Code section 7031 requires contractors seeking compensation for work to perform to allege 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.”

While noting that C. W. Johnson performed work under a single contract and therefore “cannot divide a single contract into segments and claim compensation for work performed during the segment for which it was licensed,” the Court of Appeal also noted that subdivision (e) to Business and Professions Code section 7031 provides an exception to the licensing requirement if a contractor can show that it substantially complied with the licensing requirements of the Contractor Licensing Law. Specifically, Section 7031(e) provides:

[T]he court may determine that there has been substantial compliance with licensure requirements under this section if it is shown at an evidentiary hearing that the person who engaged in the business or acted in the capacity of a contractor (1) had been duly licensed as a contractor in this state prior to the performance of the act or contract, (2) acted reasonably and in good faith to maintain proper licensure, and (3) acted promptly and in good faith to remedy the failure to comply with the licensure requirements upon learning of the failure.

And here, explained the Court of Appeal, C. W. Johnson had alleged, apparently in its opposition to Carpenter’s demurrer, that: (1) it was a duly licensed contractor prior to and during part of the performance of the contract; (2) Charles (the son) reasonably did not know or have reason to know that he was not the license holder for the company at the time of his father’s passing; (3) as soon as he learned he was not the license holder for the company, he applied to be so designated; and (4) the CSLB granted the application shortly thereafter.

And that, further explained the Court of Appeal, was a sufficient allegation of ultimate facts to serve as a basis for C. W. Johnson’s contention that it had substantially complied with the Contractors License Law., and C. W. Johnson was entitled to an evidentiary hearing under Business and Professions Code section 7031(e) to prove (as opposed to simply allege) that it had substantially complied with the Contractors License Law.

Conclusion

The C. W. Johnson case is interesting from a procedural perspective in that it provides that an unlicensed contractor can survive a demurrer if it alleges facts supporting a contention that it had substantially complied with the Contractors License Law because a demurrer is not, as implied by the 2nd District Court of Appeal, an evidentiary hearing under Business and Professions Code section 7031.

While C. W. Johnson may have survived the demurrer, however, knowing how stringently courts have applied the “substantial compliance” doctrine under Business and Professions Code section 7031, I question whether C. W. Johnson will survive the evidentiary hearing.

*The Gatling gun was invented by Richard Jordan Gatling, an inventor from North Carolina, who patented a number of inventions including inventions to improve toilets, bicycles, steam-cleaning, pneumatic power, and other fields. Interestingly, while the Gatling gun was devastating in its destruction, Gatling wrote that he created the Gatling gun “to reduce the size of armies and so reduce the number of deaths by combat and disease, and to show how futile war is.”