Contractors,
owners and sureties issuing contractor license bonds in the State of Arizona
should be aware of a new opinion recently issued by the Arizona Court of
Appeals (Division One): Chavira v.
Armor Designs of Delaware, Inc., 719 Ariz. Adv. Rep. 33. The
opinion addresses the issue of whether a licensed contractor should be
precluded from recovering monies due for work falling within the scope of the
contractor’s license when the contractor likewise performed work falling
outside the scope of the contractor’s license.
The
basic facts of the case are as follows: Plaintiff Marco Antonio Chavira
(“Plaintiff”), a licensed and bonded electrical contractor registered with the
Arizona Registrar of Contractors, entered into a contract with Armor Designs of
Delaware, Inc. and Armor Designs, LLC (collectively “Armor”) pursuant to which
Plaintiff agreed to disassemble equipment located at Armor’s Phoenix
manufacturing plant. Armor paid Plaintiff for this work. Thereafter, Armor
hired Plaintiff to reinstall the same equipment at its new manufacturing
facility. Plaintiff performed the reinstallation work, but Armor refused
to pay Plaintiff for any of the reinstallation work. Consequently,
Plaintiff sued Armor alleging claims for breach of contract, quantum meruit,
negligent representation, and bad faith. Following discovery, Armor moved
for summary judgment, arguing that Arizona Revised Statutes (“A.R.S.”) section
32-1153 barred Plaintiff’s recovery because he had performed “significant work
for which [he] had no license.” The crux of Armor’s argument was that the Plaintiff
held a K-11 Electrical license, which “allows the scope of work permitted by
the commercial L-11 Electrical and residential C-11 Electrical licenses, but
Plaintiff performed work outside the scope of his license, thereby precluding
any recovery.
The
Arizona Court of Appeals framed the issue on appeal as whether section 32-1153
barred Plaintiff from maintaining an action to recover for any payment for work
he performed if some of the work fell outside the scope of his license. Section
32-1153 provides that:
No contractor as defined in section 32-1101 shall act as agent or commence or maintain any action in any court of the state for which collection of compensation for the performance of any act for which a license is required by this chapter without alleging and proving that the contracting party whose contract gives rise to the claim was a duly licensed contractor when the contract sued upon was entered into and when the alleged cause of action arose.
The
Arizona Court of Appeal interpreted section 32-1153 as prohibiting an
unlicensed contractor from bringing an action to recover payment for an unlicensed
act; however, it also noted that “we have also stated that the plain language
of the status allowed a licensed contractor, or one who has substantially
complied with the licensing requirements, to sue for payment for work performed
under the license.” (citations omitted). The court also recognized that
“we have long held that if the contract value can be apportioned between
licensed and unlicensed work, then each item of a contract will be treated as a
separate unit.” (citations omitted). In vacating and remanding the
trial court’s grant of summary judgment in favor of Armor, the Arizona Court of
Appeals cited to a Hawaii Court of Appeals decision, Schultz v. Lujan,
948 P.2d 558 (Haw. Ct. App. 1997). In that case, the Hawaii Court of
Appeals interpreted a Hawaiian statute similar to A.R.S. section 32-1153 and
held that a licensed contractor is entitled to bring a civil action to recover
payment for licensed work he has done, but the contractor may not recover for
any unlicensed work. Id. at 563. Following the reasoning of
this case, the Arizona Court of Appeals held that Plaintiff can pursue his
breach of contract claim against Armor for the value of the work that was
completed under his license, but not the value of the work falling outside the
scope of his license. The court remanded the case back to the trial court
where the Plaintiff would have the opportunity to prove as a factual matter
that the licensed work can be bifurcated from the unlicensed work, and
determine the value of the licensed work.
From
the contractor’s perspective, this case is important because it emphasizes that
contractors are only entitled to be paid for work falling within the scope of
their license. Moreover, the case highlights the importance for
contractors to itemize their bids/estimates/proposals/billings to ensure
maximum recovery for licensed work in the event a dispute arises where the
adverse party alleges the contractor performed work outside the scope of its
license. From the owner’s perspective, the importance of the case is that
an owner may refuse payment for unlicensed work performed by a contractor
licensed for other construction categories. From the license bond surety’s
perspective, this case reinforces the viability of a longstanding surety defense
to a contractor license bond claim – work performed by a licensed contractor
falling outside the scope of the contractor’s license is not covered by a contractor’s
license bond. If an owner seeks to
recover damages caused by a licensed contractor performing work falling outside
the scope of the contractor’s license, a surety may properly deny the owner’s
bond claim.
Patrick F. Welch
focuses his practice in the areas of general and complex commercial litigation,
construction litigation, and fidelity and surety litigation. Mr. Welch is
licensed in the States of Arizona and Nevada, and the Commonwealth of
Massachusetts. Based in Arizona, Mr. Welch regularly assists surety and
fidelity clients with all facets of Arizona and Nevada claim investigations,
litigation, trial, arbitration, mediation and appeals.
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