Lack of contractor’s license provides basis for prejudgment writ of attachment

November 5, 2008 / by Gregory R. Shaughnessy

A prejudgment writ of attachment remedy available under Code of Civil Procedure section 483.010 has been characterized by many seasoned California litigators as the most aggressive action that can be taken in civil litigation. The right to attach order essentially gives the party who obtained the order to levy upon the banks accounts and property of the other party in a manner similar to a party who has a judgment. But the right to attach order on a prejudgment writ of attachment, if granted, is typically issued very early in the case and long before a final determination on the merits has been made, and therefore can have a devastating impact on a lawsuit.

In Goldstein v. Barak Construction (2008) 08 C.D.O.S. 8662, the Court of Appeal held that an owner on a construction project was entitled to a prejudgment writ of attachment against a contractor who was unlicensed during the first three months of construction, based on the contractor's lack of a contractor's license at all times during the performance of the work that was the subject of the contract. The case clarifies that the attachment procedure is available in a wide range of cases where previously it was not clear if it was available.

Factual Background

In 2004 the Owners entered into a contract with Barak Construction for the construction of an addition to their residence in Los Angeles in exchange for payment in the sum of $363,000. The Owners allegedly paid Barak the sum of $362,660.50, and that Barak abandoned the job before work was completed, leaving respondents with a home that was unfinished and riddled with construction defects.

The Contract was signed on June 18, 2004 and Barak commenced working on the project. Barak did not obtain a contractor's license until September 17, 2004.

After Barak filed its answer to the Owners' complaint, the Owners file applications for a right to attach order and order for issuance of a writ of attachment against Barak.

Discussion

The Goldstein court explained that under Code of Civil Procedure section 483.010, a prejudgment writ of attachment may issue only if the claim sued upon is (1) a claim for money based upon a contract; express or implied; (2) of a fixed of readily ascertainable amount; (3) either unsecured or secured by personal property, not real property; and (4) commercial in nature. The plaintiff must also establish "the probable validity of the claim upon which the attachment is based." C.C.P. section 484.090(a)(2). "A claim has 'probable validity' where it is more likely than not that the plaintiff will obtain a judgment against the defendant on that claim." C.C.P. section 481.190.

The Goldstein court held that at the hearing on an application for a right to attach order, the court shall consider the showing made by the parties and shall issue such order if it finds (1) the claim upon which the attachment is based is one upon which an attachment may be issued; (2) the plaintiff has established the probable validity of the claim upon which the attachment is based; (3) the attachment is not sought for a purpose other than recovery on the claim upon which the attachment is based; and (4) the amount to be secured by the attachment is greater than zero. C.C.P. section 484.090(a).

The primary argument advanced by Barak was that the grounds for the right to attach order, the absence of a contractor's license, was not based on a contract, but rather on a "punitive" statute, Business & Professions Code Section 7031, rather than on any express or implied contract. Section 7031 essentially provides that a contractor is not entitled to recover for work performed under a construction contract unless the contractor can prove that it was properly licensed at all times during the performance of the work. In addition, an owner can require the contractor to disgorge all sums paid to the unlicensed contractor.

The court rejected Barak's argument, finding that a claim brought under the California Contractors State License Law "may appropriately form the basis for a right to attach order since an agreement for the performance of services lies at the heart of such a claim."

The court also rejected Barak's argument that it should be entitled to recover for the value of the work performed after it was licensed, stating that the fact that Barak became licensed sometime during the performance of the work was immaterial, citing Great West Contractors, Inc. v. WSS Indus. Const., Inc. (2008) 162 Cal.App. 4th 581.

The court also held that Barak was not entitled to recover the value of extra work performed pursuant to separate oral agreements, stating that simply because there was no formal agreement regarding the extras did not render the extras separate from the contract, citing M.W. Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal. 4th 412, 428.

Comment

The decision in Goldstein is potentially very significant. It is common practice in construction litigation to find that a contractor or a subcontractor was not licensed at all times during the performance of a contract or subcontract, either because the license was obtained after work commenced, or because the license was not timely renewed and lapsed for a period of time during performance. And frequently the contractor or subcontractor does not hold the right kind of license, an "A" license for general engineering work (Bus. & Prof. Code section 7056), a "B" license for general building work (Bus. $ Prof. Code section 7057), or a "C" license for specialty work (Bus. & Prof. Code section 7058). There are over forty different classes of specialty licenses. Case law has held that even if a contractor has a contractor's license, if the contractor takes on a contract that is outside the scope of its license, the contractor is deemed to be unlicensed.

The lack of a proper contractor's license comes up with great frequency in construction litigation. Under Goldstein, whenever a party has a good case for lack of a proper license at all times during the performance of the work, it would appear to be appropriate to file a prejudgment writ of attachment. The right to attach order effectively allows a party to seize and freeze the assets of the party against whom the order is issued, up to the amount in the right to attach order. This can put a party out of business, as it is hard to do business if all of the party's bank accounts are frozen.

Obviously the party with a right to attach order also obtains a great deal of leverage in any settlement negotiations held after the right to attach order is issued. The right to attach order is indeed a powerful litigation weapon.

Gregory R. Shaughnessy specializes in construction and real estate and regularly advises owners, general contractors and subcontractors on their legal rights and remedies and in the negotiating and drafting of general contracts, subcontracts and related documents.

For more information about the issues discussed in this article, Mr. Shaughnessy can be reached at (415) 435-2409
E-Mail: grs@grs-law.com
Website: www.grs-law.com