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By
Scott S. Shepardson
Thelen Reid Brown Raysman & Steiner LLP
The
California Court of Appeal has held that although an unlicensed
contractor is precluded from suing on a contract by Business
and Professions Code §7031, that prohibition does not
apply to claims brought for alleged violations of 42 USC
§1981, racial discrimination. Holland v. Morse Diesel
International, Inc., 104 Cal. Rptr.2d 239 (2001).
Holland,
an unlicensed contractor, had a contract to provide clean-up
services on a construction project at a state university.
During performance of the work, Holland claimed he and his
workers were subjected to racial discrimination that created
a hostile work environment. He alleged that after he complained
about the incidents to Morse Diesel, he was prevented from
completing his work, and Morse Diesel refused to pay him
for work he had already completed. He alleged that Morse
Diesel did not discriminate against an unlicensed contractor
who was Caucasian and paid that contractor at a higher rate
for similar work.
Holland
sued, and Morse Diesel filed a demurrer. Morse Diesel argued
that Business and Professions Code §7031 precluded
Holland from recovering damages on his contract because
he was unlicensed. Even though Holland amended the complaint
to drop claims for damages under the contract, the trial
court sustained the demurrer without leave to amend. Holland
appealed, and the Court of Appeal reversed the trial court
in part.
The
Court of Appeal held that while Holland could not sue for
payments due under the contract, he was not precluded from
pursuing damages that were not contractual. The court noted
that §7031 is designed to protect the public from substandard
work performed by unlicensed contractors. Preventing unlicensed
contractors from recovering on such contracts, while a harsh
remedy, was justified to ensure a minimum standard for contractors.
The court found, however, that §7031 was not designed
as a protection against all tort liability. When the harm
being sued for is involved only peripherally in the unlicensed
contract work, the general contractor is not shielded from
liability. Nothing in the licensing law allows discrimination
against a contractor merely because that contractor is unlicensed.
The
Court of Appeal remanded the case for trial to determine
whether discrimination actually occurred. The court also
held that Holland's claims were limited to nominal damages,
emotional distress damages and punitive damages available
pursuant to 42 USC §1981. Holland was not entitled
to any damages for work performed.
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For more information about the issues covered in this report, please contact Scott S. Shepardson in our San Francisco office at 415-369-7184 or at sshepardson@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2001 Thelen Reid Brown Raysman & Steiner LLP
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