Belvedere Lagoon LLC v. Hachman Construction Inc., et al

The “party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact.” (Aguilar, supra, 25 Cal.4th 826, 850; see Evid. Code, § 110.) “A prima facie showing is one that is sufficient to support the position of the party in question.” (Aguilar, supra, 25 Cal.4th 826, 851.) When the moving party is the plaintiff, the initial burden entails “prov[ing] each element of the cause of action entitling the party to judgment[.]” (Code Civ. Proc., s 437c, subd. (p)(1).)

When the moving party is the defendant, the initial burden entails showing “that one or more elements of the cause of action . . . cannot be established, or that there is a complete defense to the cause of action.” (Code Civ. Proc., § 437c, subd. (p)(2).) Once the moving party has met its initial burden, the burden shifts to the opposing party to “show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto.” (Code Civ. Proc., § 437c, subds. (p)(1)-(2).) “There is a genuine issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.” (Aguilar, supra, 25 Cal.4th 826, 845.)

III. DISCUSSION

Evidentiary Objections

Plaintiff’s Objections

To the Declaration of Timothy Hachman:

1. Sustained. (Evid. Code, § 350 [relevance].)

2. Overruled.

3. Sustained. (Evid. Code, § 350 [relevance].)

4. Overruled.

5. Sustained. (Evid. Code, § 350 [relevance].)

6. Overruled. The Court reads this to mean that Hachman was not aware of the existence of Plaintiff until it filed this lawsuit. This has some loose relevance as evidence corroborating Hachman’s statements that Plaintiff was not paying HCI’s invoices.

7. Sustained. (Evid. Code, § 350 [relevance].)

8. Sustained. (Evid. Code, § 350 [relevance].)

9. Sustained. (Evid. Code, § 350 [relevance].)

10. Sustained. (Evid. Code, § 350 [relevance].)

11. Sustained. (Evid. Code, §§ 720, 800, 803 [improper legal opinion]; see also In re Marriage of Heggie (2002) 99 Cal.App.4th 28, 30 fn.3 [including legal argument in declarations is “a sloppy practice which should stop. . . . [I]t makes a mockery of the requirement that declarations be supported by statements made under penalty of perjury. The proper place for argument is in points and authorities, not declarations.”].)

12. Sustained. (Evid. Code, §§ 720, 800, 803 [improper legal opinion].)

13. Sustained. (Evid. Code, § 350 [relevance].) This motion concerns whether the disgorgement claim is viable given that Plaintiff did not pay Defendants any money. Defendants have not briefed any arguments concerning whether they are considered unlicensed for purposes of Section 7031, so evidence directed at such arguments is irrelevant.

14. Sustained. (Evid. Code, § 350 [irrelevant].)

15. Sustained. (Evid. Code, § 350 [irrelevant].)

To the Declaration of Gabriel Hernandez:

1. Overruled.

2. Overruled.

3. Overruled.

4. Overruled. Hernandez lays a foundation for his personal knowledge of the ownership of the bank account(s) from which the funds were drawn in Paragraph 9(E). Plaintiff has not objected to that testimony on hearsay grounds. Hernandez does not make any statements about the “legal capacity” in which the funds were paid and so does not need to lay a foundation for that. He likewise does not offer any legal conclusions about whether the Doyles paid these bills as agents of Plaintiff. This is a factual statement about who caused HCI to be paid for its work and whose funds were used to make such payments.

5. Overruled.

6. Overruled. To the extent this qualifies as expert opinion (see Evid. Code, § 801; compare Evid. Code, § 800), Hernandez’ declaration is sufficient to qualify him to offer it. (See Evid. Code, § 720, subd. (b); Hernandez Dec., ¶¶ 3-6, 9, 9(E).)

7. Overruled.

8. [omitted by Plaintiff]

9. Sustained. (Evid. Code, § 350 [relevance].)

10. Sustained. (Evid. Code, § 350.)

11. Sustained. (Evid. Code, § 350.)

12. Sustained. (Evid. Code, § 350.)

13. Sustained. (Evid. Code, § 350.)

14. Overruled.

15. Sustained. (Evid. Code, § 350.)

16. Sustained. (Evid. Code, § 350.)

Defendants’ objections to the Declarations of Jon and Charlotte Doyle are all overruled.

IV. Requests for Judicial Notice

Defendants’: The request is granted as to the Declaration of Jon Doyle in Support of Plaintiff’s Motion for Summary Judgment/Adjudication. (Evid. Code, § 452, subd. (d).) It is denied as to the date Plaintiff filed its complaint because that is irrelevant. (See Mozzetti v. City of Brisbane (1977) 67 Cal.App.3d 565, 578 [material must be relevant to be judicially noticed].) The Court is not here deciding whether an amendment to the complaint to add the Doyles as plaintiffs would be time-barred. It will save that for Plaintiff’s pending motion for leave to file an amended complaint. The request is likewise denied as to Exhibits A and C because those are irrelevant.

The Court will judicially notice Exhibit B, the deed granting 54 Peninsula Road from the Doyles to Plaintiff (Evid. Code, § 452; West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 803 [“A court may take judicial notice of a recorded deed.”]), although its relevance is very limited.

Plaintiff’s request for Judicial Notice is Granted. (Evid. Code, § 452, subd. (d).)

V. Merits

“To protect the public, the Contractors’ State License Law (‘CSLL’; Bus. & Prof. Code, § 7000 et seq.) imposes strict and harsh penalties for a contractor’s failure to maintain proper licensure. Among other things, the CSLL states a general rule that, regardless of the merits of the claim, a contractor may not maintain any action, legal or equitable, to recover compensation for ‘the performance of any act or contract’ unless he or she was duly licensed ‘at all times during the performance of that act or contract.’ ” (MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th

412, 418 [quoting Bus. & Prof. Code, § 7031, subd. (a) (hereafter “Section 7031(a)”)] [italics supplied by MW Erectors court].)

Section 7031(a) “has been referred to as the ‘shield’ of the CSLL.” (Loranger v. Jones (2010) 184 Cal.App.4th 847, 854.) The statute also contains a “ ‘sword’ ” in Business and Professions Code, section 7031, subdivision (b) (“Section 7031(b)”). (Ibid. [quoting White v. Cridlebaugh (2009) 178 Cal.App.4th 506, 518].) That provision “authorizes a person who utilizes the services of an unlicensed contractor to bring an action to recover all compensation paid to the contractor for his/her work.” (Ibid. [emphasis in original].)

Plaintiff’s Fifth Cause of Action is based on Section 7031(b) and demands disgorgement of all funds paid to HCI. (Complaint, ¶¶ 80, 87.) Defendants argue that Plaintiff’s Fifth Cause of Action is meritless because Plaintiff, as distinguished from the individuals associated with it, never paid any funds to HCI and cannot “recover” (Bus. & Prof. Code, § 7031, subd. (b)) funds it did not part with in the first place.

This suit was filed in the name of Plaintiff Belvedere Lagoon LLC only. Plaintiff Belvedere Lagoon LLC consist of Jon and Charlotte Doyle (“the Doyles”) and members of the LLC. (RSS No. 23.) They created Plaintiff to hold title to 54 Peninsula Boulevard, the property at the center of this litigation. (RSS No. 33.) The Doyles arranged for Defendants to perform the remodel. (RSS Nos. 28-29.) They are not plaintiffs in this case.

It is undisputed that all of the money paid to HCI in connection with the project at 54 Peninsula Boulevard ($1,582,896.38 in total) was paid from bank accounts that were in the name of John and Charlotte Doyle or their trust, not in the name of Plaintiff, the couple’s LLC. (UMF Nos. 7-8; RSS Nos. 7-8; Hernandez Dec., ¶ 9(E) & Ex. 10; see also Jon Doyle Dec., ¶ 11 [“Charlotte and I paid HCI invoices 1 through 17 in the total amount of $1,582,896.38. Those payments were not made from a bank account in Belvedere Lagoon’s name.”].) “A limited liability company is an entity distinct from its members.” (Corp. Code, § 17701.04, subd. (a).) Money held in an account in the name of the Doyles or their trust necessarily belongs to the Doyles or to their trust and not to Plaintiff, a separate legal entity. Plaintiff did not pay any funds to HCI.

Plaintiff necessarily cannot prevail on a cause of action under Section 7031(b) because the section enables “a person who utilizes the services of an unlicensed contractor” to “bring an action . . . to recover all compensation paid to the unlicensed contractor for performance of any act or contract.” (Bus. & Prof. Code, § 7031, subd. (b).) The most natural reading of this language is that Section 7031(b) enables a person who paid an unlicensed contractor for his services to claw back the money paid, and a person who did not give an unlicensed contractor any money cannot reap any benefit from the statute. (See Eisenberg Village etc. v.

Suffolk Construction Co., Inc. (2020) 53 Cal.App.5th 1201, 1211 [Section 7031(a) “precludes an unlicensed contractor (but not the other party to the contract) from enforcing the contract[,]” and if the other party to the contract brings a timely action under Section 7031(b), that provision “requires the unlicensed contractor to return all compensation received from that party”] [emphasis added].)

The legislative history of Section 7031(b) indicates, as the Second District remarked in White, supra, 178 Cal.App.4th 506, that the provision was designed to work in tandem with Section 7031(a) to ensure that “persons who have utilized unlicensed contractors” are treated “consistently” regardless of whether the unlicensed contractor was paid for the job: “In short, those who have not paid are protected from being sued for payment

[under Section 7031(a)] and those who have paid may recover all compensation delivered [under Section 7031(b)].” (White, supra, 178 Cal.App.4th 506, 520 [emphasis added].)

In interpreting Section 7031(b), the Court is guided by the Legislature’s intent that Sections 7031(a) and 7031(b) be “mirror image[s]” of each other “to ensure that the rules pertaining to an unlicensed contractor’s compensation rights were consistent regardless whether the contractor is suing or the contractor is being sued.” (Alatriste v. Cesar’s Exterior Designs, Inc. (2010) 183 Cal.App.4th 656, 672, 669-670.) Section 7031(a) prohibits an unlicensed contractor from using the courts to go after a client who owes him money for unlicensed work. (See Bus. & Prof. Code, § 7031, subd. (a).) The other side of this coin is a rule that a person who has paid an unlicensed contractor for his services gets to use the courts to claw the funds back. This is Defendants’ interpretation of Section 7031(b). Plaintiff’s interpretation of Section 7031(b) is expansive.

Plaintiff’s primary argument is that the Doyles paid HCI’s invoices in their capacity as Plaintiff’s agents, so “the payments are attributable to [Plaintiff].” (Opposition, p. 8.) This argument does not address the issue that payments made on behalf of the LLC came from the Doyles directly. The payments may be attributable to Plaintiff in the sense that they settled any debt Plaintiff owed to HCI for the remodel project, but that does not affect the reality that Plaintiff did not actually part with any money and so has nothing to recover from HCI. Plaintiff’s argument does not grapple with the fact that as a matter of law, the Doyles and Plaintiff are distinct. The Doyles cannot suggest that their personal assets are as much Plaintiff’s as theirs. Such an argument converts the Plaintiff into a “shell” LLC.

The parties dispute the effect of Eisenberg, supra, 53 Cal.App.5th 1201. Eisenberg considered the statute of limitations applicable to a Section 7031(b) disgorgement claim, which required determining whether the disgorgement remedy was akin to a penalty or, alternatively, a forfeiture. (53 Cal.App.5th 1201, 1211.) In that context, the Second District stated that Section 7031(b)’s disgorgement remedy is not a form of restitution (in which case it would be more akin to a forfeiture) because it is not properly viewed as a “recovery . . . of something that was ‘taken’[.]” (Ibid.) Plaintiff makes much of this language.

Eisenberg explained that Section 7031(b)’s remedy is properly viewed not as a recovery of something that was “taken,” but instead as a “recovery of compensation paid under the terms of a contract.” (Eisenberg, supra, 53 Cal.App.5th 1201, 1211.) “Section 7031 does not invalidate that contract[,]” but rather precludes the unlicensed contractor from enforcing it and allows the other party to recoup the funds it paid under the contract. (See 53 Cal.App.5th 1201, 1211 [the disgorgement claim “requires the unlicensed contractor to return all compensation received from that party”] [emphasis added].)

The point Eisenberg made here is that the disgorgement remedy does not entail the return of something wrongfully pilfered from the plaintiff (see Eisenberg, supra, 53 Cal.App.5th 1201, 1211 [defining “restitution” to refer to “ ‘the return of money or other property obtained through an improper means to the person from whom the property was taken’”] [quoting Clark v. Superior Court (2010) 50 Cal.4th 605, 614]), but instead the return of money the plaintiff paid under a legitimate contract the law has deemed unenforceable by one of the parties “for reasons of policy.” (See Eisenberg, supra, 53 Cal.App.5th 1201, 1211.)

This distinction mattered to the Eisenberg court because it affected whether the remedy was properly viewed as a penalty versus a forfeiture. (Id. at pp. 1211-1212.) Section 7031(b) allows a plaintiff to be returned something taken unlawfully

via the disgorgement remedy. However, the plaintiff must be a proper plaintiff to trigger disgorgement under the statute.

Plaintiff also stresses Eisenberg’s statement that Section 7031(b)’s disgorgement remedy is “not intended to” “restore the status quo” (53 Cal.App.5th 1201, 1211), suggesting that this means that an entity that never paid the unlicensed contractor can get a payout under the statute. The full context of the statement is not consistent with that interpretation. Eisenberg stated that the function of Section 7031(b) is not to “restore the status quo[,]” but to “provide a windfall to the plaintiff, at the expense of the unlicensed contractor, since the plaintiff also retains the work completed by the contractor.” (Ibid.)

The use of “also” here makes clear that the Eisenberg court understood the Section 7031(b) disgorgement plaintiff as getting to “retain” both the finished contracting work and something else. That something else can only be the money associated with the work, and the word “retain” characterizes those funds as something initially belonging to the plaintiff.

Eisenberg’s statement that “Section 7031(b) does not require the plaintiff seeking disgorgement to have suffered any injury” (53 Cal.App.5th 1201, 1207) is likewise unavailing, as this refers to the fact that a plaintiff may obtain disgorgement under Section 7031(b) even if the unlicensed contractor’s work is flawless. (See Eisenberg, supra, 53 Cal.App.5th 1201, 1212; San Francisco CDC LLC v. Webcor Construction L.P. (2021) 62 Cal.App.5th 266, 277; see also People v. Experian Data Corp. (2024) 106 Cal.App.5th 79, 812 [discussing this aspect of Eisenberg].) It does not mean that a person or entity who never surrendered any of their money to an unlicensed contractor can maintain a cause of action under Section 7031(b).

In summary, Eisenberg is fully consistent with the view that Section 7031(b) functions to compel an unlicensed contractor to return money that was paid to him for unlicensed work to the person who paid it.

The motion for summary adjudication is granted as to the Cause of Action 5.

This ruling has no effect on Plaintiff’s ability to amend the complaint to assert a Section 7031(b) disgorgement claim by Jon and/or Charlotte Doyle. Plaintiff has noticed such a motion and the Court will consider whether leave to amend is proper when that motion comes on for hearing. The parties may choose to meet and confer on amending the complaint in an effort to avoid further motion practice.

Defendant to prepare the order.

Parties must comply with Marin County Superior Court Local Rules, Rule 2.10(A), (B), which provides that if a party wants to present oral argument, the party must contact the Court at (415) 444-7046 and all opposing parties by 4:00 p.m. the court day preceding the scheduled hearing. Notice may be by telephone or in person to all other parties that argument is being requested (i.e., it is not necessary to speak with counsel or parties directly.) Unless the Court and all parties have been notified of a request to present oral argument, no oral argument will be permitted except by order of the Court. In the event no party requests oral argument in accordance with Rule 2.10(B), the tentative ruling shall become the order of the court.

IT IS ORDERED that evidentiary hearings shall be in-person in Department L. For routine appearances, the parties may access Department L for video conference via a link on the court website. Kindly turn your camera on when your case is called and make sure the party or lawyer making the appearance is properly identified on the screen.

FURTHER ORDERED that the parties are responsible for ensuring that they have a good connection and that they are available for the hearing while using the virtual remote courtroom. If the connection is inadequate, the Court may proceed with the hearing in the party’s absence. If it is determined that you are diving your car during the hearing, you will be removed from the virtual courtroom. (Yes, this happens).