Attempts to Use Alleged Lack of Licensure Fail at Summary Judgment Stage

ATTEMPTS TO USE ALLEGED LACK OF LICENSURE FAIL AT SUMMARY JUDGMENT STAGE

By: Larry Leiby, Esq. and Robert S. Tanner, Esq.

About the Authors: Larry Leiby, Esq. was the founder and first chairman of the Florida Bar Construction Law Committee in 1976. He is the author of the Florida Construction Law Manual. He is Board Certified in Construction Law and was on the Construction Law Certification Committee that creates and grades the tests for construction law board certification. He was awarded the lifetime achievement award by the Florida Bar Construction Law Committee and teaches construction law at the Florida International University College of Law. He can be reached at leiby@mkpalaw.com. For more information, please visit www.mkpalaw.com. Robert S. Tanner, Esq., has worked with Mr. Leiby in construction matters since 2006, occasionally covers Mr. Leiby's classes at FIU law school, and has been litigating commercial cases for more than 10 years. He can be reached at rob@mkpalaw.com.

In Austin Building Company v. Rago, Ltd., 2011 WL 1563707 (Fla. 3d DCA April 27, 2011), the question of enforceability of construction contracts due to lack of licensure was at issue again. In that case, the project owner had a prime contract with Austin Commercial, LLP for the construction of a mixed use condominium. Austin Commercial was properly qualified to perform construction. The prime contract expressly provided that when Austin Commercial's affiliate, Austin Building Company ("ABC"), obtained state licensing, the prime contract would be assigned from Austin Commercial to ABC. Before the assignment occurred, Austin Commercial entered into a subcontract with Rago, Ltd. ("Subcontractor") to construct the structural concrete components. Allegedly, approximately 16 days after Rago started performance, Austin Commercial learned that Rago was not licensed but was reassured that Rago would obtain a license. ABC obtained its license and the prime contract was assigned to it. Eventually, Rago was terminated due to performance issues. Rago sued ABC, Austin Commercial, and their surety for amounts alleged due under the subcontract. ABC countersued Rago for defective work. During the litigation, several parties filed motions for summary judgment based on the licensing issues.

Loosely speaking, in Florida, a contractor cannot enforce contractual or equitable rights in connection with work it was not licensed to perform. Thus, Rago's motion for summary judgment against ABC was predicated on the argument that ABC (not Rago) was unlicensed and was intended to preclude ABC's claim against Rago for defective work. The trial court granted Rago's motion, but the appellate court reversed upon finding facts to support ABC's argument that Rago had entered into the contract with Austin Commercial, that Austin Commercial was licensed at the time, and that ABC was licensed when the contract was assigned to it. Although Rago may have had conflicting facts that it could present at trial, it was necessary to resolve the conflict at trial, not in a motion for summary judgment.

The trial court also entered summary judgment in favor of ABC and against Rago for being unlicensed. On appeal, the court noted that the applicable provision of the statute was amended in 2009 and was made to apply retroactively to contracts entered into on or after October 1, 2000, which included Rago's subcontract. The applicable amended provision of Florida Statute, section 489.128 states:

  • As a matter of public policy, contracts entered into on or after October 1, 1990, by an unlicensed contractor shall be unenforceable in law or in equity by the unlicensed contractor.
      (a) For purposes of this section, an individual is unlicensed if the individual does not have a license required by this part concerning the scope of the work to be performed under the contract. A business organization is unlicensed if the business organization does not have a primary or secondary qualifying agent .... For purposes of this section, if a state license is not required for the scope of work to be performed under the contract, the individual performing that work is not considered unlicensed.

    Apparently Rago argued that a state license was not required for its scope of work. Austin Commercial's opposing argument was that the last sentence of (1)(a) applied only to individuals, not to business organizations and, therefore, that "exception" did not apply to Rago. The appellate court disagreed with Austin Commercial's argument. The court said, "the phrase 'the individual performing the work' section 489.128(1)(a) would have little consequence if it could not also apply to an individual serving as a qualifying agent for a business organization." In other words, it would not make sense to find that an individual does not need a license where a business organization does. The case was remanded to the trial court for further proceedings.

    Licensing cases seem to have become more prevalent in recent years. Regardless of the reason, there may be a greater inclination now than in the past to use the lack of licensure as a means of skirting the obligation to pay.