Most are familiar with California’s harsh penalty for unlicensed contractor work. California Business and Professions Code Section 7031 (Section 7031) bars any recovery for compensation for work performed by an unlicensed contractor under any theory of recovery “regardless of the merits of the cause of action.” Cal. Bus. and Prof. Code § 7031(a). It is well-established that subcontractors are covered by Section 7031 from recovering from owners and general contractors if not properly licensed. See Cal. Bus. and Prof. Code § 7026. However, in Kim v. TWA Construction, Inc., 78 Cal.App.5th 808 (2022), the California Court of Appeal, in a matter of first impression, expanded the effect of Section 7031(a) to bar a licensed general contractor recovering from an owner for work completed by an unlicensed subcontractor.
Couple and respondents Sally Kim and Dai Truong (collectively Kim) hired TWA Construction, Inc. (TWA) to build a home in Los Gatos, CA (the Project) for approximately $1.6 million. There was no dispute regarding TWA’s licensure status. The Project required removal of a eucalyptus tree that straddled the property line between Kim’s property and the property of their neighbor. TWA hired an individual named Martin Hoffman (Hoffman) as the tree-removal subcontractor. TWA found Hoffman on a public advertisement site, commonly known as Craigslist, and did not verify Hoffman’s licensing status.
Hoffman began work on removing the eucalyptus tree, but a dispute arose regarding the tree with the neighbor. Later, Kim terminated their contract with TWA because Kim could not secure a construction loan. At the time of termination, Kim had paid $16,000 total to TWA.
The neighbor sued Kim and TWA for trespass, negligence, and damage to the eucalyptus tree. Kim cross-complained against TWA for comparative negligence, breach of contract, and express and equitable indemnity. TWA filed a cross-complaint against Kim for breach of contract. The neighbor settled with Kim and TWA, leaving the cross claims between TWA and Kim.
Before the trial, Kim filed a motion in limine, asking the trial court to require TWA to make an offer of proof as to the licensure status of Hoffman. Kim argued that tree trimming required a specialty license and if TWA could not prove that Hoffman was properly licensed, TWA should disgorge the $10,000 paid by Kim for tree-trimming services per Section 7031. The court granted the motion. The trial proceeded to jury verdict, and the jury concluded that TWA was 100% liable for the neighbor’s damages. The court entered judgment in favor of Kim and ordered TWA to disgorge the $10,000 paid by Kim for the tree-trimming services. TWA appealed.
The Court of Appeal noted that TWA failed to present any evidence that Hoffman was licensed. Moreover, after analyzing the “statutory scheme” of Section 7031 and contractor licensing law generally, the Court of Appeal agreed with the trial court’s reconciliation of the legislative intent of Section 7031(a) — protecting the public from unlicensed contractor work — and its interpretation of Section 7031(a) to include a licensed general contractor who attempts to recover from an owner for work performed by an unlicensed subcontractor. The Court of Appeal reasoned that allowing a general contractor to recover compensation for performance of unlicensed work “simply because the work was accomplished by hiring a subcontractor, would circumvent the purpose of section 7031 and render meaningless the section 7031 bar and expansive definition of contractor to include work performed ‘by or through others,’ (§7026).” The Court of Appeal affirmed the judgment.
 On appeal TWA argued (1) that the court erred in granting Kim’s pre-trial motion in limine, (2) Kim’s indemnity claim could not stand because the contract did not include tree-removal, and (3) substantial evidence did not support the jury’s finding that the Kim paid TWA $10,000 to remove the tree. The court found that removing the tree was part of the contract by examining extrinsic evidence, and the jury finding was supported by substantial evidence in light of Kim’s credible testimony.