Red E Services v. Sim CA2/1 ( 2022 )

Filed 12/20/22 Red E Services v. Sim CA2/1
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
RED E SERVICES LLC, B315401
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. 19STCV35928)
v.
KENNETH TATLONG SIM et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Lia Martin, Judge. Reversed and remanded
with directions.
Ervin Cohen & Jessup and David N. Tarlow for Plaintiff
and Appellant.
Tin Kin Lee Law Office and Tin Kin Lee for Defendants
and Respondents.
______________________
Plaintiff Red E Services LLC (Red E) sued Kenneth Tatlong
Sim and several other defendants1 for breach of contract, fraud,
and other related claims. Red E alleged that defendants failed to
pay what they owed under agreements to provide “consulting
services” for the recommissioning of a hospital and the relocation
of a kitchen at a nursing home. Defendants demurred on the
ground that Red E engaged in work requiring a contractor’s
license but failed to allege, as required under Business and
Professions Code2 section 7031, subdivision (a), that it had such a
license. The trial court sustained the demurrer and dismissed
Red E’s complaint without leave to amend.
Red E does not dispute it has no contractor’s license. It
argues it can pursue compensation for all services rendered
because Red E never acted as a contractor but only as a
consultant. Red E claims as a fallback that, to the extent it
provided certain services requiring a contractor’s license, it is not
precluded from bringing suit to recover damages for the
noncontracting services Red E provided. We agree with Red E’s
fallback claim and reverse in order to allow it an opportunity to
amend its complaint to allege claims for noncontractor services
only.
FACTS AND PROCEEDINGS BELOW
In the operative first amended complaint, Red E alleged
that defendants failed to pay invoices for Red E’s work on two
1These defendants are Allied Pacific of California IPA,
Network Medical Management, Inc., 531 W. College, LLC, AHMC
Healthcare Inc., and Sunny View Skilled Nursing.
2Unless otherwise specified, subsequent statutory
references are to the Business and Professions Code.
2
projects—one involving the recommissioning of a hospital,3 and
the second for the relocation of a kitchen at the Sunny View
nursing home.4 Against each set of defendants, the complaint
alleges causes of action for breach of oral contract, fraud,
quantum meruit, open book account, and account stated.
A. The Hospital Project
According to the complaint, in July 2018, Sim contacted
Red E to request consulting services for recommissioning a
hospital that had recently closed down in Los Angeles. Red E
presented Sim with a proposal “for consulting services and to
conduct Operational Assessments[,] Equipment Inventory,
Startup and Re-commissioning Services for” the hospital. These
services included “act[ing] as ‘Owner’s Representative’ in the
various phases of building and systems assessments, repairs,
startup, re-commissioning and other processes required to safely
and effectively ‘restart’ the facility to a desired operational level,”
“assess[ing] the operational suitability of systems,” conducting
“[p]hased startup of assessed systems including anomaly
monitoring and adjustment to accepted and/or regulated
operational standards,” “assess[ing] for repairs, vendor/contractor
support, re-conditioning, replacement or other,” “[c]oordinat[ing]
repairs and phasing with vendor/contractual support to address
systems re-commissioning and startup,” “[p]rovid[ing] [the
hospital’s o]wner with a report on the condition of all assessed
3 The complaint identifies the “hospital defendants” as Sim,
Allied Pacific of California IPA, Network Medical Management,
Inc., 531 W. College, LLC, and AHMC Healthcare.
4 The Sunny View defendants are Sim and Sunny View
Skilled Nursing.
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systems and equipment, including consultative recommendations
for recovery as appropriate,” and “[p]rovid[ing] organization and
development of required documentation, permits, licenses and
certifications required for assessed building systems.” The
proposal did not specify a total project cost, but instead included
hourly billing rates for several categories of Red E employees,
with the provision that “[o]nly hours/work performed will be
billed—on a bi-weekly basis as the work proceeds.”
According to the complaint, Sim agreed on behalf of the
hospital defendants that Red E should perform the work on the
terms proposed, but declined to sign the proposal or any written
contract. Red E subsequently began work and presented the
hospital defendants with monthly invoices in August and
September, which the defendants paid, followed by a third invoice
in October 2018, which defendants paid only in part. Red E
continued working on the hospital project through the end of the
year and sent several additional invoices, all of which defendants
refused to pay. According to Red E, the outstanding balance for
these invoices is $136,061.06, not including interest.
Red E included copies of the unpaid and partially paid
invoices as exhibits attached to the complaint. These invoices
detailed a wide range of services Red E provided. One
representative example, from an invoice issued October 19, 2018,
reads as follows: “Building Recommissioning Work: Jared Winn
(09/01/2018–09/30/2018) Repair plumbing and ceiling leaks;
Cleaned up flood and water damage in Lab; Removed large
sections of ceiling around [l]ab leak to further inspect and repair
plumbing main line; Miscellaneous hardware repairs;
Patching/Painting; Clean-up work in equipment rooms; Flush all
water lines at all sink, toilet and shower nozzles; pick up
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grounds, cleaned up parking lot and made periodic rounds for
clean-up; replaced all burned out lights in Urgent Care &
standardized lights from cool white to daylight to meet new 30 ft.
candles task lighting requirements, and replaced all cracked and
damaged lenses; Per Stephanie removed exam light in Urgent
Care exam room; Removed under-sink covers to assess space and
power availability for instant-hot water dispensers.” The invoices
listed many other services, including watering plants, assisting
with a movie shoot, and seeking bids for equipment, repairs and
services, among others.
In its complaint, Red E acknowledged that the invoices it
sent to Sim included “some general maintenance and repair[ ]”
work but claimed that this work did not require a contractor’s
license, and that this work was “provided pursuant to [an] oral
. . . agreement made between [Red E] and Sim, on behalf of the
[hospital defendants], at the time that said defective conditions at
the property were discovered in or about October of 2018.”
B. The Sunny View Project
Red E alleged a similar pattern of conduct by the Sunny
View defendants, who operated the Sunny View Care Center, a
nursing facility in Alhambra. In August 2018, after work had
begun on the hospital project, Sim requested that Red E “provide
consulting services related to the relocation of the [Sunny View]
facility’s [k]itchen.” Red E immediately began work, and about
two weeks later sent a proposal to Sunny View regarding the
project.
According to the proposal, Red E planned to provide
“consulting services and to conduct Operational Assessments to
relocate a kitchen, including startup and training for the food
services operations.” Red E was to “[s]erve as the ‘Owner's
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Representative’ in the various phases of design, building and
systems assessments, repairs, construction, startup, and other
processes required to safely and effectively ‘relocate and restart’
the food services.” In addition, Red E agreed to “[a]ssess the
operational suitability of existing systems and processes for the
relocation site, including, but not limited to” “[k]itchen
operations, menu and diet considerations for the resident
population and needs,” “Life Safety Systems,” “Communications
Systems,” “HVAC/Refrigeration systems (including ductwork,
chillers, and boilers),” “[c]entral plant systems (including
combined heat, power and steam distribution),” “Water/Plumbing
systems (including sanitation, fire suppression, and
distribution),” “Lighting/Electrical systems (including overhead
lights and electric distribution),” “[c]ircuitry loads (including
connected equipment),” “Natural Gas Systems,” and “[o]ther
systems as appropriate.”
As was the case with the hospital proposal, the Sunny View
proposal provided that “[o]nly hours/work performed will be
billed—on a bi-weekly basis as the work proceeds.” Again, the
Sunny View defendants did not sign the estimate. Red E sent
Sim two invoices for its work on the Sunny View project, which
the Sunny View defendants failed to pay. According to Red E,
the total unpaid balance on these invoices is $12,772.50, not
including interest.
After sending the first invoice, Red E sent a new revised
proposal, which expanded the scope of work to include the
following additional services: “Technical and administrative
oversight of the project to coordinate project delivery items,
reports, updates and ad hoc informational requests as received
from time to time in the course of the project; [i]ncluding phasing
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and vendor/consultants/[i]nspector of [r]ecord contract support”;
“Support the organization with OSHPD, CMS, Licensing,
Accreditation (TJC), Life Safety Code (LSC) compliance, general
safety and other federal, state, and local regulatory compliance
requirements, and support those agencies with required
documentation, submittals, permits, licenses, certifications,
meetings and inspections”; and “[s]upport the kitchen with
startup and training for the new food services equipment and
operations.”
The services billed to the Sunny View defendants were
more limited than those to the hospital defendants. In the first
invoice, Red E billed the Sunny View defendants for “Kitchen
Relocation Project Meetings; Project Management; Utility
Relocation Coordination;” “Menu Consulting; Kitchen Equipment
Selection; Kitchen Design Consulting;” “Basement Master[-
]planning; Kitchen Menu/Equipment Design; OSHPD/Licensing
Kitchen Design & Construction Feasibility Consulting; [and]
OSHPD/Licensing Utility Relocation Consulting.” The second
invoice listed only “Construction Consulting Services” by two Red
E employees, with no further details. The invoices do not
indicate that Red E performed or managed any construction or
repair work on the Sunny View project.
C. Trial Court Proceedings
On August 26, 2020, defendants demurred to the operative
first amended complaint, arguing that in order to bring its suit,
Red E was required under section 7031, subdivision (a) to allege
that it held a contractor’s license, but had failed to do so. The
trial court sustained the demurrer without leave to amend and
entered judgment in favor of defendants.
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STANDARD OF REVIEW
“A demurrer tests the sufficiency of a complaint and admits
all facts properly pleaded.” (Setliff v. E. I. Du Pont de Nemours &
Co. (1995) 32 Cal.App.4th 1525, 1533.) When the trial court
sustains a demurrer, we review “de novo to determine whether
the complaint states a cause of action as a matter of law.”
(Phoenix Mechanical Pipeline, Inc. v. Space Exploration
Technologies Corp. (2017) 12 Cal.App.5th 842, 846 (Phoenix).) In
so doing, we “ ‘must assume the truth of the complaint’s properly
pleaded or implied factual allegations’ ” (Banis Restaurant
Design, Inc. v. Serrano (2005) 134 Cal.App.4th 1035, 1038),
subject to the exception that we are “not required to accept the
truth of alleged facts in an amended complaint that are
inconsistent with the allegations in a superseded complaint
unless the inconsistencies are adequately explained.” (Phoenix,
supra, at p. 846.)
We review the trial court’s decision to deny the plaintiff
leave to amend for abuse of discretion (Code Civ. Proc., § 472c,
subd. (a)), and “must determine whether there is a reasonable
possibility that the defect [in the pleading] can be cured by
amendment.” (Phoenix, supra, 12 Cal.App.5th at p. 847.)
DISCUSSION
A. Contractor Licensing Statutory Background
The Contractors’ State License Law (CSLL; § 7000 et seq.)
“provides ‘a comprehensive scheme which governs contractors
doing business in California.’ ” (Judicial Council of California v.
Jacobs Facilities, Inc. (2015) 239 Cal.App.4th 882, 894.) Its
purpose “is to protect the public from incompetence and
dishonesty in those who provide building and construction
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services. (Lewis & Queen v. N. M. Ball Sons (1957) 48 Cal.2d
141, 149-150 . . . .) The licensing requirements provide minimal
assurance that all persons offering such services in California
have the requisite skill and character, understand applicable
local laws and codes, and know the rudiments of administering a
contracting business.” (Hydrotech Systems, Ltd. v. Oasis
Waterpark (1991) 52 Cal.3d 988, 995.) The law “imposes strict
and harsh penalties for a contractor’s failure to maintain proper
licensure.” (MW Erectors, Inc. v. Niederhauser Ornamental &
Metal Works Co., Inc. (2005) 36 Cal.4th 412, 418.)
“Section 7031, subdivision (a) is the primary enforcement
mechanism for the CSLL.” (WSS Industrial Construction, Inc. v.
Great West Contractors, Inc. (2008) 162 Cal.App.4th 581, 588.)
Under this statute, “no person engaged in the business or acting
in the capacity of a contractor, may bring or maintain any action,
or recover in law or equity in any action, in any court of this state
for the collection of compensation for the performance of any act
or contract where a license is required by this chapter without
alleging that they were a duly licensed contractor at all times
during the performance of that act or contract regardless of the
merits of the cause of action brought by the person.” (§ 7031,
subd. (a).) In a suit to recover damages for work requiring a
contractor’s license, a trial court may sustain a demurrer without
leave to amend if the plaintiff fails to allege that it held such a
license. (See Banis Restaurant Design, Inc. v. Serrano, supra,
134 Cal.App.4th at pp. 1043-1047.)
Although “section 7031 can have harsh and seemingly
unfair effects” (Judicial Council of California v. Jacobs Facilities,
Inc., supra, 239 Cal.App.4th at p. 895), the Legislature’s intent in
enacting the statute to protect the public from unlicensed
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contractors is clear, and “it is well settled that section 7031
applies despite injustice to the unlicensed contractor.”
(Hydrotech Systems, Ltd. v. Oasis Waterpark, supra, 52 Cal.3d at
p. 995.) Thus, contractors are barred from recovering even in
cases where they were unlicensed for only part of the time when
they were performing contracting work (WSS Industrial
Construction, Inc. v. Great West Contractors, Inc., supra, 162
Cal.App.4th at pp. 594-596), or where the other party acted in
bad faith and never intended to pay the contractor from the
beginning. (Hydrotech, supra, at p. 998.)
The CSLL defines “contractor” as “synonymous with
‘builder,’ ” or, in other words, “any person who undertakes to or
offers to undertake to, or purports to have the capacity to
undertake to, or submits a bid to, or does himself or herself or by
or through others, construct, alter, repair, add to, subtract from,
improve, move, wreck or demolish any building, highway, road,
parking facility, railroad, excavation or other structure, project,
development or improvement, or to do any part thereof, including
. . . the cleaning of grounds or structures in connection therewith,
. . . and whether or not the performance of work herein described
involves the addition to, or fabrication into, any structure,
project, development or improvement herein described of any
material or article of merchandise.” (§ 7026.) The definition is
expansive enough to include trades such as interior decorating
(Franklin v. Nat C. Goldstone Agency (1949) 33 Cal.2d 628, 630)
and painting, on the logic that these activities “alter, repair, add
to or improve” a structure. (Howard v. State (1948) 85
Cal.App.2d 361, 364.) It includes not only anyone who performs
building work, but also one who agrees to perform such work and
10
hires another party to do it. (Eggers Industries v. Flintco, Inc.
(2011) 201 Cal.App.4th 536, 540.)
Red E contends licensure was unnecessary because it acted
as a consultant, not a contractor. In The Fifth Day, LLC v.
Bolotin (2009) 172 Cal.App.4th 939, another division of this court
held that a company that provides construction management
services but does not act as a contractor as defined in section
7026 does not need a contractor’s license. (The Fifth Day, supra,
at pp. 947-950.) But the label Red E attaches to its role is not
dispositive. “Unlicensed persons may not finesse the statute by
drafting contracts calling solely for unlicensed services where in
reality other services requiring a license will be performed.”
(Executive Landscape Corp. v. San Vicente Country Villas IV
Assn. (1983) 145 Cal.App.3d 496, 501.)
B. The Trial Court Erred in Sustaining the Demurrer to
Causes of Action Related to the Sunny View Project
We address the Sunny View project separately from the
hospital project because Red E alleged that it reached separate
oral agreements to work on each of the two projects. The two
Sunny View invoices attached to the complaint make no mention
of repair work, nor any other work that on its face fits the
statutory definition of contractor. (See § 7026.) Instead, Red E
billed the Sunny View defendants for items such as “[k]itchen
design,” “[b]asement master[ ]planning,” and “[m]enu
consulting.”5
5Defendants argue that state regulations require
therapeutic menus to be approved by a registered dietitian, but
that does not make a menu planner a contractor under section
7026.
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Because the complaint does not show conclusively that
Red E performed or agreed to perform work requiring a
contractor’s license on the Sunny View project, the trial court
erred in sustaining a demurrer to Red E’s causes of action related
to that project.
C. The Trial Court Should Have Granted Leave to
Amend With Regard to the Hospital Project Causes of
Action
Turning to the hospital project, Red E’s unpaid invoices for
its work on that project, which are attached as exhibits to the
complaint, show that Red E performed significant work requiring
a contractor’s license. To take one example, on an invoice dated
October 19, 2018, the word “repair” appears at least 27 times, in
reference to work Red E claimed its employees performed during
the month of September. These included repairs to the doors,
ceiling tiles, plumbing, electrical, and HVAC systems, as well as
more vague references to repairs to the building generally. We
can find no reasonable interpretation of this language in the
invoice that would allow Red E to escape the broad statutory
definition of “contractor,” in the sense of “alter[ing], repair[ing],
add[ing] to, subtract[ing] from, improv[ing], mov[ing], wreck[ing]
or demolish[ing] any building.” (§ 7026.)
Section 7031, subdivision (a) bars Red E from bringing a
suit to recover from defendants for such contracting work. Nor
may Red E amend its complaint to make allegations inconsistent
with its prior pleadings as to this contracting work to seek
recovery. (Phoenix, supra, 12 Cal.App.5th at p. 854.)
Some of the work Red E alleges it performed on the
hospital project, however, does not fit within the statutory
definition of contracting. Red E invoiced the hospital defendants
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for work assisting a film crew shooting, watering plants, and
consulting work arguably not requiring licensure as stated in The
Fifth Day, LLC v. Bolotin, supra, 172 Cal.App.4th at pages 947-
950. Red E contends that the trial court erred by sustaining
defendants’ demurrer without leave to amend because Red E may
be able to prove that it performed its non-contracting work under
a separate contract or contracts for that project.
In making this argument, Red E relies on Phoenix, supra,
12 Cal.App.5th 842, in which we agreed that a plaintiff
unlicensed contractor could not recover for contracting work it
performed, but nonetheless reversed the trial court’s grant of a
demurrer in favor of defendants. Because the plaintiff in that
case alleged that it performed non-contracting work under
separate agreements from any work requiring licensure, it was
entitled to seek damages for the non-contracting work. (Id. at
p. 853.)6 Likewise, Red E alleges here that after it began work on
the hospital project, it discovered that the hospital facilities were
in need of repairs, and at that point it reached a separate oral
agreement or agreements with the hospital defendants to
perform the repairs.
6 In so ruling, we did not attempt to identify the specific
billed tasks that did not require a contractor’s license because
“[a]t this stage of the proceedings, it is sufficient to conclude that
a ‘reasonable interpretation of the agreement[s] between the
parties’ is that at least some of the work that [the plaintiff]
performed did not require a license.” (Phoenix, supra, 12
Cal.App.5th at p. 852.) We likewise do not attempt to identify in
this opinion which specific tasks allegedly performed by Red E do
or do not require licensure.
13
Defendants disagree, arguing that “a contractor cannot
avoid the license requirements by seeking to sever other services
performed during the course of the contracting relationship for
which a license is not required.” They point to cases in which
courts barred unlicensed contractors from recovering damages for
portions of their work not requiring a contractor’s license because
“the work plaintiff provided was part of an integrated whole.”
(Banis Restaurant Design, Inc. v. Serrano, supra, 134
Cal.App.4th at p. 1047.) For example, in WSS Industrial
Construction, Inc. v. Great West Contractors, Inc., supra, 162
Cal.App.4th 581, the plaintiff subcontractor sued to recover
unpaid fees from the defendant general contractor for steel
construction work the subcontractor performed. A jury awarded
damages in favor of the plaintiff, but the Court of Appeal
reversed because the plaintiff was not licensed during part of the
time it performed the work. (Id. at p. 596.) The plaintiff argued
that it should at least be allowed to recover for portions of the
work that did not require a license, such as drafting shop
drawings and ordering anchor bolts. The court disagreed,
reasoning that these “were tasks for which the [plaintiff] bid and
which were performed in furtherance of the scope of the work
included in the subcontract.” (Id. at p. 592.) Defendants argue
that this case is similar, in that Red E’s work “had a single
objective, the achievement of which required a contractor’s
license which [Red E] does not have.”
We agree with Red E and not defendants given that this
matter is at the demurrer stage. Nothing in our decision
precludes defendants from seeking to establish in subsequent
proceedings that there were not in fact multiple contracts for the
hospital project, that Red E acted primarily in the role of a
14
contractor under whatever agreement(s) may have existed, and
that any non-contracting services were incidental to Red E’s
contracting work. But in reviewing a trial court’s decision to
sustain a demurrer, “[w]e must accept as true all facts pleaded in
the complaint.” (Phoenix, supra, 12 Cal.App.5th at p. 853.) In its
complaint, Red E has not alleged one contract for the hospital
project, but rather multiple oral agreements. “It may therefore
seek compensation under those alleged agreements that apply to
tasks for which no license was required.” (Ibid., fn. omitted.)7
7 Because Red E seeks recovery under multiple
agreements, we need not and do not decide whether an
unlicensed plaintiff may recover damages under the doctrine of
severability for work under a single contract that calls for both
licensed and unlicensed work. (Compare MKB Management, Inc.
v. Melikian (2010) 184 Cal.App.4th 796, 805 [“the doctrine of
severability may apply, in the discretion of the trial court”] with
Banis Restaurant Design, Inc. v. Serrano, supra, 134 Cal.App.4th
at p. 1047 [suggesting that severability is inappropriate] and The
Fifth Day, LLC v. Bolotin, supra, 172 Cal.App.4th at pp. 963-964
(dis. opn. of Mosk, J.) [no severability].)
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DISPOSITION
The judgment is reversed. On remand, the second, fourth,
sixth, eighth, and tenth causes of action concerning the Sunny
View project are to be reinstated. With regard to the remaining
causes of action, Red E shall be permitted to file a second
amended complaint seeking compensation only under specific
agreement(s) to perform work not requiring a contractor’s license.
Each party is to bear its own costs on appeal.
NOT TO BE PUBLISHED
WEINGART, J.
We concur:
CHANEY, J.
BENDIX, Acting P. J.
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