JUDICIAL AND LEGISLATIVE
LENIENCY ON UNLICENSED CONTRACTORS
In two recent decisions, Florida’s Third District Court of Appeal addressed the unlicensed contracting defense provided by Florida Statute Section 489.128(1) and the common law doctrine that one engaged in illegal activity may not benefit from it.
Section 489.128(1) generally provides that unlicensed contractors are precluded from recovery at law or in equity. Prior to a 2009 amendment, the statute provided that lack of a state or local license precluded recovery.
Effective June 16, 2009, the Legislature amended the statute to remove the lack of a local license as a basis for the defense. The Legislature specifically intended that the amendment apply retroactively to contracts entered into on or after October 1, 2000 and to “all actions pending when this act becomes a law.” See Ch. 2009–195. In essence, the amendment means that the subcontractor’s lack of a local license no longer renders its subcontract unenforceable.
In MGM Construction Services Corp. v. Travelers Casualty & Surety Co. of America, et al., 57 So. 3d 884 (Fla. 3d. DCA 2010), the Third District Court of Appeal addressed the effect of the lack of a local license on a subcontractor’s ability to recover against a general contractor and its payment bond surety. The action was pending when § 489.128(1) was amended, eliminating the statutory defense. However, the subcontractor was also required by local ordinance to maintain a local license, and it did not.
At summary judgment, the contractor, Maleta Construction Co., its surety, Travelers Casualty & Surety Co. of America, and the University of Miami argued that the court must apply Florida Statutes Section 489.128(1)(a) (2008), which provided, in pertinent part, “[f]or purposes of this section, if no state or local license is required for the scope of work to be performed under the contract, the individual performing that work shall not be considered unlicensed.”
In opposition, the subcontractor relied upon the recent amendment to Section 489.128(1)(a) in which the last sentence was amended to remove the “or local license” language. Id at 886. Despite the amendment, the trial court found the subcontracts were unlawful, pursuant to by the Miami-Dade County Code of Ordinances (“MDCO”), and therefore unenforceable.
On appeal, the Third District Court of Appeal held that the trial court erred in summarily determining that the subcontract was unenforceable based solely on the lack of a local license. Unlike section 489.128, the ordinance was silent about the effect of a licensure violation on the enforceability of the underlying contract, though it did provide for civil, administrative, and criminal penalties for unlicensed contracting.
The Third District Court of Appeal summarily held that the amendment to § 489.128 prevented the defendants from relying on that statute. With regard to the local licensure defense, the appellate court remanded and directed the trial court to consider, at a minimum, the following relevant and material factors to determine whether the subcontract was unenforceable: (i) whether the nature of the contracting parties’ relationship made the need to protect the public from shoddy workmanship; (ii) the extent to which the subcontractor’s violation of the MDCO was serious and deliberate; (iii) the quality of the work performed by the subcontractor; (iv) whether the Contractor knew the subcontractor was unlicensed; and (v) whether and to what extent injustice would result in preventing the subcontractor from any recovery.
The decision is a departure from the general doctrine that one who is required to have a license may not benefit from the illegal act of engaging in work without the license. Notwithstanding the subcontractor’s violation of a local law, the appellate court held that subcontract was not automatically unenforceable.
In Austin Building Company v. Rago, Ltd., 63 So. 3d 31 (Fla. 3d DCA 2011), the general contractor’s assignee terminated a subcontractor, the subcontractor sued the successor for amounts allegedly owed, and the successor contractor filed a counterclaim for damages arising from subcontractor’s allegedly defective work. On cross motions for summary judgment, the trial court dismissed both claims on the ground that they were unenforceable because the parties were unlicensed contractors under Florida Statutes Section 489.128, and therefore, neither party could enforce the subcontract. Id at 1.
The Third District Court of Appeal reversed the decisions on both motions for summary judgment finding genuine issues of material fact precluding summary judgment. The Court noted that in order to determine that a contract is unenforceable pursuant to Florida Statutes Section 489.128, the contractor shall be considered unlicensed only if the contractor was unlicensed on the effective dates of the original contract for the work, if stated therein, or, if not stated, the date the last party to the contract executed it, if stated therein.
The Court noted that pursuant to Florida Statutes Section 489.128, the critical dates for determining whether a contractor was unlicensed are 1) the effective date of the original contract, 2) the date the last party to the contract executed it, or 3) the first date upon which the contractor provided services, labor, or materials under the contract.
Further, the Court makes it clear that the language in Florida Statutes Section 489.128, which states in pertinent part, “…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” does not only apply to “individuals,” rather, the statute applies to business organizations as well. The Court opined that the “statutory scheme of Chapter 489 demonstrates that a business organization’s ability to engage in contracting is inextricably reliant upon the licensure of the qualifying agent, who in turn, must be an individual person.” Austin Bldg. at 36.
In summary, while a subcontract entered into on or after October 1, 2000 by an unlicensed subcontractor may be deemed unenforceable, the Court must consider the relevant factors identified in MGM Construction Services Corp., as well as the pertinent dates identified in Florida Statutes Section 489.128, and further discussed in Austin Bldg.
For the same reasons discussed in relation to unlicensed mold assessor and remediators, understanding the licensure status of the various participants in a construction dispute is important to an evaluation of the strengths and weaknesses of their liability positions.