As a matter of first impression, the Ninth Circuit Court of Appeals in Technica LLC ex rel. U.S. v. Carolina Cas. Ins. Co., 12-56539, 2014 WL 1674108 (9th Cir. Apr. 29, 2014), allowed an unlicensed subcontractor to recover from a prime contractor for unpaid services relating to a federal construction project under a federal Miller Act claim. California law otherwise prevents unlicensed contractors from recovering for unpaid work on non-federal projects as a penal measure intended to encourage contractors to maintain a valid license at all times.
Technica LLC (“Technica”) worked as a sub-subcontractor on a large federal fence replacement project (the “Project”). Over the course of a year, Technica supplied nearly a million dollars worth of labor, materials, and services for the Project. However, Technica received only $287,861.81 in partial payments for its work. Technica proceeded to file suit in district court against the prime contractor Candelaria Corporation (“Candelaria”) and its payment surety Carolina Casualty Insurance Company (“CCIC”) under the Miller Act to recover amounts owed to it on the subcontract against the payment bond.
In the district court, Candelaria and CCIC prevailed on a summary judgment motion on the theory that under California Business & Profession Code section 7031, Technica, an unlicensed contractor, was prohibited from maintaining an action against them. The trial court dismissed Technica’s case, but the court of appeal reversed.
The Technica court of appeal found support for its ruling in the underlying purpose for the Miller Act. Generally, due to sovereign immunity, mechanics liens cannot be placed on federal property. The Miller Act exists to ensure that subcontractors working on federal projects are given protection in the form of a payment bond, and other remedies. The court reasoned that because Technica’s action arises in federal law, the scope of the remedy is also determined by federal law. As such, the court held that the “substance of the rights” afforded to Technica under federal law cannot be restricted by California Business & Professions Code section 7031. The court further reasoned that federal subcontractors routinely work on projects that span multiple states, and requiring such contractors to comply with licensing requirements of each given state in order to receive payment would be contrary to Congress’ intent in enacting the Miller Act.
It is important to reiterate that Technica only applies to federal projects. Regardless, most contracts clearly require a contractor to have a valid contractors license so the fact that Technica may have prevailed on the Miller Act provision does not mean it will win the case considering it may be sued for breach of contract. California has reciprocal licensing which allows a waiver of the trade examination if the applicant is from Arizona, Nevada and Utah. Despite the outcome of the Technica case, out-of-state contractors should always explore obtaining a valid California contractors license on federal Miller Act jobs before electing not to obtain a license.
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