California appeals court overturns ruling in SpaceX case; Plaintiff allowed to file new complaint

By David Hutton | Jun 23, 2017

LOS ANGELES (Legal Newsline) – California’s Second District Court of Appeal on June 13 overturned a lower court’s ruling that would prevent an unlicensed contractor from suing to recover payment on contracts for services that did not require a contractor's license.

The Superior Court of Los Angeles County had ruled Phoenix Mechanical Pipeline Inc. couldn’t pursue its claims for payment for construction and related services against Space Exploration Technologies Corp. because Phoenix Pipeline failed to allege that it had a contractor’s license.

After several attempts to correct this issue, the trial court concluded that Phoenix Pipeline could not comply with the licensing requirement and therefore sustained SpaceX’s demurrer to Phoenix Pipeline’s second amended complaint without leave to amend.

In its appeal, Phoenix Pipeline maintained that the trial court abused its discretion in denying further leave to amend because Phoenix Pipeline could have amended the complaint to show that it was an employee of SpaceX rather than an independent contractor.

Moreover, Phoenix Pipeline offered a number of reasons why it doesn’t need to be licensed to pursue litigation, pointing out it had an employee who is a licensed contractor; it did not need to be licensed to pursue its claims against SpaceX because SpaceX is a sophisticated corporate entity and Section 7031 is intended to protect homeowners; and some of the services that it allegedly performed did not require a contractor’s license.

Judge Elwood Lui wrote the opinion, noting that the three-judge panel had concluded that the arguments presented by Phoenix Pipeline were precluded either by settled law or by Phoenix Pipeline’s own previous allegations.

"In light of the liberal pleading standards applicable to this stage of the litigation, we find that Phoenix Pipeline adequately alleged in its SAC that some of the services it provided did not require a contractor’s license,” Lui wrote. “We therefore reverse in part and remand to provide the opportunity for Phoenix Pipeline to amend its complaint to allege claims for non-contractor services only.”

Phoenix Pipeline filed its initial complaint on Dec. 29, 2014, alleging breach of contract and breach of the duty of good faith and fair dealing; common counts; intentional and negligent misrepresentation; and unfair business practices, court documents states.

The complaint further stated that SpaceX in 2010 had requested that Phoenix Pipeline provide a variety of services, including plumbing, general maintenance and repair.

In its initial complaint, Phoenix Pipeline characterized the work as “subcontracting services.”

The complaint stated that Phoenix Pipeline provided SpaceX with invoices detailing the services that it provided, and that each invoice constituted an individual agreement between the companies.

The complaint states that SpaceX had paid Phoenix Pipeline for its services from 2010 to October 2013, but failed to pay for work done from October 2013 to August 2014, when SpaceX then told the company its services were no longer required.

"SpaceX demurred on the ground that Phoenix Pipeline was not licensed. Rather than oppose the demurrer, Phoenix Pipeline elected to file an amended complaint," the complaint states.

In the court’s opinion, Lui noted that Phoenix Pipeline had not alleged one contract, but rather a series of agreements for each separate task that it was asked to perform. It may therefore seek compensation under those alleged agreements that apply to tasks for which no license was required.

“We offer no view as to whether the facts will ultimately support the allegation that Phoenix Pipeline’s work was governed by separate agreements for each task, or its claim that some of those tasks required no contractor’s license,” he wrote. “At this stage of the case, we hold only that Phoenix Pipeline has adequately alleged particular agreements to perform work that did not require a contractor’s license. Section 7031 does not bar an action for compensation for such work.”

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