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Fifth Day, LLC v. Bolotin

March 27, 2009


APPEAL from a judgment of the Superior Court of Los Angeles County. Robert A. Dukes, Judge. Reversed. (Los Angeles County Super. Ct. No. KC047712).

The opinion of the court was delivered by: Armstrong, Acting P. J.


Plaintiff and appellant The Fifth Day, LLC ("Plaintiff") entered into an agreement with Industrial Real Estate Development Company ("Owner") to provide certain "industrial real estate development and construction project management" services with respect to real property located in Chino, California. Plaintiff sued Owner and its principals, Pacific Allied Industrial Corporation and James P. Bolotin (together referred to as "Defendants"), for compensation alleged to be due for services rendered by Plaintiff.

The trial court granted summary judgment in favor of Defendants on the ground that Plaintiff was acting as a general building contractor and therefore was required to hold a license pursuant to Business and Professions Code*fn1 section 7026; because it had no such license, it was barred by section 7031, subdivision (a), from maintaining this action. On appeal, Plaintiff contends that (1) it was not a contractor within the meaning of section 7026; (2) it was exempt from the license requirement because it was an owner of the property or a partner of Owner; and (3) even if some of the services it rendered required a contractor's license, it nevertheless could be compensated for other services that did not require a license. We determine that Plaintiff was not a contractor within the meaning of the licensing statute, and its claims are therefore not barred by section 7031, subdivision (a). Consequently, we reverse the judgment.


In 1999, Defendants owned 12.3 acres of land (the "Property") in Chino, California, adjacent to land owned by Chino Industrial Commons, LLC ("CIC"). Plaintiff's managing member was Kevin Knox. At Knox's urging, Defendants and CIC agreed to develop their properties jointly.*fn2 To that end, the Property was divided into three parcels designated Lots 19, 20 and 21. CIC entered into 52-year ground leases onthe three lots. The ground lease forLot 20 required CIC to construct a 55,000 square foot building on the lot. Once the building was completed, CIC was to assign its interest in Lot 20 back to Defendants, and Defendants were to convey to CIC afee simple interest in Lots 19 and 21. No rent was payable by CIC under the ground leases for the first two years, but rent was payable thereafter.

CIC failed to construct the building on Lot 20 during the first two years of the lease term, and rent began to accrue under the ground leases at a rate of five cents per square foot, or approximately $24,000 per month. In February 2001, rather than pay the rent, CIC assigned the three ground leases-along with its obligation to construct the building-to Plaintiff. The development plan for the Property was changed to a seven-building commercial office park. Lot 20 was redesignated as Lots 1 and 2, and Lots 19 and 21 were redesignated as Lots 3 through 7. Plaintiff undertook to construct two buildings totaling 55,000 square feet on Lots 1 and 2 (formerly Lot 20) in return for a fee simple interest in Lots 3 through 7 (formerly Lots 19 and 21). Plaintiff was responsible for financing the construction.

By early 2003, Plaintiff had not constructed the buildings and owed Defendants $465,000 in back rent. Plaintiff negotiated with PCI*fn3 to obtain financing for the construction. Under the agreement contemplated between Plaintiff and PCI, Plaintiff would assign the ground leases to PCI. PCI would finance the construction of the seven buildings, pay Defendants the accrued back rent, and pay Plaintiff $100,000. Plaintiff was to receive a "Project Incentive Fee" based on a 25 percent share of the profits from the sale of the development.

Defendants refused to consent to the assignment of the ground leases contemplated in the PCI deal, andproposed instead tofinance the construction on terms similar to the PCI deal, including reassignment of the ground leases back to Defendants.

Defendants proposed to increase Plaintiff's Project Incentive Fee to 34 percent of the profits. Knox stated in his declaration that Plaintiff "reluctantly" accepted Defendants' proposal because of the increased Project Incentive Fee.

This agreementis memorialized in a written document dated May 5, 2003 between Plaintiff and Owner entitled "Development Management Agreement For the Construction of The Campus at CIC" (the "DMA"). Owner is referred to as the "Owner" and Plaintiff as the "Development Manager."

The DMA recites that Owner wishes to undertake the development of the entire Property. To do so, "Owner desires to have Professional Development and Construction Management Services to assist the owner . . . ." Plaintiff was "experienced in industrial real estate development and construction project management and is willing to provide to Owner these services."

Plaintiff was to be paid a fixed development fee of $100,000 as a nonrefundable advance against a Project Incentive Fee of 34 percent of a defined "Project Value." The DMA provided, "The Owner agrees that for purposes of this agreement, any and all lease rents accrued are included in the value of the Land Contribution and that the leases for Lots 19, 20 and 21 previously entered into are to be terminated as and by those Lease Terminations attached as Exhibit __."

The DMA specified that Plaintiff was to perform the following duties "as Owner may specifically and expressly direct:"

fl To "identify critical and high priority matters and promptly report the same to Owner," and with respect to matters "requiring any immediate action" to "make recommendations for a short-term contingency plan to minimize Owner's exposure to loss or damage." fl To provide "advice or opinions with respect to the development of an overall strategic plan for the management and administration of the Project." fl To "coordinate and direct" the activities of design professionals hired by Plaintiff.

fl To obtain building and special permits, "except for permits required to be obtained directly by the various contractors."

fl To provide advice or opinions with respect to (1) "developing the budget for construction costs" and "controlling the overall budget for the Project," and (2) "Owner's efforts to keep the Project moving forward" on budget and on time.

fl To update the budget regularly, including a comparison between anticipated and actual expenses.

fl To "provide cost and performance evaluations of alternative materials and systems . . . ."

fl To provide a project development schedule setting forth Plaintiff's "good faith estimate of how long the regulatory and construction phases of the Project will last."

fl To hold and document regularly scheduled preconstruction meetings with Owner to "update the Owner, discuss issues, plan strategies to meet objectives and solve problems."

fl To provide "opinions or advice on administrative and management matters that relate to the coordination of work among and between the Contractors, Subcontractors, Disbursement Agent, Owner and the Design Professional(s)."

fl To assist the general contractor in "developing bidders' interest in the Project, establish bidding schedules and assist the Owner in preparing construction contract document packages."

fl To assist the general contractor in the subcontractor bidding process and to ensure that the general contractor performs its duties with respect to bids from subcontractors and material suppliers.

fl To receive and review required certificates of insurance from the design professionals and contractors.

fl To "use commercially reasonable efforts to achieve satisfactory performance from each of the Contractors and Subcontractors."

fl To conduct daily "on-site inspections and reviews" during construction, and to attend and report to Owner on "all on-site Project status meetings . . . ."

fl To provide to Owner summaries of and to document all change proposals and change orders.

fl To "ensure that the contract documents contain all necessary independent testing and inspection" and to "regularly review the testing and inspection reports . . . ."

fl To report to Owner monthly "regarding the status of all or part of the Project." fl To review with Owner monthly a draw request package, including approved applications for payment. fl To maintain the financial books and records for the Project. fl To report cash disbursements related to the Project. fl To maintain contact information for the Project team. fl To "coordinate the completion and correction of the work" and to "assist the Design Professional(s) in conducting substantial final inspections."

In addition, Plaintiff warranted and represented that (1) it was "experienced, competent and qualified to perform the work contemplated by" the DMA; (2) it had and would maintain "sufficient facilities, expertise, staff, assets and other resources to perform its duties;" (3) it held and would hold "all licenses, permits or other certifications necessary to ...

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