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Phoenix Mechanical Pipeline, Inc. v. Space Exploration Technologies Corp.

California Court of Appeals, Second District, First Division

June 13, 2017


         APPEAL from a judgment of the Superior Court of Los Angeles County, No. BC 568084 Rafael A. Ongkeko, Judge. Reversed and remanded with directions.

          The Ryan Law Firm, Kelly F. Ryan and Nathaniel P. Loakes for Plaintiff and Appellant.

          Payne & Fears, Benjamin Avery Nix, Scott O. Luskin and Robert T. Matsuishi for Defendant and Respondent.

          LUI, J.

         Plaintiff and appellant Phoenix Mechanical Pipeline, Inc. (Phoenix Pipeline), appeals from a judgment entered after the trial court sustained the demurrer of defendant and respondent Space Exploration Technologies Corp. (SpaceX) without leave to amend. The trial court found that Phoenix Pipeline could not pursue its claims for payment for construction and related services against SpaceX because Phoenix Pipeline failed to allege that it had a contractor's license. After several attempts to cure this defect, the trial court concluded that Phoenix Pipeline could not amend to comply with the licensing requirement, and therefore sustained SpaceX's demurrer to Phoenix Pipeline's second amended complaint (SAC) without leave to amend.

         Business and Professions Code section 7031, subdivision (a) requires a contractor's license to maintain an action for compensation for services for which a contractor's license is necessary.[1] The SAC does not allege that Phoenix Pipeline has such a license, and Phoenix Pipeline does not claim on appeal that it is licensed. Rather, Phoenix Pipeline asserts a variety of reasons why it need not be licensed to pursue this litigation. Phoenix Pipeline argues that: (1) it sufficiently complied with section 7031 by alleging that one of its employees, whom Phoenix Pipeline alleges was its “responsible manager officer, ” is a licensed contractor; (2) 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 (3) some of the services that it allegedly performed did not require a contractor's license. Phoenix Pipeline also argues for the first time on appeal 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.

         With one exception, we conclude that each of these arguments is 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. We therefore reverse in part and remand to provide the opportunity for Phoenix Pipeline to amend its complaint to allege claims for noncontractor services only.


         Phoenix Pipeline filed its initial complaint on December 29, 2014, asserting claims for breach of contract and breach of the duty of good faith and fair dealing; common counts; intentional and negligent misrepresentation; and unfair business practices. The complaint alleged that in 2010 SpaceX requested that Phoenix Pipeline provide a variety of services, including “plumbing, general maintenance and repair, concrete removal and pouring, trash clean-up and disposal, demolition, car washing, electrical, excavation and installation, ” all of which the complaint characterized as “Subcontracting Services.” The complaint alleged that Phoenix Pipeline provided SpaceX with invoices detailing the services that it provided, and that each such invoice constituted “an individual agreement between [SpaceX and Phoenix Pipeline].”

         Phoenix Pipeline alleged that SpaceX paid for its services from 2010 to October 2013, but failed to pay for services performed between October 2013 and August 2014. Phoenix Pipeline claimed that “[o]n or about August 15, 2014, [SpaceX] informed [Phoenix Pipeline] that their services were no longer required and requested [Phoenix Pipeline] to leave [SpaceX's] premises.” Phoenix Pipeline claimed that SpaceX owed $1, 037, 045.66 for the services it provided. The complaint did not allege that Phoenix Pipeline was a licensed contractor.

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

         Phoenix Pipeline's first amended complaint (FAC) contained essentially the same factual allegations as its initial complaint, but added the allegation that Harold Hill, whom Phoenix Pipeline characterized as the “Responsible Managing Employee” for Phoenix, “oversaw all services that [Phoenix Pipeline] provided to any contractors, companies, or institutions, including [SpaceX].” The FAC alleged that Hill was the owner of another entity, Phoenix Mechanical Plumbing, Inc. (Phoenix Plumbing), and that he held a California contractor's license, No. 670382. The FAC alleged that Hill “supervised the Subcontracting Services that [Phoenix Pipeline] provided [SpaceX] for the duration of their relationship.” Phoenix Pipeline attached a copy of contractor's license No. 670382 to the FAC. The copy showed that the license had been issued to Phoenix Plumbing.

         SpaceX filed another demurrer arguing that the license issued to Phoenix Plumbing was not sufficient to satisfy the requirements of section 7031. On July 13, 2015, the trial court sustained the demurrer with leave to amend.

         Phoenix Pipeline filed its SAC on July 23, 2015. The SAC made two changes to the allegations in the FAC. First, it relabeled Hill as a “responsible manager officer” rather than as the “Responsible Managing Employee” and expanded the description of his role. The SAC alleged that Hill “supervised construction related services, managed construction activities by making technical and administrative decisions, checked jobs for proper workmanship, and directly supervised construction job sites.” Second, the SAC distinguished between alleged construction related services, which it categorized as “Subcontracting Services, ” and alleged nonconstruction related services, which it labeled as “Non-Contracting Services.” The SAC claimed that no valid contractor's license was required for the Non-Contracting Services.

         SpaceX again demurred. Phoenix Pipeline opposed the demurrer, and in the alternative requested 30 days leave to file a third amended complaint. Phoenix Pipeline's opposition did not explain how it proposed to amend the SAC. The trial court sustained the demurrer without leave to amend and entered judgment against Phoenix Pipeline on October 21, 2015.


         1. Standard of Review

         An order sustaining a demurrer is reviewed de novo to determine whether the complaint states a cause of action as a matter of law. (Lazar v. Hertz Corp. (1999) 69 Cal.App.4th 1494, 1501.) On appeal, we “ ‘treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.' ” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) However, an appellate court is 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. (Owens v. Kings Supermarket (1988) 198 Cal.App.3d 379, 383-384 (Owens).)

         When a trial court sustains a demurrer without leave to amend, the court's decision not to permit further amendment is reviewed for abuse of discretion. (Code Civ. Proc., § 472c, subd. (a); Ellenberger v. Espinosa (1994) 30 Cal.App.4th 943, 947.) If the complaint does not state facts sufficient to constitute a cause of action, the appellate court must determine ...

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