Contractor Cannot Rely on Related Company’s Construction License
By Shannon Raye Martinez
SAALFELD GRIGGS PC
In a ruling that will have effects far beyond construction liens, a June 2011 Federal District Court case in Oregon invalidated a nearly $5,000,000 construction lien because the general contractor did not have its own CCB license. In Oregon, if a contractor is providing the labor on a construction project, the contractor must be licensed with the CCB when the work starts, and continuously during the performance of the work, in order to be able to sue or file a construction lien if unpaid by the customer. The company in this case, Hooker Creek Companies, LLC (“Hooker Creek”), argued that it could still file a lien because its validly licensed subcontractor performed all the work. In this case, the subcontractor happened to be a subsidiary of Hooker Creek. The question became whether a general contractor can rely on a subcontractor’s license in order to file a lien.
The Court ruled that Hooker Creek was not entitled to its $5,000,000 lien that it had filed because a contractor cannot rely on a license held by another individual or entity. Said another way, if you are a general contractor, you must have your own CCB license in order to file a lien.
PRACTICAL EFFECTS
Contractors need to strictly comply with the CCB licensure requirements. Of course, if properly licensed and properly filed, generally a construction lien may allow the contractor to be paid when the property is sold at foreclosure, and before any prior mortgages on the property. Failing to follow these rules, however, will not only mean that a contractor could lose out on the ability to file a lien, but the contractor may also lose the ability to get paid altogether.
WHAT ABOUT CONTRACTORS THAT ARE ALSO MATERIAL SUPPLIERS?
Of course, a construction lien only allows individuals and entities that are “contractors” to the benefit of these laws. A “contractor” is typically someone that provides labor to the project. But, we all know the real world isn’t that easy. What if you are a contractor that wears multiple hats? For example, let’s say you are a general contractor for the development of a community that has lots for home sites and a golf course. As a contractor, you rent equipment to excavate for the lots, and deliver sand and other materials for the golf course. However, you never actually do the excavation or work to incorporate the materials into lots or the golf course. A related company, and subsidiary of your company, does this labor. Are you entitled to a lien for any or all of this work or materials?
The Hooker Creek case answered this question with an emphatic no. The contractor was not entitled to a lien for any amount on the project because it had actually contracted to perform the work. The fact that others had actually performed that work was inconsequential. While the case of Hooker Creek Companies, LLC v. Remington Ranch, LLC et. al. is currently on appeal before the U.S. Court of Appeals for the Ninth Circuit, contractors need to be careful to ensure that they are properly licensed and that they know when and how to properly file a valid construction lien.
If you have any questions regarding this article, or construction licensing or lien rules, please contact Shannon Martinez or another member of the firm’s Construction Law and Litigation Practice Group.