A recent decision of the Louisiana Second Circuit Court of Appeal underscores the importance of maintaining a valid contractor’s license – – and the consequences that an inactive license can have with respect to recourse under the Louisiana Private Works Act. In Leija v. Gathright, 51,049 (La. App. 2 Cir. 12/21/16); 211 So. 3d 592, the Second Circuit held that a contractor’s failure to possess a current license invalidated the contractor’s Private Works Act privilege on a residential project.
The Facts of Leija v. Gathwright: A Verbal Contract for New Home Construction
The facts of Leija turn on an oral contract for residential construction. John and Wendi Gathright verbally engaged Remijio Leija to build a home for them in West Monroe, Louisiana, on a cost-plus basis. On October 24, 2008, the Gathrights recorded an affidavit of substantial completion. Thereafter, on February 10, 2009, Leija recorded a lien under the Private Works Act – – “when he claims it became apparent he was not going to be paid the remaining amount due on the contract” – – for about $175,000 in unpaid labor and materials. On June 29, 2009, Leija filed suit seeking recognition of his Private Works Act privilege.
The Gathrights asserted reconventional demands, arguing that Leija had defaulted and abandoned the project. Additionally, the Gathrights requested that the lien be cancelled because no contract for construction was ever recorded. Further, the Gathrights asserted that Leija’s lien was untimely filed because it was recorded more than 60 days after the filing of substantial completion.
Several years into the lawsuit, another party entered the picture: Regions Bank. Wanting to preserve the primacy of its own rights as the Gathrights’ creditor, Regions Bank filed a motion for partial summary judgment and sought to have Leija’s lien declared legally unenforceable. Regions Bank asserted the same arguments as the Gathrights, but additionally asserted that Leija’s lien was invalid because Leija did not have a contractor’s license at the time of the project.
In response to requests for admission propounded by Regions Bank, Leija admitted that his contractor’s license was indeed “dormant” during the construction of the Gathrights’ home. In his deposition testimony, Leija attempted to characterize his role as one of “general supervisor” rather than “general contractor.” However, he admitted that his responsibilities included overseeing overall construction, “handling” subcontractors and suppliers, paying all subcontractors, and ordering materials.
The Trial Court Holds Contractor’s Lien Invalid for Lapsed License
On November 10, 2015, the trial court granted Regions Bank’s motion for partial summary judgment and ordered the cancellation of Leija’s lien on the grounds that Leija did not have a valid contractor’s license at the time of the parties’ verbal agreement. The court held that because Leija’s contract was null and void, his lien was thus null and void. The trial court did note that while Leija could not avail himself of a Private Works Act privilege, Leija could nevertheless recover his damages under a quantum meruit (unjust enrichment) theory.
The Appellate Court Affirms, Favoring Strict Construction of the Private Works Act
On appeal, the Second Circuit affirmed the trial court in all respects. The Second Circuit began its analysis with a review of the state licensing scheme. Louisiana law requires a license of any “residential building contractor,” including “all contractors, subcontractors, architects, and engineers who receive an additional fee for the employment or direction of labor, or any other work beyond the normal architectural or engineering services” when the cost of the undertaking exceeds $75,000. See La. R.S. 37:2150.1(11). Because the scope of the Gathright project exceeded this dollar threshold, Leija was required to – – but failed to – – maintain a contractor’s license. The Second Circuit reasoned that the licensing scheme protects the interests of public order, and “contracts in violation . . . are in contravention of prohibitory laws and therefore void.”
The Second Circuit then turned to the Private Works Act. The court quoted an old Louisiana Supreme Court case for the proposition that the Private Works Act’s provisions are to be “strictly construed against lien claimants as they are in derogation of the common rights of owners.” Fruge v. Muffoletto, 137 So. 2d 336 (1962). The Second Circuit additionally noted that the privilege afforded to claimants under the Act “arises from contract.” Leija’s oral contract with the Gathrights would have sufficed, but because his contractor’s license was inactive, “any contract that he entered for residential construction with costs above $75,000 violated a prohibitory law which, in turn, rendered the contract void and unenforceable.” No Private Works Act lien for the unlicensed, it would appear.
Preserve Your Private Works Act Rights
The fate the contractor in Leijia highlights the importance of complying with Louisiana’s licensing scheme in order to preserve Private Works Act privileges. Moreover, the Second Circuit’s analysis typifies the kind of “strict” construction of the Private Works Act that a prospective claimant may face. The construction attorneys at Shields | Mott, LLP are practiced at assisting private works contractors in:
- Navigating state licensing schemes and maintaining appropriate licenses;
- Negotiating and recording construction contracts;
- Filing Private Works Act privileges timely; and
- Honoring other technicalities necessary to preserve Private Works Act liens and lawsuits.