Construction Law

This article appeared in the July 2010 issue of "The Construction Advisor" published by Lang Baker & Klain, PLC. Free Subscription to the Construction Advisor View the Construction Advisor index

Construction in Mexico has generated business for many Arizona contractors. If you have done work south of the border or are contemplating it, have you considered what licensing requirements the State of Arizona places on you? The Arizona Court of Appeals’ recent ruling in Baker v. Dolphin Beach may be useful.

Background

In August 2007, an unlicensed Arizona contractor, Scott Baker, entered into a written contract with an Arizona property management company, Dolphin Beach Rental & Management, to service A/C units on condos in Puerto Peñasco, Sonora.

All discussions between Baker and Dolphin Beach took place in Arizona, and the contract was signed in Arizona. Baker was not a licensed Arizona contractor when he signed the contract, nor was he licensed during the time he performed work under the contract.

Dolphin Beach utilized Baker for a few months and paid him for his work, but in January 2008 the company stopped using him, and Baker sued Dolphin Beach in Arizona Superior Court for breach of contract.

Lawsuit

Dolphin Beach asked the trial court to dismiss Baker’s suit, arguing that, since Baker was not a licensed contractor, A.R.S. § 32-1153 barred him from suing to enforce the contract. (The statute prohibits contractors from taking legal action in state courts to enforce a contract for work that they were not licensed to perform when they entered into the contract or when the cause of action arose.) The trial court agreed with Dolphin Beach and dismissed Baker’s suit. Baker appealed the dismissal.

Appeal

The Court of Appeals saw things differently than the trial court. In its ruling, the Court noted that the state’s power to require licenses is generally limited to activities inside state borders. The Court went on to state that “A.R.S. § 32-1153 applies to prevent unlicensed contractors from suing in state court in Arizona to recover ‘compensation for the performance of any act for which [the statute] requires a license’” [Court’s emphasis added].

Did the statute require a license? No. The Court, reasoning that the statute does not govern construction activity outside of Arizona, ruled that (a) Baker did not need an Arizona contractor’s license to perform contracting work in Mexico, and (b) A.R.S. § 32-1153 did not bar Baker from trying to enforce his contract in state court.

(The Court acknowledged that Baker was an Arizona resident, Dolphin Beach was an Arizona LLC, and the contract was negotiated and signed in Arizona, but that was not a factor in the decision.)

The Court reversed the dismissal of Baker’s lawsuit and sent the case back to Superior Court for trial to determine whether Dolphin Beach actually breached the contract and, if it did, the extent of any damages to which Baker might be entitled.

Lessons

The lessons in Baker v. Dolphin Beach for owners and contractors appear to be pretty straightforward:

• Work performed outside of Arizona does not require an Arizona contractor’s license.

• In the event of an alleged breach of an Arizona contract for work performed outside the state’s borders, Arizona’s court system is available to unlicensed or improperly licensed contractors.