Facts

Plaintiff McKinney Drywall Inc. entered into a $2,950,000 subcontract with defendant Morillo Construction Inc. to perform drywall work on a public works construction project at the East Los Angeles Community College campus. The owner terminated the project for convenience in 2009. McKinney's case was stayed during a 26-day arbitration with the owner where Morillo prevailed. Afterwards, a bifurcated trial took place in civil court on the issue of whether or not McKinney was adequately licensed during the project or substantially complied with contractor licensure requirements.

PLAINTIFF'S CONTENTIONS:
McKinney alleged it was owed $2,445,882 in damages for unpaid contract balance plus interest, prompt payment penalties at 2 percent per month, $750,000 in damages for lost profits, and loss of the business as a going concern.

DEFENDANT'S CONTENTIONS:
Morillo contended that McKinney was paid in full and owed Morillo over $1 million for arbitration related offsets for deficient work, attorney fees, and expert fees, as well as abandoning another construction project. Defendant argued that because McKinney was unlicensed, it had no standing to sue, and must disgorge all amounts paid.

Result

The court found that McKinney was not adequately licensed during the time it performed work on the project, and did not substantially comply with the licensure requirement pursuant to Business & Professions Code section 7031(e). The court ruled McKinney lacked standing to sue for alleged nonpayment, arising out of the project, and must disgorge the entire $1,674,299 paid by Morillo Construction Inc. to McKinney Drywall Inc.

Other Information

Morillo Construction Inc. will file a motion for attorney fees, costs, and interest, which will be added to the judgment. FILING DATE: July 21, 2009.