Clark Hill Achieves Historic Victory For California Contractors

In a published decision, the Fifth District Court of Appeal in California ruled on Jan. 31 that a licensed contractor was not barred from asserting a breach of construction contract cause of action where the entity mistakenly listed as the contractor in the contract was not a licensed contractor.

Clark Hill attorneys James Earle, Pam Palmer, Richard Nakamura, Renee Diaz, and Tala Rezai, successfully represented Panterra GP, a licensed California contractor, against a multi-state entertainment organization that operated a movie theatre in Bakersfield, CA.

 “This case will be cited in California in the future for the proposition that a construction contract may be reformed in the event of a mistake of law when an inaccurate contractor name is placed on a construction contract,” Earle said.

Background

Panterra GP is a licensed general contractor that the defendant retained to construct/remodel a movie theatre in Bakersfield.

Panterra Development Ltd., L.L.P. (Panterra Development)’s name was inaccurately listed as the general contractor, instead of Panterra GP, the general partner of Panterra Development.

An American Institute of Architects contract listed Panterra Development as the contractor, while documents related to a mechanics lien also noted the claimant to be Panterra Development. The permit applications, building permits, and certificates of occupancy issued for the project by the City of Bakersfield accurately reflected that Panterra GP was the general contractor for the project.

After Panterra GP completed the work, the defendant movie theater chain refused to pay more than $2.6 million owed under the contract and also requested the return of $7.2 Million Dollars in a disgorgement action. Panterra GP sought reformation of the contract to reflect the true agreement of the parties and recover the funds it is owed for the work completed which resulted in the defendant operating a fully functional movie theater.

The trial court sustained a demurrer filed by the defendant on the basis that Panterra GP and Panterra Development were separate legal entities and the court would not substitute an entirely new and distinct entity into the contract.

Successful Writ Proceeding

Clark Hill filed a Petition for Writ of Mandate with the Fifth District Court of Appeal arguing that the allegations in the pleadings contained sufficient facts to state a cause of action requiring that the court vacate the trial court’s demurrer order. The Fifth District found that California law permits reformation of a contract upon application of any aggrieved party. In doing so, the court stated that no new contract is made when a party properly shows that a mistake was made and requests to have the writing conform to the original oral agreement.

The appellate court determined that reforming a contract to reflect the reality that several parties agreed to hire a licensed contractor for renovation work does not conflict with licensing laws, and its ruling prevented the defendants “from walking away with a massive windfall without Panterra GP ever having its day in court.”

“This appellate decision will provide all California Contractors with a sensible and common-sense argument to eliminate situations where defendants would be unjustly enriched due to ‘naming issues’ in contract formation,” Earle said.