Federal Court in Hawaii Holds that an Unlicensed Subcontractor May Pursue Contract Claims Against Contractor Notwithstanding Statute Precluding Unlicensed Contractors from Recovering in a Civil Action

U.S. Pipelining LLC v. Johnson Controls, Inc., No. 16-00132 HG-RLP, 2016 U.S. Dist. LEXIS 150767 (D. Haw. Oct. 31, 2016)

This action arose out of the renovation of a condominium complex on Maui (Project). Johnson Controls, Inc. (JCI) was the general contractor and U.S. Pipelining LLC (USP) was a subcontractor. While the parties disputed who was ultimately responsible for obtaining a license for the work, the Subcontract included a provision that required USP to “obtain[] all licenses and permits required for the prosecution of the Work.” Nonetheless, USP performed its work without obtaining a license from the State of Hawaii. During the Project, a dispute arose between the parties. USP filed a complaint alleging various claims against JCI and others, seeking payment for the additional work it allegedly performed.

Chapter 444 of the Hawaii Revised Statutes (the “Statute”) requires contractors to obtain a license before performing any renovation work on real property. See Haw. Rev. Stat. § 444-9. The Statute also provides in Section 444-22:

“The failure of any person to comply with any provision of this chapter shall prevent such person from recovering for work done, or materials or supplies furnished, or both on a contract or on the basis of the reasonable value thereof, in a civil action, if such person failed to obtain a license under this chapter prior to contracting for such work.”

Citing the Statute, JCI moved for summary judgment, arguing that because USP was not a
licensed contractor, it was precluded from recovering in a civil action. The Court denied JCI’s motion, holding that the Statute provided JCI with no defense to USP’s claims.

The Court found that the purpose of the Statute was to protect members of the general public from unlicensed contractors, and JCI, as a contractor, was not a member of the general public for those purposes. The Court stated that “[i]f the state legislature intended to protect general contractors such as [JCI] from subcontractors such as [USP], it would have so stated.”

The Court agreed with the reasoning of cases from other jurisdictions that the purpose of
protecting the public interest by denying the right to sue does not exist when dealing with claims between contractors. In these instances, the Court stated that the interests of the general public are better served by placing the burden on a general contractor to ensure that the subcontractors it chooses to hire are competent. The Court refused to apply the plain language of the Statute to allow a general contractor to avoid liability on the basis that the subcontractor it deemed qualified for the job was unlicensed.

The Court also reasoned that allowing JCI to invoke the Statute would lead to an unjust result. The Court observed that Hawaii courts have consistently construed the State’s professional licensing laws in a flexible manner that avoids unjust results while fulfilling the legislature’s intent to protect the general public. The Court stated that “[a] mechanical application of [the Statute] that does not consider the purpose of the statute, the legislature’s intent, and the position of the parties, could result in a forfeiture of more than a million dollars’ worth of claims. The state legislature could not have intended [the Statute] to be used in such a manner.”

Consequently, the Court denied JCI’s motion and allowed USP to proceed with its claims.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

Jeffery R. Mullen

This entry was posted in Licensing, Subcontract and tagged , , , , , . Bookmark the permalink.