The Impact of Unlicensed Contractor Activities
Almost every construction activity requires licensure of the individual and, if applicable, any business entity contracting to perform that activity, unless exempt. Therefore, it is not surprising that unlicensed activities in the construction industry have been the focus of intense public policy debate for the past 20 years, and the statutory changes and case decisions described herein exemplify that debate. The Florida Department of Business and Professional Regulation (DBPR) is the regulatory body that prosecutes unlicensed activities in this area and, through its various boards, licenses construction activities.
While the details of contractor licensing are beyond the scope of this article, basic licensing information has been included in order to give legal practitioners some means of identifying possible unlicensed activities. This article deals primarily with the Construction Industry Licensing Board (CILB), but there are many parallels with the Electrical Contracting Licensing Board (ECLB).
Client Encounters of the (Too) Close Kind
Following are some of the situations a practitioner might routinely encounter that require some understanding of these licensing requirements, which failure to recognize and comply might cause great harm to the client:
• Formation of New Legal Entity — Your client is a sole proprietorship that has been engaged in construction work for many years, but good tax planning and asset protection indicate that the business should now operate as a corporation or limited liability company. You create the new entity and transfer the business assets into the new business, which then begins contracting under its new name. However, until an application for the new entity has been approved by DBPR, any contract, lien, or bond rights may be unenforceable by the contractor (in law or equity).
• Merger of Legal Entities — Your client engages in construction activities and has met all licensure requirements. You are retained to represent the client in the acquisition and merger of another entity, which will become the surviving entity following the merger. The activities of the acquired entity may be unrelated to construction. However, until an application for the new merged entity has been approved by DBPR, any contract, lien, or bond rights may be unenforceable by the contractor (in law or equity).
• Contract Preparation — A corporate client retains you to prepare or review its contract forms. You check the DBPR records and determine that all licensing requirements have been met. However, if the Florida Department of State records indicate that the business name in which your client contracts for construction work is “inactive,” any such contract may be unenforceable.
• Lien Preparation — Your firm has been engaged to prepare and record a construction lien pursuant to Ch. 713, Part I, for the unpaid balance due on a contract. However, unless you can determine that the lienor has met the state or local licensure requirements, that lien may be unenforceable (and the owner entitled to “prevailing party” attorneys’ fees).
• Contract, Lien, or Bond Litigation — You have been retained to file or defend an action for breach of construction contract, with or without a lien foreclosure or cause of action against a surety bond. Unless the contractor is properly licensed as required by F.S. Ch. 489, you may need to raise (or encounter) a defense that might result in a summary judgment for (or against) your client, together with an award for “prevailing party” attorneys’ fees. Did you advise your client of such possible consequences upon engaging in the litigation?
Unlicensed Contracting Activities
There are at least eight possible legal consequences that can result from construction activities by an unlicensed contracting entity, each of which is described herein.
• Loss of contractor’s contract rights (F.S. §§489.128 and 489.532).
• Loss of lien and bond rights (F.S. §713.02(7)).
• Treble damages (F.S. §768.0425).
• Damages for violation of building code (F.S. §553.84).
• Administrative sanctions (F.S. §§455.228 and 489.13).
• Criminal penalties (F.S. §489.127(2)).
• Possible action for “disgorgement” (per case law).
• Cause of action for “unfair trade practice” (F.S. §501.204).
Several statutory definitions are important to an understanding of “unlicensed activities,” beginning with the definition of “contractor” in F.S. §489.105(3).
(3) “Contractor” means the person who is qualified for, and shall only be responsible for, the project contracted for and means, except as exempted in this part, the person who, for compensation, undertakes to, submits a bid to, or does himself or herself or by others construct, repair, alter, remodel, add to, demolish, subtract from, or improve any building or structure, including related improvements to real estate, for others or for resale to others; and whose job scope is substantially similar to the job scope described in one of the subsequent paragraphs of this subsection. For the purposes of regulation under this part, “demolish” applies only to demolition of steel tanks over 50 feet in height; towers over 50 feet in height; other structures over 50 feet in height, other than buildings or residences over three stories tall; and buildings or residences over three stories tall. Contractors are subdivided into two divisions, Division I, consisting of those contractors defined in paragraphs (a)-(c), and Division II, consisting of those contractors defined in paragraphs (d)-(q).
Note that “compensation” is required, so working for free does not require a license. On the other hand, merely “offering” to perform contracting services is an act of “contracting” for which a license is required, unless one of the statutory exemptions applies.
F.S. §489.105(6) defines “contracting” as follows:
(6) “Contracting” means, except as exempted in this part, engaging in business as a contractor and includes, but is not limited to, performance of any of the acts as set forth in subsection (3) which define types of contractors. The attempted sale of contracting services and the negotiation or bid for a contract on these services also constitutes contracting. If the services offered require licensure or agent qualification, the offering, negotiation for a bid, or attempted sale of these services requires the corresponding licensure. However, the term “contracting” shall not extend to an individual, partnership, corporation, trust, or other legal entity that offers to sell or sells completed residences on property on which the individual or business entity has any legal or equitable interest, if the services of a qualified contractor certified or registered pursuant to the requirements of this chapter have been or will be retained for the purpose of constructing such residences.
The last sentence of this section constitutes the so-called “developer’s” exemption, which is only a partial exemption in that it only allows the offering and contracting of “completed residences” if a licensed contractor is used for the actual construction.
Next, §489.105(13) defines a “business organization” as follows: “‘Business organization’ means any partnership, corporation, business trust, joint venture, or other legal entity which engages or offers to engage in the business of contracting or acts as a contractor as defined in this section.”
This definition is used in §489.119(2) as follows:
(2) If the applicant proposes to engage in contracting as a business organization, including any partnership, corporation, business trust, or other legal entity, or in any name other than the applicant’s legal name or a fictitious name where the applicant is doing business as a sole proprietorship, the business organization must apply for a certificate of authority through a qualifying agent and under the fictitious name, if any.
Types and Scopes of Licenses
There are three types of contractors: certified, who can perform in every city and county in the state; registered, who can only perform in the local governments (cities and counties) where they are licensed and their local licensure is then “registered” with the state; and specialty. Both certified and registered contractors are grouped into two divisions and each type is limited to the “scope” of work described in F.S. §489.105(3)(a)-(q), as follows:
Division I includes the following contractors: (a) General (any structure); (b) Building (commercial and residential structures not exceeding three stories, and accessory structures), and (c) Residential (one-family, two-family or three-family structures not exceeding two habitable stories over not more than one uninhabitable story, and accessory structures).
Division II includes the following contractors: (d) Sheet metal; (e) Roofing; (f), (g) and (h) Air-conditioning categories; (i) Mechanical (which includes air-conditioning); (j), (k) and (l) Pool/spa categories; (m) Plumbing; (n) Underground utility and excavation; (o) Solar; and, (p) Pollutant storage systems;
“Specialty” contractor is defined in §489.105(q) as a contractor whose scope of work is limited to a particular phase of construction. Pursuant to §489.113(6), the CILB may, by rule, create a number of “voluntary” specialty contractors. To date, they have done so for structural, gypsum drywall, glass and glazing, and several subsets of pool/spa construction. In addition, §489.117(4) recognizes “local” specialty contractors, but does not require that these licenses be registered with the board.
Exemptions from Licensure
There are numerous exemptions from licensure as set forth in §489.103 and elsewhere, such as the employees of a licensee, and some of the major ones are as follows:
• Owner/builder Exemption — Pursuant to F.S. §§489.103(7)(a) and (b), an owner is permitted to construction of a single-family residence, regardless of value, and commercial improvements up to a value of $75,000. An owner’s affidavit requiring personal use of any residence for a period of at least one year is set forth in the statute.
• Jim Walter Exemption — F.S. §489.117(4)(e) provides as follows:
(e) Any person who is not required to obtain registration or certification pursuant to s. 489.105(3)(d)-(o) may perform specialty contracting services for the construction, remodeling, repair, or improvement of single-family residences, including a townhouse as defined in the Florida Building Code, without obtaining a local professional license if such person is under the supervision of a certified or registered general, building, or residential contractor. As used in this paragraph, supervision shall not be deemed to require the existence of a direct contract between the certified or registered general, building, or residential contractor and the person performing specialty contracting services.
• “Big Boy” Exemption — §489.119(8) provides an exemption from licensure for entities that employee a licensed contractor for construction of improvements on their own property and have a net worth of at least $20 million (for example, Disney, Universal, and Martin-Marietta).
• Developer Exemption — The definition of “contracting” as set forth in §489.105(6) permits the owner of any legal or equitable interest to “offer” and “contract” to sell completed single-family residential units, whether completed at the time of the contract, provided that the actual construction is performed by a licensed contractor.
Loss of Contract Rights F.S. §489.128
A copy of the current statute, incorporating the 2006 amendments is attached as an appendix at the end of this article (page 65). The original section became effective on October 1, 1990; however, unlike the current statute, it applied to any party’s enforcement of the contract, and contained a “cure” provision to allow the contractor to become licensed after the contract had been entered into. An amendment effective July 1, 1993, made a slight change to the “equity” reference in this law.
Effective July 1, 2000, the right to “cure” provision was eliminated from the statute, but the bill was silent as to the “retroactive” application of this change. This provision was as follows: “However, in the event the contractor obtains or reinstates his or her license, the provisions of this section no longer apply.”
Effective June 25, 2003, a number of important qualifications were added to “clarify” when a contractor was or was not considered “unlicensed.” This bill expressly provided for “retroactive” application of these changes.
Effective October 1, 2006, additional qualifications were added, also to “clarify” when a contractor was or was not considered “unlicensed,” including: clarify that an individual shall not be considered to be “unlicensed” if no state or local license is required for the scope of work being performed; and add another classification of business organizations that will not be considered “unlicensed” when the licensed individual has submitted an application to become approved as the company’s qualifying agent, but the department or board failed to act thereon within the “deemer” provisions of §120.60 (i.e., 90 days).
Under the original statute that was in effect from October 1, 1990, until June 25, 2003, any party was prohibited from enforcing a contract with an unlicensed contractor; however, effective with the 2003 amendments, the statute restricted enforcement only by “the contractor.” In Castro v. Sangles, 637 So. 2d 989 (Fla. 3d DCA 1994), the owners were barred from enforcing a construction contract they had entered into with an unlicensed contractor. This would appear to be a result that could actually benefit an unlicensed contractor, except for the evidence that the owners were aware of the contractor’s unlicensed status by applying for the permits themselves and representing that they were self-constructing.
Generally, contractors have not been allowed to enforce a contract entered into at a time when the contractor was unlicensed, except during the “cure” period that existed from October 1, 1990, until July 1, 2000, when this sentence was removed from the statute. However, a possible exception is pending in the U.S. District Court for the Middle District of Florida.
In Lake Eola Builders, LLC v. The Metropolitan at Lake Eola, LLC, 416 F. Supp. 2d 1316 (M.D. Fla. 2006), the owner’s motion for summary judgment against the contractor for being unlicensed was denied, even though the contractor had failed to obtain license prior to entering into the contract. According to the undisputed facts set forth in this opinion, the contract was entered into on December 9, 2003; however, the contractor did not apply for a “certificate of authority” until February 20, 2004, and did not receive its license until June 18, 2004.
These licensing requirements have also been applied to subcontractors.
In The Poole & Kent Co. v. Gusi Erickson, 759 So. 2d 2 (Fla. 2d DCA 1999), one of the earliest cases decided under the original statute, the court found that since the contractor had a duty to check the licensure status of the subcontractor who did not have a qualified agent at the time it signed the subcontract agreement in 1996, the contractor was not allowed to vacate an arbitration award in favor of an unlicensed subcontractor. There is also a possible “unjust enrichment” argument in this case, where the court noted that the owner had already paid the contractor for the work performed by the subcontractor.
In Hancock-Gannon Joint Venture II v. McNully, 800 So. 2d 294 (Fla. 3d DCA 2001), because a roofing subcontractor’s “local” license had expired, the court held that he could not enforce his contract with the owner. In addition, this case ties three of the civil remedy sections together as being mutually exclusive by remanding the owner’s claims for 1) treble damages and attorneys’ fees pursuant to §768.0425, and 2) damages for building code violation pursuant to §553.84, both of which had been stricken by the trial court. In a footnote, the court observed the owner may be precluded by §489.128 from enforcing the contract rights, based on Castro, but such a result would not prevent damages under either §768.0425 or §553.84.
Also, in Deep South System v. Heath, 843 So. 2d 378 (Fla. 2d DCA 2003), a roofing sub-subcontractor was precluded from enforcing its contract against its subcontractor, because it was not a certified or registered roofing contractor and was not otherwise exempt from licensure requirements.
Similarly, in Scott & Son Engineering v. Tarafa Construction, 907 So. 2d 553 (Fla. 4th DCA 2005), an unlicensed subcontractor was barred from suing the general contractor, and the surety was able to avoid payment under the bond it had issued based on the use of §489.128 as a defense. However, the impact of this case has been nullified by the 2005 changes to §713.02(7) that now expressly allow the enforcement of bond rights notwithstanding noncompliance with §489.128.
Section 489.128 has also been applied to sureties. In Kvaerner Construction v. American SAF, 847 So. 2d 534 (Fla. 5th DCA 2003), the court upheld a surety’s summary judgment dismissing the contractor’s suit for breach by an unlicensed specialty contractor based on the contractor’s knowledge that the subcontractor was unlicensed, and on the contractor’s duty to ascertain the license status of its subcontractors. The court reasoned that since the pre-2003 version of §489.128 prevented any party from recovering under a contract with an unlicensed contractor to allow a suit directly against a surety would indirectly allow recovery against the bonded contractor.
This statute has also been applied in cases where fictitious names (“misnomers”) were used in the contract. In Orange City Building Codes Board of Adjustment and Appeals v. Strickland Construction Services Corp., 913 So. 2d 718 (Fla. 5th DCA 2005), a contractor’s failure to register its fictitious name did not cause it to be “unlicensed” pursuant to §489.128.
Similarly, in Martin Daytona v. Strickland Construction, 881 So. 2d 686 (Fla. 5th DCA 2004), while commenting that R.A.M. of South Florida v. WCI Communities, 869 So. 2d 1210 (Fla. 2d DCA 2004), did not apply, the court found that the subcontractor’s failure to register and be licensed under the fictitious name it used on the contract did not render its contract unenforceable pursuant to §489.128 (which is only referred to in Judge Sharp’s concurring opinion). The court also found that the 2003 amendment that “a business organization shall not be considered unlicensed for failure to have a certificate of authority” applied to make the contract enforceable.
However, these cases involving the use of fictitious names are problematic for several reasons. First, the referenced portion of the 2003 amendments was based on the fact that DBPR does not issue a document identified as a “certificate of authority”; a fictitious name use has no bearing on that issue. Secondly, allowing the use of “misnomers” that are not registered with DBPR prevents building officials from accurately checking the department’s online system to confirm licensure status at the time a building permit is issued. Finally, these cases might allow the defense that a contractor’s use of a particular name of an unlicensed entity was merely a failure to apply for the use of that name on a “fictitious” basis through the Department of State.
Lastly, this section has been applied to cases involving arbitration clauses. While there are numerous conflicting cases declaring whether it is for the courts or the arbitrators to determine the “validity” of a contract containing an arbitration clause, all of them appear to have been resolved by Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006). In Buckeye, the Court overturned the Florida Supreme Court’s decision and held that 1) the arbitration provision is “severable” from the remainder of the contract; and 2) a claim that the contract was void by reason of usury had to be determined by the arbitrators, not the court, in the absence of an attack on the arbitration clause itself (such as, the portion of the contract that was procured by fraud in the inducement).
In this 7-1 decision (Justice Alito not taking part, and Justice Thomas dissenting based on the view that the Federal Arbitration Act does not apply to state proceedings), the court re-affirmed its 40-year-old decision in Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395 (1967). It should be noted that, while the FAA only applies to contracts involving “interstate commerce,” it is hard to imagine a construction contract that would not do so, if for no other reason than the multiple sources of construction materials.
Buckeye appears to confirm John B. Goodman, Ltd. v. THF Construction, 321 F.3d 1094 (11th Cir. 2003), which held that, under Florida’s “separability” doctrine, a contract arbitration clause requires the arbitration panel (whether FAC or FAA) to determine the contract validity, rather than the courts, whether the Florida Arbitration Code or the Federal Arbitration Act applies.
Several courts have also addressed the “retroactive application” of the 2000 statutory amendment eliminating a contractor’s right to “cure.” In The Palms v. Magil Construction of Florida, Inc., 785 So. 2d 597 (Fla. 3d DCA 2001), the court held that the 2000 amendment to §489.128 removing the “cure” provision did not apply to a suit pending on the July 1, 2000, effective date, because any retroactive application thereof would affect the contractor’s substantive rights. In this particular case, the lack of license resulting from an agency processing error or payment of insufficient fees now seems to have been addressed in the 2006 amendments.
In Michnal v. Palm Coast Dev., 842 So. 2d 927 (Fla. 4th DCA 2003), an unlicensed contractor’s lien and breach of contract judgments against an owner were upheld (with a remitter of the damages to the amount of the recorded claim of lien) where the contractor “salvaged” its license prior to filing the lien on October 17, 1997. In this case, the contract was signed on December 4, 1996, after the contractor’s qualifying agent had resigned, but a new qualifier was approved in September 1997. As in Palms, the court observed that any retroactive application of the statutory right to “cure” would constitute a change in substantive law.
The Michnal case also contains several unique implications for the lien law 1) it “ties” the pre-2000 right to cure of §489.128 to the enforcement of lien rights under §713.02(7); and 2) the contractor’s act of sending a fax to the owner proposing to resolve a dispute regarding the type of flooring trusses to be used was deemed to be “final furnishing” for the purpose of determining that the lien was timely filed.
Mivan v. Metric Constructors, 857 So. 2d 901 (Fla. 5th DCA 2003), overturned a summary judgment in favor of a contractor in a lien foreclosure brought by an unlicensed subcontractor, based on the existence of a “genuine issue of material fact” regarding the subcontractor’s “cure” of its licensure status. The subcontractor was not licensed when the subcontract was signed on May 16, 1997, but obtained a license later that year. The court held that the 2000 deletion of this right to cure was not intended to apply retroactively, and that any such retroactivity could affect substantive rights. Interestingly, this court took notice of the 2003 amendments, but offered no opinion regarding the retroactive application thereof (as was later upheld in Promontory).
Finally, with regard to the “cure” provision, R.A.M. of South Florida v. WCI Communities, 869 So. 2d 1210 (Fla. 2d DCA 2004), held that the 2000 amendment removed the ability of an unlicensed contractor to “cure” its licensure status after the effective date on July 1, 2000. In this case, the contract was signed by an unlicensed contractor on May 10, 2000, but a license was not obtained until October 25, 2002, well after the effective date. As such, the ability to “cure” was eliminated after the effective date. As an aside, Judge Canady’s opinion in this case predates the Buckeye case which now requires the validity of a contract containing an arbitration clause to be determined by the arbitrator rather than by the court.
The “retroactivity” of the 2003 amendments to §489.128 have also been addressed in Promontory v. Southern Engineering, 864 So. 2d 479 (Fla. 5th DCA 2004). There, the retroactive application of the 2003 amendments was upheld, because it met the standards for 1) clear expression of intent and 2) lack of adverse impact on substantive rights.
While the retroactivity of the 2006 amendments has not yet been adjudicated in any reported case decision, it should be noted that the same retroactive language was used in that bill as was used in the 2003 changes.
With regard to construction liens under Ch. 713, Part I, RTM General Construction v. G/W Riverwalk, 893 So. 2d 583 (Fla. 2d DCA 2005), upheld summary judgment finding a lien to be fraudulent because the contractor aided and abetted an unlicensed contractor.
Loss of Lien or Bond Rights: F.S. §713.02(7)
Effective October 1, 1988, F.S. §713.02, was amended to add subsection (7). As originally created, this subsection simply provided that “no lien shall exist in favor of any contractor … unless such contractor … is licensed as a contractor pursuant to the laws of the jurisdiction within which he is doing business.” This subsection was subsequently amended in 2003, to specifically “tie” it to Ch. 489. Finally, in 2005, it was amended into its current form to add protection of lien and bond rights of “other parties” (such as downstream lienors), and to remove any defense of a surety that a bonded contractor was unlicensed.
Treble Damages: §768.0425
Triple damages are provided by statute for “injuries sustained resulting from the contractor’s negligence, malfeasance, or misfeasance,” as well as for costs and attorneys’ fees, if the contractor is neither state certified nor licensed by the city or county where the business is being conducted.
In Hancock-Gannon Joint Venture II v. McNully, 800 So. 2d 294 (Fla. 3d DCA 2001), the court not only denied a subcontractor’s contract enforcement action based on §489.128 (because his local roofing license, temporarily granted by Dade County in the aftermath of Hurricane Andrew, had expired), but also rejected the roofer’s argument that §768.0425 should not apply because the damages were not “personal.”
Cause of Action for Code Violations: F.S. §553.84.
Another statutory cause of action is provided against any person or party who commits violations of the Florida Building Code. This section does not refer specifically to a person’s licensure status, so it might also apply to unlicensed contractors.
There is an exception in this statute where a permit is obtained and building inspections have passed, but that exception “does not apply unless the person…knew or should have known that the violation existed.” Arguably, an unlicensed person may not know that a violation existed (assuming that an unlicensed contractor is able to obtain a license), but a licensed contractor may have a difficult time denying such knowledge in light of the inclusion of building code information on the licensure examination.
Interestingly, the statutory requirement that there be “no personal injury or damage to property other than the property” that is the subject of the code violations, was found in Comptech Intern, Inc. v. Milam Commerce Park, Ltd., 753 So. 2d 1219 (Fla. 1999), not to bar claims under the economic loss rule because of the provision “notwithstanding any other civil remedies available….” Finally, Hancock also found that §553.84 gives the owner a statutory cause of action.
Pursuant to F.S. §§455.228 and 489.13, DBPR has the statutory authority to prosecute for “unlicensed activities,” including cease and desist orders, citation, injunctions, and administrative fines up to $10,000. In addition, pursuant to §489.127(1)(f), the CILB also has authority to prosecute an administrative action against a licensee who “aids and abets” unlicensed activities.
There are several criminal penalties that may be imposed for unlicensed construction activities under F.S. §§775.082 or 775.083. These criminal sanctions are not exclusive and may be imposed in addition to the administrative remedies.
For example, pursuant to §489.127(2), any violation of the grounds for disciplinary action under subsection (1), which includes advertising the availability to engage in the business or act in the capacity of a contractor without being duly registered or certified or having a certificate of authority, is punishable as a misdemeanor of the first degree.
In addition, any unlicensed person who commits a violation of subsection (1) after having been previously found guilty of such violation commits a felony of the third degree, and any unlicensed person who commits a violation of subsection (1) during the existence of a state of emergency declared by executive order of the governor commits a felony of the third degree.
Finally, any person who operates as a pollutant storage systems contractor, precision tank tester, or internal pollutant storage tank lining applicator in violation of subsection (1) commits a felony of the third degree.
Possible Action for “Disgorgement”
While there are no reported cases in the area of construction contracting involving an action for disgorgement of all funds paid to an unlicensed contractor, there are several reported cases in other areas where judgments for repayment of fees for unlicensed services have been allowed.
In Cooper v. Paris, 413 So. 2d 772 (Fla. 1st DCA 1982), the trial court’s denial of restitution of real estate brokers’ fees paid to a broker licensed only in Georgia in connection with the sale and purchase of Florida property was reversed. While referencing F.S. Ch. 475, regulating realtors, the rationale for this ruling would seem to fit the spirit and intent of §489.128. Interestingly, the broker’s argument that the owner knew he was not licensed in Florida was rejected.
The Cooper opinion cites Williston on Contracts §1765, p. 247: “The broad basis for the doctrine that contracts of certain unlicensed persons are unenforceable is that the courts should not lend their aid to the enforcement of contracts where performance would tend to deprive the public of the benefits of a regulatory structure.”
More recently, in Vista Designs v. Silverman, 774 So. 2d 884 (Fla. 4th DCA 2001), the court ordered reimbursement of attorneys’ fees paid to a lawyer who contracted for services in Florida but was only licensed in another state was affirmed. While citing Cooper as supporting case law, the court distinguished it from Bedell v. Marshall, 508 So. 2d 574 (Fla. 4th DCA 1987), on which the trial court had relied. In Bedell, disgorgement of a real estate commission paid to an unlicensed agent was affirmed, but the case remanded as to other amounts that had been included in the jury award that were not invalid.
Cause of Action for Unfair Trade Practice: F.S. §501.204
Chapter 501, known as The Florida Deceptive and Unfair Trade Practices Act (FDUTPA), is frequently referred to as Florida’s “little FTC act.” Section 501.204(1) provides: “Unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.”
In addition to the various statutory actions that can be initiated by state attorneys and the Office of Attorney General, such as civil penalties and cease and desist orders, §501.211(1) also creates a private cause of action for activities that are unlawful under this act “without regard to any other remedy or relief” for “anyone aggrieved,” thorough the use of a Declaratory Judgment, and subsection (2) allows for the recovery of actual damages, plus attorneys’ fees and costs.
In Anden v. Litinsky, 472 So. 2d 825 (Fla. 4th DCA 1985), the owners’ judgment against an unlicensed contractor for damages arising out of defective construction and brought pursuant to F.S. §501.204 was affirmed. In fact, this section was used to impose personal liability on the individual corporate officer, notwithstanding that the construction contract was entered into solely with the corporation. Citing Rollins, Inc. v. Heller, 454 So. 2d 580 (Fla. 3d DCA 1984), the court found that there was no need to “pierce the corporate veil” in order to impose such personal liability.
Section 501.2105 provides for the award of attorneys’ fees and costs to a “prevailing party,” so the use of this particular remedy may also be considered in those instances where the underlying contract does not otherwise provide for the recovery of fees. Of course, as with any such instance, the client should always be advised of the exposure to potential liability for payment of fees incurred by the other party as well.
Except for F.A.C. Rule 2-18.002, regarding the disclosure of the buyer’s three-day right to cancel “contracts for consumer services to be rendered in the future on a continuing basis,” all the administrative rules that had been previously promulgated pursuant to FDUTPA were repealed in 1997 for the stated reason that it was not possible or necessary to codify all the practices that might be considered violations of the act.
Finally, under an earlier regulatory environment, CILB has also successfully used §501.204 to suspend the license of a contractor who deviated materially from construction plans without the purchaser’s consent.
The area of “unlicensed” construction activities has continued to generate much public debate and policy enactments. What began in 1988 with the creation of F.S. §713.02(7) and in 1990 with the creation of F.S. §§489.128 and 489.532 has become increasingly complex. The extensive case law that is developing in this area exemplifies the serious nature of the consequences arising from activities that are determined to have been performed on an unlicensed basis, and will likely lead to increased litigation in breach of contract, lien foreclosure, and bond enforcement actions as more legal practitioners become aware of the severe and multiple impacts these laws can have.
The future uses of a §489.128 defense to payment may be decided based on the courts’ determination of such issues as: 1) Does the owner or contractor have a duty to determine the license status of a party with whom they contract?; 2) Will actual knowledge of lack of licensure status act as an estoppel?; or, (3) Can a misnomer in the contracting party’s name be attributable solely to an “unregistered fictitious name?”
Public policy makers may respond unfavorably with further statutory changes to any attempts to undermine the consumer protection intended by the current laws requiring licensure and punishing those who are not properly licensed as required by law.
1 Construction Industry Licensing Board (Ch. 489, Part I), Electrical Contracting Licensing Board (Ch. 489, Part II), Building Code Administrators and Inspectors Board (Ch. 468, Part XII), Board of Professional Engineers (Ch. 471), and Board of Architecture and Interior Design (Ch. 481).
Since construction licenses, like Bar memberships, are limited to individuals only, if the contracting entity is not an individual, such as a corporation or limited liability company, that contracting entity must have a qualified business number; there is statutory reference to such an entity having a “certificate of authority,” however, no such document is issued by DBPR, which is the reason one of the 2003 amendments still remains in F.S. §489.128, as described further herein.
There is no comparable section in either Ch. 471 (engineers) or Ch. 481 (architects). In fact, as to “unlicensed” architectural services, compare the potential conflict between District Board of Trustees v. Morgan, 890 So. 2d 1155 (Fla. 5th D.C.A. 2005), in which the lack of a certificate of authority was found to render the contract only “voidable” (based on the owner’s knowledge about the lack of proper licensing and acceptance of the work), and O’Kon & Company v. Riedel, 588 So. 2d 1025 (Fla. 1st D.C.A. 1991), in which a similar contract was founded to be void (and precluded a lien for professional services).
F.A.C. Rules 61G4-15.015, 15.017, 15.018 and 15.032.
Increased from $25,000 effective July 1, 2006, by Ch. 2006-283, Laws of Florida.
Ch. 90-228, Laws of Florida.
See §17, Ch. 93-166, Laws of Florida
See §35, Ch. 2000-372, Laws of Florida.
See §1, Ch. 2003-257, Laws of Florida, §9 of which contains the retroactive provisions that have been upheld in Promontory v. Southern Engineering, 864 So. 2d 479 (Fla. 5th D.C.A. 2004), by way of what appears to be dictum.
See §§2 and 8, Ch. 2006-154, Laws of Florida, §9 of which contains the retroactive provisions.
This issue arose as a direct result of a partial summary judgment entered on February 15, 2005, by Circuit Judge Nancy F. Alley in CRT Construction v. Dean, Case No. 03-CA-2267-15-L (Seminole County), in which the court found against the contractor, but pointed out that the result was “unfair and regrettable.”
This change, too, was based on a pending case, which is the reason the bill contains a “remedial and clarifying” clause identical to the one used in the 2003 changes to this section that were upheld and applied retroactively in Promontory Enterprises v. Southern Engineering, 864 So. 2d 479 (Fla. 5th D.C.A. 2004).
The parties disagreed as to the owner’s knowledge of the contractor’s licensing status at the time of contract.
The 2003 amendments recognized that a document titled “certificate of authority” did not even exist within the department, notwithstanding numerous statutory references to such a document.
The results of a similar case today would likely be different based on the 2005 amendments to Fla. Stat. §713.02(7), which appear to take away the surety’s defense that the bonded contractor was unlicensed under §489.128.
This case appears to overrule many prior state cases to the contrary, such as: Vacation Beach, 906 So. 2d 374 (Fla. 5th D.C.A. 2005); Island Club, 864 So. 2d 1191 (Fla. 5th D.C.A. 2004); Rewards Hotel, 860 So. 2d 1011 (Fla. 3d D.C.A. 2003); and Island House, 686 So. 2d 1377 (Fla. 1st D.C.A. 1997).
Cardegna v. Buckeye Check Cashing, Inc., 894 So. 2d 860 (Fla. 2005), reviewed on remand,930 So. 2d 610 (Fla. 2005).
While this case was decided under the FAA (9 U.S.C. §§1-16), the majority found that the same result would apply to state courts as well.
See §15, Ch. 88-310, Laws of Florida, which was S.B. 370 sponsored by this author.
See §3, Ch. 2003-257, Laws of Florida.
See §6, Ch. 2005-227, Laws of Florida, effective October 1, 2005. This removal of the surety’s defense that a bonded contractor was unlicensed may have the effect of overriding Judge Warner’s opinion in Scott & Son Engineering v. Tarafa Construction, 907 So. 2d 553 (Fla. 4th D.C.A. 2005), reported after the 2005 legislative session, in which an unlicensed subcontractor on a public works project was barred from suing on the general contractor’s performance bond; however, this decision, dated June 22, 2005, does not reference this latest amendment to §713.02(7), which had been passed by the legislature on May 5, 2005, and signed by the governor on June 14, 2005.
Generally, since a violation of law resulting in the type of damages that law was intended to prevent may be “negligence per se,” this author is not sure what purpose this section serves. Its drafter, believes he was preventing code violation claims against contractors, but it appears that the last phrase (“knew or should have known”) destroys any such protection.
With the exception of professional engineers, regulated through a private entity known as the Florida Engineers Management Corporation pursuant to Fla. Stat. §471.038(5), and architects, regulated pursuant to Fla. Stat. §481.205(3)(a), none of the construction-related boards have the power to prosecute for “unlicensed activities.”
24 Swebilius v. Florida Construction Industry Licensing Board, 365 So. 2d. 1069 (Fla. 1st D.C.A. 1979).
Frederick R. Dudley is a senior counsel in the Tallahassee office of Holland & Knight. He is a fellow of The American College of Trust and Estate Counsel, board certified by The Florida Bar in construction law, secretary of the Construction Law Committee, and chair of the Construction Law Certification Review Course. Mr. Dudley served in the Florida House of Representatives from 1982-1986, and in the Florida Senate from 1986-1998.
This column is submitted on behalf of the Real Property, Probate and Trust Law Section, Melissa Murphy, chair, and Richard R. Gans and William P. Sklar, editors.