Most are familiar with California’s harsh penalty for unlicensed contractor work. California Business and Professions Code Section 7031 (Section 7031) bars any recovery for compensation for work performed by an unlicensed contractor under any theory of recovery “regardless of the merits of the cause of action.” Cal. Bus. and Prof. Code § 7031(a).

Contractors who perform work in California without being properly licensed are subject to a world of hurt, including civil and criminal penalties (see, e.g., Cal. Bus. & Prof. Code §§7028, 7028.6, 7028.7, 7117, and Cal. Labor Code §§1020-1022), and the inability to maintain a lawsuit to recover compensation for their work. Cal. Bus & Prof. Code §7031(a); Hydra Tech Systems Ltd. v. Oasis Water Park, 52 Cal.3rd 988 (1991).But arguably the worst ramification of not being property licensed is that established in Business & Professions Code Section 7031(b), which provides that any person who uses the services of an unlicensed contractor may bring an action for the return of all compensation paid for the performance of the work, commonly known as “disgorgement.”

According to a lawsuit by Panterra GP, a building owner intended to contract with Panterra GP to renovate a movie theater in Bakersfield, Calif., but mistakenly listed Panterra Development as the contracting entity.The Panterra entities did not notice the mistake and signed the contract.Panterra GP subsequently completed the work, but the owner refused to pay over $2.6 million owed on the contract.Panterra Development then recorded a mechanic's lien, following which Panterra GP filed a lawsuit seeking to reform the contract so that Panterra GP was the contracting party and able to obtain compensation for the unpaid work.The trial court sustained the owner's demurrer to the lawsuit and Panterra GP appealed.On appeal, the building owner primarily relied on CA BUS & PROF 7031(a), which generally bars lawsuits by unlicensed contractors to obtain payment for work that required a license to perform.In a 2-1 decision, the Court of Appeal rejected that argument.

Similar California statutes apply to other licensed professions. See, e.g., Cal. Bus. & Prof. Code § 7031 (contractors), § 7592.5 (alarm companies), and 10508 (mineral, oil and gas brokers). The same bar applies to persons engaged in any business or profession for which a license is required under the Business & Professions Code governing the Department of Consumer Affairs or any board, bureau, commission, committee, or program within that Department. Cal. Bus. & Prof. Code § 143.

Similar California statutes apply to other licensed professions. See, e.g., Cal. Bus. & Prof. Code § 7031 (contractors), § 7592.5 (alarm companies), and 10508 (mineral, oil and gas brokers). The same bar applies to persons engaged in any business or profession for which a license is required under the Business & Professions Code governing the Department of Consumer Affairs or any board, bureau, commission, committee, or program within that Department. Cal. Bus. & Prof. Code § 143.