Example of Court Annexed Arbitration Opinion: Ten

 This case is a good example of what is wrong with ORS 701.131 as presently worded and the legislature’s withdrawal of court discretion to ameliorate the harshness of the statute.

 The court annexed arbitration in the above captioned matter came on for hearing before me in March 200Z.  Plaintiff Subcontractor appeared personally, and with his lawyer.  Subcontractor called as witnesses the principal of his rock supplier, Mr. Rock, and Mr. X, formerly involved with this project for Public Agency.  Defendant GC appeared through its lawyer, and with its witnesses Mr. GC President and Mr. GC Project Manager, its former vice president and project manager for this project.

 GC was the general contractor to Public Agency for the project.  The project involved among other things placement of boulders to stabilize embankments, as walls, as ‘focal’ points, and as it developed, other stone work, for instance the construction of a plinth and placement of rock to improve drainage.  Subcontractor was referred to GC.  GC called Subcontractor and after interviewing him, hired him as the stonemason subcontractor.  A form of subcontract was entered into. Regardless of whether Subcontractor read or understood the contract, it bound both parties.

 There was no question raised as to Subcontractor’s competency as a tradesperson.  It is clear that Subcontractor’s ability to manage the paperwork required on a paper intensive public works project was deficient.  Mr. GC Project Manager testified that he shepherded Subcontractor through the paperwork and Mr. GC President said GC treated Subcontractor differently from other subcontractors when it came to time for submission of draw requests and payment.  I would say GC did that out of reasonable self interest.

 Subcontractor brings two claims for relief, first for breach of contract, for all amounts alleged to be due, and second, for breach of contract but only for that work done while he was a licensed contractor.   As amended, Subcontractor claims retainage of $9,478.98, and for extra work of $32,842.70; the extra work broken down as follows:

- Mortar wall, $1,862.40
- A truckload of rock, $2,716.80
- 50 tons of boulders, $15,763.50, and
- Labor to install the boulders, $12,500.

 GC asserted some defenses that it did not pursue at the hearing (improper CCB license endorsement, comparative fault of Subcontractor or others, statute of limitations, failure to mitigate damages), but as a practical matter, defends as follows:

- Subcontractor has not proved entitlement to or the amount of all of his damages
- Subcontractor is not the real party in interest for some of his claims
- Subcontractor is not entitled to recover at all because not properly CCB licensed during part of the time he performed work

I will consider the licensing issues later.

Quantum and entitlement

 I reject the unpleaded defense that Rock Supplier’s refusal to sign a release authorizes withholding payment from Subcontractor, after the time for filing a bond claim expired, Hall Contracting v. Entergy Services, 309 F3d 648 (8th Cir 2002).

 The retainage

 The parties stipulate to entitlement and quantum on this issue, $9,478.98, subject to the licensing issue.

 The $1862.50 for work on a wall

 In respect of the $1,862.50 claim for additional work, Subcontractor testified that he did the work at GC’s request, that it was extra, that it had a value of $1,862.50.  That testimony was uncontradicted.   Subcontractor submitted an invoice on 8/29/200X.   It is clear that GC received the invoice.  It is also clear that GC submitted the claim to Public Agency, Exhibit 2, page 1.  There is no evidence either way that Public Agency did or did not pay the claim, and evidence of that type was never created because Public Agency and GC ultimately entered into a global settlement.

 To the extent that GC argued at the hearing that the claim was not approved by Public Agency or that GC did not get paid for this work, this is an indirect assertion of a pay-if-paid defense under sections 4.2 and 4.7 of the contract.  Such provisions are narrowly construed in Oregon, Mignot v. Parkhill.  They are clearly conditions precedent and as such need to be pleaded as an affirmative defense, ORCP 20, and were not.  Under section 8.10 of the contract, Subcontractor would have been bound by a decision between Public Agency and GC as to whether the work was extra, or not, but there was never any such decision because Public Agency and GC resolved their dispute after a mediation

 Subject to my consideration of licensing issues below, I find in favor of Subcontractor on this issue.

 A truckload of rock

 Subcontractor contends that he supplied a truck load of rock from Rock Supplier, and that the price was $2,716.80.  There is no invoice from Subcontractor.  I credit Subcontractor’s testimony that he does not have a copy of the invoice, and there is no suggestion of spoliation.  The burden of proof is on a party to provide evidence in support of its claims, and it is not helpful when there is a lack of documentary evidence when there normally would be some.  However, there was no testimony to contradict Subcontractor, and Exhibit 3 appears to be GC’s submission to Public Agency of a claim for this rock.  One would not expect GC to make such a claim absent a belief that the claim was accurate.

 The claim to Public Agency is dated December 7, 200X, and highly probable that this rock was delivered prior to December 5, 200X.  I so find.
 As far as quantum and entitlement go, I find in favor of Subcontractor, subject to the licensing issue.

 Fifty tons of boulders

 Subcontractor claims $15.763.50 for the cost of boulders placed on an embankment below a path.  The testimony is this occurred in the fall of 200X.  Again, there is no invoice from Subcontractor but there was no testimony to contradict Subcontractor and GC sponsored this claim to Public Agency, Exhibit 7.  I find in favor of Subcontractor, subject to the licensing issue.

 Labor to install the boulders

 Subcontractor installed the boulders.  He says that the price or reasonable value was $12,500.  He says half of the money actually should go to his partner.  Subcontractor says he was a partner of Mr. Partner.  Mr. Partner was mentioned on the certificate of insurance.  If Mr. Partner is Subcontractor’s partner, then Mr. Partner should be a plaintiff.  There are real party in interest questions and a host of other questions, including other licensing problems, that are raised if Mr. Partner is a partner of Subcontractor.  This case is dealt with best if Subcontractor is compelled to be the sole proprietor that he claimed to be when he signed the contract with GC and obtained his CCB license, and essentially asserts when bringing this action on his own.  GC is under no risk of a direct claim from Mr. Partner.

 I have no doubt that the installation of the boulders had some value, but there is no evidence before me of any written submission by Subcontractor, short of this lawsuit, seeking this compensation.  Paragraphs 4.1 and 4.2 of the contract required formal progress and final payment applications, and paragraph 11.2 required notice of claims.  Compliance with those provisions is material, and non compliance is prejudicial, to a general contractor on any project and particularly on a public project, because it precludes the general contractor from submitting claims for extras to the public agency.  In this case, it appears that at least in some cases, GC was willing to submit Subcontractor’s claims to Public Agency.

 While it may be that submission Public Agency would not have resulted in payment to GC, the lack of any documentary evidence in support of this claim has the consequence that the claim is not proved by a preponderance of the evidence, either as to entitlement or quantum.


 First, I conclude that recovery the delivery of the load of rock is not precluded by Parthenon Construction v. Newman.  Parthenon acknowledges that ‘work’ involves ‘services’, whereas the rock supplied by Subcontractor was simply material, as to which Rock Supplier provided delivery.  While Parthenon rejects a ‘patchwork, pick-and-choose’ approach to services, it does not preclude separation of services from other elements especially where the parties themselves treated the elements separately.

 Second, by any approach, some of Subcontractor’s work required licensing.  The materials in the plinth are held together by mortar, not gravity, and the mason work involved in building a mortared wall or plinth requires licensing.  Probably all of it required licensing; all I am saying here is that under any analysis, some of it required licensing.

 Most of Subcontractor’s work was prior to December 5, 200X.  His license was suspended on that date.  A suspended license is not ‘valid,’ even though not yet expired.  ORS 701.063.  The reason for the suspension was failure to pay a construction debt, not lack of a bond or insurance.  In fact, Exhibit 112 shows that Subcontractor had insurance until March 13, 200Y.

 GC was not harmed due to Subcontractor’s suspension, because there were no claims against GC that Subcontractor’s bond would have protected against, and Subcontractor had insurance while he was on the job.  GC might have been precluded from bringing a claim in the CCB arising from Subcontractor’s performance after he was suspended, but no such claim was brought.

 As I understood the evidence, as of December 5, 200X, Subcontractor was entitled to recover $9,478.98 as retainage or otherwise agreed amounts, subject only to expiration of the time for claims, receipt of payment from by GC from Public Agency, and compliance with paperwork obligations.  Had Subcontractor done no more work, he would have received that amount of money.  There would have been no violation of ORS 701.131(1).

 As mentioned above, Subcontractor’s license was suspended for unpaid construction debt.  I am familiar enough with the CCB procedures to know that Subcontractor must have or should have had notice that a suspension was in the works.  Whether he knew that the license would be suspended as of that day, there was no evidence.  There is no statute affecting this case stating that knowledge is a factor.

 The moment that Subcontractor worked after December 5, 200X, he put his $9,478.98 in jeopardy.  Under prior versions of ORS 701.131, previously codified as ORS 701.065, a court could choose not to apply the statute if it created a substantial injustice, but in  Coe v. McElligott, 86 Or App 272, 739 P2d 57 (1987), the Court of Appeals said that just because an owner (there,  a general contractor) would get work for free was not a sufficient injustice to avoid the application of the statute.

 The already harsh ‘substantial injustice’ exception to ORS 705.065(1) rule was narrowed even further when the ORS 701.131 exceptions were created, and the ‘substantial injustice’ language only remains at ORS 701.131(2)(a)( C).  It does not even exist for the other exceptions, as to which the legislature does not care about justice at all.  Parthenon Construction v. Neuman is simply an application of statute and an extension of Coe.

 What Subcontractor needed to do when GC asked him to do more work after December 5, 200X was to respond: “I lost my CCB license, and while I want to help you and finish the job, you have to put me on payroll at Little Davis Bacon rates for this work.  Otherwise I put my retainage for my earlier work in jeopardy.”  Probably GC would have done it - what practical choice would they have?  But, Subcontractor didn’t do that.  Instead, he worked.

 On December 8, 200X, there is no doubt Subcontractor was working, Exhibit 6: “3 men installed additional rocks . . . where there is no hand trail to create a curb.”  Subcontractor specifically testified that the last time he was on site working was in January 200Y.  Punch list work is work covered by ORS chapter 701.

 According to a file note attributed to an employee of Rock Supplier, that employee had a conversation with Mr. GC Project Manager on January 15, 200Y, in which Mr. GC Project Manager stated that ‘payment owed Subcontractor was Appx $34,000.”  Mr. GC Project Manager was a vice president of GC and project manager.  However, in spite of that I do not find that Mr. GC Project Manager’s statement would be deemed an agreement that a particular amount was owed, nor a concession that there were no defenses to payment, especially defenses that he did not even know about.  Certainly GC has a right in a capitalist economy to assert legal non-frivolous defenses to payment.  The ORS 701.131 defense, however harsh it may be, is not frivolous, and the probability that Mr. GC Project Manager would know about Subcontractor’s CCB license suspension is low.  Certainly there was no evidence that Mr. GC Project Manager knew.

 I made it clear to the parties that I think ORS 701.131(1) is unconstitutional as applied to a common law breach of contract claim (not as to lien claims, arbitration, hearing in the CCB, attorney fees, statutory interest and statutory costs, all of which are statutory and not affected by Smothers).  In a previous letter to the parties, I said that I think Roelle v. Griffin (and therefore, ORS 701.131) does not survive Smothers v. Gresham Transfer.  However, unconstitutionality must be pleaded as an affirmative defense, ORCP 19B.   Nor does a judge have the right to consider constitutionality on a sua sponte basis.  My opinion has not been tested by the parties and absent a contention of unconstitutionality I will simply presume for purposes of this case that the statute is constitutional.

 ORS 701.131 is harsh, Coe v. McElligott, 86 Or App 272, 739 P2d 57 (1987); Parthenon Construction.  However, even if constitutional, as a limitation on common law remedies, it must be narrowly construed, Wills v. Harris, 57 Or App 712, 715, 646 P2d 39 (1982); Edwards v. Perry, 130 Or App 165, 168, 646 P2d 39 (1982), and by parity of reasoning, the exemptions of ORS 701.010 must be broadly construed.

 Furthermore, the Court of Appeals has held that simply because a person is a contractor, failure to license does not preclude the contractor from bringing actions other than those for compensation for work which requires a license, Wills v. Harris, 57 Or App 712, 646 P2d 29 (1982) (foreclosure of a trust deed); MacLean & Associates v. American Guaranty Life, 85 Or App 284, 736 P3d 586 (1989) (franchise agreement).

 That is why I concluded that payment for the truckload of stone is not barred by ORS 701.131.  The stone can be treated separately and fairly falls within ORS 701.010(3) if construed favorably to Subcontractor.

 In Parthenon Construction , all of the contractor’s work required licensing and the contractor had two licensing lapses totaling seven weeks during the work, both for lack of insurance.  ORS 701.065 at that time contained the ‘substantial injustice’ exception.

 The Court of Appeals rejected the contractor’s argument that the statute should not be applied because it led to an inequitable result, rejected the contractor’s substantial compliance argument on the facts [thus leaving for another day the question of whether a substantial compliance argument would be available on less egregious facts], and rejected the contractor’s argument that it should be able to recover for work done while it was licensed even if it could not recover for work done when it was not licensed.  The Court of Appeals rejected the contractor’s contention that it should not apply the statute because is ‘draconian.’  Parthenon Construction is not without criticism, and it was at least distinguished in Splinters, Inc. v. Andersen/Weitz, 192 Or App 632, 87 P3d 689 (2004).  However, Parthenon Construction is the law and as a court annexed arbitration arbitrator I am required to follow it if it applies.

 In this case, there are potentially two ways ‘around’ ORS 701.131(1), being ORS 701.010(a) and (3) and ORS 701.131(2).
 ORS 701.131 does not apply

 I conclude that Subcontractor does not satisfy any of the safe harbors of ORS 701.131(2).  The only one that is remotely close is ORS 701.131(2)( c), but ORS 701.131(2)( c)(B) is not satisfied because one cannot include the concept of compensation within the concept of  performance, in the face of their clearly separate meanings in the first sentence of ORS 701.131(1).

 Therefore, I must consider ORS 701.010(1) and (3).

 ORS 701.010(1) does not apply

 ORS 701.010(1) exempts from licensure ‘a person who is constructing, altering, improving or repairing personal property.’

 Suppose you ask a painter to refinish your kitchen.  If the work is on a table as furniture, the exemption applies.  If the work is on a built-in, the exemption does not.  Suppose you ask a cabinet maker to build cabinets for your kitchen.  If you pick them up at the cabinet shop, and install them yourself or someone other than the cabinet maker installs them, the cabinet maker is exempt.  Whoever installs them, besides you, is not.  If the cabinet maker subcontracts installation, neither is exempt under this subsection.

 In commercial construction of steel buildings, the steel is fabricated off site, usually by a subcontractor to the fabricator.  It is installed on site.  The fabricator is exempt from licensing under ORS 701.010(1), unless the fabricator makes corrections on site after the steel is integrated into the constructed building, in which case the fabricator now must be licensed.

 The boulders, drainage pipe, and crushed rock were personal property before being installed, but Subcontractor was not constructing boulders, etc.  If Subcontractor crushed the rock off site, or even on site, and that was all, he would have been exempt under ORS 701.010(1).

 However, he was constructing walls, a plinth, a drainage area.  Contractors construct houses from personal property, but the outcome is real property.   So here.  ORS 701.010(1) does not apply.

 Nor does it bring the case under ORS 701.010(1) if some of the rocks could be removed with ease, or were only held down by gravity.  The pyramids are only held together by gravity but no one would contend that they are personal property.  No one at the Public Agency contemplated that any of the items that Subcontractor installed would ever be moved, at least on any kind of a regular basis, and most of the items would require heavy construction equipment to move.

 ORS 701.010(3) does not apply

 ORS 701.010(3) exempts from licensure ‘a person who furnishes materials, supplies, equipment or finished product and does not fabricate them into, or consume them, in the performance of the work of a contractor.’

 This is a material supplier exemption.  Subcontractor supplied materials.   However, many trade contractors supply their own materials and they are clearly not exempt from licensing as long as they supply labor too. Subcontractor was not a pure material supplier.

 That does not end the inquiry, because the statutory language is more reticulated.  The statute exempts a person who supplies materials, but who ‘does not fabricate [those materials] into the work of A [emphasis supplied] contractor.’  It also exempts a person who supplies materials but who ‘does not . . . consume them, in the performance of the work of a contractor.’

 First, I think the comma after the word ‘them’ is misplaced and meaningless at that location.  It should be after the word ‘of,’ that is:  ‘a person who furnishes materials, supplies, equipment or finished product and does not fabricate them into, or consume them in the performance of, the work of a contractor.’

 Second, Subcontractor did not consume any of the materials in question.   I’m not sure what this phrase is aimed at, but it does not apply to Subcontractor.

 This brings us to the first phrase.  The question is: Did Subcontractor fabricate the materials he supplied into the work of a contractor?  Webster’s defines ‘fabricate’ as construct or build.  Although Subcontractor did more, let’s assume for the moment that all he did was set the rocks into holes.  Nevertheless, that was both the work of WCC, and Subcontractor’s work.

 I think it facile to contend that construction of drainage areas such as those involved here, or walls laid up without mortar, is not fabrication.  As contemplated by the legislature, and by almost everybody, the licensing requirement is the same whether the wall is dry laid, or whether it is mortared.  If all we had is a dry laid wall (as in a New England stone wall) where the stones could be removed and reused without much effort, we might have a closer question, but here, but we have such things as a drainage area, where drain pipe, geotextile fabric, and rock were laid.  Even if the largest rocks could be removed, the geotextile fabric and drain pipe are fundamentally not reusable.

 If one assumes that the installation of any personal property that is reusable attracts the exemption of ORS 701.010(3), that means that almost all structures except those tied to bed rock would not require registration, because their elements were all personal property at one time, buildings can and are deconstructed and removed, fill can be removed, and fill and everything on top of fill remains there due in part and in degree to the force of gravity and friction.

 ORS 701.010(3) does not apply except to the load of rock.


 I have previously opined that an ‘unlicensed contractor’ is an employee as a matter of law, and would be exempt from licensing under ORS 701.010(10), but that argument was not addressed to me, though I did mention in a letter to the parties that I think ORS 701.131 has to be considered in light of ORS 670.600.


 Subcontractor requested pre-judgment interest at paragraph 6 of his complaint.

 My award will be in favor of Subcontractor, for $2,716.80, with interest at 9% including pre-judgment interest from February 28, 200Y, and including costs being the filing fee, expense of service, arbitrator’s fee and prevailing fee.