Not properly licensed? Then you are not entitled to payment. Or are you? Despite strong statutory language, the Nevada Supreme Court continues to allow unlicensed contractors to be paid in certain circumstances.
The primary purpose of Nevada’s licensing statutes is to protect the public against both faulty construction and financial irresponsibility. MGM Grand Hotel, Inc. v. Imperial Glass Co., 533 F.2d 486, 489 (9th Cir.1976). Licensing statutes allow Nevada to “exercis[e] its regulatory power over [contractors‘] operations and effectuat[e] its consumer protection goals.” Interstate Commercial Bldg. Servs., Inc. v. Bank of Am. Nat’l Tr. & Sav. Ass’n, 23 F.Supp.2d 1166, 1173 (D.Nev.1998) (citing NRS 624.260(1) (1997). Thus, to protect consumers, NRS 624.320 serves as an absolute bar on the recovery of contract claims brought by unlicensed contractors or contractors not properly licensed for the duration of work requiring such a license. See Magill v. Lewis, 74 Nev. 381, 384, 387, 333 P.2d 717, 718–19, 720 (1958) (recognizing that NRS 624.320 essentially nullifies contracts with unlicensed contractors). Further, under NRS 108.222(2), unlicensed contractors are also unable to obtain an enforceable lien against the subject property.
Despite not being licensed, the Nevada Supreme Court continues to allow unlicensed contractors to recover in two basic situations – fairness i.e. equity, and substantial compliance with the licensing laws. This is contrary to neighboring states where the failure to have a license constitutes a complete bar to payment. Further legislative action should be taken to eliminate these loopholes.
The Nevada Supreme Court’s most recent statement in an unpublished decision indicates it continues to evade the strict language of the current statute. NRS 624.320 states:
“No person, firm, copartnership, corporation, association or other organization, or any combination of any thereof, engaged in the business or acting in the capacity of a contractor shall bring or maintain any action in the courts of this State for the collection of compensation for the performance of any act or contract for which a license is required by this chapter without alleging and proving that such person, firm, copartnership, corporation, association or other organization, or any combination of any thereof, was a duly licensed contractor at all times during the performance of such act or contract and when the job was bid.” (Emphasis added).
AV Builder Corp. v. Law Offices of Craig D. Fuller, No. 61569, 2014 WL 4922869, at *1 (Nev. Sept. 29, 2014)
The court held that its decisions become part of the statute. In ascertaining the meaning of a statute, the court considers its decisions that inform the statute’s meaning and application. See Miller v. Lockett, 98 Ill.2d 478, 75 Ill.Dec. 224, 457 N.E.2d 14, 17 (Ill.1983) (“When this court interprets a statute, … that interpretation is considered as a part of the statute itself unless and until the legislature amends it contrary to the interpretation.”) Karl v. Uptown Drink, LLC, 835 N.W.2d 14, 17 (Minn.2013) (“Once we interpret a statute, our interpretation becomes part of the statute as though written therein.” (internal quotations omitted)); Fechtig v. City of Albany, 150 Or.App. 10, 946 P.2d 280, 286 (Or.Ct.App.1997) (providing that the state “Supreme Court’s statutory interpretations are considered to be part of the statutes themselves, subject only to subsequent legislative change”); cf. Silvera v. Emp’rs Ins. Co. of Nev., 118 Nev. 105, 109, 40 P.3d 429, 432 (2002) (explaining that when this court interprets a statute and the Legislature subsequently amends the statute without changing the interpreted language, it is presumed that the Legislature approved of this court’s interpretation). Furthermore, a district court is not free to disregard this binding precedent. See, e.g., Eulitt ex rel. Eulitt v. Maine, Dep’t of Educ., 386 F.3d 344, 349 (1st Cir.2004). AV Builder Corp. v. Law Offices of Craig D. Fuller, No. 61569, 2014 WL 4922869, at *2 (Nev. Sept. 29, 2014).
The court then determined – as previously – that an unlicensed contractor may recover to prevent unjust enrichment to the one receiving the performance and based on substantial compliance with the statute. Although NRS 624.320 prohibits direct recovery for compensation, an unlicensed contractor may nonetheless be able to recover under certain alternative theories, such as unjust enrichment or substantial compliance. See Day v. W. Coast Holdings, Inc., 101 Nev. 260, 265, 699 P.2d 1067, 1071 (1985) (applying an unjust enrichment exception to NRS 624.320’s requirements); Nev. Equities, Inc. v. Willard Pease Drilling Co., 84 Nev. 300, 302–03, 440 P.2d 122, 123 (1968) (holding that NRS 624.320 does not bar an improperly licensed contractor’s claim where the contractor substantially complied with the licensure statutes); Magill v. Lewis, 74 Nev. 381, 387, 333 P.2d 717, 720 (1958) (holding that NRS 624.320 does not bar an unlicensed contractor’s unjust enrichment claim based on the defendant’s fraud); see also Leven v. Frey, 123 Nev. 399, 406–07, 168 P.3d 712, 717 (2007) (providing that this court determines whether substantial compliance with a statute is permissible based on a statute’s provisions, policy, and equity). AV Builder Corp. v. Law Offices of Craig D. Fuller, No. 61569, 2014 WL 4922869, at *2 (Nev. Sept. 29, 2014)
On the other hand, the Nevada Supreme Court found a contract was void when the contractor bid beyond its limit. The statute renders a contract void if the bidding party submitted that bid “without having an active license therefor.” NRS 624.700(1). Nevada’s Administrative Code provides further clarification. Pursuant to NRS 624.100, the Nevada State Contractors Board may “make such reasonable bylaws, rules of procedure and regulations as are necessary to carry out the provisions of [NRS Chapter 624].” NRS 624.100(1). NAC 624.640, which the Board issued under the authority of NRS 624.100, states plainly: “If a licensee bids or contracts outside the scope of his or her license or exceeds the monetary limit placed on the license, the bid or contract is void.” NAC 624.640(1).
Properly interpreted, NRS 624.700, by its plain meaning and as informed by NAC 624.640, renders a contract void ab initio where a contractor acts in excess of its license. As correctly noted by the district court, the statute requires that the bidding contractor be properly licensed for the bid job. Here, appellant bid on a job that exceeded the limit on its license, which makes the contract void ab initio.
AA Primo Builders, LLC v. Washington, No. 65804, 2015 WL 7686996, at *1 (Nev. Nov. 24, 2015).
These two decisions demonstrate the conflict of failing to require licensure for all purposes. Applying the court’s precedent, if the contractor in AA Primo had not submitted a bid but just performed the work without being properly licensed, then recovery would have been permitted based either on unjust enrichment or substantial compliance.
Contractors should not be penalized if they have in good faith applied with the law even if that compliance is not literal. However, allowing unlicensed contractors to recover based on broad theories of unjust enrichment or similar arguments exposes the public to the very harm that the Nevada Supreme Court admits the law was designed to prevent.
Practice pointer: Be properly licensed in classification and limit.