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ASA and ASA CA Urges the California Supreme Court to Review a Decision that Creates Substantial Instability in California's Construction Industry and Threatens the Economic Survival of Thousands of Licensed Subcontractors.

 

ALEXANDRIA, Va.— The American Subcontractors Associations' Subcontractors Legal Defense Fund supported an Amicus Letter in Support of Petition for Review in the Pacific Carpets, LLC v. 2525 Main Apartments, LP, et. al., Case No. S294545

ASA is a national trade association representing more than 7,000 subcontractors and specialty trade contractors, including thousands of members performing work throughout California. Our members routinely undergo lawful business entity conversions-from corporations to limited liability companies or vice versa-for tax planning, succession, insurance, and liability management. These conversions are expressly authorized and encouraged under California law.

The current decision, however, holds that such a lawful entity conversion may render a long-licensed contractor "never licensed" for purposes of Business and Professions Code section 7031, triggering catastrophic forfeiture of all compensation and extinguishment of constitutional lien rights-even when:

  • the same Responsible Managing Officer continuously supervised the work,
  • the same license classifications were maintained throughout,
  • the same business operations continued without interruption, and
  • the processing delays were caused by the government agencies that issue the

 

If left standing, this ruling will place virtually every California subcontractor at risk of total economic loss whenever a routine corporate conversion occurs and administrative processing is delayed. Such a result conflicts directly with Corporations Code section 1158, undermines decades of settled construction practice, and transforms section 7031 into a weapon of unjust forfeiture rather than a consumer-protection statute.

The resulting uncertainty is already affecting contract negotiations, insurance underwriting, and project risk allocation throughout the industry. Subcontractors cannot predict whether lawful corporate restructuring will later be used to impose multi-million-dollar forfeitures after work has been completed and accepted. Owners and lenders are increasingly weaponizing section 7031 as leverage in commercial disputes unrelated to public safety or contractor competence.

 

This Court's guidance is urgently needed to:

  • harmonize section 7031 with California's corporate conversion statutes,
  • clarify the proper scope of the substantial compliance doctrine,
  • prevent government-caused delay from serving as the basis for mandatory forfeiture, and;
  • restore predictability to California's construction

The issues presented in the petition are of exceptional statewide importance. They directly affect thousands of construction businesses, tens of thousands of workers, and billions of dollars in annual construction activity. ASA respectfully submits that review is not only appropriate but also necessary.

The American Subcontractors Association is actively involved in the promotion of legislative action across the nation and regularly intervenes in legal actions that affect the construction industry at large. The SLDF supports ASA’s critical legal activities in precedent-setting cases to protect the interests of all subcontractors. ASA taps the SLDF to fund amicus curiae, or “friend-of-the-court,” briefs in appellate-level cases that would have a significant impact on subcontractor rights. Contributions to the SLDF may be made online at www.sldf.net.

Founded in 1966, ASA promotes the rights and interests of subcontractors, specialty contractors and suppliers by building strength in community through education, advocacy, networking and professional growth. ASA adheres to and promotes quality construction, ethical and equitable business practices, safety in the work environment, and best industry practices. For more information about ASA, visit www.asaonline.com, and for more information about the SLDF, visit www.sldf.net.

Contact: Mike Oscar
(703) 684-3450, Ext. 1322
moscar@asa-hq.com

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